My new blogs

Hi all,

I may start two new blogs on Tumblr platform:

Insights on Investment
and
Insights on Innovation

I like its ease of posting (through my smartphone) and its function as something between a blog and a twitter-like microblog.

Stay tune.

Post on some outsourcing websites is on my another blog

Some friends just mentioned that they can't find my post on outsourcing websites that I mentioned to them.

It is on my another blog.

It's here.

Bankers, investors, researchers who have tasks that you wish to outsource may try the websites. You may get a glimpse of varieties of tasks being outsourced.

It's amazing.

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. :-)