Amir S Johan

Quotes & Investor Information for OTCQX, OTCQB, OTC Pink & other OTC Securities - OTCMarkets.com

2012-01-13T18:41:00.000-08:00

Quotes & Investor Information for OTCQX, OTCQB, OTC Pink & other OTC Securities - OTCMarkets.com:

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Broad Air Conditioning, BROAD Central Air Conditioning, BROAD Non-electric Chiller, BROAD Air Purifier,Electrostatic Cleaner, indoor air pollution , Energy Saving Building, Global Partner of Expo 2010 Shanghai China

2012-01-09T17:14:00.000-08:00

33 Story Hotel Built in 30 days?

Broad Air Conditioning, BROAD Central Air Conditioning, BROAD Non-electric Chiller, BROAD Air Purifier,Electrostatic Cleaner, indoor air pollution , Energy Saving Building, Global Partner of Expo 2010 Shanghai China:

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2011-12-19T19:27:00.000-08:00

Is there a run on Europe'sbanks?

Well, Keith Fitz-Gerald –an Investment Director for Money Map Press (www.moneymappress.com), as well asMoney Morning and one of the world’s leading experts on global investing, seemsto think so.

A weekly feature inInvestor Alley’s MARKET CAP authored byKeith says as follows:-

Fitch Ratings Inc. recently downgradedits credit ratings on five of Europe's biggest banks, and while that decision madeheadlines, it's not the most important story to come out of Europe this week.

The real story, which themainstream media is neglecting, is that there are signs of an underground runon Europe's banks. Almost nobody's talking about it, but thereare indications money is already moving out of the European Union (EU) fasterthan rats abandoning a sinking ship.

Not through the front door,mind you. There are no lines, no distraught customers and no teller windowsbeing boarded up - not yet, anyway.

For now the run is throughthe back door, and there are four things that make me think so:

Italy's planned ban on cash transactions over 1,000 euros, or about $1,300.
French, Spanish, and Italian banks have run out of collateral and are now pledging real assets.
Swiss officials are preparing for the end of the euro with capital control measures.
Europe's CEOs are actively preparing for the end of the euro despite governmental reassurances.

Signs of a Run

Let's start with

Italy

and Prime Minister Mario Monti's plans to restrictcash transactions over 1,000 euros (down from the current limit of 2,500 euros,or about $3,200). Ostensibly the move is about reducing tax evasion byprohibiting the movement of large sums of cash outside the officialtransactional system, but I think it speaks to something far more sinister -namely that the Italian government knows things are going to get far worse thanthey're publicly admitting.

Consider: Cash is a stored value mechanism. There's not a lotof it because at any given point in time, most of it is on deposit with banksin any country. That's as true in

Italy

as it is in the

United States

when real interest rates are positive during"healthy" times.

But when real interest ratesturn negative, people are likely to withdraw cash and stuff it quite literallyunder mattresses or in coffee tins. (Real interest rates are the official lendinginterest rates, adjusted for inflation.) In such an environment, holding cashin a bank becomes nothing more than an imputed tax and a disincentive fordeposits. It's also a significant thorn in the side of central bankers who wantto control their country's money supply, because cash can operate outside thesystem and, specifically, logjam reform efforts.

The reason is really prettysimple. If you have negative real interest rates, and cash transactions arelargely restricted or removed altogether, then the only way to effectively usecash is to withdraw it and spend it... immediately.

In other words, by limitingcash transactions to 1,000 euros or less,

Italy

is putting into place a punitive financial controlfully intended to keep money moving in a system lest it become worthless orworse - hoarded and worthless. Now let's move on to banks.

Banking Breakdown

Many investors have neverthought about it before, but there are really only three sources of funding fora bank:

Money that's effectively "lent" to the bank by customers placing their assets on deposit;
Short-term money market funds;
And long-term bonds or securitized products based on long-term paper sold to bond investors.

Together, the three fundingsources are like the legs on a stool - lose any one of them and the stool willtopple over because it is no longer balanced. Cut the legs down and the stoolcollapses - that's what is happening now.

Individuals, pension fundsand institutions alike are withdrawing funds from Italian, Spanish and Frenchbanks. Money has long since left

Greece

Ireland

, and

Portugal

Thing is, though, it's notjust European money that's fleeing. Various reports from The Economist,Bloomberg, CNBC and others suggest that American financials may have pulledmore than 40% of their funds from all European banks and nearly two-thirds oftheir total deposits away from French banks. This is drying up short-termlending capacity and driving up inter-bank lending costs.

At the same time, moneymanagers the world over are selling their European bonds. This is drivingprices lower and yields higher to the point where the cost of debt is nowprohibitive (bond prices and yields move in opposite directions). As a result,new bank bond issuance may be down as much as 85% over the past two years,which further hobbles cash hungry European banks.

Finally, facing a near totalloss of short-term financing alternatives and having run out of short-termliquidity needed to operate, a number of EU banks are reportedly having topledge real assets as collateral for badly needed loans.

Normally, banks would useloans, leases or receivables to accomplish the same thing. The fact thatthey're now having to throw in real estate, their own property, and otherassets into the mix signals extreme levels of financial stress that are farworse than what's been disclosed publicly.

Bracing for theInevitable

Swiss Finance MinisterEveline Widmer-Schlumpf noted to the Swiss Parliament that she's got a workinggroup examining capital controls and negative interest rates as a means ofpreventing an economy-crushing Swiss franc appreciation when the euro fails.That's not if the euro fails, but when the Eurofails.

This is an especially diresign because capital control measures like those the Swiss officials areconsidering are inevitably the end of any failed monetary system. European CEOsand their companies are taking matters into their own hands by activelypreparing for the destruction of the euro.

Some, like German machinerymaker GEA Group AG (PINK: GEAGY) are limiting the maximum funds on deposit withany single bank. Others, like Grupo Gowex, are moving cash and deposits to

Germany

away from Spanish banks (and Grupo Gowex is aSpanish company based in Madrid,so this is especially telling).

BMW plans to cut productionby 30% while also tapping into central bank reserves. According to ChiefFinancial Officer Friedrich Eichiner, the company is already reducing itsleasing portfolio to cope with the potential decrease in car values that wouldimpact its borrowing capacity.

As for what all this meansfor our money, that's pretty clear - think SAFETY FIRST. The return of yourcapital is far more important than the return on your capital at the moment.

Here's what I suggest.

Buy dollars - I know they're a bad long-term bet, but short-term, they're the best looking horse in the global glue factory as long as the euro is under pressure.
Stick with what you have in place now and manage risk with trailing stops. Confine new stock purchases to high-growth, low-debt emerging markets rather than low-growth, high-debt developed markets.
Short gold and oil in the short-term. Both are priced in dollars, which means both will fall as the dollar rises in conjunction with panic in the EU.
Purchase inverse funds that track the broader markets. If the euro fails, it will tank the broader markets. Then, once it becomes clear that the world will live on, the markets will disconnect from Europe and begin to rise again in earnest.
Run the other way if people tell you that banks are a great investment. They are speculative at best given the number of skeletons still in the closet.

Billionaire Lawyer Offers Investment Advice: Cocaine Is Less Dangerous than Hedge Funds - News - ABA Journal

2011-12-13T00:02:00.000-08:00

Billionaire Lawyer Offers Investment Advice: Cocaine Is Less Dangerous than Hedge Funds - News - ABA Journal:

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Dim Sum Market an Unlikely Victim of Global Volatility - WSJ.com

2011-09-28T22:55:00.000-07:00

Dim Sum Market an Unlikely Victim of Global Volatility - WSJ.com:

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How Markets Don’t Work!

2011-08-10T20:10:00.000-07:00

It's funny how the markets work. Everyone expects one thing, and the market does the exact opposite.

Case in point: The US gets its national credit rating cut, and every US Dollar bond and US Dollar bear in the world figures that this is it... this is the big one... finally, interest rates are going to spike higher!

WRONG!

Since getting the credit rating cut from AAA to AA, we have seen the US Dollar remain fairly steady, and US Government bonds have rallied huge! In fact, intraday on Tuesday 9^th August, 2011 we saw 10 year bond yields go below the 2008 low, all the way down to 2.036% - resulting in higher prices. WOW!

You have to think about this now -- why would bond yields go lower than the 2008 low? What could possibly be looming on the horizon that is so awful that bond yields would pierce the low set during the greatest market meltdown since 1929?

In a word, RECESSION.

The Fed pretty much came out and confirmed this thesis when they said that they would keep rates at ultra low levels until at least mid 2013!! That’s almost two years away. WOW AGAIN! Do you know how bad the internal data must be if the Fed is publicly acknowledging that they will not raise rates for 24 months?

So How Low Can Rates Go?

The irony was not lost when, after S&P announced that it was cutting US credit rating, China publicly blasted the US over its "bloated welfare costs".

Imagine that -- a communist country putting America down for being too socialist!

The funny thing is that, since the USA lost its AAA rating, bond prices have soared in value. In fact, over the last three days the Chinese have seen their Treasury holdings appreciate by tens of billions of dollars. (bond prices rise when relevant market interest rates drop)

For all their tough talk about how reckless the Fed was being when it announced QE2, they must have been secretly high-five-ing each other as their 1.16 trillion dollars worth of Treasuries appreciated in value by an estimated $100+ billion!!

Since QE2 was announced, we've seen 10 year yields drop from 4% to 2%, and we've seen much steeper declines in the 2-5 year duration, which is where China has MASSIVE exposure. So that $100 billion gain guesstimate could be very conservative indeed.

Did QE2 Work?

It sure did! Just not for you and I.

In fact, I know you have been asking yourself who benefited the most from QE2? After all, equity investors certainly didn't win... the average US worker didn't win.

You want to know who the winners were?

The only winners were Government and other bond holders. And by the way, want to know who the two largest holders of US government bonds are?

YEP! It’s China and the Federal Reserve!

Want to know what's going on? Just look around at who’s got the biggest slice of the pie.

It's no surprise that it was the Fed, and the US’s next single most important banker - the Chinese Government. The US didn't break the 2008 yield lows on a fluke -- the market is telling us something. It is shouting from the roof tops that we will almost certainly experience a recession in 2012.

While equity prices rebounded, after getting pounded so relentlessly again, I'll be looking to fade the rally and get short some more stock because unless we see a miraculous turn around in the employment and GDP figures we are going lower as far as equities are concerned anyway.

But we may go to 1,250 on the S&P 500 first before we see 1,050. So, nimble traders: have fun. Longer term traders: wait for the roll over, at which point you'll be able to short 'em all.

In the meanwhile, I’m getting longer on secured corporate bonds from entrepreneurial corporations in Asia.

The US Debt Downgrade – A look behind the scene? « Jaykeumarezz’s Blog

2011-08-09T20:00:00.000-07:00

The US Debt Downgrade – A look behind the scene? « Jaykeumarezz’s Blog

Ahhh Sooo! Always suspected there was more to the downgrade.

Volatility Trading Myths!

2011-08-06T20:36:00.000-07:00

The VIX volatility index is supposed to be a proxy for volatility. However, when it comes to the VIX, nothing trades quite like you think it should.

Don’t Believe All the So-Called VIX Experts. According to an article by Adam Warner in Investor’s Place - "Ten years ago, most people hadn’t even heard of the CBOE Volatility Index, or VIX. These days, the “fear index” is covered by the mainstream financial media, and you can’t throw a stick without hitting someone who fancies themselves a VIX expert."

The problem is that half of these people don’t have any clue what they’re talking about. So there is a lot of misinformation out there surrounding the VIX and VIX trading products, including futures and ETNs. When it comes to trading the VIX, nothing moves quite like you think it should.

To clear things up a bit, here are eight VIX trading myths you don’t want to fall for.

VIX Myth #1 – You Can Buy and Sell the VIX

Reality: You cannot buy and sell the actual VIX. You can buy and sell VIX futures, but that is a very different thing. VIX futures can trade at premiums or discounts to the VIX. In fact, they almost always trade at premiums to the VIX.

VIX Myth #2 – You Can Own the VIX Via Futures

Reality: VIX futures cash out when they expire based on a VIX settlement price. So unless you roll out, your position will vanish.

VIX Myth #3 – A Rolled Position Will Track VIX Moves

Reality: VIX futures price based on where the market expects to see the VIX on a given date in the future, i.e, the day the VIX expires. That estimate may or may not move on a given day with a move in the VIX. The further out in time the future is, the less it will track VIX moves.

VIX Myth #4 – VXX Tracks the VIX Better Than Futures

Reality: The iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) is an exchange-traded note that is based on a hypothetical rolling 30-day VIX future and trades like a regular stock. However, it does not track VIX moves particularly well. In fact, it underperforms over time so long as VIX futures trade in an upwardly sloped term structure. And VIX futures virtually always trade that way.

VIX Myth #5 – You Can Chart VXX Like a Stock

Reality: Since VXX trades like a stock, you may think you can chart it like a stock. Wrong. Run, don’t walk, from anyone who tells you about a key chart point on VXX. The VIX is a statistic, and VIX futures trade based on estimates on a forward price for that statistic. VXX creates a hypothetical constant duration 30-day VIX future and, therefore, loses money each day simply rolling from the nearest month future to the next month out if the next month out trades at a premium. Hence VXX is really just a number relative to itself the day before. It’s the tail of a tail of a tail of a dog.

VIX Myth #6 – Holding VXX Can Protect a Portfolio

Reality: VXX works fine as a short-term trading vehicle. On a day-to-day basis, it will track about 50% of the VIX move. However, it is terrible as a portfolio hedge for the reasons listed before, namely that it loses money over time in an upward sloping VIX term structure. Owning and rolling two- to three-month VIX futures works better.

VIX Myth #7 – VXZ is a Good Portfolio Hedge

Reality: The iPath S&P 500 VIX Mid-Term Futures ETN (NYSE:VXZ) is similar to VXX, but it tracks four- to seven-month VIX futures instead of 30-day VIX futures. VXZ has done relatively well since its inception and has outperformed VXX by a wide margin. But while it doesn’t have the contango trouble of VXX, the VIX curve gets pretty flat out that far. I would also caution that VXX and VXZ only listed in January 2009, and thus, neither has had to show its mettle through a VIX storm. Four- to seven-month VIX futures almost always hold their premium to the VIX, but would move to a significant discount in a serious VIX explosion. In 2008, they lagged by 20-30 points. So I suspect VXZ would not provide great protection when you wanted it most. It’s a fine volatility proxy in a quiet market, but if the goal is insurance, it may disappoint.

VIX Myth #8 – High VIX, VIX Call Buying is a Signal to Get Out or Get Short

Reality: I don’t agree with the above, but I can’t actually prove it wrong. I will say this though, the VIX is a mean-reverting statistic. A high VIX and excessive VIX call buying (and actual SPX put buying) represent extreme nervousness and/or bearish sentiment. In theory, that’s a time you want to buy, not sell. But take that with a grain of salt, because trends do take on a life of their own, like the VIX explosion and market implosion of 2008.

If you really want to trade volatility you’ve got to trade VIX products. Email me for details.

S&P downgrades US debt to AA+ - FT.com

2011-08-05T17:40:00.000-07:00

S&P downgrades US debt to AA+ - FT.com

Wow!!! This has to be the most stupid decision made by any Rating Agency.

Reminds me of the time when rating agencies gave a country with a population of more than a billion, an army of more than two million, the world's largest producer of gold, the world's factory with one of the most entrepreneurial societies in the world - a risk rating significantly lower than for a country with a population of around 300,000 and whose only export was fish.... I'm sure we all remember Iceland!

China may dampen growth of offshore bonds market

2011-06-20T21:03:00.000-07:00

According to an article in STV,

China

is working quietly behind the scenes to tighten its control of the rapidly growing offshore RMB market, and risks turning off some investors from participating in the growing market and slowing use of the RMB in global trade. Click here for the full story.

Is it time to buy the US Dollar?

2011-06-15T20:30:00.000-07:00

There are riots in the streets of Greece, which now has the lowest credit rating of any sovereign nation on earth. Remarkably, the Euro Zone has managed to weather the storm quite well. Whether it can continue is another matter.

The European Facade maybe Crumbling

A look at the US Dollar Index and the US dollar / euro exchange rate certainly points in that direction. As bad as things appear to be in the USA, Europe seems to be more worse off.

The European Union is made up of 17 countries who speak different languages, have different customs and have varying degrees of work ethics and national productivity levels.

As split as the US is between liberal and conservative views, the people are still all Americans - even if they come in all shades and shapes. As such Americans have far more in common with one another than the 17 nation Europeans do. If one of the states in the USA gets into trouble, people won't be rioting in the streets if the Federal government decides to bail them out.

Now let’s consider it from the European point of view: If you are the German Chancellor, how do you defend the diverting of your national wealth to support a country such as Greece, when your electorate holds the firm view that the Greeks are neither as hard working nor as fiscally responsible as the average German? Correctly or not this appears to be the view reportedly held by much of the German public.

This puts Angela Merkel in quite a political situation. If the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) follow Greece, it would be a miracle if the European Union survived intact. This fear is what has been behind the bull market we have seen in US bonds over the last six or so weeks, because, on a relative basis, US Treasuries still look like a much safer bet than EU Sovereign debt.

So, how can we benefit?

I know it's in vogue or even cool to be totally negative on the dollar, but to me, the dollar looks like it wants to rally. The US Dollar Index (DXY) is a basket of 6 currencies measured against the US dollar. The biggest component by far is the euro, which makes up 58.6% of the index. Any drop in the euro will push up the value of the dollar, which in turn will drive the US Dollar Index higher.

If we get a real increase in Euro-related fear, we could easily see the US Dollar Index hit 80 - 81. Those looking to go long the dollar could do so by either buying the front month US Dollar Index futures contract (DXU11), or via the Bullish Dollar ETF, symbol UUP.

So if I’m going long, I would use a break below 74.50 on the US Dollar Index as my stop point. In fact, if the US Dollar Index breaks that level, I'd be inclined to switch my entire strategy and look to going short for a bit. Anybody who tells you that they know with 100% conviction what the future will be is either fooling themselves or attempting to con you into something nasty.

Another way of playing a rising dollar is to take some bets directly against other currencies. One such currency is the Australian Dollar. I doubt if there is another developed country (except maybe Canada) that is more leveraged to the price of commodities. Remember, global commodities are priced in US Dollars -- if the value of the Dollar goes up, commodities typically go down. As commodities go down, the value of the Australian Dollar will typically decline as well. I would go short the Australian dollar in the futures market. The symbol on the front month contract is ADU11. I'd use a move above 1.0730 as my stop if I’m short, with a price target of say 1.0275. Alternatively, I could use the Australian Dollar currency ETF, symbol FXA. If I’m using FXA to go short, I’d be sure to track the movement of the front month futures contract. I’d use the levels in the actual futures contract to trigger any profit taking and stop loss decisions in the ETF.

Remember, the whole world is looking for the US dollar to collapse into oblivion. I don’t consider it likely that everyone will be right. May the trend be with you always...

Middle East and North African Socio-political Unrests. What Lies Ahead?

2011-03-22T23:01:00.000-07:00

Here is a live link to an interview by Jayke Umarezz, the popular lifestyle commentator. The interview is titled Middle East and North African Socio-political Unrests. What Lies Ahead?

The interview covers some of the reasons behind the current unrest in the Middle East and North Africa (MENA) and explores how it may evolve over time.

Also covered in the interview is the important issue of how local and international companies who have prospered in the past will fare in the newly evolving MENA.

Please click here for the full text of the interview. LINK to Full Article

Offshore Renminbi Bonds Here to Stay

2011-03-08T19:30:00.000-08:00

The following article entitled “Asia credit investors scramble for offshore Renminbi bonds” appeared in Risk.Net and was authored by Chris Wright.

The expansion of the Hong Kong Renminbi bond market continues to gather pace, with recent firsts including an unrated deal, a debut from a Russian borrower and even a synthetic offering. Importantly, the transactions are even beginning to attract interest from buyers outside of Asia.

Rarely has a new market evolved so quickly as the offshore renminbi bond market. Even its nickname has been a swift affair: the term ‘dim sum bond’ only started appearing in October, competing with the somewhat dry predecessor ‘CNH bond’, and has since become ubiquitous. And less than a year after liberalisation measures that dramatically broadened the pool of potential issuers, the market has transformed in tenor, the credit curve, size and distribution.

“The development of the market has been phenomenal,” says Sean Henderson, head of debt syndicate, Asia-Pacific at HSBC.

One could argue the offshore RMB market has its roots in 2004, when the People’s Bank of China first allowed retail clients in Hong Kong to accumulate renminbi; or in 2007, when a handful of Chinese banks, chiefly policy institutions, were allowed to issue RMB bonds in Hong Kong to mop up the retail liquidity that had accrued in the meantime. But the landmark change came in February 2010 when the Hong Kong Monetary Authority, with China’s backing, said it would allow RMB bond business to be carried out in Hong Kong “in accordance with prevailing banking practices”. This, among other things, meant that anyone who was permitted to launch bonds in Hong Kong – that is, pretty much anyone – could do so in offshore RMB.

Numerous landmarks have since followed: Hopewell Highway Infrastructure, a RMB1.38 billion two-year deal in July, was the first corporate bond, while in the same month Citic Bank issued the first certificate of deposit deal. McDonald’s came to market with a RMB200 million deal in August, the first from a truly multinational corporate issuer; then October saw Asian Development Bank launch the first 10-year deal, a corporate bond from state-owned truck manufacturer Sinotruk and an issue from Export-Import Bank of Korea, which showed the willingness of Asian agency borrowers to tap the market. Deutsche and UBS have borrowed for themselves; and Caterpillar followed McDonald’s as another major US-based multinational keen to borrow in RMB.

Yet it was really at the end of last year that the sharpest illustration of maturity (or, if you take the opposite view, overheating) came, with several deals that all demonstrate different things about the market’s evolution.

Down the curve

Two came in consecutive days in December. First, Galaxy Entertainment Group raised RMB1.38 billion in a Regulation S deal on December 9. The following day, VTB Bank, the Russian financial institution, raised RMB1 billion through HSBC and VTB Capital. Both were three-year deals.

Galaxy, in particular, was an important trade. Although, strictly speaking, the issuer is unrated, the market considered it a high yield name. As such, it effectively represented the first appearance of high yield in the new market – and thus an expansion of investor appetite further down the curve.

“The Galaxy deal set a reference point for lower-rated credits,” says Paul Au, head of Asian debt syndication at UBS. “As a result, you will continue to see companies from different industries and with different credit standards accessing the market.”

“It probably came as a bit of a surprise to many people, because in any new debt capital market, high yield products usually take a longer time to develop,” says Tee Choon Hong, regional head of capital markets for North Asia at Standard Chartered. “Usually the more established credits form the market foundations before you see the emergence of high yield. But in the CNH bond market we have seen this develop quickly – in the same year.”

The other noteworthy point about the Galaxy issue was the price. Having been marketed around the 5% level, the bonds eventually came at 4.625%. Now, for investors who had become used to yields as low as 1% on deals from higher-rated borrowers like the Ministry of Finance (which launched a four-tranche deal at the end of November including a three-year tranche with a 1% coupon), 4.625% is a decent return. But in comparison to what an issuer like Galaxy would pay elsewhere, the return looks modest for the risk being taken. Galaxy does have an affiliate with a rating – Galaxy Casinos, which is rated B by S&P. Another B rated credit, Yuzhou Properties, went to the dollar high yield market the same week for roughly the same amount, yet paid 13.5%, albeit for a five-year, non-call three-year deal. That’s a mighty contrast, and Galaxy had plenty of demand, receiving RMB13.5 billion in orders with more than 80 institutional investors (mainly real-money) participating.

Similarly, the VTB issue offered further clues about pricing. It seems striking that a triple-B rated Russian bank with no presence in China, nor any stated intention to build one, can come to a market like this at all, but it did so at a cost of just 2.95%. Earlier in the year it had gone to the Singapore dollar markets and paid 4.2% for a shorter, two-year deal.

“One main reason the high yield market has progressed so swiftly is the yield differential,” says Tee. “When the Ministry of Finance is only paying 1% for a three-year bond, and bonds are then trading down substantially in terms of yield, there is a lot of attraction to a coupon of 4% or 5%. I think there is more to come.”

Underpinning price, though, is the fact investors are seeing the headline yield as only part of the investment case. Instead, they are also factoring in appreciation in the renminbi. “In the back of everyone’s mind is the potential currency appreciation,” says Henderson. “Some investors are starting with the dollar curve, then asking where the potential upside is in terms of appreciation before determining the levels at which they are prepared to purchase.”

Another deal that marked a significant step came via Shui On Land, which raised RMB3 billion in December. The deal would have been noteworthy for the level of investor appetite alone – the order book hit RMB32 billion, 21 times oversubscription for what had originally been pitched as a RMB1.5–2 billion deal, in just seven hours of book-building. But of even greater relevance, the issue was the first synthetic transaction in the dim sum market, with settlement in US dollars.

From an investor perspective, the 6.875% yield looked very attractive for this market (though probably about 2% less than the borrower would have to pay for a vanilla dollar bond); but in addition, investors get to enjoy any appreciation in the value of the RMB. Additionally, with settlement in dollars, they don’t necessarily need to have a use for the Chinese currency, nor navigate the swap markets. Consequently, the previously Hong Kong-dominated market for these deals was broadened to a global audience.

Deutsche, Standard Chartered and UBS, who led the deal, had planned to launch it early in 2011 but brought it forward after seeing the momentum demonstrated by Galaxy. Although the bulk of demand came from Asia – particularly private banks – the buying constituency is thought to have been far broader. “Those sitting on a lot of CNH are not the sort of private investors who bought this,” says Tee, one of the bookrunners on the deal. “By and large, it was bought by holders of US dollar accounts who don’t mind participating in the appreciation of the RMB.”

Going down the synthetic route addresses one of the natural bottlenecks to further development of this sector: the swap market. This is a new market, expensive and somewhat illiquid. Shui On, for example, might have had to pay a further 3% through the swap market had it raised funds in RMB and switched them into Hong Kong or US dollars.

It is already clear the synthetic route will be an attractive option for many borrowers. Within a week of the start of the year, Fujian-based residential property group China SCE Property Holdings had raised RMB2 billion, once again with US dollar settlement. But this trade, led by Deutsche and HSBC, took a Regulation S/Rule 144a format, allowing US investors to participate in the market for the first time. This deal had to pay a much higher yield than others in the market – 10.5% – partly reflecting its longer five-year tenor. Yet once again, relative to the cost of funding in dollars, it was almost certainly several percentage points cheaper. It is understood European accounts took 12% of the bonds and US investors 10%.

“Single-B rated Chinese property sector names have seen quite heavy supply in US dollar,” says Henderson. “However, we still saw some very good interest out of the US in their dim sum offerings from some high quality investors. That bodes well for other borrowers looking at CNH with 144A docs. I think we will see a broadening of interest going forward.”

One other deal is worthy of further examination. On December 1, Export-Import Bank of China, known as Chexim, priced a dual-tranche RMB5 billion bond. The headlines on this talked mainly about oversubscription – its RMB1 billion institutional tranche was covered 53 times over, thought to be a record – but in fact the more interesting trend may have been buried a little deeper. Although 88% of the institutional deal went into Asian accounts, chiefly in Hong Kong, some 12% of the bonds placed in Europe.

This is a striking development, because it shows that even in non-synthetic deals there is an order book available outside Asia if one goes looking for it (and generally bookrunners haven’t had to so far, such has been the demand within Asia). “Increasingly in Europe very large fund managers are seeing appetite among their clients to get access to this story,” says a banker who worked on the deal. “It’s going to develop quite quickly: there are plenty of people active now who didn’t even have accounts a month ago, let alone six months ago.”

Au at UBS notes a similar trend. “At the moment, not every account is set up or mandated to buy RMB products, whereas Asian accounts are at the advanced stage of internal approvals,” he says. “But over time, once people are more familiar with the product, you will see more participation outside Asia from the current 10%–15% in a Reg S-only transaction.”

Tee, while noting an increase in non-Hong Kong investors, particularly in Singapore, says that non-Asian investors are still very much a minority. “Although the market has developed significantly, new issue volume is still small. For some of the larger accounts, there is always a consideration of efficiency; the size of the deal, how much they can put their hands on given that most of the deals have been heavily oversubscribed and the allocations are usually quite small. That makes it less attractive to some of the larger offshore accounts.”

But he adds: “Based on the seminars we have held, both regionally and in US and Europe, the interest is immense. It’s only a matter of time.”

And the diversification of the investor base is not just geographical. “Retail deposits in RMB have obviously continued to grow in the last year or two, but the majority of the recent growth has been from the fund management side,” says Henderson. “There are a number of new entrants looking to buy RMB assets in order to create a product offering in the currency for their clients. This new investor base means instead of just having 20 or 40 investors, we’re now seeing much more diverse order books, which has in turn broadened the list of potential issuers across the full credit spectrum.”

A growing appetite

Underpinning the whole market is a supply/demand imbalance that seems to become more stark with every deal. When the Ministry of Finance set out to raise RMB5 billion via an institutional tranche in December, it attracted a RMB50 billion book. Data from the Hong Kong Monetary Authority shows that at the end of November, renminbi deposits stood at RMB279.6 billion – up from RMB217 billion the previous month, RMB150 billion the month before that and barely RMB70 billion in the first quarter of 2009. That’s a truly extraordinary rate of growth. The money needs somewhere to go and that, fundamentally, is what is driving tight pricing.

“The pool of RMB is still far from what you would call significant in the grand scheme of things: it’s about 3% of total bank deposits in Hong Kong,” says Tee. “But it has quadrupled within less than a year. It is enough to allow the formation of basic debt capital markets to recycle the money, and there currently isn’t any other viable instrument in town.”

In addition to retail buyers wanting a decent return on their money, the Hong Kong banks that hold those deposits create an institutional market with an equally ardent thirst for some decent yield; particularly since, with the funds being held among so few banks, there’s not much of an interbank market and no equivalent of Libor through which to pass on liquidity.

The only things that can change this imbalance are, logically, a vast increase in supply (which is where the opportunistic financings in December came in); a tapering off of demand (unlikely, since there’s no reason for the growth of deposits to halt); or an increasing range of alternatives for that money to be invested in.

“There are rumours about potential equity products that could be done in CNH, but the bond market has moved quite far ahead and will continue to see interest,” says Tee. “At the end of the day the free market will find its own balance.” But he notes that the many eccentricities on the supply and demand side – bank liquidity reserves, the lack of an interbank market, likely interest rate movements in China and Hong Kong – make it hard to draw conclusions from the way other markets have evolved.

“I like to compare the differences between the CNH bond market and the domestic bond market with the differences we have seen in stock markets between H shares and A shares,” he says. “It is two different patterns of price behaviour.”

Still, some feel that the balance is already on its way. “You will see an equilibrium over time between supply and demand,” says Au. “At the moment it’s all about product with a little less focus on price, but once we get more supply you will start to see people differentiate between credits and assign different valuations to them. As the market grows over time, the pricing reference points will fall into place naturally. We just need more deals.”

Yuan some, you lose some

It is evident the market faces some headwinds. One is repatriation of capital to the mainland. For those businesses raising funds in renminbi because they actually need the currency, moving the funds from Hong Kong to where they are needed has not always proved straightforward. This was most clearly in evidence with the McDonald’s bond, where repatriation issues took weeks to resolve and took the shine off what had otherwise been seen as a landmark success. “If you don’t have a use for the funds or approval to remit them, the swap back to other currencies can be quite painful,” says one banker.

That raises another problem. For borrowers who do not want the renminbi, they need to swap it out, and there is not much liquidity in this fledgling market. At best, it is going to cost 2–3% of the proceeds, which in some cases can wipe out the funding advantage versus dollars. Sources say there is liquidity for swaps at one year, but not far beyond. Until there is a natural flow of business to drive it, that will not change.

“The general expectation is that the currency is going to go up, so it is going to be harder to develop a deep enough market for a counterparty to take the other side of the swap – that is, for the RMB to depreciate,” says Au. “The market has to grow further – not just the bond market but trade finance and other forms of liabilities – in order for it to become deep enough for sizable [swap] transactions.”

Although it doesn’t matter so much, it is also notable there is barely a secondary market in these bonds. Their scarcity value means few who buy them have any interest in selling them on. “Our challenge is being unable to get the allocation in the secondary market,” says one banker. “Almost nobody is selling. The minute anyone comes out with a small clip, it’s snapped up.”

For the future, there are some developments we should expect to bed in as with any new market: more deals at longer tenors, to accompany the Ministry of Finance and Asian Development Bank’s 10-year deals; further development of the credit curve, with more high yield deals like Galaxy; and eventually the development of a secondary market. No doubt, like everything else in this improbably vibrant sector, change will happen fast.

Expectations for the stock market in 2011

2011-01-11T20:29:00.000-08:00

Happy New Year!

2011 kicked off with a bang as the Dow rallied 93 points and the S&P 500 up more than 1%. Most financial analysts and economists are predicting we are going to see more days like this in the next 12 months and that the stock market will continue to move higher; upwards of 10%.

At this point, I too am bullish for global markets in 2011.

With that said, I have been in this business long enough to know that the stock market will not move higher each and every week. We will see dips and sell-offs occur in 2011, just as we did in 2010. The sovereign debt issues in Europe, the sluggish real estate market, unemployment, disappointing earnings seasons, and China's raising of interest rates are just some of the challenges that will cause these down moves. In addition, the world economy will probably be forced to deal with issues no one has been able to predict at this point.

However, even with all these headwinds in 2011, I still believe the markets are headed higher on an annual basis. The stock market has been battling these headwinds for 2 years now, and still it continues to to rally. I learned early on that the trend is your friend... until it stops being so. From my vantage point, it's hard to see this rally stopping in the near term as the Federal Reserve is doing everything in its power to keep interest rates at all time lows and buying $600 million of Treasuries. Also, we can't discount the robust growth we are seeing from emerging markets, like India and China.

So what exactly am I saying? 2011 will be similar to 2010; we will see rallies, we will see sell-offs, but we will end the year higher than it is now.

In the interim I am looking forward to trading the increased volatility that will ensue over the next 12 months. Though everyone knows they should have an investment account to build for their financial future, too many people shy away actively trading a portion of their accounts. Unfortunately, most investors have sat in mutual funds for 10 years and have little to show for it except the fees they paid to their financial planners and the funds themselves.

If you are one of those people, I encourage you to take action in 2011 and diversify into actively trading a portion of your portfolio. I expect the volatility to begin increasing this month and whether you are a novice at trading or a seasoned veteran, now is an opportune time to take advantage of the market's swings.

I wish you and your families a healthy, happy, and prosperous 2011.

Who Really Owns your Website and Email?

2010-09-07T01:14:00.000-07:00

Here's and interesting piece written by Steve Coipa. I hope it helps, many persons like me, dispel the myths we hold about websites and emails.

Why I Advice Clients to Switch to Google’s Web and Email Hosting Services. By Steve Coipa

Having a basic information disseminating presence on the Internet through a website and using email for communications has now become an integral part of business life.

In spite of this however, many company executives are still stuck in the “its my Website” illusion. I’m often asked why I chose to host my own firms website and emails with Google and not with some web-hosting and email service.

Yes. I do advise all my clients to establish their websites and emails through Google. No. I don’t own any shares in Google.

Before offering my reasons, let me admit that my do clients ask me "Why Google" as if it’s somehow inferior to hosting with some bucket shop of a web and email hosting service.

First, let’s deal with just three popular myths that many otherwise smart corporate ‘C’ level executives have about websites, emails and hosting services.

Myth Number One: When they register a website they believe that they are the exclusive owners of it.

The Reality: You only get the exclusive right to use the name of the website for as long as your registration fees remains valid. If you don’t believe me try not renewing your registration.

Myth Number Two: My local hosting service will provide me with quality service and several emails with a soandsoat mywebsitenamedotcom and this sounds great because everyone will know that I own the website and the associated emails.

The Reality: Most local web-hosting services are small under capitalized outfits that operate from bandwidth leased from the big local telecos – and don’t we all know the quality of service these telecos provide.

The emails provided to you by the hosting company are usually tied in to their web-hosting service – which means that if you terminate the service and move hosting elsewhere you can kiss your emails goodby. Of course you can purchase your own email server but you’ll still have to host it somewhere and link it to your website. Moving that will be a nightmare requiring a host of experts.

As for people thinking your email sounds great and genuine – well it’s only those ignorant of the reality. After reading this article there may be fewer left in this world.

Myth Number Three: Downtime, Phishing, hacking and similar frauds and problems cannot easily be perpetuated on my own websites and email because my hosting service tells me that they have the latest software tools.

The Reality: None of your local or even international hosting services can come anywhere near the huge investments constantly made by companies like Google in integrity-of-service and protective hardware and software. If you really expect under capitalized web and email hosting services, that have to survive on your monthly hosting service payments, to invest more than Google in the latest hardware and software, you’ve really got to be kidding. No way.

Thnik I'm shhting mumouth off. Well read what the experts at Info Security Magazine have to say.

Now let’s see what I can get by hosting my website and emails with Google Business.

Users: More than 2,000,000 businesses worldwide currently use Google with more and more coming on board daily.

Cost Saving: Google's web-based applications require no hardware or software – a big saving in your own IT staff (sorry guys).

No Downtime: Google guarantees 99.9% up-time reliability. I know this to be true as far as my own and my clients’ websites and emails are concerned.

Storage: Fifty times more storage than the industry average i.e. 25GB of email storage per employee. Check out what your so called host is offering you and how much it costs.

Best Security: When Google, with a market cap of more than US$149.89 Billion, says its network is designed from the ground up with security in mind, I tend to believe it compared to what some under capitalized outfit says.

Problem Free: While nothing man made is ever impenetrable, Phishing, hacking and similar frauds are very much more difficult to perpetuate and sustain on websites or emails hosted with Google compared to others.

Fictitious emails can of course be set up with all services but Google is particularly vigilant and responsive to complaints and does take action – unlike most other hosting services who sell or lease their email database i.e. your email to supplement their revenues.

Google has enough revenue from other legitimate business lines. They don’t need to sell your emails. If you don’t believe me check your span emails over a week and count the number of spam mail coming from @gmail.com compared to others. I’ve actually done it so I know.

Sovereign Wealth Funds likely to add private equity exposure

2010-06-06T19:38:00.000-07:00

According to an article by Megan Davies in Reuters, David Rubenstein co-founder of the Carlyle Group expects a greater share of capital invested in private equity to come from sovereign wealth funds, particularly those from China.

Rubenstein forecasts that such investors will look back at the latest financial crisis and view private equity as one of the better performing alternative asset classes.

"They see that when you look across the alternative investment landscape, private equity probably did better during this period of time than many other alternative forms of investment," Rubenstein said, speaking at the Super Return U.S. private equity conference.

He compared the asset class to hedge funds, adding that a lot of those went out of business, causing some people to lose all of their money.

"Private equity did scare people a bit as valuations went down for five consecutive quarters but in the end ... people are saying -- private equity isn't as risky as maybe other types of alternative investments."

"The biggest new player in fund-raising in the last two years is China," he said at the conference. "Most of the people trying to raise large sums of capital or from fresh sources are spending time in China now because that's the biggest new source of capital."

Apollo Management co-founder Joshua Harris, also speaking at the conference, pointed to countries that have natural resources.

"The Middle East -- which has not been as active in the last year or two -- but also Canada, Australia, Norway ... and Brazil ... are going to gather significant wealth and ultimately need to invest that wealth in attractive risk-adjusted rate of returns," Harris said.

Rubenstein said that sovereign wealth funds are increasing their wealth more than public pension funds are.

Public pension funds have large pension obligations and are often under funded and have to pay money out, he said, whereas sovereign wealth funds by and large accumulate capital.

"As a result, they're accumulating capital at a much greater rate than the pension funds and have to invest it," he said.

Still, Rubenstein said that public pension funds will also increase their allocations as they try and recoup losses they may have made in other parts of their portfolios.

What Recession?

2010-01-14T18:16:00.000-08:00

According to an article in Seeking Alpha by HRA Advisories David Coffin & Eric Coffin of HRAAdvisories.com, the Market Outlook for 2010 Won't Look Like 2009.

Most markets experienced massive revision to the mean last year. That may be repeated again on a smaller scale, though they believe that this year that implies weaker gains for markets, not higher ones.

World Stock Markets recorded gains from a minimum of 22.1% to high of 90.8% in 2009 but what’s in store for 2010. Read the full article...

China Private-Banking Revenue set to Surge

2010-01-11T20:09:00.000-08:00

According to Joyce Koh writing in Business Week UBS AG, the world’s second-largest manager of assets for the rich, expects private-banking revenue from China to at least double annually as the ranks of wealthy swell and regulators ease curbs on what products it can sell.

“Our future growth is never talked about in anything less than 100 percent every year,” said Richard Leung, head of wealth management at UBS Securities Co., the company’s venture in China, in a telephone interview from Beijing. “We talk about how many folds of growth a year every year. I would say not too many markets talk about that kind of growth.”

The combined wealth of China’s millionaires overtook that of the U.K. to rank fourth worldwide in 2008, according to an annual survey by Merrill Lynch & Co. and Capgemini SA. UBS Securities, 20 percent owned by the Zurich-based bank, plans to further expand the services it offers rich clients in China that include fixed income and mutual funds, Beijing-based Leung said.

Goldman Sachs Group Inc.’s local venture partner in China, Beijing Gao Hua Securities Co., plans to expand its wealth management operations through new retail branches it’s setting up, people familiar with the matter said last week.

UBS Securities, which started private banking in August 2007, has outlets in Beijing, Shanghai, Guangzhou and Shenzhen. Leung said his hiring plans depend on the pace of growth in assets under management.

Three decades of economic growth averaging almost 10 percent has turned China into one of the fastest-growing wealth management markets, prompting local lenders to enter the business. Bank of China Ltd. said in March 2007 it would start private banking, the first local bank to do so. Industrial & Commercial Bank of China Ltd., the world’s most profitable bank, followed about a year later.

China has 825,000 people with a net worth of 10 million yuan ($1.5 million) or more, many of whom haven’t been affected by the financial crisis, the Hurun Report, which compiles an annual rich list, said in April. The country’s millionaires are on average 39 years old, the report showed.

Citigroup Inc., which started catering to individuals in China who have at least $10 million two years ago, has said it wants the nation to account for a fifth of its private banking business.

Chinese regulators are likely to become more supportive of more complex financial products like derivatives, helping drive growth, said Leung. China’s securities regulator said last week it will introduce index futures, margin trading and short sales, bringing its capital markets closer to international standards.

“The Chinese are very quick learners, especially the rich ones,” said Leung. “The local people will look at what’s being offered in the developed markets like Singapore, Hong Kong, or even in the U.S. or Europe. When they come back to China, they’ll ask, ‘How come I did not see this in China?’”

Best Performing Industries for 2010!

2010-01-07T21:07:00.000-08:00

With the economy showing signs of recovery, industry research firm IBISWorld said it has analyzed more than 700 industries to identify the winning sectors in the coming year. According to IBISWorld, the following industries are showing the best performance results:-

The financial system is showing signs of life and the biggest winners in the upcoming year will be: Venture Capital & Principal Trading with 63.4 percent rise in revenue, up from 28.9 percent in 2009;

Portfolio Management with 33.4 percent rise in revenue, up from 18.7 percent in 2009;

Real Estate Loans & Credit Lines with 27.4 percent rise in revenue, up from 3.1 percent in 2009;

Private Equity, Hedge Funds & Investment Vehicles with 21.4 percent rise in revenue, up from 10 percent in 2009;

Much like the finance sector, oil-related industries are expected to rebound strongly in 2010: -

Natural Gas with 24.3 percent rise in revenue, up from 35.5 percent in 2009;

Oil Drilling & Gas Extraction with 49.3 percent rise in revenue, up from 44 percent in 2009;

Petroleum Refining with 47.2 percent rise in revenue, up from-40 percent in 2009;

Gasoline & Petroleum Stations with 37.0 percent rise in revenue, up from 35 percent in 2009.

Demand for crude oil and gas will rise substantially in 2010. With the recovery in the world economy and increasing revenue prospects for fuel distributors and retailers, operating conditions will be more favorable.

Ten Scariest Things That Could Happen in 2010!

2009-12-28T22:54:00.000-08:00

Here’s an interesting piece by Michael Shulman writing in OptionZone.Com

Michael first highlights some funnily scary stuff that could happen in 2010 - then he lists some more serious that he considers possible. Read and enjoy:-

There are plenty of causes for concern in the upcoming year. Chief among them are …

1. Britney Spears decides not to retire. Britney, pass the hat; we will pay for you to retire.
2. Adam Lambert decides to really cut loose.
3. The Yankees decide to increase their payroll. Hey, it could happen.
4. Michelle Obama decides her arms lack tone and intensifies her workouts. Then she beats the president on the basketball court.
5. Sarah Palin begins reading and is shocked to learn Russia was once part of the Soviet Union. Then she decides to move to a town with a library (better hope its not yours).
6. Dick Cheney says he will run for president if drafted and will put what is left of his heart into the race.
7. The big banks decide to forego lobbyists and opt to pay Congressmen directly from their bonus pool.
8. George Bush becomes a paid spokesman for the "nuculur" power industry. He takes speech lessons from Sarah Palin.
9. Nancy Pelosi starts a PAC that accepts coupons for Botox. Medicare then approves payments for Botox.
10. Brad and Angelina lobby the UN and are allowed to adopt an entire country; Madonna is named role model mother in chief.

OK, I thought I'd try to lighten the mood a little before I got into what is really scary about 2010. Because unlike the things above, there's a good chance what I'm about to tell you could happen.

1. Official unemployment climbs to 12%; real unemployment at 20%-plus. Forget the BLS statistics. Real unemployment is much worse than the "official" numbers states. Did you know that they added 800,000 jobs this year to the workforce due to "new business creation"? You've got to be kidding me!

2. Another 2.5 million home foreclosures. And this time they won't be homes purchased with sub prime mortgages; it is the unemployed and those walking away from mortgages that are now much greater than the value of their homes.

3. Another 12%-15% drop in home prices. With all those foreclosed homes hitting the market, homes prices ain't going up. And, with that, the wealth of the average consumer goes down.

4. Up to $1.5 trillion in consumer credit lines vanishes. The New Frugal consumer is a reality, not just due to falling income and unemployment, but the inability to borrow money.

5. Another 300 banks fail, including some big regional banks, and the FDIC requires more dough. So far 144 banks have failed this year, and the real problems in commercial real estate mortgages have yet to be truly felt.

6. Citigroup comes back to the government for more money, Uncle Sam says no and breaks up the company. This really could happen. Citigroup (C) has no short-term hope of raising more capital given the failure of the capital raise earlier this month. Stay tuned.

7. China refuses to revalue its currency and the current guerilla trade war gets hotter.

8. A nation defaults. Estonia? Greece? Ukraine? Mexico? It will be temporary and the International Monetary Fund (IMF) or European Central Bank (ECB) will swoop in, but sovereign debt markets will be hit hard. (Learn why you shouldn't write off a second financial crisis just yet.)

9. Iran announces a functioning nuclear weapon that, in reality, it does not have; oil goes to $125; Israel bombs Iran. This is possible, but not probable in 2010. Longer term, barring regime change in Iran, it's probable more than possible.

10. The impact of expiring tax cuts hits the market and a rational sell off to capitalize on lower tax rates becomes a rout. Possible, but not probable. There will be a sell-off due to the expiration of the Bush tax cuts. It's just a matter of how much, how fast and how far.

New Luxury TV Channel to be launched

2009-12-04T19:12:00.000-08:00

New Luxury TV Channel to be launched

Dubai Financial Crisis?

2009-11-29T18:40:00.000-08:00

Came across an article by Mike Whitney lately and it goes like this...

The default in Dubai is not the beginning of a Financial Meltdown. Don't look for dominoes here. Yes, it does raise serious questions about the vast debt-overhang in emerging economies--particularly East Europe. But, this is not a "sovereign default" in the strict sense, nor is there any great risk of contagion. Oil-rich Abu Dhabi is loaded with liquid assets, possibly as much as $800 billion. They could pay off Dubai World's measly $60 billion debt without batting an eye. But Abu Dhabi wants to send its wastrel younger brother a wake-up-call by forcing Dubai to restructure its debt. That means that banks, bondholders and contractors will have to take a haircut, which is not surprising given the abysmal condition of the commercial real estate market.

Dubai World owners were caught up in the same heady debt-fueled commercial construction-binge that swept across the United States. The problem can be traced back to lax lending standards and low interest rates. Now demand has fallen off a cliff and credit is getting tighter. Dubai World can't roll over its debt or meet its obligations. That's what typically happens when credit bubbles burst.

On Thursday, Bank of America analysts issued a statement: “One cannot rule out — as a tail-risk — a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s.”

This is nonsense. There will be no sovereign default. Abu Dhabi is not going to send global markets into a nosedive to save a few billion dollars. B of A is blowing smoke. Oil has already slipped $3 per barrel since the crisis began. There will probably be a tentative resolution by the time the markets open on Monday. That doesn't mean that there aren't important lessons to be learned from this latest financial calamity. There are.

First, it illustrates that the financial crisis is not over---households, businesses and countries are still deleveraging. This ongoing process will slow spending and increase defaults, bankruptcies and foreclosures. Government guarantees and stimulus programs will not reverse prevailing trends. More incidents like Dubai World should be expected. These "credit events" will disrupt the recovery and spur greater risk-aversion which will push stocks downward.

Arnab Das of RGE Monitor sums it up like this: "We're bound to see a rise in risk aversion. The Dubai situation signifies that although the major central banks around the world have stabilized the financial system, they can't make all the excesses simply disappear. We still have to work out those balance sheet stresses. The recovery is proceeding, but significant challenges still lie ahead.” (Bloomberg News)

Second, when these incidents take place, there's likely to considerable collateral damage from the unregulated insurance policies (credit default swaps) which underwrite the bonds. These CDS derivatives are not sold on a public exchange so no one knows who holds them, in what amount, or whether the issuer has sufficient capital reserves to pay off claims. We should expect a repeat of AIG over and over again (although smaller) until the system is either regulated or CDS are banned. The bottom line, is that the current financial architecture is not designed to work; it is designed to make a handful of speculators very rich. These speculators own congress, the White House and the financial media, which is why there has been no meaningful change in regulations.

Dubai is not Argentina. There will be a resolution and contractors will get paid, although not "in full." There will be losses. Big losses. But no contagion.

News of Dubai's payment "standstill" roiled global markets where investor confidence was already thin. The dollar and yen strengthened and US Treasurys surged. The "flight to safety" is making it doubly hard for the Fed to reflate asset prices. Dubai-like credit events make investors jittery and they pull in their horns. That extends the slump and deepens the recession.
If the Dubai crisis drags on, the dollar will get stronger and the flourishing carry trade will crash. That means that the maxed-out banks (which are heavily invested in high-risk positions) will get clobbered once again. That's the nightmare scenario.

The Fed has wrapped its arms around the financial system and provided unlimited guarantees on trillions of dollars of dodgy collateral. But that might not be enough.

StanChart to Increase Brand Awareness in £80m deal!

2009-09-15T21:12:00.000-07:00

According to an article in FT.Com article, Standard Chartered Bank joined the roll call of companies paying large sums to put their names on the shirts of leading European football clubs by agreeing a four-year sponsorship deal with Liverpool Football Club worth up to £80m (€91m).

The London and Hong Kong-listed bank made up for its failure to become Manchester United’s shirt sponsor earlier this year, paying broadly the same to Liverpool as the Premier League champions are receiving from Aon, the insurance company.

The £20m-a-year deal, though bigger than those secured recently by Juventus, Real Madrid and Bayern Munich, demonstrates the gulf in the commercial clout between Europe’s elite clubs and the others.

Sports sponsorship experts doubted that the Liverpool deal pointed the way to a rise in deals across football. “This deal sets the bar for other elite clubs but will not affect the general market or second-tier properties,” said Phil Carling of Octagon, the sports marketing agency.

Premier League clubs believe the recession is doing nothing to diminish the appetite for their product. Their shirt deals had prompted club chairmen to reject Barclays’ £70m offer to renew their title sponsorship of the league for the next three seasons, even though the bank was proposing an increase of about 7 per cent on its existing deal, a person familiar with the situation said.

StanChart replaces Carlsberg, which had the option of renewing its Liverpool sponsorship that had reached £10m a year, but appears to have been unable to compete with the bank’s deal. The brewer is putting its money into the Football Association, which gives it sponsorship access to the England national team, Wembley stadium and the FA Cup.

Other bidders for the Liverpool sponsorship included Bwin, the Austrian online gaming group that ended up signing a deal with Real Madrid, one person close to the situation said. StanChart expects the deal to increase brand awareness in Asia, Africa and the Middle East.

“Liverpool will do that in a cost-effective way,” StanChart said.

The Power of Words!

2009-08-20T21:04:00.000-07:00

I think those of you involved in writing in some way will enjoy this blog. I did as I'm also involved in creating product names and slogans through my consulting firm.

When you rearrange the letters of the words to your left - you'll get some interesting results:-

PRINCESS DIANA - END IS A CAR SPIN

MONICA LEWINSKY - NICE SILKY WOMAN

DORMITORY - DIRTY ROOM

ASTRONOMER - MOON STARER

THE EYES - THEY SEE

GEORGE BUSH - HE BUGS GORE

SLOT MACHINES - CASH LOST IN ME

ANIMOSITY - IS NO AMITY

ELECTION RESULTS - LIES - LET ' S RECOUNT

SNOOZE ALARMS - ALAS! NO MORE Z ' S

A DECIMAL POINT - IM A DOT IN PLACE

THE EARTHQUAKES - THAT QUEER SHAKE

ELEVEN PLUS TWO - TWELVE PLUS ONE

AND FOR THE GRAND FINALE...

MOTHER-IN-LAW - WOMAN HITLER

Using Whisper Numbers for Earnings Trades

2009-08-10T20:19:00.000-07:00

There are a number of factors that affect post earnings price movement. Some are quantitative, some qualitative, some tangible, some intangible, some technical, and some fundamental. We consider 'investor expectations' to be the most influential and critical factor to understanding and anticipating post earnings price moves.

Let us first define what we mean by 'investor expectations'. Investors (professional, institutional, and individual) determine market direction. Some have more influence than others, but collectively, their expectations of stock price, stock direction, revenue, sales, etc. define the market. If investor expectations (real or perceived) of a company's future were bleak, the company stock price may suffer. If investor expectations (real or perceived) of a company's future were strong, the company stock price may surge.

It is the same with corporate earnings. When a company reports earnings that exceed investor expectations, the stock is rewarded. When a company reports earnings that fall short of investor expectations, the stock is punished. The simple fact is that expectations create surprises, surprises create volatility, and volatility creates opportunity.

How To Best Utilize Whisper Numbers: A number of investors have asked how to best utilize our data. First, in order to make the best trades investors need to be aware of as many factors as possible that can affect market moves. So aside from doing your own 'homework', it also means understanding investor expectations (whisper numbers). We'll restate something from a recent report: 'What we do know for sure is that company stock prices continue to react to beating or missing individual investor earnings expectations (whisper numbers) on a more consistent basis than analysts estimates.'

More often than not when a company misses the whisper number the stock is basically 'punished' and will see a decline in price over a one to thirty day period after earnings are released. And on average when a company beats the whisper the stock is rewarded and will see gains over a one to thirty day period after earnings are released. It is a simple process that should not be over thought.

Let's take a look at Research in Motion (RIMM) from the recent second quarter of 2009. They reported on April 3rd. Analysts expected 84 cents, investors had a whisper of 81 cents. If you expected (or hoped or guessed) that they would beat the low whisper you may have entered a long position prior to the release. You may just as well have expected (or hoped or guessed) that they would miss the expectations and enter a short position. Therein lies the 'risk'. You don't know whether or not they will beat or miss the expectations.

So how do you eliminate the additional risk of guessing or hoping the company will beat or miss the expectations? Simple, just wait until after earnings are released. RIMM reported earnings of 90 cents, topping both the analysts estimate and whisper number. Our data indicated that within thirty trading days following earnings, Research in Motion averages gains of 13% when they beat the whisper. If you waited until after the report you entered the market around 59. Within thirty trading days the stock was up 19% exceeding our expectation.

In fact, companies that exceed both the whisper number (from WhisperNumber.com) and the analysts estimate see a 2.5 times greater positive post earnings price move than companies that only exceed the analysts estimate but miss the whisper.

Does it always work this way? Absolutely not. But historically the data has proven itself more accurate in predicting stock movement than analysts estimates (which shows no definitive cause and effect).

Obviously knowing which companies are most likely to react to beating or missing the whisper number has added value. Having a target timeline, target price move, and advanced knowledge of this data with email alerts adds even more value.

You could spend years collecting and analyzing your own data, and coming up with an analysis of best 'whisper reactor' companies. (Anticipating price movement is not easy, and there can be no guesswork involved.)

An interesting website - WhisperNumber.com does this analysis and puts together those companies most likely to see price volatility according to whether or not they beat or miss the whisper in a service called the Whisper Reactors.

Of course members of Richman's International Millionaire's Clubs may get the real inside scoop from corporate insiders who are also club members...

RS Management Limited: Chuppies Lead Chinese Economic Recovery!#links#links#links

2009-07-22T18:40:00.000-07:00

RS Management Limited: Chuppies Lead Chinese Economic Recovery!#links#links#links

RS Management Limited: If Asian Brands Go Global, Will Global Brands Still Remain Relevant?#links#links#links

2009-07-21T02:23:00.000-07:00

RS Management Limited: If Asian Brands Go Global, Will Global Brands Still Remain Relevant?#links#links#links

Beware of the Slippage Factor! from the fly tales

2009-07-15T22:06:00.001-07:00

the fly tales

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The Toughest Investing Question is When to Sell?

2009-06-28T10:39:00.000-07:00

Here is an article first published on the RAOMABO (Research and Analysis of Merger and Buyout Opportunities) Website that I think is interesting and relevant in these times:-

We considered various issues and decided on five signals that will warrant a reason to sell a Stock if you owned it or even sell short if you don’t own it...

As the sage of Omaha - Warren Buffet puts it, it’s often, “easier to figure out the losers.”

Referring to the automobile industry, WB points out that although it was one of the the most important inventions of the 20th century, it was very hard to make money as an investor in the industry. Thousands of upstart automakers failed. So the easiest money to be made was on the short side…

Today, we’ll concentrate about individual “loser” i.e. companies that are likely have more downside ahead of them than upside. We’ll see how it is often easier to spot these than the next winners, specially in a market with so much head wind against it ... like today’s markets.

We’ll also look at selling some of your former winners. These are stocks that may have made you good money but are beginning to show signs that you’re better off selling them than holding on to them.

Essentially it all boils down to the most important question in investing: When to Sell?

We’ve found that there are some major red flags you can use to get out of a long position… and go short a stock you don’t own, as well…

Red Flag # 1: High Valuations without High Growth

If you had the foresight to buy a small coffee chain named after an obscure literary character, you would have rode through some fantastic profits. All through the 1990’s and even through the tech-bust, it seemed like Starbucks would never cease to open more stores.
Around that time a Starbucks started opening across the street from another Starbucks, though, it was time to get out. Their growth prospects have been hammered. Other coffee chains are after their alluring market share. Even fast food chains have entered the business.

Today Starbuck’s balance sheet looks like a wreck. Let’s take a quick look. With a trailing P/E of 127, the company fails to pass an analyst’s first evaluation of a company’s value. The profit margin is less than 1% and the operating margin is 5%. Debt is three times cash. Return on equity, one of our preferred valuation measures, is 3.5%. Clearly, yesterday’s winners can become today’s losers.

Red Flag # 2: Technological Changes Taking Away a Former Competitive Advantage

Change is the only factor that’s constant in investing. Technological changes can make an entire company or industry’s products obsolete.

That doesn’t necessarily mean to go long the new technology. You should just avoid the obsolete one, or even short it as it dies off. Within the auto industry, we’ve seen technological changes that are partially responsible for the sad state of American automakers.

Toyota Motors was the first to market hybrid vehicles — namely its flagship Prius. The rest of the industry has been playing catch-up ever since. Sure, foresight is imperfect, and entrenched interests kept American automakers from fully adapting to this threat. But the solution wasn’t to go long Toyota; it was to stay away from General Motors, Ford, and Chrysler. Add in their uncompetitive cost structures, and it’s clear who the losers would be in this industry.

Red Flag # 3: The Company Begins to Use Questionable Accounting

Reading boring financial statements may tell you if you’re invested in the next Enron or Worldcom. Bad companies try to hide poor performance with financial gimmicks. One of the biggest things we’re looking at in the current investment environment includes companies reporting profits substantially in excess of reputed analyst expectations.

If such gains come from cutting costs, like firing employees, then the numbers being reported aren’t going to be sustainable over time. It’s the opposite of real sales growth and it’s a way of hiding a decline.

A lot of service-based companies are guilty on this count in recent quarters, from retailers to restaurateurs. Think of it as mold that people mistake for green shoots. It’s just too toxic to invest in.

The other major accounting areas to look at in this earnings environment are receivables and inventory. If Accounts Receivable is rising, there could be a problem with customer’s ability to repay... or there’s a problem with lax credit to customers to buy products. Either way, it’s one of the most obvious red flags you can see without. Eventually, toxic AR has to be written off. And the imaginary gains have to become real losses.

Rising inventories are even more problematic. A store offering this year’s fashions at 50% off may be able to post some good sales numbers, but over time it’s a recipe for disaster. Deeper and prolonged sales shorten the life of the business as lower margins choke off cash flow. Think Circuit City, Linens and Things, Mervyn’s and a host of other retailers. The retail industry’s problems are not over by a long shot.

Red Flag # 4: Divestiture to Meet a Cash Crunch or Burning the Furniture for Heat

Companies worth owning for the long- term don’t need to issue new debt right now. They certainly don’t need to go to the capital markets and issue stock to shore up reserves, either.

While this clearly applies to all the household-name financials, other companies have quietly been raising capital in the midst of this bear market rally as well. Any company that has to sell off assets or divisions right now is one worth reevaluating. Even in the absence of the worst credit crunch of all time, it would still be a very red flag.

Within this category insider selling is worth a mention. It’s a form of raising equity - only it benefits management and not the company. Certainly non insider the shareholders don’t benefit. Combined with other red flags, it’s the closest thing to a leading indicator we’ve seen that a stock is going to fall. Be especially aware of multiple insiders selling.

Red Flag # 5: Key Related Industries Are Suffering

There’s more than one way to make a profit. In investing, the term ‘pin action’, stolen from bowling, means that if one industry is on fire, related industries will share the heat as well. The same thing applies when it’s time to sell.

Watch the Flags...

Take a good hard look at the positions in your portfolio, and the major positions in any mutual funds you own. If your rationales for buying no longer apply or if any of the changes listed above are occurring, you might want to take some money off the table.

After a run-up, is the perfect time to re-balance your entire portfolio — to reduce risk by getting out of toxic assets and into better ones. When the market comes crashing down again, you’ll have more capital preserved to invest in companies that are innovative, growing, diverse, and ethical—and still have some left over to short the losers.

Michael Jackson Dies at 50!

2009-06-25T18:03:00.000-07:00

I read the shocking news of Michael Jackson's death of unknown causes yesterday in Los Angeles.

Notwithstanding all the stuff we've heard about MJ's private life, he remains one of the best entertainers the world has ever known.

Michael has been one of my favorite singers and will continue to be so. I mourn his death and ask that we take a moment to say a prayer for Michael. God rest his soul! Read the full story from Yahoo

How to Market Luxury Brands to New Millionaires! By Steve Coipa

2009-06-16T23:35:00.000-07:00

“Marketing luxury brands to the rich is complex enough. But it could be a real challenge marketing to the new rich?”

It’s official. The luxury industry is back after a short rest. According to an article in Forbes referring to the global consulting firm, Bain & Company's 2012 Luxury Market Update, the luxury goods industry is poised for full recovery in 2011. The report is authored by Claudia D'Arpizio, a partner based in the firm's Milan office.

The study covered some 220 luxury brands, which includes leather goods, fashion, jewelry, alcohol and cosmetics companies that serve high net worth customers, or those with assets of US$1 million or above and concluded that spending on luxury is expected to pick up to around $230 billion per annum by 2012. New millionaire from countries like China, India etc. will be leading the charge.

Rules of the game: While some golden rules of marketing remain, there are a few new ones that need to be recognized. The new rich seem to believe in the maxim - “If you’ve got it, you’ve got to be able to show it...or else you ain’t really got it”

There are those who think that, because of the current poor economy, the wealthy now want to be understated and subtle about their wealth. Well, as far as the new rich are concerned this idea is completely wrong.

Why Luxury Brands?: The rich patronize luxury brands for a variety of reasons. Although most would just prefer to say they buy for the quality of the product, the real reasons are more at the subconscious level – like peer recognition and approval, status, the admiration (envy) of the not so rich i.e. the aspiring rich etc.

Luxury Brands Marketing: Luxury goods brands deploy a wide variety of techniques to keep their brands within the mindset of their customers... both current and in particular future customers. While public relations and advertising in selected media has been the mainstay, savvy marketers have also used event sponsorship for decades... but mostly in name only.

However, in the last few years, a down economy has forced many luxury goods marketers to become more creative in reaching their target audiences.

Historically, marketers of luxury brands such as liquor, fragrances, timepieces, fashion and cosmetics have consistently pursued a luxury pricing strategy in order to maintain an impression of exclusivity. That strategy meant limiting the availability of products, price mar-ups etc. The thinking was, that their brands had to be guarded against brand devaluation.

But with luxury brands facing stiffer competition from new entrants and in an economy that’s presenting additional challenges, the risk of becoming irrelevant or God forbid! Being considered ordinary is very real, Luxury brands are now reinventing themselves to a whole new generation of potential customers. They are moving above advertising, that’s available to all with a budget, to considering unique, limited availability sponsorship of events and activities that are easily identified with the rich and famous, for differentiating their products.

Building Brand Image through Sponsorship: It takes a lot to build and a lot more to maintain a brand’s upscale image active in the minds of customers. And this is vital to the success of any luxury brand. There is no better and more cost effective way to build and secure that image than by regularly aligning with luxury events organized by equally luxury oriented organizations.

Take for example Richman’s International Millionaire Clubs. Its Charter Corporate Platinum Memberships is limited to just 100 globally, and is reportedly the world’s most expensive private club memberships. This particular class of exclusive membership offers much more that just one club membership with worldwide benefits not offered by any other club in the world. These memberships offer its holders exclusive rights to thirty years of corporate sponsorship rights to horse racing and other international millionaire events, at no additional cost - a value probably far in excess of the cost of membership. Of course the club probably has other classes of members who don’t necessarily enjoy these free sponsorship rights.

Luxury brands could sponsor both international and country specific events like the Richman’s Inter-World Horse Racing, Polo, Motor Racing, Golf etc. Challenges. In addition to on site attendance, these events indirectly reach a huge world wide audience of both the rich and rich wannbes through extensive television and Internet coverage of the event - thus prividing sponsors with media coverage at no extra cost. It would cost a substantial fortune to purchase this amount of media coverage through advertisements.

The point is that apart from just media coverage, sponsorship is a unique platform that has exclusive, specific and strong traits and personalities in identifying with and influencing both directly and subliminally with the wealthy and the rich wannabes. Selecting events with qualities most similar to a brand provides a very powerful vehicle for drawing attention to, and sustaining the image of the brand. Additionally, the lifestyles of these events’ patrons – i.e. expensive, exclusive with limited access etc. will greatly reinforce related qualities of the luxury brand over time.

Innovative Brand Building Relationships: Luxury brands must seek to stand out among their competitors. Therefore, the atmosphere in which luxury brands engage their most committed customers must match the exclusivity of the brand and the lifestyle it seeks to represent. Properly planned and activated hospitality programs leave a more lasting impact on the biggest customers than image-laden ads in high-gloss limited-distribution lifestyle magazines - a medium that lifestyle brands have traditionally leaned on for years. In using lifestyle magazines, it’s probably more cost effective to pitch them on co-sponsoring events or subsidizing hospitality programs rather than straight advertising in them.

The New Rich. Are they different?: Old money is just that – it’s OLD. It has it’s established habits and favored brands. It’s entrenched and less concerned with peer pressure or living up to the Joneses. Sad but true...Old money is a dieing breed and worst of all it’s buying less and less. “To survive and grow, luxury brands need to market to the new rich.”

Unfortunately the very people who are responsible for marketing and maintaining the image of many established luxury brands have grown old with their brands. Old – but not necessarily in biological age terms... but in philosophical and mind set terms. What worked well before may not work as well anymore...and the lean and hungry competition is just around the corner

In general, luxury brand purchasers are accustomed to being pampered, but they are also used to having access to the hottest parties, entertainment events and sports venues. Their experience threshold is much higher than the average fan. The new rich want all of this and more...and on more terms relevant to them.

For instance, a great view from a luxury hotel suite would be a truly memorable experience for most. For many consumers of luxury brands, it's an average experience. But for the new rich it’s more. They want the whole world to know that they can afford to stay at the luxury suite. The view is an added bonus.

Event Sponsorship provides a unique, non competitive, really exclusive platform for bringing truly memorable experiences to the new luxury consumer... and in a way he or she wants it. Perhaps the experience needs to be a bit over-the-top and maybe the average investment per invitee is going to be higher than the usual customer entertainment event but when you’re selling luxury to the new rich, coddling the customer just that much more is well worth the investment.

For more information on Luxury Brand sponsorship opportunities at Richman’s IMC organized events, please contact the author.

Luxury Industry Poised For 2011 Recovery

2009-06-10T19:58:00.000-07:00

"Conspicuous consumption isn't dead, it's just been on hold. The luxury consumer will be ready to spend again within the next year.”

This view is shared by the Richman's IMC, the soon to be launched chain of International Millionaire's Clubs, whose memberships have been reported to be the world's most expensive private club membership...

Acccording to a story by Lauren Sherman in Forbes referring to the global consulting firm, Bain & Company's Luxury Market Update: 2012, which will be released tomorrow, the luxury goods industry is poised for full recovery in 2011.

The Bain & Co report is authored by Claudia D'Arpizio, a partner based in the firm's Milan office. The study covered some 220 luxury brands, which includes leather goods, fashion, jewelry, alcohol and cosmetics companies that serve high net worth customers, or those with assets of US$1 million or above.

Growth to return: The global luxury industry has seen steady growth for the last 15 years but contracted by just 10% in the first two quarters of 2009 to 153 billion euros (or $215 billion), compared with 170 billion euros ($238 billion) in the first two quarters of 2008.

D'Arpizio says this decrease does not reflect a permanent change in the spending habits of the luxury consumer. Consumers were tiring of the recession and will start spending more freely again within the next year and a half.

Some other key findings from the report:-

Spending is expected to pick up again in 2011, with a full recovery in 2012. Global sales of luxury goods will stabilize in 2010 and increase by 4% in 2011 and by 7%-8% in 2012.
Consumers in emerging markets like China, India, Eastern Europe and Russia will begin aggressively spending as soon as the stock market fully rebounds.
China will see a 7% increase in sales of luxury goods in 2009. The less-developed interior of the country will see increases up to 35%.
High-end shoes are still selling well because of their accessible price point ($400-$2,000) and perceived quality.
Luxury brands whose core business is leather goods--such as Louis Vuitton, Gucci and Hermes will fare better over the next two years than those who focus on high fashion, such as Christian Lacroix.

While many luxury industry experts are in agreement that the sector will rebound in 2011, there are still others who believe that this downturn is different from others, and that consumers will permanently cut back on spending, particularly in the U.S. We shall see... Click here for the full story from Forbes...

Movers and Shakers Magazine: Sin Stocks Outperform!!

2009-06-02T18:45:00.000-07:00

Movers and Shakers Magazine: Sin Stocks Outperform!!

Latvia’s Unique Economic Cheer!

2009-06-01T19:17:00.000-07:00

According to The Sovereign Society’s latest Offshore A-Letter, Latvia is facing the worst recession of all 27 EU members.

As a solution to cheer up its citizens, Latvia has come up with the First Annual Blonde Parade. The LINK to The Sovereign Society is http://www.sovereignsociety.com/

Inflation is Not Coming...It has Arrived!

2009-05-31T23:26:00.000-07:00

Don’t be deluded into thinking that inflation “might be coming” in the future and that once you see the signs you can protect yourself.

Inflation is already here. And if you wait too long to take precautions, this silent thief will most certainly steal your wealth and...more

A Day at the Races in Old Shanghai?

2009-05-27T01:11:00.000-07:00

It appears that people in China, paticularly in Shanghai really miss horse racing, a sport that thrived before the Cultural Revolution.

They miss racing so much that they are even prepared to participate in a new horse racing game set in old Shanghai...more from Shanghai Daily...

$2,000,000 for cup of Starbucks Coffee in Hong Kong!

2009-05-20T19:30:00.000-07:00

Hey! What’s happining here? I thought we were in the middle of a global credit crisis.

But, it’s true my friends. According to a news story in CNBC this morning, HSBC, Hong Kong’s largest lender with more than 2 million retail customers, has cut the interest it will pay on HK Dollar deposits by some 90%... to almost nothing.

CNBC anchor Emily Lau has calculated that you’ll need to have HK$2,000,000 on deposit with HSBC, for a whole year to earn the miserable HK$20 it costs to buy a small cup of coffee at Starbucks.

Accoding to the news report, HSBC has come to this decision because there’s too much cash in Hong Kong. They call it Hot Money. Aparantly other banks in Hong Kong are considering cutting interest rates as well. HSBC is usually the leader in such matters.

So how does this happen when we are supposed to be in a middle of a global financial crisis?

I think maybe it’s because the HK Government has been pumping liquidity into the banking system.

So what’s an ordinary person expected to do to earn a fair return on their savings? Email me your thoughts at asjallmail@gmail.com

The Most Expensive Private Club in the World?

2009-05-18T01:43:00.000-07:00

Talks about recession and slower economic growth does not seem to have affected one Hong Kong company that’s accepted the challenge to develop the most expensive private club in the world...more

Marketing in China? Here are some useful tips...

2009-05-07T21:16:00.000-07:00

If you are marketing in China forget the hype about mass marketing. The secret is to go on one one.

Here is s link to an interesting article from Advertising Age - http://adage.com/globalnews/article?article_id=136421

Cheers!

RS Management Limited: NEW US ONLINE GAMING LAWS EXPECTED TO BE A BIG BOOST FOR INTERNATIONAL RACE COURSES

2009-05-07T20:30:00.000-07:00

RS Management Limited: NEW US ONLINE GAMING LAWS EXPECTED TO BE A BIG BOOST FOR INTERNATIONAL RACE COURSES

World's Most Powerful Luxury Brands

2009-05-04T18:54:00.000-07:00

In the continuing spirit of earlier blogs/messages on “Recession? What Recession!”, here is an interesting article by Lauren Sherman (as it appeared in Forbes), entitled “World's Most Powerful Luxury Brands”.

The article shows that despite the global recession, some luxury brands are retaining their value...more

RS Management Limited: Super-rich tycoons hold onto fortunes!

2009-04-29T20:52:00.000-07:00

RS Management Limited: Super-rich tycoons hold onto fortunes!

Greetings from China!

2009-04-23T18:58:00.000-07:00

I've been traveling with clients around China. Over the past few weeks, we’ve visiting various cities and today, I’ve returned from our Royal Nanjing Jockey Club racecourse development in Nanjing.

I'm truly impressed with the incredible things happening in China today, but more importantly my clients are now convinced that China is recovering quickly from the global financial crisis.

Over the past week, we observed the current state of the Chinese economy, and let me tell you, there's no doom and gloom here. Everywhere things are buzzing with economic activity. Good restaurants are filled to the brim with patrons. Traffic on the main roads is still congested. And shopping malls are crowded with shoppers.

In addition, we're seeing new roads, buildings and stores popping up all over the place. It’s pretty obvious that Chinese consumers are spending, and business owners are profiting.

All of which is presenting incredible investment opportunities for savvy investors. Let me tell you about one right now:-

One of my clients from Hong Kong is launching Richman’s, a chain of Mega Yachts and Thoroughbred Horseracing centric international millionaires clubs.

While Richman’s is international, it still has a heavy China focus particularly in regards to horseracing. Click on the RS Management logo to the right of this page to access the informational website.

Although Richman's memberships are not as yet open to the public at the moment, a special class of 100 Chater Corporate Platinum Memberships (CCPMs) are being made available to just one hundred corporations globally.

This class of membership, limited to just one hundred corporations globally, offers all of the benefits and privileges of the Corporate Platinum Membership - like global access, multiple nominees and full salability, in addition it guarantees exclusive, long term horseracing sponsorship and racecourse advertisement rights at Richman’s China Racecourses.

The sheer size of the consumer market in China, ensures that sponsorship of horse racing and advertising at race meets is worth billions and billions of brand building dollars...and with the Richman’s Charter Corporate Membership, just 100 global corporations will be guaranteed complimentary access to this privileges.

I’m sure that the Richman’s Charter Corporate Membership is one investment no smart global corporation wants to miss out on. Contact me for further details.

THE WORLD'S BIGGEST COMPANIES

2009-04-16T19:29:00.000-07:00

According to Forbes.com, even a depression is a place for opportunity if you have ambition, cash and scale.

Many of the names on this year's Forbes Global 2000 list of the world's biggest companies will emerge far stronger when world economies snap back next year as expected.

For the strong corporations, there are rivals to buy, technologies to fund and new markets to enter--all at lower prices than we've seen in years.

Microsoft’s Chief Executive Steven Ballmer says "Despite the economy, it's important to think about what is possible." More...

Recession? What Recession?

2009-03-12T23:19:00.000-07:00

Chinese Mining Millionaire Pays $7 million for a Patek Philippe watch & Rare champagne sets world record at HK wine auction (http://news.xinhuanet.com/english/2009-03/29/content_11093406.htm).

According to Richman's Millionaire Club's General Management Agency, R S Management Limited http://sites.google.com/site/rsmprojectssite/ "despite the doom and gloom we hear about all around us, there is still a lot of money around for a good value proposition. "

This is further confirmed by a recent article in the Hong Kong Standard where it was reported that a mainland Chinese Millionaire, who made his fortune in mining, successfully bid $7 million for a Patek Philippe watch. Here is the full story...

"Despite the doom and gloom of the current economy, a platinum watch donated by Patek Philippe sold for HK$7 million at the Tung Wah Charity Auction last week, exceeding pre-auction expectations. This was undoubtedly a timely help for charitable organizations suffering from dwindling donations amid these turbulent times.

The auction was conducted as a private party out of the media's glare. Bidding was furious, particularly before the price hit HK$4 million, with multiple bidders leap-frogging one another.

After the HK$4 million mark, it was mostly a neck-and-neck race between two bidders, one of whom was a proxy, while the other was reported to be a rich mainlander - who won the bidding.

This rich person was said to be from the northeast, who made a fortune in the mining business. The opponent, who remained anonymous, was said to be a great fan of Patek Philippe watches. He or she gladly bowed out after seeing the other contender make the generous bid of HK$7 million.

The elegant watch had a reserve price of HK$1 million, and was expected to fetch about HK$3 million. The fact that the timepiece eventually pulled in a staggering HK$7 million must have come as a very pleasant surprise for the charity that benefited. The high price also reflected the powerful draw of luxury watch auctions.

Members of the manufacturer's family also attended the auction, and met with the brand's local agent at a luncheon at the Peninsula.

At the gathering, the agent emphasized that Patek Philippe has no intentions of offering discounts to promote sales, despite the tough economic times, as the brand has always been treasured for its exceptional quality and service.

In the prevailing wind of cutthroat price reductions, it is heartening to see a brand that insists on competing on quality - not price." Says Siu Sai-Wo is chief editor of Sing Tao Daily.

CalSTRS approves $6 Billion for innovative assets

2009-03-06T19:37:00.000-08:00

According to Arleen Jacobius writing for the online edition of Pensions & Investments, CalSTRS, the California State Teachers’ Retirement System in Sacramento has agreed to invest up to $6 billion in distressed portfolios. The full story (and comments) follows:-

CalSTRS’ investment committee today approved committing $6 billion, or 5% of total system assets, to a new distressed investments portfolio that will include fixed income, real estate and private equity asset classes, said spokesman Ricardo Duran.

About $1 billion of existing investments will be earmarked for the program; the remaining $5 billion would be invested within a year by the $119 billion California State Teachers’ Retirement System, Sacramento.

Funding comes from reducing the system’s strategic target allocation to global stock by five percentage points to 55%. System officials are bumping up allocations to private equity by two percentage points to 9%, real estate by two percentage points to 11% and fixed income by one percentage point to 20%.

CIO Christopher Ailman stressed to committee members that the investments would be solid assets from distressed sellers who need to liquidate assets, said Mr. Duran, who attended the meeting. The staff is considering some residential mortgage vehicles but promised to return to the board with any recommendations.

Also today, the committee unanimously approved investing up to $2 billion in what system officials call an “innovation portfolio,” investing in opportunities that are outside traditional asset classes, Mr. Duran said. The investment committee approved the new portfolio without discussion. END

Comments: The $6 billion allocation, while substantial, is not really as innovative as it may first seem. Billionaire Warren Buffet made mostof his profits from just such investments i.e. buying quality assets when there was blood in the streets.

If we talk about really innovative assets - think of buying exclusive, but fully transferrable Millionaire Club Memberships during depressing economic times like we have now for resale when things improve. These assets have historically gained around 23% per annum.

More information may be found at http://sites.google.com/site/rsmprojectssite/

Amidst this global turmoil, is China still the best place to invest in?

2009-02-19T19:30:00.000-08:00

Well, according to Robert Hsu, Editor of China Strategy it certainly is. He provides his arguments below:-

“One of the hottest topics in the media right now is the rising unemployment rate in countries around the globe, especially with the massive layoffs occurring at some of the world's largest companies. Undoubtedly, rising unemployment is a big problem.

Case in point: Earlier this month, it was announced that the U.S.'s unemployment rate rose to 7.6% in January, with 11.6 million people in the U.S. currently unemployed. What's even more drastic is that in the last 12 months alone, the U.S. unemployment rate jumped 2.7 percentage points.

And the picture isn't any brighter for other developed and emerging nations. In fact, despite China's ability to maintain solid economic growth, the country has garnered the world's attention with its increasing number of unemployed migrant workers.

Due to the country's shrinking export sector, more than 10 million—perhaps as many as 20 million—Chinese factory workers have lost their jobs in the past 12 months. While 20 million is a huge amount of layoffs, we need to keep this figure in perspective.
China's current population accounts for more than one billion people. So, 20 million actually accounts for less than 2% of China's total workforce.

We also need to consider that this is not the first time that China has experienced an elevated unemployment rate. If you recall, back in the late 1990s, many of China's state-owned enterprises (SOEs) collapsed or became private entities. This compounded with the Asian Financial Crisis in 1997 to 1998 was a far more severe situation than the current unemployment issues in China, as more than 50 million former SOE employees were out of a job back then.

What helped solve China's unemployment woes in the late 1990s? China's expanding private sector. But the picture is different this time around.

What's Driving China's Economic Turnaround?

In the current situation, it is more likely that China's $586 billion stimulus package will help solve the country's unemployment problem, as it is funneling funds into infrastructure spending. So while many of the migrant workers who lost their jobs will return home to the countryside for subsistence farming, many others will find short-term jobs from infrastructure projects.

Early estimates project that China's stimulus package will create more than 40 million new jobs in the next two years. And the magnitude of this fiscal expansion will have the ability to offset a large percentage of the unemployment created by the decline in exports.

In addition, the strength of the Chinese consumer will help the service sector in China expand. Many retailers and businesses in the food service industry already have expansion plans in the work, which could create millions of new jobs this year.

In fact, McDonald's has already announced that it will open 170 new restaurants in China in 2009. This expansion will involve hiring 10,000 new workers and create thousands of additional jobs.

The growth in the Chinese service sector will also stimulate even more consumer spending, which you know is the leading driver of economic growth in China. So the fact that many Chinese businesses are expanding will likely boost domestic spending in China and propel the country's recovery forward.

I'm expecting the Chinese economy to turnaround in the second half of the year, and that's why I've been telling my China Strategy subscribers to start preparing now. We're already taking advantage of the increase in infrastructure spending from the stimulus package by investing in China Aluminum (NYSE: ACH)—China's leading aluminum producer—which is up 59% for us so far.
And we're filling our portfolios with Chinese companies that will benefit the most when China's economy fully turns around later this year. Just take a look at the gains some of my top recommendations have picked up since the Chinese markets bottomed on November 20:

China's leading medical device manufacturer—which expects to grow 20% in 2009— is up 80%. China's leading coal miner—which expects full-year 2008 profits to jump 110%—is up 60%. China's number-one restaurant chain operator—which expects earnings per share to rise 10% in 2009—is up 30%.

With gains like that in some of China's top companies, there's no denying that China's economy is already on the mend. It will be one of the few nations able to post robust economic growth this year, and that's why I think China will be the first economy to turnaround in 2009. That's a trend that you don't want to miss out on!”

Note: That's precisely why one of my clients, RS Management has invested in a Racecourse in China and has opened up some interesting opportunities for companies and individuals involved in horse racing – the Sport of Kings. Find out more...

What’s "Fair Value" for the Dow, Based on US GAAP Earnings?

2009-02-17T20:39:00.000-08:00

According to Chris Rowe, Chief Investment Officer for The Trend Rider it’s 3,931!!

Chris Rowe says “Two weeks ago I wrote an article "Why Dow 6,586 is "Fair Value" (or very overvalued!)" But that's only another 16% decline. That can happen in a single day or week!

Today I'm here to tell you that the market can, and probably will, trade another 30% to 50% lower before the next bull market starts. (NOT "BEAR MARKET RALLY", BUT "BULL MARKET"). As this happens, you can make huge profits by taking bearish positions. But I want to make sure you TOTALLY GET what I was saying two weeks ago, because it might mean the difference between your account's boom or bust!

The valuation that I was discussing was based on what the market considers "fair value" to be - AS OF THE THIRD QUARTER OF 2008. Based on some comments left on my article it seems this needs more explaining.

The market valuations of Dow 6,586 and S&P 684 PE ratio (price to earnings ratio) of the trailing 12 months as of the third quarter of 2008.

But after publishing the article, it occurred to me some of you may not be familiar with what that even means. So if you DO know what that means, then please bear with me for 3 or 4 paragraphs. (I promise this isn't an article about what PE is so, again, bear with me.)

If a company earns $1.00 per share and the price of the stock is $12.00 per share, then it's trading at 12 times earnings and it has a PE (price to earnings ratio) of 12.

If a company earns $1.00 per share and the price of the stock is $35 per share, then it's trading at 35 times earnings (with a PE of 35).

When a company earns $1.00 per share, how do we know what stock price is reasonable? Well, there are a large number of things to consider, but at the most basic level, when investors think the company will grow their earnings faster, they are willing to pay a higher price. Check out the example below where both companies earned $1.00/share.

Company (Stock) A

2004 earns 16 cents per share
2005 earns 20 cents per share (25% growth)
2006 earns 30 cents per share (50% growth)
2007 earns 50 cents per share (67% growth)
2008 earns $1.00 per share (100% growth)

Company (Stock) B

2004 earns 70 cents per share
2005 earns 78 cents per share (11.5% growth)
2006 earns 87 cents per share (11.5% growth)
2007 earns 93 cents per share (7% growth)
2008 earns $1.00 per share (7.5% growth)

Both companies earned $1.00 in 2008, but obviously company A is growing their earnings much faster. So even though they both earned $1.00 per share, company A will probably have a much higher stock price (because investors are willing to assign company A a higher PE ratio).

Okay, so we got that out of the way. Now I'm going to give you the very short version of what I'm saying about future market valuation ...

Corporate earnings are going down, as the global economy is in a recession (and may even slip into a depression). So if earnings for the S&P 500 over the last 12 months are $46.00 per share and the S&P 500 closed Friday at 826, then based on GAAP earnings (calculated using Generally Accepted Accounting Principles) the S&P 500 has a PE ratio of 18 because $46 (GAAP earnings) x 18 (PE ratio) = 826 (S&P 500 current valuation).

Now ask yourself: Why would we allow the S&P 500 a PE ratio of 18??

When the S&P 500 has a PE ratio of 20 or more, it's considered overvalued, a PE ratio of 15 is considered fair value, and a PE ratio of 10 is considered undervalued. But a low PE ratio is assigned to stocks when the earnings growth is expected to be low.

Now ask yourself: Do we expect stellar earnings growth, low earnings growth or NEGATIVE earnings growth?

There are two things that can bring valuation of the stock market down (in this discussion):

1. Earnings decline. The PE ratio I'm talking about is based on the GAAP earnings of the trailing 12 months ending in September 2008 (that's all the data we have so far, as we don't have complete fourth quarter earnings data yet).

Let's say you think the current PE ratio of 18 is reasonable (which it's not) and S&P 500 trailing 12 months earnings are halved over the next 6 months. That means S&P 500 earnings will be $23.00. If the market trades at 18 times earnings (PE of 18), then the S&P 500 will be at 413 (a stock market decline of 50%).

2. Lower expectations to a reasonable level. Now, if earnings really do decline by 50%, then we aren't looking at stellar earnings growth, are we? We aren't even looking a low earnings growth. We are looking at a market that should probably be assigned a PE of 10 or 15.

PE of 10 on $23 earnings = S&P 500 at 230 (another 72% decline)
PE of 15 on $23 earnings = S&P 500 at 345 (another 58% decline)

Even if earnings didn't decline, and we just saw zero growth for several years, the market should be assigned a very low PE ratio. If earnings stayed at third quarter 2008 levels of $46.00 and the market had a PE ratio of 13, the S&P 500 would be at 598 (a 29% decline).

OUCH ...

... for those who have no bearish positions.

Guess "what?" Q4 earnings season is almost complete. It looks like the S&P 500 will have a PE ratio in the 30s! If one more person comes out and says America is on sale I will be forced to use profanities.

Now maybe we get a nice pop in this stock market before that happens. That is TOTALLY in the cards. Anything can happen. Maybe the market rallies 25% before that happens. But if the market does rally, then start putting on your bearish positions. Members of The Trend Rider are hedged and prepared.

Are you?

I'd love to hear what you think. Do you believe that a PE ratio of 18 is realistic for the S&P 500? Are you at least hedged against the possibility of more declines ahead? Please let me know your thoughts by commenting on this article below.”

A few investment predictions for this year!

2009-01-15T20:56:00.000-08:00

Ok, friends here are some interesting and unusual investment predictions for this year (2009). They have been researched from various information sent to me.

Oil & Gas: Oil prices will keep sliding in the early months of 2009, forcing the price of gasoline at the pump in the USA to as low as $1.15 per gallon. Oil-exploration stocks will also tumble. However, shrewd investors should look for bargains in the rubble, because after this massive shakeout, oil will rebound and soar through $160 a barrel in the following 18 months. I have identified some companies but cannot disclose them here as that may constitute giving investment advice.

Oil Exploration: A small group of speculative drilling stocks clustered near the Arctic Circle may soon explode. But don't bet your mortgage money on them. They rose 118-to-1 in the past and could do so again.

Dow Jones: Much to the surprise of many experts, the Dow will reach 11,000 plus in 2009 and eventually top 22,000 within the next five years. This could give savvy investors a historic opportunity to multiply wealth.

Alternative Energy: An automobile powered by wind-power with a top speed of 40 plus miles an hour will hit the market in 2009. Sales will be modest, but it will establish wind power as the winner in the alternative-energy race. Investors in wind-power stocks will enjoy the initial leg of a multi-year surge that will generate payoffs of $40-to-$1. I’ve found a few ways to play wind power.

Infrastructure: Similar to make-work programs of the 1930s, US President Obama will pour billions into rebuilding the nation's highways, bridges and other ailing infrastructure. Many other countries will be doing the same. I have my eyes on several construction companies whose revenues should benefit but again cannot disclose them for the same reasons offered earlier.

Shipping: The recovery investment of the year will be shipping stocks. After plunging more than 90% in 2008, these stocks are ripe for a major rebound. I have developed two ways to cash in with yield expectations in excess of 20%.

Nanotechnology: Early investors in this field will get an opportunity of enormous proportions, similar to cellular in the 1980s. Some very smart people are calling Nanotechnology the opportunity of the century.

Timber: The hidden resource investment of the decade will be timber. I expect wood will beat both stocks and inflation hands on this year. I’ve found some opportunities, including a way to acquire prime woodland for under $35 an acre.

Water: I predict that a limited war will erupt over water. I’ve found two companies that have positioned themselves several years ago, to exploit the increasing scarcity of nature's most critical resource.

Strategic Metals: Continuing violence in the Congo region will cut off supply of a scarce metal needed by the defense industry. Prices will soar, along with profits, if you’re able to establish a position in this metal now.

End of current recession: The current recession will end around June 2009. However, certain industries would have been decimated and their stocks will be at very low prices. This will increase takeover fever in corporate America. Investors who have taken strategic positions in these takeover targets will reap huge gains. END

IS IT REALLY THE END OF AMERICA?

2009-01-07T22:24:00.000-08:00

Can we imagine a world without the United States in it?

Recent headlines would have us believe that we are moments away from just such an eventuality. While history has taught us that all empires must eventually end, for various reasons I still believe that America will continue to endure far, far longer than most doomsters would have us believe.

Of course, there is no question that as a nation, the US of A had to now make great changes in order to right its current economic woes. The national debt is ridiculously high ... the government spends far more than it takes in, the financial regulation enforcement system is a joke. Just more regulation is not necessarily the answer. Better enforcement of existing rules is.

In 1999 a concerned Wall Street insider sent the SEC a 19 page document that explained in clear, easily understood English the exact nature of the alleged fraud being perpetrated by Bernard Madoff. Point by point he laid out how Madoff had to be lying.

The SEC just had to match the trade tickets with the reported counter parties and they would have busted this fraud wide open. I’d like to believe that they weren’t paid off ... but if corruption wasn’t at the root of this carelessness then, the only other explanation is total incompetence. For most however, the idea of a corrupt agency would sit better than an incompetent one.

President elect, Barack Obama has promised change. His time is almost here. The SEC essentially needs to be started over again. The U.S. Government has started enacting the largest stimulus package in US and indeed world history. I hope they'll earmark some of that money to funding efficient enforcement.

Some clear winners from all of this government spending will no doubt be the green technology sector, infrastructure, heavy equipment and education companies.

That leads us to the question of who is going to pay for all of this lavish spending?

It is the rest of the world, that’s who. They will buy up US Government bonds like they were going out of fashion.

But Why?

Well, because the fastest way to get their own economies to turn is to help the US economy turn up first. The U.S. is the engine of global economic growth.

It may not always be that way because Asia is fast catching up and the Europeans will finally get their act together and start acting in a more cogent manner. But till then my friends, in the real world we live in today, it’s the US economy that drives the world economy.

Where do you think China, Japan and the Arab world’s huge foreign reserves came from? From US residents massive buying habits. That’s where all of that global wealth came from. US buying habits paid for China’s shiny new roads, paid for Dubai’s gleaming new towers, and gave Japan the world’s second largest GNP. US buying habits, not theirs. These countries have nothing, build nothing, sell nothing without US demand.

US citizens are the most efficient and hardest working group of people in the developed world. Their collective earning power is truly magnificent. Their limitless belief in themselves and in a brighter tomorrow is their greatest economic weapon.

Let’s be clear though, Americans have gorged themselves on a plate of plenty that was fueled by easy credit and massive financial leverage. Now, they have to pay the price. That means 2009 will be a very tough year. Unemployment will rise, crime will increase and many more families will lose their homes.

In short, Americans will experience the hardest recession they’ve seen since the 1930’s. Personally, I don’t see government intervention reaching consumers fast enough to stave off severe pain in the so called “real” economy.

However, let’s not confuse a severe cold with a terminal illness. I see many jumping on the “America is dead” bandwagon. America is not some abstract idea. It’s about some very resilient people that will refuse to embrace this media-fueled dim view of America’s future. I am confident America we will overcome.

The US may be battered and bruised, but I very much doubt there is anyone or any country out there that we will replace America. END

BEWARE!! Madoff Fallout Not Yet Over!

2009-01-02T21:44:00.000-08:00

If you were a Madoff Investor who got out earlier don’t celebrate just yet. You may still be liable to return the money under an obscure legal doctrine called 'fraudulent conveyance’

As the days and weeks go by, the list of Bernie Madoff’s victims just keeps growing. Everyone from Kevin Bacon and Eliot Spitzer to the Palm Beach Sheriff’s Department pension fund, the scam is proving to have a wide impact on the business world and American society as a whole.

That’s reasonable. After all we’re talking about US$50Billion of the hopes and futures of a great many people. Recourse is certainly the way for these poor investors.

But what about the lucky ones?

What about those who kept some money with Madoff and then lost confidence & withdrew their funds? Surely they’re breathing a sigh of relief at having saved their nest egg from this catastrophe.

Not so fast, says The Wealth Society’s Consultant Mark Nestmann. “If you invested with Madoff, decided that the returns were too good to be true, and subsequently withdrew your money before his Ponzi Scheme was exposed, you might not be able to keep your money.

Madoff's creditors might claw your profits – and even your original investment – back from you under an obscure legal doctrine called 'fraudulent conveyance.'

“Fraudulent conveyance laws exist to prevent debtors from giving away their assets to others to avoid paying their creditors,” Mark continued, “Let's say that a member of your family operates a Ponzi Scheme. He then gives you US$100,000 without disclosing the fact that the funds are the proceeds of a fraud. Under fraudulent conveyance laws in effect in all 50 US states, that US$100,000 isn't rightfully yours, even though you knew nothing about the Ponzi Scheme. The victims of the fraud can thus sue you to reclaim the assets for an extended period—four to six years in most states.”

“Using fraudulent conveyance laws, the clients Madoff defrauded – or more likely, the bankruptcy trustees appointed by the court to pursue Madoff's assets – can sue clients "lucky" enough to cash out before the scam was discovered. Indeed, bankruptcy trustees are legally required to pursue every possible source of funding to recover assets on behalf of the fraud victims they represent.”

“In any event, the lawsuits in the Madoff affair have already begun. Many more will be filed in the weeks and months ahead. Investors who cashed out before the collapse that can't pay what a bankruptcy trustee claims is their "fair share" will be forced into bankruptcy.

Let's hope they have a good asset protection plan in place – an offshore trust, offshore annuity, or other vehicle resistant to legal claims from a future unknown creditor.” END

A strategy for the new year!

2009-01-01T18:54:00.000-08:00

Learn from Warren Buffett's dirty little secret …. He calls them "workouts."

You probably wouldn't expect the world's most successful value investor to come up with such a pretty euphemism for his forays into the world of distressed debt.

In his hedge fund years, from the mid-fifties into the late sixties, over half of Buffett's profits came from what he called ‘workouts.' These were special deals, mergers, and spin-offs that often involved trading large quantities of distressed debt. And in the decades that followed Buffett continued to trade in distressed debt, sometimes through "Private Investment in Public Equity" (PIPE) vehicles or arbitrage strategies.

Indeed, a good portion of Berkshire Hathaway's riches and Buffett's fortune has come from the distressed debt arena.

Most value investors would scoff at the idea of investing in distressed debt. But the Oracle of Omaha has a life lesson for these guys...

Warren was acting in accordance with one of the first rules of value investing...buy when there's blood in the streets.

And my friends, there's a tidal wave of blood on Wall Street right now. Especially in the fixed-income arena. Don't be surprised to see the Oracle making more of these subtle deals on distressed debt as the credit situation calms down in 2009.

Most investors have been taken over by panic. And now they're running for the hills. De-leveraging their own bets, minimizing their exposure and running for the safety of dollars and T-Bills. But in their uniform insanity, they're fleeing to ‘safety'...and not value.

Despite the credit-binge that’s lead to the current crisis, and atmosphere of craziness that’s permeating the investment world at the moment...take a page from the Oracle from Omaha and give some thought to the opportunities in distressed debt. END

MADOFFONOMICS. WHAT CAN WE LEARN FROM IT?

2008-12-27T23:50:00.000-08:00

When petty criminals get caught, they go to jail i.e. incarcerated (a politically correct word for castration). The biggest criminals of all however, get promoted, appointed and elected to the highest positions of power.

While Mr. Bernie Madoff didn’t exactly run the country, he did once run one of the world’s largest financial exchanges, when he served as Chairman of the NASDAQ.

I’m sure that by now you’re all familiar with the story. Madoff ran a classic pyramid scheme, where yesterday’s “investors” were paid off with money from new investors. This is called a Ponzi scheme and is illegal. Bernie’s fraud finally collapsed when there were not enough new victims to support the growing withdrawals. In a story that’s become all too common in modern finance, the former “pillar of the community” turned out to be a slick con man with an amazing lack of conscience.

You’d expect that Bernie must be in shackles at Guantanamo Bay right now. Perhaps he has already been tortured and moved to solitary confinement. Nope. Even worse! He’s currently under home detention under a nightly curfew (a curfew!).

The media often presents a story like this as if it’s an open and shut case. But like many of Madoff’s investors, I’d bet there is a great deal about what went on here, we don’t know.

First, we’re asked to believe that not one, but tens of sophisticated hedge funds and international banks circumvented their internal risk control procedures and did not carry out even the most elementary due diligence. They invested in a black box system with constantly high returns, a lack of third party oversight, a total mystery of what was actually being invested in, with a one-man accounting firm auditing the multi-billion dollar operation.

We are also asked to believe that Madoff orchestrated the entire fraud, acting alone. His family, his traders, his inner circle, his employees had any idea that anything was amiss. COME ON!

Neither of these scenarios is believable, in my opinion. The purpose here is not to dissect the scam. I’m sure the details will be forthcoming in the months ahead – if not from the mainstream media, then surely from other reliable sources. Rather, my intent is to discuss what we can learn from this situation and how can it guide your investing in the months and years ahead.

Have We Learned Anything?

YES we have learned that we cannot always rely on what we hear and what we see at first glance. I am reminded of a sales meeting a friend had in 2000 with executives of Enron at their headquarters in Houston. After his presentation, he was given a short tour and asked if he wanted to see their trading operation. It turns out that a couple dozen Wall Street analysts were there as well. All left duly impressed.

It wasn’t until a year or so later that everyone learned the whole thing was a sham. Not only were the company’s profits “fiction”, but so was the trading floor. It might as well have been a movie set. Enron had staffed and decorated the trading floor to impress, pronounced deceive Wall Street analysts into believing that the company was operating a thriving energy trading operation.

In a BBC article, Enron employee Carol Elkin said, “It was an elaborate Hollywood production that we went through every year when the analysts came there to impress them to make our stock go up. It was absurd that we were doing this. But the most absurd part was that it worked.”

There is an old proverb that says, “The fish rots from the head down.” In the case of the USA, I’d say the proverb applies. The New York Times suggests that Madoff’s scam “may be the largest Ponzi scheme in history.” Unfortunately, it is not even close.

Do you know of the Ponzi Scheme of “Unfunded Liabilities”?

There is no bigger Ponzi scheme than those operated by the Federal government – Social Security and Medicare. Both programs are nothing but an inverted pyramid with money from new contributions going to pay for withdrawals. The only difference is that Charles Ponzi and Bernie Madoff didn’t force people to give them money.

However, the eventual result will be the same, just on a much larger scale. As the withdrawals inevitably swamp the new contributions, both programs will end in disaster and disgrace. And for that matter, what is the difference between Madoff’s scheme and that of the big banks who have finally had to admit that their own financial statements were bogus and many of their “assets” worthless.

If nothing else, I hope that people will wake up to the fact that in a fiat money system, the entire economy is based on a Ponzi scheme of ever-expanding debt.

Regulation? What Regulation?

When a fraud of this magnitude comes to light, politicians and their gurus come out of the saying that better regulation and more laws are needed. Wrong! Fraud is already illegal. And as long as we have a crony capitalist system, cronyism will always trump regulation.

Regulators are invariably selected from the organizations they are meant to regulate. The public agencies become corrupted and ultimately beholden to powerful private interests. In any case, regulation can actually be part of the problem. The SEC has helped to foster a mentality of trustworthiness in the financial system that we now know was totally undeserved. When investors are mesmerized by the illusion of regulation, they make decisions they would not otherwise make.

Who or What Can You Trust then?

If you can’t trust the government… the banks… the regulators… the financial exchanges… or even the companies we invest in who can we trust? Well! We just have to learn to keep a wary eye on all these organizations as far as your money is concerned. I would also suggest that we invest a portion of our assets in the rare asset that has no counterparty risk – physical gold and silver. Gold that you can hold in your hand. If all else fails, you still have something that has maintained its value and has been desired for virtually all of human history. Think about it for the New Year. END

It's Christmas. Forget all the doom and gloom?

2008-12-21T07:04:00.000-08:00

About a week ago I posted an article called ‘Could the Dow drop to 6,000?". Really Scary Predictions. I don't even want to read the article now. Frankly I'm sick of all the doom and gloom predictions. I just really and truly can't take any more of it.

In the past few weeks I have read dozens of articles about how we are facing imminent collapse of the dollar, the fall of the American economy, the ultimate crash of the stock markets, another huge wave of foreclosures, and how a depression is unavoidable. And now there is the Bernard Madoff Ponzi scheme! There isn't one day that the media doesn't load up on negative stories. To tell you the truth, after I get done perusing all of them, I just feel like crying!

Enough is enough!

I admit that I have been guilty of piling on the doom train as well. I was angry, and I was amazed at the level of anger that could be seen in reader comments as well.

But hey. Christmas is just days away and here’s my new look for the Holiday season...

If you really want to read how bad things are, I can't help you today. I'm now going to detail for you several events that I’ve noticed recently that are in fact positive:

Resiliency in the stock market:

Have you noticed lately that, with few exceptions, the market seems to sell off on bad news in the morning, but then turn around by afternoon and rocket higher? This resiliency is a good sign, and very different from what we had previously been seeing. Yes, I know this tends to happen when the market is oversold, and yes I know there are seasonal biases at work, but I'd still rather see green numbers than red on my portfolio spreadsheet! And even if we are only witnessing bull traps in an ongoing bear market, one can still make money in the short term by trading them.

Increasing demand for distressed real estate:

Despite a tightening of mortgage standards, I am beginning to see an increased demand by both owner occupants and investors for buying foreclosures and other distressed properties. I personally know someone who purchased two more properties to add to her rental portfolio. The real estate market needs to be purged of the huge inventory of distressed homes before fair market, non- distressed re-sales will improve. We are now seeing the first steps toward that ultimate goal. Granted, it could take several more years, but at least there is a light at the end of the tunnel. Let's hope that light isn't from an oncoming train!

Declining oil and gasoline prices:

When it comes to making predictions about oil prices, I have seen everything from a plunge to $10 a barrel, to a jump back up to $100 a barrel or more. Right now, oil is at four-year lows below $40 a barrel. Who knows what will happen?

But I do know that lower gasoline prices translate into more money in Joeb and Betty’s wallets, and that means additional revenues to spend on other goods and services. Who knows, there might even be a few bucks left over to save! Remember saving? What a concept.

In addition, we should begin to see a tempering of some of the higher supermarket prices that were formerly blamed on high energy costs. Lower gas prices also means that auto and airline travel should increase in 2009 as well, and that will be good for hotel and entertainment stocks. Perhaps even the casino stocks, which have been seriously annihilated, will show some signs of life.

Excesses being rung out of the economic system:

We can all agree that recessions are terrible events. People lose their jobs, values on stocks and homes decline considerably, and fear grips the land. Just witness the recent panic flight into treasury notes with zero percent interest being paid! And yet a recession does serve to rid the economic systems of bubbles and excesses.

We know that stocks were a bit too expensive last year. Oil near $150 a barrel this summer was absolutely a bubble waiting to burst. Certainly real estate was an overblown bubble in 2006. Several readers have rightfully noted that home prices need to return to former levels near three times area incomes to become affordable again. That is clearly on its way to happening now in many areas of the country.

Is there a silver lining to the dark cloud of recession? I think Yes! Assuming you still have a job and some money to spend, it's in the bargains one can find on retail goods and services. During the recession of the early 1990s, I can still remember how I furnished my first house with furniture that the stores were practically giving away. Just the other day, I saw a fellow with a sign on his back, advertising 40-60% for a store that’s closing over 150 stores nationwide.

Retailer's loss is the consumer's gain during a recession:

Recessions will come and recessions will go. But above all else, if you have your health and your loved ones around you this holiday season, that's the greatest wealth that one can have. So let's all take a break from the gloomy despair for at least this next week coming, and try to enjoy the things that we already have, and the people in our lives who mean the most.

I want to wish you all a very happy holiday season.

Merry Christmas my friends!

Could the Dow drop to 6,000?

2008-12-17T20:06:00.000-08:00

I wish I could say NO! But I can’t.

So far the gurus of the investing world have called about a dozen bottoms since the downhill slide began. But they’ve been wrong every time. Every time! And when I hear them saying, “It’s different this time,” it makes me cry. A low-volume move up from the lows lacks any sort of conviction. Bailout after bail the job losses continue.

All the desperate moves coming out of government mean one thing and one thing only: The economy continues to deteriorate at an incredibly alarming pace. And we’re not about to get any lasting stock market rally until mid-2009, at best.

The next stop on the downside? Sadly, we could easily see 6,000 on the Dow.

At best we are stuck in a tiresome holding pattern – one that raises false hopes, only to dash them again and again. Until all the bad news is out. Until someone else is lending money other than Uncle Sam. Until businesses start hiring and consumers start spending again. Until then, we will probably see bear market rallies; but then the inevitable busts will continue.

Has investing changed? Buy-and-hold stocks? Own the indexes and never give it a second thought? Invest in big companies, because they’re safe?

Sadly not anymore. A passive approach now virtually guarantees losing money. You must actively manage your portfolio. That includes discarding any long-side bias for the moment and taking advantage of opportunities for money-doubling gains on the short-side.

It’s time to trade on the short-side of the market, using easy-to-execute strategies to build wealth from stocks that go down. Short-side investing is not just a bear market game. Even in good times, there are plenty of bad companies with outdated business models, lousy products, and crummy service that get their heads handed to them by the competition.

In 2007, an up year for the markets, short-side investors enjoyed scads of winning trades, banking gains of 37%-312%! Some even doubled their money or better. In 2007, you could have earned fat short-side gains – and the same goes for any year – to supplement your long-side winnings. In times like these, it’s a feast of profits.

How to do short-side investing.

I never suggest shorting stocks directly - the risks of “naked shorting” are much too high. Instead, buy stock options. Options leverage a small move in the underlying stock into big gains while minimizing the risk. You could trade put options to earn huge winners in losing stocks. Best of all, it’s easy. All you need is an account with a good options broker. These days trading online is inexpensive.

Here are some trades I heard of:-

$2,000 in a Dell trade turned into $4,420 in 18 days. $3,000 in Sears trade turned into $6,690 in 15 days. $5,000 in a Nordstrom trade turned into a $10,550 profit in 9 days. $7,000 in a Retail HOLDRs trade turned into $15,050 in 4 days. $10,000 in a Patterson Companies trade turned into $21,200 in 2 days.

In percentage terms many traders in put options have already doubled their money or better over 57 times during 2008. As the housing sector cratered earlier this year, they banked fat gains from everything related to that crisis in confidence, including 121% gains by trading materials supplier Masco, 152% gains from Home Depot and 175% gains from mortgage giant Countrywide Financial.

As consumer confidence took its first big dip after last year’s holiday season, many bet against the retail sector for 155% gains from Liz Claiborne, 100% gains from 99 Cents Only Stores and 137% gains from Martha Stewart.

Then as the financial contagion spread, banking sector trades generated even more big profits like 179% gains in a Citicorp trade, 146% gains from the Financial Sector Spyder, 285% gains from Bear Stearns, and as the U.S. economy continues to tank, the beat just goes on and on, across the board, for profits like 100% from Sun Microsystems, 115% from Wachovia, 108% from Patterson Company, 109% from Amgen, 114% from Bank of America, 202% from Sovereign Bancorp; and more.

The Carnage Isn’t Over!

The US and global financial system will NEVER be the same again. You’re kidding yourself if you think otherwise. What started as a sickness in the housing sector has morphed into a full-blown epidemic, one that has spread through the economy like the 1918 killer flu.

Consumers have nothing to spend. Banks have nothing to loan. Businesses don’t want to invest or hire. Their sales are sinking. Their profits have evaporated. And their stocks are toxic.

This market downturn is far from over.

The Feds just revised 3rd-quarter GDP to a negative 0.5%--with the 4th quarter expected to be worse. Durable goods orders plunged 6.2% in the latest report. We’re looking at the worst job losses in 3 decades. And manufacturing has collapsed across the globe. At best, we’re looking at the longest, deepest slide since the Great Depression.

So for investors, there’s no choice but to consider trading on the short side as well. Sure there will be up days for the markets, but that will just give even more opportunities to profit. I think we could easily see the Dow at 6,000 or lower before we’re done.

And when the tide finally turns, you could still be making plenty of money on the short-side. Investors should not just focus on the macro economics but also on the fundamental outlook of individual companies. And you can’t just put lipstick on these pigs. Some companies are destined to falter--even in the best of times.

Over the next 12 months, or so even if the Dow does not quite drop to 6.000, there’ll be many companies for the picking. Even a small investment can grow in a hurry.END

Cheers!

Nationalize all banks and permanently solve the Global Banking Crises!

2008-11-26T01:41:00.000-08:00

Extract of interview by Jayke Umarezz as appeared in various publications. Please also read comments and related articles at the end of this extract.

In an exclusive interview by Jayke Umarezz, Dr A S Johan revealed his views as to how he believed the current global banking crises could be successfully and permanently solved….so that the global economy may allowed to prosper again.

Dr Johan made it clear that, in his opinion, the world’s current problems can be clearly defined as problems caused by banking industry excesses.

“As long as banking is privately owned and run as a business for the benefit of its shareholding investors, as it has to be, we will continue to have this problem of excesses over and over again” he said.

He went on to say “Banking like healthcare, water, energy etc. is an essential service industry that people need to survive in order to be productive and contribute to a country’s economy. They have an overriding social purpose that cannot be achieved through a private, for profit structure.

Don’t be mistaken, as an entrepreneur myself, I am in support of capitalism. I believe capitalism is the only system that encourages productivity and savings. However, I also believe that banking and other essential industries like healthcare, water, energy etc. just cannot properly and honestly serve society in a privatized form.

If banks are run as privately owned businesses, they cannot avoid taking on greater and greater levels of risks and eventually reach the excess we now know about. Because, in order to survive, banks must produce returns, expand and attract investment capital. The current banking crises is a direct result of competition among banks.

In all fairness, we cannot blame bank management for doing what they had to do to stay competitive. In our misguided belief that competition in a social service like banking is good and more is better, we have once again shot ourselves in the foot….and in the process almost wiped out the savings and wealth of millions.

Bailouts through equity injection and purchase of toxic assets only serves to support the excesses of management and the greed of shareholders….at the expense of innocent depositors.

I believe that In order to restore confidence once again and this time to keep it permanent, each country really needs just one credible national bank whose customer deposits are fully guaranteed by the Government.

I propose that all existing banks registered in a particular country be merged into one large Government owned bank. Pre-merger, all current shareholders of these banks will be bought out at net asset value per share by crediting them for the sales proceeds with deposits in the new nationalized bank. Such a state owned bank may expand its operations to other countries if it wants to but the host Government will make it known that only deposits received and registered at their home country will be guaranteed and not deposits taken in at a foreign subsidiary or branch. The Government of that foreign country may guarantee the deposits of its residents with this foreign bank if it so wishes.

Directors of these new nationalized banks will be appointed by Government and held accountable for their decisions just as other Government appointed heads of departments are. Management and staff will effectively become Government employees with salaries and benefits similar to other equivalent Government employees.

I do not see any issue of service efficiency. If other Government employees like the police, immigration etc. can provide reasonably efficient services, I don’t see why banking staff cannot.

The new nationalized bank’s checking (current), savings and deposit accounts will be 100% guaranteed by Government as to principal and contracted interest. These new state owned banks will also offer basic home mortgage and business loans to its domestic customers on a properly collateralized basis, in line with each Government’s policy.

State owned banks will therefore exist only to provide basic deposit and loan services and will not engage in investment management services, securities brokerage, private equity, venture capital etc. Their cash surpluses will be invested exclusively in National / Federal Government Bonds and profits if any paid to their respective Governments as dividends.

Non deposit taking services like investment management services, securities brokerage, private equity, venture capital etc. will be offered by licensed and regulated investment and brokerage firms who cannot call themselves banks.

Businesses, corporations and investors who need these services and can afford the costs and risks associated with dealing with these firms, may do so freely. However, they will be told, in no uncertain terms, that their accounts with these firms are not guaranteed by the Government.

It may however be a good idea to establish a credible clearing house funded by mandatory, dynamic contributions from all such investment management services, securities brokerage, private equity and venture capital firms.

National banks who wish to expand their banking services beyond their national borders will only be allowed to deploy their foreign country registered deposits (which will not in any case be guaranteed by their home country Government) to finance loans in that country.

If they try to fund such loans through inter - bank deposits they will find other banks reluctant to extend large lines of credit for long periods in view of the non guaranteed status of such inter – bank facilities.

Each country’s national bank will only enjoy a rating equivalent to their Government’s credibility and the amount of their guaranteed deposits. This will discourage banks from expanding overseas simply for the sake of expansion.

In fact the relationship by one country’s Government postal service with other country’s postal service regarding the international delivery of mail through the offsetting of stamp sale receipts could be a good example of how the future of international banking relationships could evolve.

The recommendations I’ve made here with regard to banking will apply to other essential services like water, power, healthcare etc. as well. So let’s get back to honestly and fairly providing the basic services that every citizen needs and can all rely on.

No doubt there may be many out there who could have issue with my proposal. If so, please let me know your views and together we can try and create a safer place for our savings”. END

Following is a response and a related article from L.M. Arndt of San Rafael California:-

Dr. Johan, I am ecstatic! I just found and read your essay, "Nationalize all banks and permanently solve the Global Banking Crises!"

I totally agree with your conclusions, which I'm delighted to find dovetail with my own. In the course of articulating a similar argument, I happened upon your comments – a breath of fresh air in an otherwise dismal miasma of foggy thinking. I make no claims to expertise as an economist, but I have lived a few years, and paid at least some attention, and it has become increasingly obvious that the current banking system is fatally flawed – for the reasons you so cogently articulate. You also analyze precisely how a nationalized banking system would function. Your knowledge of the internal workings of banks far outpaces my own, yet we have independently arrived at the same conclusion, that, as you put it, “Banking, like healthcare, water, energy etc. is an essential service industry that people need to survive in order to be productive and contribute to a country’s economy. They have an overriding social purpose that cannot be achieved through a private, for-profit structure."

I respectfully submit the following, all of which I wrote before reading your essay. I would greatly appreciate any comments you may have. Also, if there is any possibility of a face-to-face meeting and conversation, please so advise.

L.M. Arndt, San Rafael California

Why would it not be a good idea for our government, i.e., We The People, to own and operate the banks in our nation? By L.M. Arndt

The banking “industry,” as we know, is not an industry at all and creates nothing of real value. Moreover, it requires, indeed demands, a constant infusion of money in order to cover the interest it charges.

Nevertheless, it provides an essential service, very much like other governmental services such as streets and highways, police protection, food safety, environmental quality, a justice system, and national defense.

Contrary to popular belief, the Federal Reserve, the “central bank” of the United States, is not owned by the U.S. government, nor is it a single “bank” but comprises 12 regional Federal Reserve banks. The system is, at least theoretically, controlled by a governmental agency, its Board of Governors, but actual oversight power is held by the Federal Open Market Committee composed of the president of the Federal Reserve Bank of New York and presidents of 4 other Federal Reserve banks, serving on a rotational basis. The regional Federal Reserve banks issue shares of non-tradable stock to member banks, whose stock may in turn be held by banks in other nations, giving rise to the claim that foreigners own the system. The governmental web site describes the system as “independent within the government.” If the original intent was to create a banking system separate from and uncorrupted by politics, history has amply demonstrated abysmal failure.

Until 1933, collateral to back up the nation’s money supply was the gold stored at Fort Knox, but the real wealth of a nation lies in its land and its people, i.e., the common wealth. Forests can be managed to produce a sustainable yield – or they can be mismanaged, with clear-cutting that causes erosion, silting of streams, and destruction of fish stocks. No tourist ever traveled to California to see Big Tree stumps.

So it is with farmland, streams and rivers, towns and cities. Poor farming practices, polluted streams, deteriorating buildings, all reduce the nation’s common wealth. So it is with the citizenry. Well-educated citizens are able to fulfill higher-level jobs and therefore are of greater value. Healthy citizens have a longer working life and require fewer medical services. Responsible, creative and engaged people make wiser personal and political choices and are of greater benefit to the nation. People who are in dire economic straits, suffering poor health, ignorance and apathy will fill our prisons and overwhelm our welfare systems.

For a nation to increase its “common wealth” requires a sensible, operational basic economic system. That we do not have, nor do most nations in the world. In the current monetary system in the U.S., banks MAKE MONEY by lending and then use the debt as an asset to lend more, on and on, which is what has brought this economic crash, not the first, I might add – and coincidentally has sucked up even more wealth into the pockets of the already very wealthy. Year after year, this system has redistributed wealth upward.

We desperately need a REVERSAL of the entrenched wealth-redistribution system!

So here’s my concept: Suppose that our GOVERNMENT, i.e., We The People, OWNED THE BANKS! Government, using our common wealth as collateral, would issue our currency. Yes, “national banks” would be “NATIONAL” banks, taking deposits, making loans, managing credit cards, etc. All the interest currently being siphoned upward into the pockets of bankers would be used to operate our government. That’s a tremendous amount of money, and I’m wondering if it might not be enough to SERIOUSLY lower taxes or even eliminate taxes entirely!

Under an economic system of truly “national,” i.e., government-run, banks, corporations would continue in business (although limited in size so that NO such entity becomes “too big to fail”). Entrepreneurs could easily get loans to start new businesses. Small companies could get loans for operation of their businesses. Ordinary people would have money to spend or save, credit cards would charge a reasonable rate of interest, and usury would become only an unpleasant memory.

Estimates of the bailout now nears $3 trillion. Rather than throwing it at privately owned banks and lenders, our government could buy controlling interests in smaller banks, those otherwise likely to be bought up by banking behemoths. With ownership of these banks, government could immediately begin to make loans and thereby ease the current credit crunch. We wouldn’t need the likes of CitiCorp with its usurious interest rates, punitive fees and charges, and its inherent arrogance and irresponsibility.

In order to have a truly healthy economic system, one that does not continue to redistribute wealth upward, we’d need to make some other corrections as well:-

Raise the minimum wage,
End subsidies to corporations that offshore jobs,
Ban the practice of avoiding taxes by setting up offshore offices,
Require that our government fulfill its traditional obligations rather than out-sourcing and privatizing (which the Bush administration has done in many areas, up to and including our military),
Eliminate the special Social Security tax and put Social Security into the federal budget.
Impose any necessary taxes on an equitable, progressive basis. (Even Adam Smith wrote that “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”)

It seems to me that a fully nationalized banking system would introduce more freedom and more fairness into our society and that it would result in a truly healthy and sustainable economy.

An economy cannot continue to grow ad infinitum (nor can anything else, including population). If we humans want to continue our lives on Earth, we will have to begin to think about a sustainable future. End

An interesting article related to the subject....click here

A great time for new businesses?

2008-11-18T18:33:00.000-08:00

I'd like to share the following article By Brian Groom Published by the Financial Times on November 18 2008.

"One curiosity of this downturn is how some illustrious businesses that succeeded against the odds in the Great Depression are now buffeted by today's cold winds. Walter Chrysler found a way out of the 1930s slump by devising the Plymouth, a low-cost but high-technology car that promised a "floating ride".

Within two years Chrysler's sales were back to pre-Depression levels, well ahead of its rivals. Today its survival is threatened unless it gets a bail-out by the US government.

The British branch of Woolworths - founded by Byron Miller, an American - was a roaring success back then. Its format of affordable variety meant that everyone could find something to take home. Now the company has been struggling for years and its wholesale arm has been forced to demand cash upfront from customers as Christmas approaches.

The 1930s saw the rapid growth of chain stores, led by Jack Cohen's Tesco, Marks and Spencer and J Sainsbury. Tesco in particular is still hugely successful but this autumn it has lost market share to discount supermarkets as cash-strapped consumers try to cut their bills.

While the UK authorities tried vainly to revive coal, cotton and shipbuilding in the Depression, newer industries such as cars, electrical goods, chemicals and man-made fibres expanded. Like Chrysler, Britain's William Morris defied the slump with his stubby but popular Morris Eight (Morris's modern heir, MG Rover, sadly went under in 2005).
A recession can be a smart time to launch a business or innovate, if you can find the money to invest. Competitors are struggling to cut costs and you can look forward to the upturn. Lord Bilimoria founded Cobra Beer, a less gassy lager for drinking with curry, in the 1990s recession.

What will the successes of this recession be? Gordon Brown, the prime minister, wants to encourage green technologies - possibly right, although governments have rarely been good at predicting business success.

If I knew the answer, I would not be writing this column"

Makes you think!
asj

Popular National Strategies to enhance investment opportunities in 2008

2008-10-28T19:09:00.000-07:00

The DUBAI SYSTEM - You have two cows. You create a website for them and advertise in all magazines and Cable TV. You create a Cow City or Milk Town. You sell off their milk before the cows are milked, to both legit and shady investors, who hope to resell the non-existent milk for a 100% profit in two month time. You bring Bill Clinton and Tiger Woods to milk the cows to attract attention.

The QATAR SYSTEM - You have two cows. They've been sitting there for decades and no one realizes that cows can produce milk. You see what Dubai is doing; you go crazy and start milking the heck out of the cows, in the shortest time possible. Then you realize no one wanted the milk in the first place.

The SAUDI SYSTEM - Since milking the cow involves feminine body parts, the Government decides to ban all cows in public. The only method to milk a cow is to have the cow at one side of the curtain and the guy milking the cow on the other side; or to hire females and train them to milk the cows ... the debate is still going on.

The BAHRAIN SYSTEM - You have two cows. Some influential guy steals one cow, milks it, sells the milk and pockets the profit. The Government tells you there is just one cow and not enough milk for the people. The people riot and scream death to the Government and carry Iranian flags. The Parliament, after thinking for 11 months, decide to employ ten Bahrain residents to milk the remaining cow at the same time to cut back on unemployment.

The LEBANON SYSTEM - You have two cows. One is owned by Syria, the other by the Lebanese Government both are milked by Syrian Laborers during their free time as informers.

The EGYPT SYSTEM - You have two cows. Both have to vote for Mubarak!

The AMERICAN STRATEGY - You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyze why the cow dropped dead.

The FRENCH STRATEGY - You have two cows and have no idea what to do with them. It doesn't really matter, you go on strike anyway because you feel you need three cows.

The RUSSIAN STRATEGY - You have two cows. You count them and find out you have five cows. You count again and find out you have eight cows. You count again and out you have 20 cows. You are so happy, you stop counting and open another bottle of Vodka.

The BRITISH STRATEGY - You have two cows. You have to admit that both are mad!

END

Financial Crisis Update!

2008-10-02T19:45:00.000-07:00

Here are some Ideas on How to Solve this Financial Crisis:
I thought the upcoming US election would be the polarizing event of the year. But the McCain / Obama showdown looks like a love fest compared to the visceral reaction to the proposed US bailout plan.

Many of my friends have been understandably vocal about the credit crisis, the Paulson proposal, and the House’s subsequent rejection of the plan. As of this writing, it appears that the Senate will pass the new and improved version of the bailout plan, which comes complete with more tax cuts to send the deficit even more into the red.

So I thought I’d compile some of the best comments from I have read and share them with you. Some of you have put forth your own bailout plans. Others have used forums to rant and rave. I welcome all of your comments. Keep them coming.

Let’s focus on the solutions offered by some of my readers.

Advice in response to an article titled, “Should AIG be Saved?”:

• Decrease leverage to a maximum of 20 to 1;
• Each investment firm must have a qualified risk management department that is not compensated by the performance of the trading desks;
• Top management has to be educated on the risk of new products and not get involved until they do understand the risks;
• Compensation should be geared to completed transactions not on marked to market valuations.

Most seem to agree with my assessment that leverage is the problem here, and the suggestion of going back to an 11 to 1 ratio.

Speculators thrive on leverage. At 100:1, a 1% move in the right direction means a 100% profit. Of course, in the wrong direction it means a wipe-out. And more than 1% the wrong way, without backup assets, it means someone else goes down with you.
In the good old days, before deregulation by Congress, commercial banks were required to have a ratio of assets to capital somewhere in the 11:1 range.

When Long-Term Capital Management went bust, it had a ratio of 28:1, which everyone thought was insane. Bear Stearns went belly up with a 33:1 ratio!

Back in March, the Wall Street Journal reported the leverage ratios of major operators: Morgan Stanley 33:1; Lehman 31:1; Merrill Lynch 28:1, and Goldman Sachs 26:1.

Leverage is of course great in a bull market but deadly in a bear market. How deadly for these big names? Lehman is gone already. Bank of America took over Merrill Lynch. Morgan Stanley took over Bear Sterns.

What's next?

I think the "man in the street" shows more sense than the government when he rejects the proposed bailout of the banks, even though he fears that his rejection may lead to another great depression. However, there is no guarantee that the depression will be avoided with the bailout.

Anyway the "domino effect" has already started and can't be stopped until the last domino has fallen. The government should keep its $700B in reserve until that time and then use it to rebuild the USA.

In response to an article on how to profit from Gold & Oil Stocks here are some ideas on how to fix the system:

Standardization: All mortgage forms, applications, and trust deeds should be standardized nationwide and capable of having someone with an 8th grade education understand exactly what they are getting into. A minimum of 10% down-payment on the property has to be paid. If you are not willing to put your own money into a property, then why should anyone else? Anyone putting less than 20% down must carry mortgage insurance until their payments have reached 20% of the original purchase price.

Due Diligence: If you are not willing to perform due diligence on an application, then you have no business being in the market to start with. You have to know exactly what the property is, where it is located and whether the applicant can truly afford the payments or not.

Education: I would like to see mandatory basic financial education in all schools nationwide. I don't think you should be able to graduate high school without being able to read and fully understand a mortgage application and how the payments are figured. If the schools won't do it, then Wall Street and bankers nationwide should volunteer their time to the school systems for assemblies. The people of the United States, had better start learning how money works before they start spending what they don't have.

Also under education, the next time Congress or a President comes up with a plan to increase home ownership by reducing the mortgage standards, Wall Street should tell them to take a flying leap off a rolling doughnut and…. spend the money to produce the TV commercials and remind the American people about what they are all going through now.

Responsibility: If someone walks away from a house and mortgage, then they can never get another mortgage in the USA. If they trash the house before it goes into foreclosure, they should be responsible for the cleanup costs. If the house goes into a short sale, the borrower has to work with the lender to find a common amount that they still owe before they can ever get another mortgage in the USA.

On the lender side, it is better to work with your clients than to just hang them out to dry. If someone loses their job or other source of income, then work with them. It is still better to get some payment each month than to go into foreclosure. Especially in times like these when property values keep falling. If it becomes a habit though, give them 60-days notice and then sell it.

Her are some rather creative ideas to help resolve the financial crisis:

The government should not only allow, but insist that every person that has a 401K that is tied into a sub-prime or prime loan that is in danger of default must use their 401K, without any penalties for early withdrawal and without any taxes applied to the 401K balance, toward paying off their current mortgage holder to lower the loan balance.

In return, the mortgage holder must refinance the remaining balance at an attractive fixed-rate 30-year (or fewer) mortgage with no creativity allowed. For a refinance, that is less than:

• 70% of current "fair and reasonable" appraisal value a 3% or less rate;
• 70% to 75% to 3.5% to 4.0% rate;
• 75% to 80% to 4.1% to 5.0% rate;
• 80% to 95% to 5.1% to a maximum of 6.5% rate

If applying one’s entire 401K to their outstanding mortgage balance does not bring the mortgage balance to at or below 95% of the "fair and reasonable" market value, then that individual or couples, in cases of the married, 401K is not to be used and be left alone. If their mortgage goes into default, it will be up to the market forces at hand to resolve the issue.

Some specific recommendations I received for where to put money in the current climate:

• buying shares in gold and silver miners. A 20% increase in their commodities prices translates into a 50% increase in profits. No matter what the government does, gold and silver go higher.”
• Buying shares in banks as they will lead the rally when the bull market returns. The reasoning being that “Financials will have to finance big companies and little companies to grow and expand. They have big fears of loaning money to risky investments right now but they will loan money on safe bets that have a good credit risk. In doing so, their stocks will lead the bull market return whenever it does happen!”

Thanks, all for submitting your thoughts on the current economic crisis. Keep them coming!
asj

Why are commodity prices dropping?

2008-09-11T20:49:00.000-07:00

It’s the heat of hurricane season in the United States, and three named storms—Gustav, Hanna and Ike—have already threatened its southern borders. And there's still two and half months left in the season.

What's unusual about this year's hurricane season, though, is that oil prices are tumbling, not moving higher. Over the years, we've typically watched crude oil per barrel skyrocket as hurricanes threatened oilrigs in the Gulf of Mexico.

But right now, even as Hurricane Ike is strengthening and moving towards refineries and offshore drilling operations in the Gulf, crude oil continues to drop. From its high of $147 per barrel in mid-July, crude oil has declined to $101 per barrel today. That's a 31% decline in about seven weeks!

What's Causing the Decline in Oil Prices?

For the past four years, high energy and commodity prices have been huge long-term investment themes that investors relied on to build their wealth. But this year, the tides unexpectedly turned, surprising investors and causing the global markets to sell off.

What's interesting, though, is that while commodities as a whole have sold off 30% this year, the fundamental picture has changed very little. The long-term supply and demand equation has not changed—it will take years to correct the underinvestment in production for oil and mines, while demand from emerging market economies continues to increase.

However, there have been some changes to the technical picture. When the trends in commodities and oil matured this year, their resulting liquidation broke the momentum in these stocks—which of course dampened investor sentiment.

So investors panicked and started selling their commodity-related stocks this summer, and a number of large hedge funds that have closed or are facing huge redemptions have only pushed commodities down even more. Many of these hedge funds held long heavy positions in commodities, and their liquidation into cash led to sharp sell-offs in the commodity markets.

Also the strengthening U.S. dollar is curbing demand for commodities as a hedge. In fact, commodity index investors sold about $40 billion worth of oil futures between the July record and last week, which, as you might have guessed, caused crude oil to plunge.

All of these factors have aided in the plunge of crude oil and commodity prices this year. And because the downward spirals, like these, tend to feed on themselves, it is difficult to predict how far these moves can go.

What Does It All Mean?

Predicting a bottom in oil prices right now is next to impossible. Just last week, indexes of commodity and energy producers skidded more than 7% amid expectations that slowing growth will curb demand for oil and metal.

Now, while it's hard to pick a bottom, I do think that $105 a barrel should be close to the low end of the range. And we're sitting at those levels right now. But as the commodity sell-off feeds on itself, commodity markets will likely overextend to the downside by the time they bottom.

Short-Term Profit Strategy

Are you more of a short-term investor and looking for ways to use the current market volatility to your advantage? Then you must check out Asia where I scour all of Asia looking for the most profitable short-term trades to make money fast.

Just look at the two trades recommended recently:

Trade #1: The U.S. dollar is showing some short-term strength—a trend that we need to respect since the dollar has the potential to rally in the near term. An ETF that that tracks the U.S. dollar’s performance against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. This ETF is already gaining strength—up 11% since mid-July.

Trade #2: Biotech is a booming industry in Asia where governments like China, Singapore and Taiwan sponsor biotech research. This sector has been showing significant strength this year which is why one of the world's leading biotech companies was introduced to my friends. It's up more than 23%.

So, what should you be doing?

Right now, I think it's a good idea to remain slightly conservative and cautious. It's a tough time for the global markets and global economies. But I still think that the Chinese economy is strong enough to continue growing despite the global economic slowdown.

With commodity prices dropping worldwide, inflation in China has dropped significantly this year—after hitting a high of 8.5% in April, China's CPI was at 4.9% in July. And I think the Chinese government will start to aggressively stimulate the economy in the coming months.

But that doesn't mean that you should just dive into any Chinese investments. It's a difficult times right now, and while I'm expecting the Chinese market to be higher in six to nine months, the near term could be very volatile for Chinese stocks.

That's why you need to only invest in fundamentally strong companies with the potential to earn you money over the long-term. Try to carefully determine where to put your money today in preparation for the coming surge in the next three months.

Cheers!

ASJ

Currencies - Disaster or Opportunity?

2008-09-02T19:00:00.000-07:00

As we enter September, we seem to be beginning a new chapter for the U.S. dollar. Some currencies are crashing at record rates! The U.S. dollar just recorded its best monthly advance since October 1992 largely because sentiment on the U.S economy improved when data showed the U.S. should have much more stable growth than the rest of the world.

A Commerce Department report showed inflation rising at 4.5% in July -- the highest rate since February 1991. The revision of the 2nd quarter gross domestic product (GDP) grew at a whopping 3.3% from the initial estimate of 1.9%, helping the U.S. dollar maintain the strength of its recent rally.

On the flip side, we are seeing the global economy slowing down. Antonio Sousa at Forex Capital Markets said, "Recent economic data points towards a weakening of real GDP growth in the Eurozone economy and a more accommodative monetary policy could be needed to prevent the region from falling into a recession."

The Euro declined by about 8% against the U.S. dollar -- the worst monthly loss since its launch in 1999. The Australian dollar fell nearly 9% in August, its worst month since February 1989 on expectations of narrowing interest rate differentials between the United States and Australia.

Although economists were expecting a 0.7 percent expansion, data showed the Canadian economy was close to a recession in the second quarter, growing at 0.3 percent.

How can we profit from the dollar's current up-trend? If you're in the U.S., you just sit tight because you're currently on the winning team. The green paper you keep in your wallet are stock certificates of the U.S. and the stock has been gaining strength. You should be happy because whether you realize it or not, the stock you've maintained a long-term position in (the greenback) has lost about 40% of its value since early 2002.

Will the Dollar Rally Last?

The questions are: How long will the strength in the U.S. dollar last? What will you do if the recent up-trend in the U.S. dollar ends and the long-term decline resumes?

I'll suggest how to avoid losses in the U.S. dollar when the opposite inevitably happens. It's impossible to know exactly how long this will last but what we CAN do is get an understanding of the playing field so we understand how to hedge when the tide changes.

First of all, we know that commodities are in a very long-term up-trend, but the intermediate trend is certainly downward. Since most commodities are priced in U.S. dollars, commodities and the U.S. dollar have an inverse relationship which explains the dollar getting whacked since late 2001 - early 2002 as the price of commodities like crude oil and gold have advanced.

The next thing you need to know is when commodities are advancing, they tend to have massive explosions to the upside (as we recently witnessed). Conversely, when commodities correct in price, they tend to correct for a long time. (You may recall in summer of 2006 when oil made it up to about $80.00/barrel and corrected. It took about a year to make it back to that price level!).

Whatever the trend is in commodities (up or down), it's strong. Think of commodities like a gigantic truck doing 100 miles per hour and then slamming on the breaks. It will continue skidding for a long time before stopping.

While we have a sharp correction in commodity prices underway, the odds are in favor of the long-term up-trend eventually resuming. Similarly, (or inversely) the U.S. dollar is showing intermediate strength these days, as U.S. consumer confidence hit a five-month high in August, adding to optimism on the greenback. But the odds are good that the current optimism will return to long-term pessimism.

How to Profit When the Dollar Dives

This article may be a bit premature for the time being, but better early than late. First, I will give you the security and then I will tell you when to use it. The Exchange Traded Fund (ETF) that tracks the inverse of the U.S. dollar's performance is PowerShares DB US Dollar Index Bearish (UDN). Below is the Fund Summary:

FUND SUMMARY

The investment seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Short US Dollar Futures index. The index is comprised solely of short futures contracts. The futures contract is designed to replicate the performance of being short the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

I don't think this is the perfect time to get in, but I do think we are getting close to it. Here's how you should time it:

You may or may not be familiar with a momentum indicator called the "Relative Strength Index" (a. k. a. the "RSI"). I won't get into the mechanics of how it is calculated, but I'll tell you how to use the RSI line to find a good entry point in UDN. Here's a link to the US Dollar Index chart http://www.fxstreet.com/rates-charts/usdollar-index/.

You will see at the bottom, that the RSI is plotted. You can see the last three times the RSI moved well above the 70 mark and reversed lower, the U.S. dollar was at a high point in the long-term down trend and it immediately continued its declining trend. You will also notice that the RSI moved further into the "overbought territory" (over 70) than anywhere else on the chart.

Now here's the part that really needs some explaining. The RSI is good at calling tops in a down-trend or bottoms in an up-trend. (You wouldn't use it to call a top in an up-trend or a bottom in a down-trend unless other things are in place that I won't get into here).
The top (within a down-trend) is not officially called until the RSI reverses from above 70 to below 70. Don't think just because the RSI is above 70 that it is a good time to get bearish on the U.S. dollar.

You may notice the RSI has, in fact, reversed back below 70. But this time I think it's a fake out and here's why:-

When we see such a sharp advance in the security (in this case, the U.S. dollar) it's best not to act on the first signal (the one we are seeing now). Chances are we will see another move in the RSI back above 70, and then the second reversal back below the 70 line and THAT is when I suggest putting at least 30% - 50% of your available cash in UDN.

Why "at least 30% - 50%" and not 100%? Because it's a hedge and not really a trade. The idea is to soften the blow of a decline in the U.S. dollar. Currencies are volatile, and if you have cash saved that you plan on saving for another year, you may consider putting all of it in UDN. If you view it as a trade, however, you may get in and emotionally exit it at a lower price.

Of course you can decide to put 50% or 100% of your available cash into the ETF. But for some reason I have a feeling many people will view this as a trade and not a hedge. I think that because if you don't hedge the dollar, most people never really comprehend that their money is losing value or gaining value. They just think the dollar is the dollar.

But if you really think about it anyone who hedged the U.S. dollar since UDN launched in 2007 may consider themselves up 20% (since June anyway). Would you have been up 20% or did you merely avoid a 20% decline in the dollar?

So that's the way to hedge against a decline in the US Dollar. Good luck!

END

Death of Free Internet is Imminent -Canada Will Become Test Case

2008-07-25T19:36:00.000-07:00

I was forwarded this article by a journalist friend. It is written by Kevin Parkinson and appeared on the Global Research website on July 20th.. Thought I’d share it with you.

In the last 15 years or so, as a society we have had access to more information than ever before in modern history because of the Internet. There are approximately 1 billion Internet users in the world B and any one of these users can theoretically communicate in real time with any other on the planet. The Internet has been the greatest technological achievement of the 20th century by far, and has been recognized as such by the global community.

The free transfer of information, uncensored, unlimited and untainted, still seems to be a dream when you think about it. Whatever field that is mentioned- education, commerce, government, news, entertainment, politics and countless other areas- have been radically affected by the introduction of the Internet. And mostly, it's good news, except when poor judgments are made and people are taken advantage of. Scrutiny and oversight are needed, especially where children are involved.

However, when there are potential profits open to a corporation, the needs of society don't count. Take the recent case in Canada with the behemoths, Telus and Rogers rolling out a charge for text messaging without any warning to the public. It was an arrogant and risky move for the telecommunications giants because it backfired. People actually used Internet technology to deliver a loud and clear message to these companies and that was to scrap the extra charge. The people used the power of the Internet against the big boys and the little guys won.

However, the issue of text messaging is just a tiny blip on the radar screens of Telus and another company, Bell Canada, the two largest Internet Service Providers (ISP'S) in Canada. Our country is being used as a test case to drastically change the delivery of Internet service forever. The change will be so radical that it has the potential to send us back to the horse and buggy days of information sharing and access.

In the upcoming weeks watch for a report in Time Magazine that will attempt to smooth over the rough edges of a diabolical plot by Bell Canada and Telus, to begin charging per site fees on most Internet sites. The plan is to convert the Internet into a cable-like system, where customers sign up for specific web sites, and then pay to visit sites beyond a cutoff point.

From my browsing (on the currently free Internet) I have discovered that the 'demise' of the free Internet is slated for 2010 in Canada, and two years later around the world. Canada is seen a good choice to implement such shameful and sinister changes, since Canadians are viewed as being laissez fair, politically uninformed and an easy target. The corporate marauders will iron out the wrinkles in Canada and then spring the new, castrated version of the Internet on the rest of the world, probably with little fanfare, except for some dire warnings about the 'evil' of the Internet (free) and the CEO's spouting about 'safety and security'. These buzzwords usually work pretty well.

What will the Internet look like in Canada in 2010? I suspect that the ISP's will provide a "package" program as companies like Cogeco currently do. Customers will pay for a series of websites as they do now for their television stations. Television stations will be available on-line as part of these packages, which will make the networks happy since they have lost much of the younger market which are surfing and chatting on their computers in the evening. However, as is the case with cable television now, if you choose something that is not part of the package, you know what happens. You pay extra.

And this is where the Internet (free) as we know it will suffer almost immediate, economic strangulation. Thousands and thousands of Internet sites will not be part of the package so users will have to pay extra to visit those sites! In just an hour or two it is possible to easily visit 20-30 sites or more while looking for information. Just imagine how high these costs will be.

At present, the world condemns China because that country restricts certain websites. "They are undemocratic; they are removing people's freedom; they don't respect individual rights; they are censoring information,” are some of the comments we hear.

But what Bell Canada and Telus have planned for Canadians is much worse than that. They are planning the death of the Internet (free) as we know it, and I expect they'll be hardly a whimper from Canadians. It's all part of the corporate plan for a New World Order and virtually a masterstroke that will lead to the creation of billions and billions of dollars of corporate profit at the expense of the working and middle classes.

There are so many other implications as a result of these changes, far too many to elaborate on here. Be aware that we will all lose our privacy because all websites will be tracked as part of the billing procedure, and we will be literally cut off from 90% of the information that we can access today. The little guys on the Net will fall likes flies; Bloggers and small website operators will die a quick death because people will not pay to go to their sites and read their pages.

Ironically, the only medium that can save us is the one we are trying to save- the Internet (free). This article will be posted on my Blog, www.realitycheck.typepad.com and I encourage people and groups to learn more about this issue. Canadians can keep the Internet free just as they kept text messaging free. Don't wait for the federal politicians. They will do nothing to help us.

I would welcome a letter to the editor of the Standard Freeholder from a spokesperson from Bell Canada or Telus telling me that I am absolutely wrong in what I have written, and that no such changes to the Internet are being planned, and that access to Internet sites will remain FREE in the years to come.

In the meantime, I encourage all of you to write to the media, ask questions, phone the radio station, phone a friend, or think of something else to prevent what appears to me to be inevitable.

Maintaining Internet (free) access is the only way we have a chance at combating the global corporate takeover, the North American Union, and a long list of other deadly deeds that the elite in society have planned for us. Yesterday was too late in trying to protect our rights and freedoms. We must now redouble our efforts in order to give our children and grandchildren a fighting chance in the future.

Note: The author's website is: http://realitycheck.typepad.com/

END

Sovereign Wealth Funds eye hedge fund opportunities says State Street report

2008-07-24T18:24:00.000-07:00

Following is an extract from State Street’s Sovereign Wealth Funds Report “Assessing the Impact” (Vision Vol. III, Issue 2) which was carried by Hedge Funds Review (HFR). Hedge Funds Review is a market-leading publication for the alternative investment industry.

Sovereign wealth funds (SWFs) will provide strong flows into alternative investments and in particular hedge funds as well as private equity funds, according to latest research by State Street.

State Street said the size and influence of SWFs will continue to grow rapidly as they explore and diversify into more asset classes.

Exposure to hedge funds and other alternatives represents higher volatility than would have been acceptable at earlier stages of the funds’ evolution, according to Andrew Rozanov, head of State Street's Sovereign Advisory and co-author of the report.

“SWFs already have an influence in hedge funds. We think this will continue to increase into hedge funds as SWF asset allocation becomes more diverse,” he told HFR.

“The trend is clear. SWFs can legitimately expect interest from hedge funds due to the size they command and the profile they have. This move will not necessarily be into fund of hedge funds," said John Nugee, head of State Street's official institutions group and co-author of the report.
SWFs currently control nearly $3 trillion in assets. State Street attributes the growth to the reserves of Asian central banks and escalating oil and gas prices. The bank predicts SWF assets will grow to around $20 trillion by 2020.

The report speculates that over time, 10% of SWF assets will be allocated to alternatives with 60% in equities and 30% in bonds. The forecast is based on the asset allocation of a typical pension plan.

Nugee admits diversification has led to questions of where the boundaries of public sector portfolios lie and whether the sector has the skills required to manage increasingly diverse portfolios.

As SWFs continue to diversify into global portfolios, they may sell a portion of their existing US treasury notes and bonds. This will place greater pressure on the US dollar, said State Street. This would mean global equity risk premiums may fall and real bond yields rise.

To give some indication of the economic power the SWFs could wield, State Street estimates that if SWFs allocated 60% of the current $3 trillion in assets to the MSCI All Country World Index, they collectively would own about 5.5% of each company in that index as of end-March 2008.

The same allocation to the FTSE Global All Cap Index would result in about 5.2% ownership of each of the 8,009 companies in that index.

State Street believes SWFs should not be subjected to any greater stipulations on disclosure than other market participants.

Nugee said although there have been calls for greater transparency and some restrictions on what SWFs can do in national markets and the type of companies they can take stakes in, he thinks politicians and others may be overreacting.

He said arguments in favour of transparency have often seemed somewhat simplistic. They have ignored the long history of SWFs operating with a minimum of fuss and controversy.
“Sovereign Wealth Funds are market participants and have the common obligations to obey the rules of the markets and not to abuse them. Demands for greater transparency for SWFs will fail because they are sovereign,” Nugee added.

State Street said there is no such thing as a typical SWF. Each sovereign wealth fund must be viewed on their own merits.

Rozanov pointed out that SWFs differ in their structure, management of assets and the degree of transparency they are prepared to adopt.

Liability profiles of SWFs also constantly changing, leading to important shifts in an individual fund’s risk/return profile and investment constraints. These differences render a one-size-fits-all approach to best practices unworkable.

SWFs, said State Street, could produce sustained interest in emerging market equities and debt and facilitate the development of new asset classes, such as infrastructure, local currency emerging debt and frontier emerging markets.

State Street concludes there is scope for SWFs to influence key corporate decisions and accelerate corporate restructuring in global companies as their resources grow. END

Institutional investors put more money into hedge funds as HNWI allocations drop

2008-06-26T19:33:00.000-07:00

Although the share of hedge fund capital provided by institutions remained unchanged from 2006 to 2007, pension funds, endowments and foundations remain strongly committed to the asset class. This is one of the conclusions in a study by Greenwich Associates and Global Custodian.

Pension funds and endowments/foundations directly provide 13% of the average hedge fund’s assets under management. Institutions commit assets to hedge funds through fund of funds. This account for an additional 23% of hedge fund assets.

High-net-worth individuals and family offices remain the biggest sources of assets for the average hedge fund, accounting for 37% of the total. “This does not include about 10% of assets provided by the funds’ employees and general partners,” said Greenwich consultant John Feng.

For the world’s largest hedge funds, institutional investors have overtaken high net worth individuals and family offices as a source of assets. Direct investments by institutions provide 25% of these funds’ assets. High net worth/family office investments account for 22% of assets.

In terms of importance to funds with over $1 billion in assets, both of these sources rank behind fund of funds. They provide 27% of total assets — up from 25% a year ago.

The financial flow from institutions to hedge funds is due in large part to sophisticated portfolio management models first developed by endowments and foundations and are now being adopted by pension funds, said the study.

These models were designed to expand the principals of modern portfolio theory to encompass ‘non-traditional’ assets. The approach is characterised by heavy use of hedge funds, private equity funds and, increasingly, other alternative asset classes viewed as having a low level of correlation with traditional fixed income and equity holdings.

In the US, which accounts for the vast majority of global institutional hedge fund investment, nearly 45% of institutions invest in hedge funds. In 2007 this represented 2.6% of institutional assets — up from 2.2% in 2006 and 1.9% in 2005.

Although those percentages seem modest, in dollars it is $195 billion for 2007, up from $140 billion in 2006 and $113 billion in 2005.

When asked in October 2007 about hedge fund investments, 23% of US institutions said they planned to increase allocations beyond current levels by 2010. Only 2% said they planned to reduce them.

Average allocations at the country level include many institutions that do not invest in hedge funds at all. Many active hedge fund users have devoted much larger shares of their assets. For example, US endowments that describe themselves as active hedge fund investors devote on average 16.5% of their total assets to hedge fund investments.

Institutional interest in hedge funds received an additional boost from hedge fund-style investment strategies that have been rolled out by both hedge fund managers and traditional asset management organizations looking to attract institutional dollars.

Among the hedge fund participating in the 2008 Greenwich Associates/Global Custodian study, nearly 11% say they are active in 130/30 strategies.

“Hedge fund managers are creating new funds in which they dial down leverage and shorting activity to attract institutional investors, and they are also creating funds featuring their best long-only investment ideas,” said Greenwich Associates hedge fund specialist Karan Sampson.

“On the other hand, traditional asset management organizations are adding hedge fund like products to get to the same place from the opposite direction,” she concluded. END

(Source - Hedge Fund Review)

Singapore, Qatar to consider adding to investment in Barclays

2008-06-26T19:28:00.000-07:00

Singapore’s Temasek Holdings and the Qatar Investment Authority are part of the lot of Sovereign Wealth Funds considering supporting a share issue by Barclays, which is looking to £4 billion, Financial Times reports. If the funds help with the possible share issue, it would be without any rights issues and Barclays would offer a decent stake to new and existing investors at a small discount on the current share price.

Temasek bought a 2% stake in Barclays in 2007. The QIA, which holds a 15.2% stake in the London Stock Exchange, is reportedly looking at the firm, a person close to the Qatari group said. The move would not be a surprise to most, as the Qatari Prime Minister Sheikh Hamad bin Jassem al-Thani told the World Economic Forum in January that it would consider investing in U.S. and European banks. The QIA could commit up to $15 billion (£7.7 billion) in the sector. The fundraising could be revealed as early as next week.

Despite possible interest from the Middle Eastern nation, Barclays is expected to give Temasek and China Development Bank the right of first refusal for the new shares. The two Asian firms will be forced to decide if they boost their stakes, invest more to maintain their holdings or agree to a stake dilution. END

Source: Alternative Investment News

2008-- - What's in Store?

2008-01-20T04:41:00.000-08:00

With each day, we hear that the US is either in a recession or about to descend into one. The funny thing about recessions is that by the time we've officially entered one (a recession is generally considered to be two back-to-back quarters of negative GDP growth), the stock market starts discounting the eventual recovery and climbs higher.

If we do end up going into a recession, it will be the first time that I have ever seen an economy experience negative growth while also experiencing full employment! The last US recession I remember was back in 1991.

The Way it was: At that time very much like it is now, the big banks and brokers were reeling from massive losses due to the commercial real estate market blowing up. That had a knock-on effect, and collapsed the junk bond market, which then killed the entire Savings & Loan industry to the tune of one trillion dollars and that’s in 1991 dollars.

There were also defaulting LDC (less developed country) loans which rocked the big banks like Citibank, Chemical, and Chase. (not many remember the old Chemical bank. In adition to the banking turmoil, we were experiencing massive layoffs across many different industry groups that took unemployment levels to more than 7%. So when I think "recession," these are the kind of thoughts that come to my mind.

Today: Let's examine where we are today. Once again the banks are getting bombed due to bad real estate loans, but this time it's residential not commercial. But unlike a commercial property, a home is something that most people will give their last breath to fight for.

Granted, there were many sub-prime loans made to speculators, and they are probably less inclined to do "whatever it takes" to not lose their properties. The vast majority of these loans were to regular home owners. The year 2006 was the biggest year for sub-prime loan issuance: estimated range is between $380 - $500 billion in sub-prime loans.

Currently just 2% of those loans are in foreclosure, while the industry average sub-prime foreclosure rate is 20%. All of that debt was set to reset at much higher rates next year, but the President's plan to freeze the teaser interest rates will essentially stop any Foreclosure Armageddon we might have faced in 2008 dead in its tracks.

So there will still be housing pain in 2008, to be sure ... but it will be severely muted by the rate reset freeze.Companies like Morgan Stanley (MS) just announced almost $10 billion in write downs for the quarter and are writing their sub-prime portfolios down by 75% of face value.

In my opinion that's far too aggressive, and if 2008 is not as bad as the Street is pricing for, we may see a wholesale revaluation of the Street's sub-prime assets sometime in 2008. From a publicity and confidence standpoint, Morgan Stanley did the right thing. They essentially sucked in the quarter and took all of their medicine at once and adopted a worst case scenario for their sub-prime debt. They bolstered their balance sheet with $5 billion from a Chinese Government Sovereign Wealth Fund, and cleared the path for them to enter 2008 with a clean slate.

That's another difference I'm seeing this time around. The banks are moving a lot faster and are being a lot more proactive about dressing down their bad loans, writing them down and moving on. The banking situation was so bad in 1991 due in part to the banks trying to mask losses throughout the late 1980's by not marking their loans to current market prices.

The Opportunity: We've come a long way since then. The other potential boon for 2008 is the little talked about one-year repeal of the alternative minimum tax. This tax was originally conceived to target the ultra wealthy, to make sure they paid their share. But over the last few years, more and more upper middle income families have been snared in the AMT net. The temporary repeal of the tax is going to put about $54 billion extra dollars into consumers' pockets for 2008, or about an extra $2,000 per family.

I understand that many lost a bundle in the 1999 - 2000 bear market, and that those scars still run deep. As someone who couldn't look at a screen for a year after losing everything in 1998, I completely get that.

The thing to remember about this market, though, is that we do not have an equity valuation bubble. The main fear gripping the market is one of economic growth rates and that's what the market is fretting over.

But outside of the United States, the rest of the world is experiencing massive growth. China, India, Brazil, etc. These guys are partying like it's 1999.

There are three clear ways we can participate:

1. Start looking at companies that get the majority of their profits from overseas markets.As the US dollar weakens, companies that get most of their profits from stronger currency nations can convert back into even more dollars. Companies that fit this profile include Coke (KO), McDonalds (MCD), and John Deere (DE).

2. Don't be afraid of directly owning foreign stocks. They have been and will continue to be some of the best performers out there.Do you remember learning about developing nations in geography class back in the 1970's? Well guess what? They developed!

We are in the midst of a global growth wave that we haven't seen since the industrial emergence of the United States. China, India, Singapore, Brazil, South Korea and many more are developing into major global players. This is a trend that will last for years. Companies that fit this profile include the Chinese Oil giant CNOOC (CEO), the Brazilian mining power house Companhia Vale do Rio Doce (RIO,) and China Mobile (CHL).

3. Use ETFs to lower risk, especially if you are unsure of which foreign stocks to own.Exchange Traded Funds are truly the greatest investment innovation over the last 20 years. They are a great way to get highly targeted coverage in very niche-specific sectors. Some great international country funds worth looking at are INP (which will give you exposure to Indian stocks) and FXI (which gives exposure to Chinese stocks).

Sectors for 2008: The sectors that you want to pay special attention to next year include Technology, Oil and Agricultural Commodities.As corporate margins get squeezed by advancing energy prices, companies will be scrambling for ways to reduce costs. One of the fastest ways for them to do so is through technology efficiencies. That can include better accounting software, database management software (Oracle : ORCL), and technology consulting services (Accenture : ACN).

With Oil Stocks, you want to focus on those companies that are growing their reserves at a rapid rate (minimum of double digits). These companies will be the takeover targets of 2008 as the oil majors look to acquire their way out of their dwindling reserves.

With Agricultural Commodities, you're going to want to get exposure to milk, corn, sugar, soy, etc. As the rest of the world's wealth grows, so does its appetite for the things we take for granted. The Chinese are eating more meat, and that means they need more grain to feed their livestock.

Guess who owns the grain markets? The good old US of A, of course. The US dominates the global agriculture markets, and this will be a HUGE theme for 2008.In closing, I want to remind you that there will always be clouds on the horizon no matter what, but there will always be places where you can make money.

So ignore the doom prophets. I've never met a rich pessimist, so embrace the incredible opportunities that are ahead of us. Good Luck!

HF strategy to improve China equity returns

2007-12-28T06:30:00.000-08:00

RS Management Limited (RSM) has retained hedge fund guru Dr. A S Johan and his research team to develop an algorithm driven trading system to improve returns on Asian equities by trading equity index futures as an effective proxy.

RSM is in talks with prime brokerages in Asia to help establish dedicated institutional accounts that will trade benchmark equity index futures like the Hang Seng Index and the China H - Shares Index, based on RSM's trade and hedge signals.

"Extensive back tests with real and scrambled price data, exceeding the equivalent of seventy years of history, have shown the system to be capable of producing average, risk adjusted, liquidated returns of around 30% per annum" said a researcher involved in the development.

Algorithmic Trading Strategies (ATS) may be defined as securities trading systems that wraps trading formulas into automated order and execution systems. Advanced computer modeling techniques, combined with electronic access to world market data and information, enable traders using a trading system to have a unique market vantage point. Traders, investment firms and fund managers use a trading system to help make wiser investment decisions and help eliminate the emotional aspect of trading. A trading system can automate all or part of your investment portfolio. Computer trading models can be adjusted for either conservative or aggressive trading styles.

Trading systems are governed by a set of rules that do not deviate based on anything other than market action. Emotional bias is eliminated because the systems operate within the parameters known by the trader. The parameters can be trusted based on historical analysis and real world market studies, so that the trader who is familiar with the trading system and its operating characteristics can have confidence in a pre-determined trading strategy.

There are programming languages and trading system development platforms that allow traders to create their own custom systems. One such example of a trading system is the ACD Method, a quantitative application developed by Mark Fisher, a professional trader and founder of MBF Clearing Corp., one of the largest clearing firms on the New York Mercantile Exchange, and supports the trading of several hundred exchange members. Fisher is well known for his book The Logical Trader: A Method to the Madness, which is the dissertation to The ACD Method, a quantitative systems developed at the Wharton School of Business, and is based on extensive back testing that analyzes opening price trading ranges for stocks and futures contracts. http://www.thelogicaltrader.net/.

Another example is POSIT or Portfolio System for Institutional Trading, an electronic trading system serving institutional traders. It is run by the Investment Technology Group (NYSE:ITG). It attempts to match buy and sell orders between larger traders. POSIT is a type of crossing system, where a broker acts as agent on both the buy side and sell side of a given transaction. If the broker has a buy order and an equivalent sell order, he/she can "cross" the orders. This is a common situation in the case of large orders. END

A New International Club for Real Millionaires!

2007-12-16T21:43:00.000-08:00

Scheduled Millionaire's Clubs from left to right Dubai, Shanghai, Bangkok, Mumbai & Moscow

How does a millionaire show the world that he has really arrived?

Well, he could own a private jet, a super yacht and a luxury car. But then, so can anyone with a couple of bucks to spend. The ultimate in prestige today is membership at the most exclusive Millionaire's Club in the world.

Dr A S Johan and his financial partners are in the process of launching just such an International Millionaire's Club. Already companies and individuals have started enquiring about advance membership booking.

For sure, the limited number of transferable memberships will not be cheap at one million US Dollars each. Furthermore, intending members have to satisfy the membership committee that they are really qualified. As membership is transferable, early members are expected to be able to sell their membership for a substantial profit in the secondary market.

The first few clubs will be located in Dubai, Shanghai, Bangkok, Bombay and Moscow. More Clubs in other cities will follow. Each club will be limited to a maximum of about 250 members. Members have full access to all facilities at all clubs and to have all their international bills payable at the home city club.

For more information, please contact me, Dr A S Johan by email at asjallmail@gmail.com

Buying in-the-money Put Options rather than Shorting Stocks

2007-12-14T12:21:00.000-08:00

Is Buying In-The-Money Put Options better than Shorting Stocks?

A put option contract gives one the right to sell stock at a designated price. But most of the time, people don't actually use the put option contract to sell stock at the designated price. Instead, they typically sell the put option contract to someone else without any stock transaction taking place. This is in many ways similar to the way an un-hedged futures contract is traded. A futures contract represents someone's intent to buy say corn.

For example. If the price of corn goes up, the investor would most likely sell the futures contract at a profit, rather than using the futures contract to buy a truckload of corn and then tying to sell it to the local grocery store.

Most people will tell you that trading options is a very risky strategy. Well, that depends. You can put all of your money into one single bio-tech stock about to announce whether or not its only major drug will receive FDA approval. You could also own all of that stock on margin and that is also very risky, but there are more conservative ways of investing in stock. It all depends on how you approach the strategy, and I will tell you how to approach buying puts in a more conservative fashion.

RULE #1: You must always remember that each US Exchange traded option contract represents 100 shares of stock. If your option contract trades from $7.00-$8.00, the value of the contract will go from $700.00-$800.00. So, 10 option contracts represent 1,000 shares of stock, and so on.

Buying puts is similar to "shorting" a stock (which is betting on the stock trading lower by selling it first, and buying it back at a cheaper price). Instead of shorting the stock, you are purchasing an option "contract" that gives you the right to short (or sell) the stock.

Buying "in the money" puts carries less risk than shorting a stock. The most important thing to remember is that if you would only be willing to risk selling-short 500 shares of a $40.00 stock, you should only buy 5 put options on that same exact stock and nothing more. In other words, 500 shares of a $40.00 stock is a $20,000.00 trade.

If you would normally risk selling 500 shares short, then you certainly should NOT buy $20,000.00 worth of put options (which is a common and sometimes very tempting mistake to make).

That would defeat the purpose of buying puts instead of shorting stock, and if you are wrong, you can lose your entire $20,000.00. (Which by the way, is the maximum risk, whereas your risk in shorting stock is unlimited). You must remember that you are taking a conservative approach using an options strategy in an effort to reduce your risk.

If the put option is quoted at $7.00 (each contract representing 100 shares of stock, which means it will cost $700.00 p/contract), then you should buy 5 put options (representing 500 shares) which would cost you $3,500.00. If you invested that entire $20,000.00 in the puts, you are buying the right to short (or sell) almost 3,000 shares of a $40.00 stock.

You must keep this perspective. Which brings me to RULE #2: What do you do with the remaining $16,500.00 out of the $20,000.00 that you would have used to short the stock? (Remember, we only used $3,500.00 on 5 puts at $7.00.)

LEAVE IT IN CASH!! That’s my suggestion. Consider it part of this trade, the capital that is impossible to lose (which is pretty much the case). Reserve it for when you want to trade stock again. Don't use the remainder, not even to buy other options. Don't forget that you are being conservative here. What I've just suggested that you do with this one position is what you should do with each position that you play when you replace stock with options.

So what is the benefit of replacing stock with options?

The benefit is simple: Normally when you sell a stock short, you have unlimited risk. The mere fact that there is that much risk involved tends to steer investors away, keeping them from profiting from a down market. So at this point, you may be thinking to yourself, "If I did sell a stock short, couldn't I just limit my downside by implementing a stop loss (i.e. an order to close out a position, in this case, buy the stock back, at a pre-determined price) with my broker?"You could, but there are two problems with that line of thinking:

PROBLEM #1: If you are betting that a stock will trade lower, and you sell the stock short, when the market closes, the company whose stock you shorted may announce that they have been acquired at a higher price, or that they got some sort of major contract. That could cause the stock to GAP UP i.e. open up much higher when the market opens the next day without any trade between the opening and the previous day’s close. If that were to happen, your order will automatically become a market order and your order to buy back the stock that you have shorted, will be executed at a much higher price, resulting in a giant loss.

The "stop-loss" automatically triggers once the stock has hit, or traded through a certain pre-determined price. For example: Let's say that the stock that you have shorted closed at $43.00 and you have a stop-loss order to buy it back if it trades at or above $45.00.

After the close, they announce some huge deal that causes the stock to open on Monday at $100.00. Since the opening trade on Monday is at $100.00, the next trade will probably be the price that you cover your short at. You've then lost $55.00 p/share more than you thought that you were limited to losing! And if you shorted the stock on margin, both you and your broker are going to have a very bad day.

When you are shorting a stock, you risk losing even more money than you had invested in the trade!

PROBLEM #2: Even if that fluke doesn't occur, what if you have shorted a stock at $40.00, in the hope that it trades down to $25.00, and you put in a stop loss order to "cover your short" (buy the stock back) at $45.00, in an effort to limit your downside to 12.50% (or 5 points)?

The downside here is that your stock can trade up to $45.15 and you will have automatically bought the stock back and taken your loss. It's never fun to then see that stock trade down to $25.00 like you thought it would, when you don't realize the 15-point profit because you have closed out (or "covered") your short position AT $45.15.

Now let's assume again that you are willing to risk the five points if you knew that would be your MAXIMUM loss when shorting the stock. Well, when you own the right put option on the stock, you are risking about the same amount that you were willing to risk when shorting the underlying stock, but with a put optionyou know that your maximum loss IS about 5 points.

Example: Suppose the stock climbs to $45 and then keeps on climbing further to $49. You can still stick with the put position as your risk is predetermined. As a matter of fact, chances are that if the stock traded to $49, your puts would still have some value. If the stock swings up to $49 but then drops down to the original price of $40 again, you will be able to recover almost all of your original investment.

If the stock then swings down to $25, you will realize your profit. So the benefits are that you know for a FACT what you are risking (unlike when you use a stop loss order on a stock), and you may be able to profit, even if the stock swings the wrong way before heading in the direction that you wanted it to. RULE # 3: Buy puts that are deep "in the money." What do I mean by that? Let's say that a stock that you think is going to trade lower is at $40.00 p/share. You may have several puts to chose from.

For example let's study the Option Chain below:-

Stock Year Month Strike-price

XYZ - 2008 April 35 put (Trading at $2.50)

XYZ - 2008 April 40 put (Trading at $3.75)

XYZ - 2008 April 45 put (Trading at $5.65)

XYZ - 2008 April 50 put (Trading at $10.25)

The April 45 put is in the money by five points, because the stock is at $40. In other words, if I owned a put option contract that gave me the right to sell XYZ stock at $45, and at the same time, the stock was trading in the stock market at $40 (where I could purchase it), I could make a five-point profit on the difference between the sell and the buy if I were to execute both trades simultaneously. Notice that the April 45 put above is trading at $5.65.

The option, which, as I mentioned, is five points in the money, is worth at least $5.00/share since one can profit $5.00/share from the difference between where we can sell the stock and where we can buy the stock the same day.

So why is it at $5.65 and not just $5.00? In that $5.65 put option, $5.00 which is in the money is called the "intrinsic value." The remaining 65 cents is called "time value" (or "extrinsic value"). The reason that the option is trading at $5.65 (65 cents higher than $5.00) is because the put option is considered to have additional value since it won't expire for another six months. If your stock trades in the wrong direction, you have the luxury of six months to wait it out, and see if the stock does what you want it to.

The longer your option has to expire, the more time value may be included in the price of the option. For example an XYZ year 2008 January 45 put (which expires eight months later than the example above) might be trading at $6.65 ($1.00 more than the example above), which would mean that it has $1.65 in time value and still has $5.00 intrinsic value, as it is still five points in the money.

As illustrated in the Option Chain above, an option contract that is more in the money will have less time value than one that is less in the money. The price of an option that is not in the money at all will only consist of time value, which means that if the stock trades flat, your option would trade to zero. Hence, the reason that we look for options that are in the money. So when you are shopping for options, look for an option that has very little time value in it due to the fact that it is "in the money".

The way to find a put option that is in the money, and by how much, is to first look for put options that have a strike price that is higher than the actual stock price. (If the strike price of a put is lower than the stock price, it is not "in the money"; it's "out of the money.") Then, subtract the stock price from the strike price of the option. In this case: XYZ stock is at $40, so we look at the April $45 put since that strike price of $45 is higher than the stock price.

$45 (the strike price) - $40 (the stock price) = $5 (intrinsic value, or in the money). Since the option is trading at $5.65, we know that the remaining 65 cents is the time value (extrinsic value).

The idea is to use a put option that has very little time value so that your trade is almost solely affected by the stock's price movement and not time deterioration. Your put option will lose its time value as you get closer to the expiration date.

Picking a put option that will give you twice as much time as you believe that you need for your position to work out is also usually a wise idea since trades often don't go exactly as you expect them to, so you want to have a (time) cushion. In the example above, with an April $45 put option trading at $5.65, if the stock trades flat for five months, the most I stand to lose is 65 cents (my time value). That's a small price to pay for all of the benefits that come with this strategy.

If the stock trades up to $70.00, I only lose $5.65/share (the value of the put option) rather than lose $30.00/share (the difference between $70.00 and the price that I would have shorted the stock which was $40.00).

If you read this over and over and you search around on the internet and learn about this technique, it will be more than worth your time. It may save you thousands, or even millions of dollars. END

Will China be the 21st Century's Dominant Economic Power?

2007-12-14T10:28:00.000-08:00

This is a question that I ask at global seminars I present at. The most popular answer is usually China, followed by the U.S., and India too gets a few votes.

While anything can happen to tilt the position, I don't think there will be a single dominant economic superpower in the 21st century. The U.S. will continue to be the leading economic and military superpower in the world for the next 50 years at least. But in the following decades, I believe other economic powers will emerge, and Washington will have to share more power and responsibility with the likes of China and Russia. Increasing international cooperation between major powers will be necessary to effectively deal with global problems like terrorism, environmental pollution, infectious diseases and energy shortages.

This year in particular will probably be remembered as a turning point in the global economic balance of power. With the decline of the U.S. dollar and continuing housing/credit market woes, much of the rest of the world became uncoupled and effectively grew faster than the U.S in 2007. For the first time since the outbreak of World War one, nearly 100 years ago, all of the European stock markets combined surpassed the U.S. in total market capitalization.

Eastern and central Europe, led by Russia, is growing much faster than Western Europe. Run by Vladimir Putin and several dozen multi-billionaire oligarchs, the Russian economy is riding high on global energy and a commodities boom. Thanks to higher global commodity prices, Russia's GDP has already hit the $1 trillion mark. Two decades ago, the concept of Russia becoming a major plutocracy (or a government in which the wealthy class rules) was unimaginable, yet it has now become a reality.

In Asia, China has just surpassed Germany to become the third-largest economic power in the world right after the U.S. and Japan. In terms of stock market capitalization, China (the Mainland and Hong Kong combined) has already surpassed Japan to become number-two in the world.

China's GDP growth this year is more than 11%, reaching $3.27 trillion. At its current rate of growth, China will overtake Japan by 2011. Even if there is a recession in the U.S. in 2008, China's GDP growth in 2008 is likely to remain above 8%. Two commodity powerhouses, Brazil and Canada, also have $1 trillion economies for the first time ever. India's GDP too is looking to hit $1 trillion by 2010.

For much of the second half of the 20th century, the U.S. accounted for more than 40%—sometimes approaching 50%—of the world's total economic production. In other words, the U.S. economy was almost as big as the rest of the world combined. In the past five years, however, a 38% decline in the U.S. dollar and the superior growth of newly emerging economies is rapidly changing the global distribution of economic power, when measured in US Dollar terms.

China and its neighbors, like Russia, Taiwan, South Korea, Singapore and Malaysia, will probably evolve into a new Asian economic bloc. It is likely that this fast-growing region will become the new global epicenter of wealth creation in the 21st century. There will be many investment opportunities throughout the region that are shielded from the economic problems of the U.S.

The stocks in my Model China Strategy portfolio fall into this category. Many of them are already trading higher than they were before the November sell-off.

Benefiting form China

Establishing positions in successful, well-run Chinese companies trading in the U.S. could be the smartest move an investor could make in the coming decade. If investors get in now, not only will they benefit from the strength of the companies they own, but will also profit from increased demand, as millions of investors start scrambling for global investment opportunities in the coming months, and the inevitable recovery of the US Dollar. Yes I do believe that the US Dollar is undervalued. (I'll be explaining this in more detail at my presentation at the upcoming Sovereign Wealth Management 2008 conference in London in March 2008).

I'm not by any means predicting the collapse of the U.S. economy or US markets—there are many US companies that will provide solid, wealth-creating opportunities — but for the bulk of portfolios, I would suggest getting ahead of the crowd and start making money now.

The stocks in my Model China Strategy Portfolio currently lists 21 companies that can be purchased in the USA, in US Dollars. Of these 21 stocks, four of them have gained more than 200% so far. Another four stocks are up over 135%, and there are five other holdings that have posted profits of more than 50%. I believe there is still more upside to come.

When it comes to profiting from China's incredible growth, some of the best opportunities aren't even China-based! China's emergence has created a ripple effect throughout the world — if one knows where to look. My Model China Strategy Portfolio, has a diversified portfolio of holdings that contains more than just Chinese companies. Regions that could be invested in include Brazil, Taiwan and Singapore.

No matter where they're located, all of my selected companies have one thing in common — they're profiting big-time from China's scorching-hot economy. These China-based companies are up an average of more than 60% so far....... and they'll continue to gain in 2008 as the U.S. economy slows further. END

Will Sovereign Wealth Funds rule the world?

2007-12-14T08:01:00.000-08:00

Sovereign Wealth Funds (SWF) are Government-owned funds that invest in global markets. Many fear that they may turn their economic clout into political gain. Sovereign Wealth Funds are huge, and for some scarily big.

Though unknown to most Americans, these government-owned funds have been getting lots of attention in the financial press as well as among the world's top central bankers and finance ministers. The Senate Banking Committee heard lengthy testimony on them earlier this month.

These funds are mostly the product of accumulated US dollars by countries like China, with its massive trade surplus, and by oil-exporting countries reaping generous profits from oil at $90 plus per barrel.

How big are they? Estimates vary. The 28 nations with Sovereign Wealth Funds (SWFs) have, in total, assets of $2.1 trillion, figures Edwin Truman, an expert at the Peterson Institute for International Economics in Washington.

By 2011 or 2012, SWFs could have piled up as much as $7 trillion to $8 trillion, guesses Harvard University economist Kenneth Rogoff, a former chief economist for the International Monetary Fund (IMF).

SWF assets could be $3 trillion now and $10 trillion by 2012, reckons Simon Johnson, an IMF research director.

Whatever their size, the huge piles of SWF money ready to be deployed across borders make some financiers edgy.

"Our nation is not doing well in the global economic competition," Patrick Mulloy, Washington representative of the Alfred P. Sloan Foundation, told the Senate Banking Committee on Nov. 14. He cited concerns that SWF money will be used not just for economic reasons but also for political and strategic purposes.

Securities and Exchange Commission Chairman Christopher Cox said in a speech at Harvard in Oct. 24 that "the fundamental question presented by state-owned public companies and sovereign wealth funds does not so much concern the advisability of foreign ownership, but rather of government ownership." These financial and business entities could act in the interests of foreign governments, not necessarily the interests of the United States.

Warren Buffett, the famed billionaire investor, has worried that as long as the US has major foreign trade deficits (some $700 billion a year), it has to "give away a little part of the country" each year. The US could end up with a "sharecropper economy," where Americans largely work for foreign-owned firms.

Mr. Rogoff isn't so bothered by SWFs. He figures SWFs will do "more good than bad" in an increasingly Globalized world economy. He suspects that most of these funds will be "managed inefficiently" in their investments, losing a lot of money in many cases, perhaps getting an average annual return of around 8 percent. That is far less than Harvard gets, for instance, on its endowment money.

But an 8 percent return is almost twice what most nations get with their huge stocks of surplus US dollars invested in US Treasury bills. And a higher return and diversification is what most nations are seeking with SWFs.

China has recently established US$200 billion in an SWF, part of the country’s $1.43 trillion in foreign-exchange reserves, the world's largest. Most of this is in Treasuries currently. China's SWF invested $3 billion last June in Wall Street private equity firm Blackstone Group LP. However the stock promptly sank to $22 from its purchase price of $31.

To most people, $1 trillion is beyond comprehension. For perspective, the value of all traded securities (bonds and stocks) denominated in US dollars is $50 trillion. For the world, it's $165 trillion. If SWFs have $3 trillion, that's twice what global hedge funds manage and twice the size of global private equity funds, reckons the consulting firm McKinsey and Company.
So far the US government is inclined to take a free-market view of SWFs. Treasury Secretary Henry Paulson said on Nov. 18 that SWFs "should be able to invest globally." But he noted that because these funds are large, government-run, and often opaque in their investment strategies and portfolios, "questions will arise."

The US has a system, strengthened by Congress last summer, to check on new foreign investment in the US. And the US and other well-to-do nations are pushing for the IMF to develop a system of "best practices" for SWFs.

In fact, the IMF concluded its first "annual roundtable of sovereign asset and reserve managers" on Nov. 16 in Washington. About 60 officials from 28 nations attended, including those of some of the biggest SWFs. It was a preliminary session, but "very successful," says Adnan Mazarei, heading the IMF working group on the issue.

Mr. Truman warns that "a lot of countries" with SWFs must agree before the IMF can institute a "best practices" system. Rogoff says that some Middle East countries with SWFs may not be keen to meet "transparency" standards since national elites may be using the funds to enrich themselves.

My personal observations are as follows : -

In a free market environment SWF should not be restricted in their objective to generate a fair return. However, as SWF are Government owned their investments in foreign business enterprises could result in concerns over control issues;

As SWF are deploying their respective countries’ national wealth that rightfully belongs to their citizens, they should be committed to first investing and supporting their domestic economies;

SWF have to position and execute their investment strategies in such a manner as not to cause disruption in global markets;

Note : I will be addressing these and other related topics at the upcoming Sovereign Wealth Management 2008 Conference in London in March 2008. Join me there.