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Online traders go too far

Let me take you back a few years, to the glory days after World War II. After a tough fight, the soldiers came home to live quiet lives and start families.

Let me take you back a few years, to the glory days after World War II. After a tough fight, the soldiers came home to live quiet lives and start families. They were treated well for the most part because you don’t short-change real-life heroes with combat experience. Unions thrived as manufacturing took off, wages were high, and the middle-class grew and grew until it spilled out of the city into the suburbs.

Many of those families bought into the stock market. The goal for the majority of investors was to put their money somewhere safe, where it would appreciate slightly faster than in the bank. You held onto that stock forever, staying with your companies through good times and bad times, getting little dividends here and there as a reward for your loyalty and support.

Flash forward to 2004 where those same great companies are being plundered and devalued by a growing legion of speculators who are looking to make a quick buck off the natural fluctuations of the stock market.

Remember Nortel? Before the bubble burst, when everyone was investing in technology – not all of it practical or even functional – Nortel climbed to a high of US$124.50 a share. After the bubble the stock took a nosedive and for a while lived as a much undervalued penny stock worth less than a dollar. People like my mom, who inherited a good size chunk of stock from when the company was still Northern Telecom, were wiped out by greedy speculators.

Speculators built the bubble, and rampant, irresponsible speculation popped it.

Now Nortel shares are worth about $3.54, after spending years in the cellar. To get back to that modest standing, the company has had to lay off more than half its workforce and sell off key business segments, temporarily boosting profits but at the same time ensuring that it will never reclaim its former glory.

Even if Nortel had a chance to improve its position, I doubt the speculators would let them.

Why? Because right now the stock is a bargain, and severely undervalued when you consider Nortel’s billions of dollars in assets and revenues. You can buy a lot of shares at about $3.50 a pop. Say you’re a speculator and buy 10,000 shares. Say the price of the stock again goes up to $8.50, the stock’s high for the last 52 weeks. Every time the share goes up a dime, you make a thousand dollars, and by the time it gets to the $8.50 mark you’ve more than doubled your money after taxes. So what do you do then? Hold onto the stock, hoping the company will continue to grow?

Nah. If you’re a speculator, that takes too long and it’s too risky. The best thing to do is to cut and run, sell off your stock and make your short-term profit because you can be sure that all the other vultures out there are going to do the same and it’s better to sell early.

When the stock market sees everybody dumping their shares, a mass sell-off starts and the price of Nortel stock plunges once again, trapping a few optimistic chumps – and people like my mom – that held onto their shares.

The ultimate insult is that once the share price is in the cellar again, the speculators buy it back, and surf the next wave until they can bail out once again.

There’s nothing illegal about it, although at the root it’s a despicable practice that is driving a lot of good companies out of business and into unprofitable mergers.

Investing used to be about building – building savings, building companies, building capacities – and now it’s about plundering. And we’re quickly learning that the CEO class are the biggest plunderers of them all, taking millions of dollars in stock options and unloading them at the first sign of trouble – which they see coming long before anyone else. These practices are reflected in society, which is why we’re seeing a growing disparity between rich and poor and a shrinking middle class.

I don’t doubt that there’s always been speculation and corruption in the stock market, but it’s worse now that any fool can get an online trading account and make trades for as low as $5. Now there are literally millions of speculators out there playing the game, trying to get rich quick, and they are dragging the entire economy down as they nickel and dime a complex business model that no longer seems to be working for anybody.

The most recent victim of this is Swift Trade Securities Inc., a Canadian day-trading firm that closed shop this week claiming they can no longer make money in today’s trading environment. The culprit? Decimal trading replacing fractional trading on U.S. markets. By trading down to the penny instead of 16 th fractions – something that was suppose to please investors and the online crowd – companies can no longer work in the margins, making a few cents of profit between the bid and asking prices of a stock.

The guys on the floor doing the buying and selling spent so much time making small-time trades that productivity and profitability suffered.

In an interview with the Globe and Mail, company CEO Peter Beck said, "That business, in my opinion is no longer a viable business."

In other words, a legitimate trading company with years of experience and hundreds of clients (only a few dozen stayed until the end), was forced to shut down. Some of those clients will likely jump to other firms, but many could go the online trading route, making the situation even worse.

I’m not saying online investing isn’t a good way to make money, but you’d better know what you’re doing. You can only chip away at the foundations of a company so much before it collapses.

Canadian company bringing back the blimp

The sheer number of microwave towers that enable the cell phone age is overwhelming, when you stop to think about it.

Microwave transmissions are relayed from your phone to the nearest tower, and are either relayed to the next tower or connected to the phone lines for transmission. Sometimes a home phone rings and sometimes another cell phone, through, of course, another system of routers and towers. Every time you have service, that means a tower is around somewhere – usually in your line of sight, because cell signals don’t like to go around mountains, into valleys and through thick walls. Most office buildings have cell phone relays these days, ensuring that everyone inside their walls is covered.

One way to improve line of sight is to continually locate towers at high points. Some times that means physically building large towers, but that’s the most expensive route. Mountains, hills and existing tall buildings are the most cost-effective way to go.

That’s where Ontario’s 21 st Century Airships comes in. The company is currently manufacturing a series of lighter-than-air ships that will be able to function as floating wireless relay towers, thousands of feet in the air. Some of their blimps have reached altitudes of 20,000 feet, which would allow them to function as low level satellites.

The ships send signals back and forth, to ground relays and one another, enjoying the low level of interference at higher altitudes.

With the proper placement, a handful of well-positioned blimps could replace dozens of towers. One study found that a single blimp with the right technology could service the entire state of Georgia, include the busy centre of Atlanta, replacing more than $20 million in towers in that city alone.

The limiting factor these days is longevity – the airships can’t stay up forever, and require diesel-electric motors to reach altitude and stay in position.

The company hopes to replace those motors with fuel cells and solar panels, which would make the ships capable of staying aloft for years at a time.

The best part? If a new technology comes along or a ship is damaged, it can be brought down, upgraded and repaired, and sent back up in very little time while a backup blimp handles all the data. Try doing that with a satellite.

For a look at the company and their ideas visit: www.21stcenturyairships.com.




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