Whack a Banker arcade and game

I saw this article: 'Whack A Banker' game proving a hit in Britain in Yahoo! News and decided to do a search.

Found it ! It can be found in Tim Hunkin’s (the inventor's) website.

Read its "making of the machine". It is both hilarious and saddening.

Highlights:
"Two weeks later:
The good news is that the 'boring' facade doesn't seem to put people off. The bad news is that none of my hammers are lasting. People carry on using them after they've disintegrated, hitting the bankers with the central steel rod so the heads are now really battered. I'm trying the expensive stitched cloth hammer I bought to see what happens next.
…..
4 days later still:
The £56 hammer I bought has now split. I knew people didn't like bankers, but I had no idea they disliked them quite so much. People were able to whack much more violently because the hammer was heavier and has a longer leash than my foam ones."

(You can see the picture of hammers in the link.)

I wonder whether these free Whack A Banker games below are as popular :-)
game link 1
game link 2

Dubai World crisis – a look at CDS market

I don’t have access to CDS detailed pricing data. However, I can take a glimpse of market data from Markit and CMA. We can only see the "minimal" but let’s explore to see what we can get.

Just saw the "Agreement" in the website: not supposed to reproduce data etc.., so I just point to the direction to get data.

CMA data page

We can look at movers, there are:

• largest widening spread: greatest credit deterioration;
• largest tightening spread: greatest credit improvement.

We can look at the 5-year mid bps, see whether it is large in magnitude. If it is large, then the CDS market views it as high risk of default. There is also change from close bps and %.

BPS is basis point, a unit relating to interest rates that is equal to 1/100th of a percentage point per annum.

Take a look at Sovereign Risk Monitor - Highest Default Probabilities.
There are sovereign tighteners and wideners.

Tightener means less risk compared to previous close.
Widener means more risk compared to previous close.

CPD is Cumulative Probability of Default. Large bps will have large CPD, high risk of default.

This Sovereign Risk Monitor is useful, at least we get to know what are the countries the CDS market participants think as having high risk of default.

Markit data page
Explore the page…

On CDS market summary, the data are in indices form, North America, Europe, Asia, Sovereigns, Volatility. Take a look at Sovereign - Markit iTraxx SovX CEEMEA. If magnitude of spread is high, the market is considering it as risky.

Meaning of these indices can be seen from files available in Markit CDS Documentation & Education, for e.g. we can find out that Markit iTraxx SovX CEEMEA is index for Central & Eastern Europe, Middle East and Africa Sovereign.

Markit Eurex settlements and Markit ICE settlements CDS clearing prices are available.
We can also find Last Quote for the Most Liquid CDS here.

Some other insightful materials are:
CDS calendar;
Credit Event details (we can see from the PDF file their bids and offers, size etc.. in credit event auction);
Announcements;
Useful CDS links (can learn about CDS here);
Markit CDS converter (useful for CDS investors) (but I still don’t know how to use it).

In the Credit Event details PDF file, they put it as "bond", with "coupon", "maturity".

I don’t like this practice. A CDS, credit default swap is derivative, just because it is made bond-like, with coupon, maturity, doesn’t make it a bond. Think of the consequences of Lehman Brother’s Minibond made peoples think it is a bond.

I end this post with a link to Markit Credit Research report dated 27 Nov 2009 for your view:
Dubai contagion overdone ?

There is a graph showing effects on Middle East CDS price.

Dubai World “crisis” – a look at the sukuk market

What is the effect of Dubai World "financial crisis" on sukuk market ?

Take a look at Sukuk market data:
Sukuk market data

It seems that Nakheel Sukuk (nakh.sn), of type "Ijara", previously 90, has down 28 to 62, a drop of 31.11%. However, it seems like there isn’t much effect on other sukuks, even on entities that are downgraded their credit ratings, for e.g. Jebel Ali Free Zone FZE (jafz.sn), DEWA (dewa.sn) and Emaar Properties Sukuk (emaa.sn). Jebel Ali Free Zone FZE even rises by 0.65%.

Hey, I saw our country’s PETRONAS Global Sukuk and Sarawak Corporate Sukuk Inc..

We can look at the detailed chart of Nakheel Sukuk here;
and Sukuk news wire, Islamic finance news and Sukuk Education here.

Global Property Guide - a good resource on global residential property investment

Global Property Guide
This is a one-stop website for global residential property investor.

Some highlights:
1. Interactive Comparison tool
Its Interactive comparison tool is useful.

Add to list the countries that you want to compare, click "compare" and it will yield a comparison table of

• buying price,
• gross rental yield,
• rental income tax,
• roundtrip cost,
• capital gains tax,
• buy-to-let income rating.

I try to compare Malaysia, Singapore, China, Taiwan, Hong Kong, Australia, USA, UK as these are the countries most Malaysian, especially Malaysian Chinese, will invest.

It seems that among these countries, Malaysia’s buying price (1366 USD/sq m) is lowest, gross rental yield (9.22%) is highest, rental income tax (22.42%) is 2nd highest, buy-to-let rating highest, roundtrip cost, capital gain tax not very high.

2. Countries/regions data
Its data on regions/countries is impressive.
Take for examples:
Malaysia
Singapore

"In depth" comes with overview, price history, rental yields, taxes and costs, tax on rent, buying guide, landlord & tenant, inheritance, living there, useful links, country statistics.

Regional statistics are abundant:
Sq M prices, rental yields, rents, price/rent ratio, price/GDP per cap, buy/sell costs, rental income tax, capital gains tax, price change 1 yr, price change 5yrs, landlord & tenant law, GDP per capita, GDP/cap growth 1 yr, GDP/cap growth 5 yrs, economic freedom, ec. freedom 5 yrs, competitiveness, property rights index, currency +/- value… Wow !

These indicators set me thinking what residential property investors need to look at.

3. Directory
It has directories of realtors, accountants, lawyers, foreign exchange, mortgages.

4. School of Profit
In its School of Profit, it has 2 guides that are insightful for residential property investors and real estate academics respectively:

• Guides to making money in residential property investment
• Guides to the academic literature

5. Rating

The website even has rating on countries, much like bond credit rater S&P, Fitch, Moody’s but it is on residential estate.

6. Real estate news
Its real estate news have a more local insights on specific countries.

7. Email subscription
There is a free email newsletter for subscription.

My genereal views:

I like the presentation of data of Global Property Guide. It tells you date of data used, sources of data, assumptions etc..

Beware though that the date of data may not be the most updated ones. Probably Premium Data subscription may have a more updated data.

Look at the assumptions too. Most of the times it is assuming the residential property investor is a foreign investor, for e.g. in tax, cost etc. If you are a local investor, you may need to adjust on that.

A great one-stop resource on global residential property investment indeed !

Crowdsourcing on knowledge, example : best source of business / investment news in a country

(This is the elaboration on Mahalo Answers that I mentioned in the comment of this post.)

For foreign investors, one of the major drawbacks is :

• the investors are not familiar with where and how to get updated local news related to business/investment aspect of that country. He may be disadvantaged on information aspect.

It will be good if I can find these insights/resources from Mahalo Answers’s community. Hopefully there are locals that can point me to relevant information sources.

So I ask this questions in Mahalo Answers:

• What is the best source (in English) of business / investment news in:
  Middle East, Australia, India, France, Germany, UK, Brazil, Russia…etc...(respectively) ?

Some of the questions are not answered, some yielded great, insightful answers, for examples:
India, UK, Australia.

The most insightful answer comes when I ask on Middle East.
This answerer saves me the need to ask similar question again, country-by-country.
A great "thank you" to him/her.

His/her answer is on EINnews.
Take a look at EINnews.

It provides access to breaking news, organized within 300+ countries (classified under Europe, Asia Pacific, Middle East, Russia & CIS, Latin America, Africa, North America), regional, US states and specialised topics (in categories of industry, business & economy, government & politics, miscellaneous).

Wow, that’s amazing !

Mahalo Answers is also a venue to seek valuable local opinions/surveys.
Some examples that I have asked:

• "For Mahaloians in US, have you observed "green shoots’ in US economy, in real life ?"
• "For Mahaloians in US, will option ARM reset incur a big financial burden to your family ?"

I have also learnt a lot from others’ Questions. This widens my horizon.

Mahalo Answers has widgets that can be put on blog, showing Answers by me to others’ Questions. I have removed the "Mahalo Answers Widget" from this blog since this blog is already too cluttered. However, I still put up the widget on my Innovation For the Future blog.
You may check it out.

Gold price time series (dated back to 1950s)

Gold price time series is available in Deutsche Bundesbank website, yearly average, monthly average and daily rates.

Data on website

We can find:

• Price of gold in London, morning fixing and afternoon fixing, USD;
• Price of gold, Frankfurt Stock Exchange fixing, DM;
• Price of gold, Dresdner Bank AG fixing, Euro.

These time series are amazing, with monthly average of price of gold in London, morning fixing dated back to 1950 !

US Public Debt and Statutory Debt Limit

• How much is current US Public Debt ?
• Is the US Public Debt near the Statutory Debt Limit ? How near ?
• Where can we find updated information on these ?

Daily Treasury statement
http://www.fms.treas.gov/dts/

Example:
Nov. 17, 2009 Daily Treasury statement

Go to "Table III C – Debt Subject to Limit", look at the "Closing balance today", at items "Total Public Debt Subject to Limit" and "Statutory Debt Limit".

On Nov. 17, 2009:
Total Public Debt Subject to Limit is $11,982,556 billions (11.982556 trillions).
Statutory Debt Limit is $12,104,000 billions (12.104000 trillions).

The Statutory limits on Federal Debt are changed many many times.
We can see the changes from this file (This file is from White House’s website.):
Statutory limits on Federal Debt: 1940 – current

Amazing !
In 1940, statutory limit for Federal Debt is 49 billions.
Sep 29, 2007, it is 9,815 billions.
Feb 17, 2009, it is 12,104 billions.

Saudi drops WTI oil contract, use Argus Sour Crude Index instead.

From this FT article: "Saudi drops WTI oil contract", Saudi Arabia will use Argus Sour Crude Index instead.

What is this Argus Sour Crude Index ?
I did a search on Argus Media which created the index.
Found this PDF file: Argus Sour Crude Index.

We can see the methodology and specifications from this file (details and examples of calculations are illustrated).

This Argus Sour Crude Index (ASCI) calculation method has some interesting features..

Argus Sour Crude Index (ASCI): daily volume-weighted average of aggregate deals of components grades: Mars, Poseidon, Southern Green Canyon (SGC).
It claims to be "a pricing tool designed to serve primarily buyers and sellers of imported crude that need a broader index of US Gulf coast medium sour crude value for use in long-term contracts".

Argus Sour Crude Index Price = Argus Sour Crude Index Differential + same month WTI Formula Basis

WTI Formula Basis: pricing series by combining Nymex futures (before expiry) and WTI spot prices (after expiry), to represent mean of WTI Cushing spot assessment for 3 business days after expiry which precede pipeline scheduling.

This "normal" calculation method (daily volume-weighted average of aggregate deals of Mars, Poseidon, SGC) is to be used if combined volumes of all 3 grades reach "volume minimum" (6000 barrels per calendar day).

If volume minimum is not reached, then "Proportional Assessment" is to be used.

Proportional Assessment:
Beginning of every trade quarter, Argus will average volume of trade in each of last six trade months and assign each grade a % of traded volume (for example 71% Mars, 22% Poseidon, 7% SGC).
ASCI will be constructed using individual volume-weighted average prices for Mars, Poseidon and SGC using the % (for example 71% Mars, 22% Poseidon, 7% SGC).

To address difficulties associated with "stream disruptions" (output from pipeline ceases, market for that grade becomes illiquid), there is this "Intelligent Assessment".

Intelligent Assessment
If stream disruptions happen (1 grade becomes illiquid), Argus will assesses and decides whether to suspend daily price or continue with Intelligent Assessment.
If trade in remaining 2 grades > volume minimum, index will be calculated from the remaining 2 grades. If remaining 2 grades < volume minimum, then the "proportional assessment" will be applied in the same proportion, using Argus published prices for the grades (actual trade or intelligent assessment). If all streams are very disrupted until integrity of index damaged, Argus will consult with industry to form an alternative index (other sour grades, import values, intelligent assessments).

My summary:
1. ASCI uses both futures and spot price to try to arrive at a better price representation.
2. ASCI uses past volume% to calculate index if current trade volume is low (i.e. illiquid; demand low, supply intact).
3. ASCI calculation takes away grade with stream disrupted (i.e.: illiquid; demand intact, supply disrupted).
4. ASCI is still using WTI, Nymex to arrive at its data. It is still dollar-denominated.
5. ASCI is volume-weighted; uses deal volume when market is normal, uses past volumes when overall market is "illiquid" (volume low). Volume weighted "price" may be more representative than, say, closing price.

Basically, it’s trying to have a better price representation (against fluctuations, manipulations, distortions etc)... We can also guess this from its claim: "a pricing tool designed to serve primarily buyers and sellers of imported crude that need a broader index of US Gulf coast medium sour crude value for use in long-term contracts".

Hamburg Ship Evaluation Standard : a mark-to-model shipping evaluation

Saw this interesting article on Financial Times, titled:
Ship valuation method sparks inflation fears.

It was said that "German shipping banks are expected to follow the lead of HSH Nordbank, the world’s largest shipping bank, and Deutsche Schiffsbank, Germany’s second-largest, which have praised the Hamburg Ship Evaluation Standard and look set to start using it".

It was said that there is a report by PwC, the accountants, endorsing this new standard.
Let’s take a look at what the new evaluation standard is.

Hamburg Ship Evaluation Standard, is devised by Hamburg Shipbrokers’ Association (Vereinigung Hamburger Schiffsmakler und Schiffsagenten, VHSS).

From VHSS’s website, I found this insightful PDF file.

It claims that due to illiquidity in ship sale-and-purchase market, forced sales, charter rate at level of required operating expenses makes traditional method unusable as ship evaluation standard. Therefore, this new Hamburg Ship Evaluation Standard appears, as a tool for "value assessment (Long Term Asset Value, LTAV), beyond short term market fluctuations".

The LTAV is "determined on grounds of vessels long term earnings potential, using present value…. DCF method… incorporate volatility of shipping cycle… conservative, statistically proven… transparent…".

It defines when it is a dysfunctional/irregular market, when 2 of 5 scenarios apply (Refer to PDF for details). The formula to calculate LTAV is also given, basically it is using discounted cashflow, residual value analysis with inputs of charter incomes, operating costs, discount rate, residual value, 20-25 years.

Will other banks that loan to shipping companies, other shipping companies in the world going to change to this mark-to-model method to evaluate fair value of their shipping assets ?

Some more "philosophical" questions:

• We see that a switch from mark-to-market to mark-to-model method has happened on "financial toxic assets" and now on shipping assets, will this trend spreads to other assets ? Where to draw a line ?
• How should investment analysts or investors adjust their investment analysis ?

Investment Guru - Marc Faber

Marc Faber’s GloomBoomDoom website is insightful.

We can see his investment style and biography from the “About Marc Faber” section.

Some books authored or co-authored by Marc Faber: (I search in Amazon)

• Tomorrow’s Gold : Asia’s age of discovery
• Zukunftsmarkt Asien (in German)
• Riding the Millennial Storm: Marc Faber’s path to profit in the financial markets
• The Goldwatcher: demystifying gold investing (he wrote the Foreword)
• The Great Swindle: the story of the South Sea Bubble (he wrote the introduction)

Books on him, his investment, investment style etc :

• Riding the Millenial Storm
• Trading the World Markets

There is some old free sample in “GloomBoomDoom Report” and “Market Commentary” in the website. These are no longer free and require subscription. However, we can get a glimpse of how Marc Faber’s reports are like from these sample reports.

I would like to bring your attention to: the “Resources” section in his website. It is extremely useful, especially for peoples who wish to learn on investment analysis.

In the “Links” subsection, there are “Recommended websites” and “Recommended money managers”. A long list of websites are given, divided into many categories.

In “Investment wisdom” subsection, we can see some articles by him (I strongly think that these are articles by him that he thinks are the best of his ideas), Marc Faber’s top 6 investment books, recommended newsletter.

He recommends many books to understand economics and financial markets too: PDF

From the “Lifestyle” section, I saw these words:

“…..Investing has a lot to do with common sense and personal observations. The man on the street frequently knows far more about the state of the economy than politicians, university professors and financial analysts who seldom travel, or if they do so, only from one first class hotel to another first class hotel and from one golf course to another…..”

How true these words of wisdom !

An archive of his articles in Daily Reckoning.

There is a blog tracking Marc Faber’s ideas and I have put it in my investment bloglist. Though the blog may not be his but it is a good way to track Marc Faber’s ideas.

Effective real property gain tax of Malaysia Budget 2010

Proposal on real property gain tax on the Malaysia Budget 2010 can be seen in this Appendix of Budget 2010, at Appendix 15.

The Malaysia Budget 2010 speech can be seen here.

Did some calculation: data.

Taking into account of exemption “up to RM10,000 or 10% of the gains, which ever is higher be given to individuals”, it can be seen that there are 3 "regimes" of effective real property gain tax:

1. For real property gain from 0 to 10,000, effective real property gain tax is 0%.

2. For real property gain from 10,000 to 100,000, effective real property gain tax increases from 0% to 4.5%, with sharp initial increase. Rate of increase decreases with increase of real property gain.

3. For real property gain from 100,000 onwards, effective real property gain tax is 4.5%.

It seems the effective real property gain tax favoured smaller amount of real property gain.

This new flat-rate real property gain tax irregardless of holding period is less effective in curbing speculation in real estate compared to the older-version RPG tax which have progressive rates.

US anti-dumping, anti-subsidy: US ITC

In recession, there is greater risk that countries will implement protectionism measures.

These protectionism measures may affect industries and companies, and thus our investment.

The anti-dumping, anti-subsidy order seems abrupt in newspaper announcements and often caught investors off-guarded. However, it’s actually not an abrupt event.

United States International Trade Commission (US ITC) and US Department of Commerce are two important entities for conducting anti-dumping (AD) and countervailing duty (CVD) (subsidy) investigations and five-year (sunset) reviews. The relevant stature is the Tariff Act of 1930.

US ITC and US Department of Commerce have different roles.

US ITC: “determines whether the U.S. industry is materially injured or threatened with material injury by reason of the imports under investigation”.

U.S. Department of Commerce: “determines whether the alleged dumping or subsidizing is happening, and if so, the margin of dumping or amount of subsidy”.

If both investigations are affirmative, U.S. Department of Commerce will issue an antidumping duty order to offset the dumping or a countervailing duty order to offset the subsidy.

There is also AD/CVD 5-year (Sunset) Reviews where previous AD/CVD order may remain in place or be revoked.

Besides AD/CVD, there are “Global and Special Safeguard Investigations” concerning global safeguard (escape clause) and market disruption. This is under US ITC. Stature is Trade Act of 1974.

From US ITC’s website, we can get lists of useful information for industry analysis from its “research tools”, for examples recent petition, AD/CVD orders, sunset review status/schedule/disposition.

Antidumping and Countervailing Duty Handbook

is a good guide to learn about how filing of AD/CVD is done.

We can find information on :

• petition process
• investigation process
• review process
• historical overview (information on related laws)

The appendixes (with glossary, timetables, sample report, forms, graphic summary) are insightful for learning about anti-dumping, anti-subsidy order. The graphic summary shows for period of 1985-2005, number of cases, value of imports, disposition (% of affirmative, ITC negative, terminated), top 10 countries cited in AD/CVD cases.

Historical Case Statistics from “research tools” has a more detailed import injury case statistics (1980 – 2006).

a book on housing

There is this book (in chinese) that I found very useful for insights on selecting a house.
Many aspects of house like waterproofing, earthquake rsistance, fireproofing, power supply, water supply, drainage, insulation, acoustics, airflow, exterior are discussed.

寻找梦想的家

More information on the book.
Book content, sample chapter are available.

Hospital charges – Malaysia, Singapore, US

Medical fees may be a drain on household income if any member of the family falls sick.
Besides long term medication costs, one of the big portion of medical fees will be hospital charge.
Malaysia hospital charges
Malaysia’s government hospital charges (various types of medical fees and dental fees, for class 1, 2, 3; refer to form A to G)
Malaysia’s Ministry of Health website
I wonder whether there is similar compilation on medical fees in private hospital.

Singapore hospital charges
Singapore’s medical charges (different types of wards, surgery, different procedures)
Information about different hospitals, volume, average length of stay, 50th percentile bill size, 90th percentile bill size are included.
Singapore’s Ministry of Health website

US medical procedure charges
US medical cost by principal procedure from a health insurance website
The data above are older data.

Economist - David Friedman

David Friedman is the son of economists Milton Friedman and Rose Friedman. He is one of the Chicago School economists too. He is a PhD. in Physics and has taught economics and law (AP of Econs, Professor of Law).

Some of his books:

• The Machinery of Freedom
• Price Theory: An Intermediate Text
• Hidden Order: The Economics of Everyday Life
• Law’s Order: What Economics Has to Do with Law and Why It Matters
• Future Imperfect: Technology and Freedom in an Uncertain World

David Friedman’s website; blog (I have put into my bloglist) and
his books, book chapters, papers, detailed course outlines etc..
(Many webbed drafts, sample chapters are available.)

I like these 2 books by David Friedman: Law’s Order and Hidden Order.
The rest I haven’t browsed through.
Law’s Order links economics to law whereas Hidden Order links economics to everyday life issues.

I think I’ll like the book Future Imperfect. It is a book linking economics, laws and technology.

There is a portion "Living Paper: An Open Source Project" in his website which are software programs/simulations to teach economics. Some programs are available.

Cassandras of current financial crisis

In Greek mythology, Cassandra was granted the gift of prohecy, but was cursed such that no one would ever believe her predictions.

Quite some time back, I read with interest this article in Nouriel Roubini’s RGE Monitor on "the thinkers who predicted early on many aspects of this financial crisis". Many of the "Cassandras of current financial crisis" are mentioned.

Great article ! At least we would know whose theories/methods to learn from to make sense of root causes of the current financial crisis. Maybe we can learn the ability to "forecast" too.

Highlights of these "Cassandras of this financial crisis":

• Robert Shiller : housing bubble
• Kenneth Rogoff and a few other economists: the unsustainability of the US current account deficits and of the global imbalances
• Raghu Rajan: agency problems and incentive distortions deriving from compensation schemes in financial institutions
• Nassim Taleb and a few other finance scholars: the risk of fat tail extreme events in financial markets
• Paul Krugman: currency and financial crisis theories in international macro
• Stephen Roach, David Rosenberg and a few other financial sector analysts: the shopped-out, saving-less, bubble-addict and debt-burdened US consumer
• Niall Ferguson: between historical episodes of financial crises and current vulnerabilities
• Hyun Shin and other scholars in academia: modeling of illiquidity and of the perverse effects of leverage during asset bubbles
• William White and his colleagues at the BIS: how the "Great Moderation" may paradoxically lead to "Financial Instability", asset and credit bubbles and financial crises
• Gillian Tett and a few other FT journalists: complexity of credit derivatives and structured finance and of the systemic risks deriving from these new exotic financial instruments

MAS report on sales & marketing of structured notes

On 7 July 2009, Monetary Authority of Singapore (MAS) has issued a report titled:
Investigation report on the sale and marketing of structured notes linked to Lehman Brothers

The press release provides a good summary.

10 distributors (banks/finance companies and stockbroking firms) of structured notes linked to Lehman Brothers:
(i) ABN AMRO Bank N.V. Singapore Branch (ABN)
(ii) CIMB-GK Securities Pte Ltd (CIMB)
(iii) DBS Bank Ltd (DBS)
(iv) DMG and Partners Securities Pte Ltd (DMG)
(v) Hong Leong Finance Ltd (HLF)
(vi) Kim Eng Securities Pte Ltd (KESPL)
(vii) Malayan Banking Berhad Singapore Branch (MBB)
(viii) OCBC Securities Pte Ltd (OSPL)
(ix) Phillip Securities Pte Ltd (PSPL)
(x) UOB Kay Hian Pte Ltd (UOBKH)

Structured notes linked to Lehman Brothers concerned: (with $ amount sold to retail investors)

• Minibond series 1 to 10 (except series 4): $508 million, 7800 retail investors
• High Notes 5, arranged by DBS Bank: $104 million, 1000 retail investors
• Series 3 LinkEarner Notes/Jubilee Notes, arranged by Merrill Lynch: $18 million, 350 retail investors
• Series 9, 10 Pinnacle Notes, arranged by Morgan Stanley Asia: $25 million, 650 retail investors

Findings on individual distributors in the PDF file above are indeed eye-opening.
Highlights of some of the findings (cases from individual institutions) from the report: (I tried to classify them into categories)
1. No due diligence on products sold

• did not conduct any formal product due diligence on product

2. Wrong classification of risks of products

• failed to sufficiently distinguish the Minibond Notes from bonds and in fact informed its RMs that the Minibond Notes were suitable for clients who wanted to diversify their portfolio with bonds.
• "low to medium" risk classification for the Minibond and Pinnacle Notes was inconsistent with the prospectuses

3. Communication errors or improper communication

• mis-communicated the risk as conservative to relational manager (RM); reclassifications were solely by way of email to RM
• did not expressly communicate its internal product risk rating to its RMs;
  instead relied on a general understanding among RMs, as communicated during training for other products, that non-capital protected products were to be rated "Growth".

4. Improper training system and training management system

• did not however monitor whether RMs who missed the arranger’s briefings were briefed at the branch level.
• not all RMs who sold the products attend training and take the test.
• not provide sufficient guidance to its RMs on how to factor in a structured note into client’s portfolio

5. Improper risk profiling of clients

• question in risk profile questionnaire erroneously scored.
• not allocate a numerical score to the client’s investment time horizon, experience and diversification needs towards computing that client’s risk profile and suitability to purchase an investment product, nor were alternative forms of guidance provided to the RMs on how to factor in such information.

The report’s Annex 2 shows settlement outcomes of these affected structured products.

The ban on selling structured products will eventually be lifted when the ban period is over. As investors, we should always bear in mind the lessons learnt in this whole saga. Buyer beware ! Be extra careful when dealing with financial institutions, particularly before you are signing on the dotted line. We have seen how ridiculous the financial institutions can be in doing due diligence, classifying risk of products, communicating within the institutions, training staffs and doing risk profiling of clients. Just wonder how to justify the high remuneration/bonus paid to the financial institutions’ top management and board of directors.

Stonehage Affluent Luxury Living Index 2009

Stonehage Affluent Luxury Living Index, or SALLI is an index to measure the inflation experienced by High Net Worth (HNW) and Ultra High Net Worth (UHNW) individuals and families. It’s Sterling-based.

PDF file : SALLI 2009

One key highlight is that SALLI actually falls by an average of 3.7% in 12 months ended on April 09, compared to average inflation rate of 2.3% of UK’s CPI over the same period. This is under the background of significant fall in the value of Sterling against USD and Euro. SALLI deflation will be even greater if not for this reason. In a way, recession affects HNW/UHNW individuals spending. In another way, it’s “cheaper” to live as HNW/UNHW individuals now.

We can take a glimpse of luxury industry through SALLI.

It’s eye-opening to see what the High Net Worth (HNW) and Ultra High Net Worth (UHNW) live on. This can be seen from the component items of SALLI from the pdf file. (Check out the items, the brands etc…)

It’s really an extremely big gap between HNW/UHNW and the masses. :-)

Nordic Capitalism (2)

I have previously blogged on Nordic Capitalism.

While doing some searches on internet, I found some insightful lecture notes on Nordic Capitalism.

Great read !

WSJ top 20 most influential business thinkers

WSJ top 20 most influential business thinkers

The Top 20 mentioned are:
1. Gary Hamel
2. Thomas Friedman
3. Bill Gates
4. Malcolm Gladwell
5. Howard Gardner
6. Philip Kotler
7. Robert B. Reich
8. Daniel Goleman
9. Henry Mintzberg
10. Stephen R. Covey
11. Jeffrey Pfeffer
12. Peter M. Senge
13. Richard Branson
14. Michael E. Porter
15. Michael S. Dell
16. Geert Hoftstede
17. Clayton M. Christensen
18. Jack Welch
19. Tom Peters
20. Myron S. Scholes
20. Ikujiro Nonaka

There are some that I haven't heard of..

Peter Bernstein

Just saw a news article that Peter Bernstein, an economic consultant and historian, a guru in risk management and modern investment theory, dies on 5 June 2009, at the age of 90.

Peter Bernstein Inc.

He is a proponent of Efficient Market Hypothesis (EMH). Though EMH is controversial among investors, it's still an important concept in investment.
He has written many books (refer to Peter’s Book from the website above). Many of his books are "bridges" between academic theory and methods in investment industry; good reads to understand history of risk management and modern investment theory.

Among these books, many are classics, for examples:

• Capital Ideas: The Improbable Origins of Modern Wall Street
  (This book traces the historical development of modern investment and finance theory.. A list of who-is-who in modern investment theory, for e.g..Harry Markowitz, William Sharpe, Fischer Black, Myron Scholes, Robert Merton, Franco Modigliani, Merton Miller and a lot more..)
• Against the Gods: The Remarkable Story of Risk
  (This book traces the historical development of risk and risk management.)
• The Power of Gold: The Story of an Obsession
  (This book is on obsession of gold.)

A video clip (from McKinsey's website) of Peter Bernstein talking on risk.

The Great Singapore Sales 2009

The Great Singapore Sales 2009 is around the corner, 29 May to 26 Jul 2009 (such a long time).

It’s not advisable to go for a spending spree, especially if someone is financially tight.
But if you happen to be in Singapore and is searching for some bargains that you think you need or wish to re-sell for some profits, try the website.

The information in "Promotions", "Events", "What’s on Sale" and "Coupon and Ads".
There is a "Tourist Privilege Card" in the "Tourist Specials" section.

Now that there is a first case of A(H1N1) virus in Singapore, will the Great Singapore Sales 2009 achieve its goals ?

Singapore Exchange – buying-in by CDP

Just to have a glimpse the magnitude of buying-in (related to naked shorts) in Singapore Exchange market.

CDP buying-in information
For everyday, it comes with 2 files. One is during the morning (at about 10:30), showing "buying-in securities"; one is after the market closed, showing "buying-in executed on".

Just take a look at how much are the $ amount of naked shorts (intentional or accidental) that translate to buying-in:

21 May: $290k (with CHARTEREDSC 124k unit buying-in, $ value = $247k, amazing)
20 May: $467k
19 May: $516k
18 May: $424k

Wow !

Investment books from Princeton University Press

Princeton University Press is a useful resource for books.

Books reviews, table of content, sampler chapter in PDF format and sometimes podcast/vodcast are available for books published by Princeton University Press.

Its blog is a good way to get updated news on Princeton’s new books launches, authors’ interviews and other activities. I added the blog to my Investment Bloglist.

There is also a new book email newsletter where you can select the field you are interested in. New books email updates will be sent to your email Inbox. The available fields directly applicable to investment will be Economics and Finance.

McKinsey: What next 10 questions for CFO ?

Saw an article: What next 10 questions for CFO ? on McKinsey..

It gives a glimpse on what a CFO is going to do to survive recession and financial crisis..

• What shape will a recovery take?
• Have you restructured enough?
• Is your supply chain sufficiently flexible?
• Do you have a short list of acquisition targets ready?
• Should you restart conversations with potential alliance partners?
• Are you ready to divest newly underperforming businesses?
• Do you have the financial resources needed for an upturn?
• Have you taken advantage of the buyers’ market for talent and other resources?
• Do you know what risks a recovery might bring?
• Can you sell your recovery plan to investors?

Singapore website: InSing

Came across this Singapore website InSing.

Its Food & Drink, Shopping, Things To Do could be useful to reduce information cost to get good deals on food, drink, shopping and activities in Singapore.

I like this Events Calendar and also the Fast Finder (for searches on food, drink, shopping and activities in Singapore)

Just wonder how complete is the information and how it gets the information.

2008 Harvard Business Review – McKinsey Award

Harvard Business Review – McKinsey Award is "to recognize practical and groundbreaking management thinking by asking a panel of both business leaders and scholars to determine the two best articles each year in HBR".

website

Some insightful resources in the website:
McKinsey Award current and past winners, excerpt of articles and interview videos.

I like the full list of McKinsey Award winners.

Wow, since 1959. It’s like a rundown of important management gurus, management ideas in McKinsey’s view.

2008 McKinsey Award winners are:

1st place (shared):
"Can you say what your strategy is ?"
"When growth stalls"

2nd place:
"Reinventing your business model"

Youtube Education – video resources for E-learning (on finance, business, management courses too)

Youtube has a video channel for Colleges and Universities:
Youtube Education

You can click on Directory to see which are the Universities/Insitutions have their educational video put online.

Some examples of resources for finance/business/management:
Harvard Business School

Columbia Business School

Wharton School of University of Pennsylvania

Yale Courses

Result of Supervisory Capital Assessment Program (SCAP) (a.k.a. Bank Stress Test)

On 7 May 09, Fed released the results of the Supervisory Capital Assessment Program (SCAP).

Press release, Statement by Bernanke and Overview of Results (pdf file)

Some highlights:

1. SCAP Buffer

Page 9 of the Overview of Results (PDF) shows the summary for all 19 Participating Bank Holding Companies (BHC). Of particular interests are SCAP Buffer (total, as well as for individual banks). Total $74.6B extra needed. Refer to Pg 9 of the file for SCAP Buffer needed for individual banks.

2. Deadline (from the Joint Statement)

have until June 8th, 2009 to develop a detailed capital plan, and
until November 9th, 2009 to implement that capital plan.

3. Capital Plan (Excerpt from Joint Statement)

[three main elements:

3.1 A detailed description of the specific actions to be taken to increase the level of capital and/or to enhance the quality of capital consistent with establishing the SCAP buffer. BHCs are encouraged to design capital plans that, wherever possible, actively seek to raise new capital from private sources. These plans should include actions such as:

• Issuance of new private capital instruments;
• Restructuring current capital instruments;
• Sales of business lines, legal entities, assets or minority interests through private transactions and through sales to the PPIP;
• Use of joint ventures, spin-offs, or other capital enhancing transactions; and
• Conservation of internal capital generation, including continued restrictions on dividends and stock repurchases and dividend deferrals, waivers and suspensions on preferred securities including trust preferred securities, with the expectation that plans should not rely on near-term potential increases in revenues to meet the capital buffer it is expected to have.

3.2 A list of steps to address weaknesses, where appropriate, in the BHC's internal processes for assessing capital needs and engaging in effective capital planning.

3.3 An outline of the steps the firm will take over time to repay government provided capital taken under the Capital Purchase Program (CPP), Targeted Investment Program (TIP), or the CAP, and reduce reliance on guaranteed debt issued under the TLGP. ]

4. Mandatory Convertible Preferred under the CAP (from Joint Statement)

A BHC may apply for Mandatory Convertible Preferred (MCP) in an amount up to 2% of risk-weighted assets (or higher upon request).

In addition, (in simpler term) to consider requests to exchange outstanding preferred …for new mandatory convertible preferred issued under the CAP.

5. Redeeming Preferred Securities Issued under the CPP (from Joint Statement)

(In simpler term) Supervisors will decide on redemption; banks will have to show they are financially "strong" but it's still up to the supervisors to decide on redemption of outstanding CPP preferred stock. :-)

Question now will be:
How will the banks with shortfall raise capital ?

(My previous post on SCAP)

Report from Center for Public Integrity - Subprime 25: Who’s Behind the Financial Meltdown ?

On 6 May 2009, Center for Public Integrity has published a investigation report titled :
Who’s Behind the Financial Meltdown – the top 25 subprime lenders and their Wallstreet Backers

This Subprime 25 Interactive List is cool.
You can click on the sheets (#1 to #25) to see name, status of company, its CEO, total high interest loans.
Click on "Read More" for more "interesting" information for e.g history, summary, parent companies, bailout money, political contributions etc..

The Subprime 25
These are the top 25 subprime lenders, responsible for 7.2 million "high interest" loans made from 2005 through 2007 (72% of high-priced loans reported).

The articles and glossary from the report are extremely good reads to understand root causes of the subprime crisis.

The "Data" are informative. (Click on Data)
Maps show regions of high interest loans of different percentage points above treasury securities);
Charts & Graphs are really interesting. There are charts showing increasing % of income goes to housing; increasing financing of Mortgage-Backed Securities (MBS) and the top underwriters.

Then there are the interesting parts:

• charts showing political contributions by securities and investment companies, real estate companies to parties (Democrats or Republicans) and
• top recipients of contributions by securities and investment companies, real estate companies for 2003-2004 and 2007-2008;
• top recipients of contributions by AIG in 2008 Election Cycle.

Guess who was the top recipient: 2003-2004 George W. Bush; 2007-2008 Barack Obama.
Haha, wonder what the analysts are trying to imply here :-)

I put the Widget of Subprime 25 on my blog for a limited period :-)

US Banks Stress Test - SCAP (Supervisory Capital Assessment Program)

On 24 Apr, Fed released the method it used to conduct stress tests of 19 biggest US banks.
press release
PDF file

Have browsed through it, trying to figure out what it means..

Some highlights:
It is called SCAP (Supervisory Capital Assessment Program).

1. SCAP Template
The SCAP template is in Appendix A (of the PDF file).
(Read the PDF file for further breakdown of items)

Few parts:

a. Loan and Security Categories to be included in the Loss Estimates

• Loans (many different types of loans)
• Commitments and Contingent Obligation
• Securities
• Trading Account

b. Resources to absorb losses

• Pre-provision Net Revenue
• Allowance for Loan Losses

c. Post Scenario Tier 1 Capital

2. Scenarios

Year to assess: 2009, 2010
2 scenarios: baseline scenario, more adverse scenario

On page 6, there is a Table 1 to show how they formulate the 2 scenarios.

• Average baseline scenario for Real GDP and Civilian Unemployment Rate is calculated by using the average of Consensus Forecasts, Blue Chip and Survey of Professional Forecaster.
  Average baseline for House Prices is by using Case-Shiller 10-city Composite Index.
  
• "More Adverse" Scenario is mentioned in Page 5 Footnote. (refer to the PDF file)
  It was mentioned in the text, "More Adverse" scenario is not "Worst Case" scenario. It is "conditions that are severe but plausible"

3. Securities in Available-for-Sales (AFS) and Held-to-Maturity (HTM) Portfolios

All those ABS, CMBS, RMBS etc.. are here.
Important ! These are the so called "toxic assets".

How is the new FASB guidance on fair value measurement and impairments (see my previous post) being used ?

• Baseline scenario: use FASB new guidance (read: not mark-to-market)
• More adverse scenario: not using FASB new guidance (read: mark-to-market)
  

Some questions to ponder:

• Is the "More Adverse" scenario adverse enough compared to reality ? Is the modelling reasonable ? How to ensure accuracy of inputs ?
• How will the stress test be used ? What happens next if passed ? What happens next if failed ?

Business Quiz from Tutor2U

tutor2u is the "leading publisher of e-learning resources for Economics, Business, Politics, Enterprise, Law, Sociology, History, Religious Studies and related subjects".

Many free and useful resources are available from the website.
Some of the more relevant subjects for this blog will be: Economics, Business Studies etc..

One of the tools (relevant to this blog) that comes with lots of fun is:
Business Quiz

Try it out :-)

CFA: Shareowner Rights across the Markets: A Manual for Investors

PDF file of Shareowner Rights across the Markets: A Manual for Investors

On 16 April 09, CFA Institute Centre for Financial Market Integrity has launched a manual "Shareowner Rights across the Markets: A Manual for Investors" to help global investors to understand their rights in 22 of the largest markets, namely:

Australia
Brazil
Canada
China
France
Germany
Hong Kong
India
Indonesia
Italy
Japan
Malaysia
Mexico
Poland
Russia
South Africa
South Korea
Switzerland
Taiwan
Turkey
United Kingdom
United States

This Manual for Investor is indeed useful, especially now that investors can invest globally but face with lack of information and means to seek help when potential frauds/mismanagement happen in companies invested.

For each country, it comes with these sections:
1. Summary of Current Shareowner Rights
2. Current Engagement Practices and Shareowner Rights Developments
3. Legal and Regulatory Framework
4. Key organizations with information relevant to shareowner rights in the country.
Indeed a very good resource for shareholder activism.

Surprised though, couldn’t find Singapore in the lists of 22 largest markets.

In the Introduction, there is also an insightful section which states GovernanceMetrics International (GMI) criteria to determine whether a board member is to be classified as independent board member. We can use this criteria to determine and "clean up" the pseudo-independent board members as a start.

If you find this post useful, you may check out my other posts on shareholder activism.

Recession Survival Guide - Ireland

Ireland’s Financial Regulator has come out with a useful Recession Survival Guide.

Some highlights:
Managing on Less Money
Step 1: Financial Health Check
Step 2: Budget Planner
Step 3: Cost Comparisons

Dealing with Redundancy (meaning being laid off) :
Redundancy information
Mortgage Repayment Protection

Dealing with Debt:
Credit Card Comparison
Debt Consolidation

This is really cool ! I like the Cost Comparisons, Redundancy Information and Credit Card Comparison especially. They go to such extent to provide information to help its peoples in recession.

You may wish to explore around. It’s really an insightful website on cost cutting.
However, there are peoples who argue that this may set off a deflationary cycle and make things worse. True also..

I think the key theme is "spend necessarily, spend smart and look for value deals".
The website cuts information cost for such value deals.

Tax havens

Following the G20 meeting and communiqué, OECD has provided a list (PDF file, dated 2 Apr 09) of countries which are classified into:

• "White list" - Jurisdictions that have substantially implemented the internationally agreed tax standard
• "Grey list" - Jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented
• "Black list" - Jurisdictions that have not committed to the internationally agreed tax standard

The Jurisdiction inside "Black list" then were Costa Rica, Malaysia (Labuan), Phillipines, Uruguay.

Read from the PDF file: Wow, there are so many Tax Havens (in "Grey list").

Tax haven criteria are divided into 4 factors:
1. Jurisdiction imposes no or only nominal taxes
2. Whether there is a lack of transparency
3. Whether there are laws or administrative practices that prevent the effective exchange of information for tax purposes with other governments on taxpayers benefiting from the no or nominal taxation.
4. Whether there is an absence of a requirement that the activity be substantial

Announcement
On 7 Apr 09, it was announced that Costa Rica, Malaysia, Philippines and Uruguay (countries in the "black list") have committed to the tax standard on exchange of information and are moved to "Grey list" (meaning: no more in "Black list") !

There are lots of resources on tax evasion, exchange of information, harmful tax practices.

Question:

How big are the effects of regulation on tax havens ? How big will be the outflows, if any ?

China stimulus package for electronics, logistics, steel and auto industries

From China government’s website, we can find detailed stimulus package for electronics, logistics, steel and auto industries.

This provides a good read about the industries on status quo/current environment, principles/goals for the stimulus package, actions and policies etc..

English version of China government’s website is also available.
However, I can’t find similar English version of industry stimulus package.

Boao Forum for Asia (BFA) (博鳌亚洲论坛) : World Economic Forum (WEF) for Asian

The Boao Forum for Asia Annual Conference 2009 will be held on April 17-19, 2009 in Boao. The theme of this year's event is Asia: Managing Beyond Crisis.

We can get news (even videos) on BFA 2009 from this website (in Chinese).

Boao Forum for Asia (BFA) is modelled after World Economic Forum (WEF) but is for Asian countries. We can get some insights on Asian views (government, business and academia) from this Forum.

Texts from "Profile" on the website:
As a non-government, non-profit international organization, Boao Forum For Asia (BFA) is the most prestigious and premier forum for leaders in government, business and academia in Asia and other continents to share visions on the most pressing issues in this dynamic region and the world at large. The Forum is committed to promoting regional economic integration and bringing Asian countries even closer to their development goals.

Initiated in 1998 by Fidel V. Ramos, former President of the Philippines, Bob Hawke, former Prime Minister of Australia, and Morihiro Hosokawa, former Prime Minister of Japan, Boao Forum for Asia was formally inaugurated in February 2001.

My new blog: Innovation For the Future

I have this new blog Innovation For the Future which will focus more on technology, science, innovation, entrepreneurship etc..

Feel free to visit "Innovation For the Future" if you like science, technology, innovation, entrepreneurship.... too.

I create a bloglist "My other blog" here. You can see whether there are new posts on Innovation For the Future.

Industry Analysis - Research and Markets

Industry analysis is one of the 3 pillars of investment analysis, the other two are company analysis and economic analysis.

Is there any website that we can get a glimpse of these industry reports ?

Recommend:
Research and Market, claimed to be "World’s largest market research resources – 384,777 reports".

The industry reports in this website are not free.
However, tremendous insights can be gained by just looking at the structure of the report.

It usually comes with Description, Table of Contents, Summary, Companies Mentioned.
If you are doing your own industry research, you can learn from the website at least what topics, data and companies you have to look into. It at least sets a benchmark on what your industry report needs to cover.

Another information useful is how much these industry reports cost.

Note: If you like this post, you may like my other posts on industry analysis and
investment resources.

2009 World’s Most Ethical Companies - by Ethisphere

2009 World’s Most Ethical Companies by Ethisphere
website

99 companies made it into the "World's Most Ethical Companies" list (available in the website).

Some highlights of selected winners are available. It will be good if the questionaires used to evaluate the ethical quotient are available.

Its methodology:
Corporate citizenship and responsibility: 20%
Corporate governance: 10%
Innovation that contributes to public well being: 15%
Industry leadership: 5%
Executive leadership and tone from the top: 15%
Legal, regulatory and reputation track record: 20%
Internal systems and ethics/compliance program: 15%

Does it pay to be ethical ?
According to the graph (in the webstie) that compare "WME vs S&P" growth% over past 5 years, it is a strong YES.

There are other interesting lists and ratings in Ethisphere, for e.g:
100 Most Influential Peoples in Business Ethics;
50 Codes Rated;
Global Anti-corruption Quotient 2009.

I place its blog into my "Investment bloglist". This blog will help in showing fraud prevention insights and ethical practices that will help in preserving investment value.

Translation of English Financial/Investment Terms to/from Chinese

Found these lists of Chinese-English, English-Chinese translation of financial/investment terms in HK Stock Exchange website.
PDF files are available.

These files are useful if you are bilingual but are not sure of its equivalence in either Chinese or English financail/investment terms.

Calendar for investment - US

Briefing.com has a section that is useful to track calendar related to investment:
website

It has calendars for :

• Upgrades/Downgrades
• Economic
• Splits
• IPO
• Earnings (& its guidance)

We can proactively check when will those "bellwether companies" announce their earnings result. These results may move market though sometimes it’s not at level that is rational at all. A lot depends on perceptions of investors as a whole.

Events leading to loosening of Mark-to-Market Accounting

Loosening of Mark-to-Market Accounting maybe a watershed event on this financial crisis.

Its main events:

A) FAS 157 Fair Value Measurement
detailed document

FAS 157 took effect after November 15, 2007.
The fair value is "price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price)".
This is "mark-to-market" accounting.

B) Emergency Economic Stabilization Act of 2008 (EESA)
(we can find detailed EESA from my previous post.)

EESA opens FAS 157 for review through Section 132 and 133.

"Section 132: Authority to suspend mark-to-market accounting"
restates SEC authority to suspend FAS 157

Section 133: Study on Mark-to-Market Accounting
SEC to consult with Fed and Treasury to conduct a study of effects of FAS 157.

C) Study and decision on Section 132, 133
Date: 30 Dec 2008

Outcome: decided to improve, not to suspend mark-to-market accounting
press release

SEC study on mark-to-market accounting
(Note: This long study is a very good read on this subject matter.)

D) A Bloomberg article on FASB Chairman was under pressure by US Chamber of Commerce, American Bankers Association and companies to loosen Mark-to-Market ruling on impaired investment: Bloomberg article

E) FASB Issues Proposals to Improve Guidance on Fair Value Measurements and Impairments
(gave in to the pressure)
Date: 17 Mar 2009
proposals

F) US’s Financial Accounting Standards Board (FASB) decision on "mark-to-market" accounting rules
Date: 2 Apr 2009
Decision

FSP FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed
Outcome: easing of mark-to-market accounting
Some highlights:

• applied prospectively and that retrospective application would not be permitted
• When: would be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.

It left to be seen:
1. In the coming reporting season, how much will it "beautify" financial institutions' balance sheets ?

2. What will be the reactions of investors on "improvement" of the financial institutions’ results ? How to judge the actual financial health of the financial institutions ? Or just take the "improved result" as the "actual result" ?

US Economic Indicators

We can get US Economic Indicators from this website.
Its data sources are US Census Bureau and Bureau of Economic Analysis (BEA).

We can find out what are the economic indicators, source, frequency and date of release.

I try out its email updates. When there are updates, an email will be sent to my Inbox directly.

In case we want to check for data when it’s released, refer to "US Economic Indicators – calendar for 2009". This PDF file shows date and time release of particular economic indicator.

We can also go directly to US Census Bureau and Bureau of Economic Analysis (BEA) to access the data.

What are the significances of these economic indicators ?
I find this book " The Atlas of Economic Indicator – a visual guide to market forces and the Federal Reserve" useful and simple to refer to.

However, do bear in mind that there is a lag between the date data is released and period it is used to measure. This in a way limits its usefulness.

Obama's remarks on American Automotive Industry

US President Barack Obama has issued "Remarks by the President on the American Automotive Industry" on 30 Mar 09. Some PDF files on Warrantee Commitment Program; GM and Chrysler’s Viability Assessment are included in the website too.

The Auto Plan

For any investor, a lot can be learnt from GM and Chrysler’s Viability Assessment. It is like a mix of industry analysis + company analysis.

Some highlights of the Auto Plan that I find interesting: (refer to the website for actual text and details)
1. Has shed over 400,000 auto-related jobs over the past years.

2. It’s not the fault of workers. It’s a failure of leadership – from Washington to Detroit.

3. Plans required hard choices by companies and stakeholders.

4. General Motors (GM) - Rick Wagoner is stepping aside as Chairman and CEO;
adequate working capital over the next 60 days; to produce a better business plan;
United States government has no interest in running GM.

5. Chrysler – potential partner Fiat to transfer its cutting-edge technology; building new fuel-efficient cars and engines; agreement that will ensure that Chrysler repays taxpayers for any new investments that are made before Fiat is allowed to take a majority ownership stake in Chrysler; give Chrysler and Fiat 30 days to reach final agreement, consider lending up to $6 billion

6. Bankruptcy code as a mechanism to help GM & Chrysler restructure quickly.

7. Warrantee of car from Chrysler, GM will be safe: the Warrantee Commitment Program

8. To support demand:

• Recovery Act funds to purchase government cars + other federal fleet purchases.
• Treasury Department's Consumer and Business Lending Initiative + auto finance companies: to increase flow of credits.
• New tax benefit for auto purchases.
• Fleet modernization programs: credit to consumers, turn in less fuel-efficient/old cars and purchase clean cars.

9. New Director of Recovery for Auto Communities and Workers to assist the workers, communities, and regions.

Will the Auto Plan be able to revitalise the US automotive industry ?

COP’s Hearing: “Learning from the Past--Lessons from the Banking Crisis of the 20th Century”

A lot can be learnt from past banking crisis and their solutions.

US’s Congressional Oversight Panel has lined up few experts for testimonies about banking crisis and their solutions.
Experts' views on past banking crisis and lesson learnt

The testimonies by these experts are compiled in the website above.

We can learn a lot about banking crisis listed below, solutions used then and insights gain:
1. Great Depression in 1930s;
2. Savings and Loan collapse in the 1980s: the solution then was Resolution Trust Corporation (RTC);
3. Banking Crisis in Japan in early 1990s;
4. Banking Crisis in Sweden in early 1990s (This solution is what they called "Nordic Capitalism – the future of capitalism"). Refer to my previous related post.

What will US (and the world) use as a solution to current financial crisis ?


My other related posts on:
Europe investment, financial crisis, US investment.

Geitner's Treasury Outlines Framework for Regulatory Reform

Geitner of US Treasury has come out with a framework for regulatory reform.
It can be read from link below:
Geitner’s Treasury Outlines Framework For Regulatory Reform

Summary: (refer to the website for actual texts and details)
4 components of regulatory reform
1. Addressing Systemic Risk
2. Protecting Consumers and Investors
3. Eliminating Gaps in Our Regulatory Structure
4. Fostering International Coordination

Primary focus: systemic risk

For 1. Addressing Systemic Risk, it is applied on the following:
1. Systemically Important Firms and Critical Payment and Settlement Systems
2. Standards on Capital and Risk Management for Systemically Important Firms
3. Registration of All Hedge Fund Advisers With AUM (asset under management) Above a Moderate Threshold
4. Oversight, Protections and Disclosure for the OTC Derivatives Market
5. Money Market Funds

How will these be done ? Which regulators will do what ?

Some of the other related main regulators in US:
Securities and Exchange Commission (SEC)
Federal Reserve
Commodity Futures Trading Commission (CFTC)

How will these regulators divide their turfs ?

More on Reform on Monetary System

Zhou Xiaochuan, Governor of The People’s Bank of China has more speeches related to international reserve currency:
On saving ratio
Changing Pro-cyclicality for Financial and Economic Stability

His speech text of "Reform the International Monetary System" was released on 23 Mar, "On saving ratio" on 23 Mar, "Changing Pro-cyclicality for Financial and Economic Stability" on 26 Mar. We can see his urgency to get the messages across before the G20 Summit :-)

In this Reuter’s article, it was said that "Russia said it would put forward a proposal for the creation of a new reserve currency issued by international financial institutions at the Group of 20 meeting in April." and "Moscow said it has the support of other emerging market countries, including Brazil, South Korea and South Africa for its proposal. ".

In a FT’s article, it was said that "EU leader condemns US ‘road to hell’".

US and UK are against to the proposal of new international reserve currency.

It left to be seen what will happen on the coming G20 Summit.

Zhou Xiaochuan of The People’s Bank of China proposed “Reform to International Monetary System”

Zhou Xiaochuan of The People’s Bank of China has proposed a reform to international monetary system in his speech "Reform to International Monetary System" (published in both Chinese and English).

Read his text of speech for details.

A lot about international reserve currency can be learnt from his view.

A summary: (I try to figure it out)
*
(Previous) International reserve currency : Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system

Theoretical characteristics of an international reserve currency:
1. Anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply
2. Its supply should be flexible enough to allow timely adjustment according to the changing demand
3. Adjustments should be disconnected from economic conditions and sovereign interests of any single country

Why existing system doesn’t work:
Triffin Dilemma, i.e., the issuing countries of reserve currencies cannot maintain the value of the reserve currencies while providing liquidity to the world, still exists.

Desirable goal :
create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run

Solution:
super-sovereign reserve currency, proposed to use SDR.

Not a new idea:
1940s, Keynes: "Bancor", based on value of 30 representative commodities
1969, IMF: SDR

Proposed SDR valuation:
basket of currencies, expanded to include currencies of all major economies, GDP included as weight.

Steps
1. short run, the international community, needs to recognize and face up to the risks resulting from the existing system, conduct regular monitoring and assessment and issue timely early warnings.

2. Give SDR a greater role; push forward a SDR allocation; approved Fourth Amendment to the Articles of Agreement and relevant resolution on SDR allocation proposed in 1997; broaden scope of using SDR; Set up a settlement system; promote the use of the SDR; Create financial assets denominated in the SDR; improve the valuation and allocation of the SDR

(This may be the difficult part) :
Entrusting part of the member countries' reserve to the centralized management of the IMF and IMF as international "supervisor" on the macroeconomic policies of its member countries.

Suggestion for IMF to promote greater role of SDR :
set up an open-ended SDR-denominated fund based on the market practice, allowing subscription and redemption in the existing reserve currencies by various investors as desired.
*

Many countries are really frustrated with status of USD, especially those that bought lots of USD-denominated debts.

But questions remain:
1. Can IMF really handle this big role of handling all member countries' reserve and be the international "supervisor" on the macroeconomic policies ?
2. Will countries of the world let IMF handle it ?



Note:
You may wish to check out my other posts on US investment and economic analysis.

Nordic Capitalism – the future of capitalism ?

In this FT's article, it was said that, Jorma Ollila, advocates that Nordic style of capitalism (characterised by openness to globalisation balanced by strong government programmes to protect people from its excesses and an egalitarian education system), is the future of capitalism.


Who is Jorma Ollila?

His more prominent roles are:

1. Chairman of both Nokia and Royal Dutch Shell
2. Chairman of European Roundtable of Industrialists (an informal forum of around 45 chief executives and chairmen of major multinational companies of European parentage covering a wide range of industrial and technological sectors).

European Roundtable of Industrialists is a good place to get views of European Industrialists.

So, what is Nordic Capitalism ?
I found this insightful PDF file written by University of Jyväskylä.

Nordic economies:
Five small North European countries, which includes Denmark, Finland, Norway, Iceland, Sweden.

There is this book, Creating Nordic Capitalism – the business history of a competitive periphery, which is a good source to learn about Nordic Capitalism.

You can get a sample chapter from the website.

There are case studies given by the books on Capitalism of Sweden, Finnish, Danish and Norwegian.

Swedish Capitalism
Bonnier & Wallenberg
ASEA/ABB

Finnish Capitalism
Stora-Enso
Nokia and Tampella

Danish Capitalism
Arla Foods
Carlsberg

Norwegian Capitalism
Elkem
Kreditkassen

Iceland, as we know, is in deep trouble.

I wonder how are the status of these countries (Denmark, Finland, Norway, Sweden) and the companies used as success stories of Nordic Capitalism.

Can they withstand the onslaught of this financial crisis ?
How should the future of capitalism be ?

US: toxic asset plan - using public-private investment funds (PPIF) : Legacy Loans Program and Legacy Securities Program

To remove toxic assets from US banks, FDIC & Treasury launch Legacy Loan Programs and Legacy Securities Program.

We can get details of Legacy Loan Program and Legacy Securities Program from FDIC’s website.
Legacy Loan Program and Legacy Securities Program

The PDF files are very wordy and I feel that the easier way to understand is through the examples given.

(Excerpt from website)

Examples of Legacy Loan Program (main components related to $ highlighted)

If a bank has a pool of residential mortgages with $100 face value that they are seeking to divest, the bank would approach the FDIC. The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio. The pool would then be auctioned by the FDIC, with several private buyers submitting bids. The highest bid from the private sector – in this example, $84 – would define the total price paid by the private investors and the Treasury for the mortgages. Of this $84 purchase price, the Treasury and the private investors would split the $12 equity portion. The new PPIF would issue debt for the remaining $72 of the price and the debt would be guaranteed by the FDIC. This guarantee would be secured by the purchased assets. The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.


Example of Legacy Securities Program (main components related to $ highlighted)

Treasury will launch the application process for managers interested in the Legacy Securities Program. An interested FM would submit an application and be pre-qualified to raise private capital to participate in joint investment programs with Treasury. Treasury would agree to provide a one-for-one equity match for every dollar of private capital that the FM raises and provide fund-level leverage for the proposed PPIF. The FM would commence the sales process for the PPIF and raise $100 of private capital for the PPIF. Treasury would provide $100 of equity capital to be invested on side-by-side basis with private capital and would provide up to a $100 loan to the PPIF if the fund met certain guidelines. Treasury would also consider requests from the FM for an additional loan of up to $100 subject to further restrictions. As a result, the FM would have $300 (or, in some cases, up to $400) in total capital and would commence a purchase program for targeted securities. The FM would have full discretion in investment decisions, although the PPIFs will predominately follow a long-term buy and hold strategy. Depending on the amount of loans provided directly from Treasury, the PPIF would also be eligible to take advantage of the expanded TALF program for legacy securities when that program is operational.

Resources for shareholder activism - Hermes Principles and the example of People’s Solidarity for Participatory Democracy (PSPD)

In this time of recession/financial downturn, we see lots of frauds on listed companies, majority shareholders trying to buy out and delist companies at cheap price, actions by majority companies that are detrimental to minority shareholders’ welfare etc..

Ever wonder, can minority shareholders do something to protect themselves from onslaught of these companies’ management ?

Shareholder activism is the answer.

European Corporate Governance Institute (ECGI) has a good write-up and resources on shareholder activism. There are proponents and opponents on shareholder activism. Some research reports are available in the website which argue on different angles.

Hermes (which is also featured in ECGI website above) has come out with Hermes Principles for corporate governance.

These are the principles concerning requirement that companies be run in the long term interest of shareholders. Read the PDF files for details. Its principles are on:
1. Communication
2. Financial
3. Strategic
4. Social, Ethical and Environment.

These principles can be a guideline for minority shareholders to ask companies’ management to adhere to.

In reality, companies’ management often doesn’t heed the opinions of minority shareholders.
What then should minority shareholders do ?

We can take a look at Korea’s shareholder activist group :
People’s Solidarity for Participatory Democracy (PSPD)
One of its articles in the website mentions some basic methods for shareholder activism: (read the article as it comes with examples and resources)

Participating in the Corporate Decision Making Process
1. Attending Shareholders Meetings
2. Shareholder Proposals
3. Proxy Solicitations
4. Convening Extraordinary Shareholders Meetings
5. Policy Recommendations

Preventive Measures and Monitoring the Behavior of Management
1. Inspection of Books and Records, Appointment of Inspectors Demands to Cease Illegal Activities
2. Injunctions to Prevent Illegal Acts of Management
3. Policy Recommendations
4. Holding Management Accountable for Their Conduct

Shareholder Derivative Actions
1. Criminal or Administrative Complaints
2. Demanding the Dismissal of Responsible Officers.
3. Policy Recommendations

Shareholders, unite ! :)

China’s 家电下乡 subsidised purchase of electronic goods for rural areas

China government’s 家电下乡 "subsidised purchase of electronic goods for rural areas" is one of China’s policies to boost internal consumptions.

家电下乡信息管理系统(Information Management System)
The website has information on announcements, laws & regulation, provincial activities, industrial activities etc regarding 家电下乡.

Q&A on the policy:

Questions & answers by China’s Ministry of Finance
Q&A on other website

Some compilations on 家电下乡on websites:
website 1
website 2

The policy is of good intention, subsidising rural folks on purchase of modern electronic goods for improvement of living standard, while providing much needed orders for electronic goods manufacturers to prevent further spread of bankruptcies and unemployment in the industry.

Its effectiveness depends on real needs of rural folks and actual executions of the program.
The devils are in the details.

Examples of concerns voiced (some are already happening), seen from various websites:
1. Unfair competitive pressure and crowding out effect on small and medium companies that models are not selected for the program.

2. Poor rural folks cannot afford to buy even with subsidy.

3. Even if it is affordable, it may not be usable, for example TV in areas with poor reception of TV programs.

4. Even if it is affordable and usable, cost of ownership may be too high, for example electricity bills, maintenance/repair/parts costs, subscription cost (for example TVs) etc..

5. Perception of the models being selected : lower quality goods, obsolete models ?

6. Ease and hidden costs of getting subsidies

7. Fraudulent goods that made to imitate selected models

8. Incentives for rural distributors to promote selected models will not be there if profits are squeezed too thin compared to other not-selected models

You may see that even if a policy is of good intention, its financial outcome depend greatly on the interaction of its different participants and transaction cost/information cost of participants.

A big compilation on economists’ blogs from Resources for Economists on the Internet (RFE)

Came across this website Resources for Economists on the Internet (RFE)
website

There are many economists’ blogs listed in RFE (in fact, far too many)..
Many big names in economics are inside. Many important economics related institution too.
It’s really a phenomenon seeing these big names blogging.

Its other useful resources :
website

I came across this Resources for Economists on the Internet (RFE) from RePEc Blog (Information about Research Papers in Economics). I put this RePEc Blog into my economists’ bloglist. You may like to check this out.

Note: If you like this post, you may like my other posts on
economist.