Friday, January 29, 2010

Konferens i London!

Förra bloggen handlade ju om mitt papper om nyhetsvolymer och dess koppling till aktiemarknadsvolatiliteten. Byström, H., (2009), News Aggregators, Volatility and the Stock Market, Economics Bulletin 29 (4), 2009, pp 2679-2688. Denna typ av forskning är helt ny, dvs sättet att mäta nyhetsvolymer är nytt, och jag ska till en konferens i London nästa vecka som handlar just om detta, länk. Ska bli kul att se om jag får några nya forsknings-idéer eller trading-tips.

Ska också passa på att se om jag hittar en snygg Barbour International som jag kan ha när jag susar runt på min vespa/scooter. Man kanske inte sparar så mkt pengar på att köpa den i england men tillfredställelsen med att dra fiina prettoaffärerna [de enda som saluför Barbour] här hemma i Sverige vid näsan är desto större……

Tuesday, January 26, 2010

Google News - the news aggregator!

I am not only interested in credit risk and credit derivatives but my research also focuses on financial stability, performance measures, commercial microfinance, and market behavior in general. Moreover, I have also written the first (as far as I know) academic paper on the use of news aggregators in finance. In the paper

Byström, H., (2009), News Aggregators, Volatility and the Stock Market, Economics Bulletin 29 (4), 2009, pp 2679-2688.

I discuss how news aggregators can be used in a financial context. More exactly, I show that the number of news hits in Google News containing the phrase “stock market” or “stock market crash” is significantly related to stock market volatility! That is, news and volatility seem to be related to each other, as expected. See the link to the paper here.

News aggregators such as Google News are really nice tools to swiftly collect news on a certain topic onto one single web page. My application is just an example and I think there are many other avenues where news aggregators could be useful. In research as well as in trading. Here is the link! Google News

Monday, January 25, 2010

US and China updates Jan2010

Investors are being carried away by a surprise Government’s Policies measures planned. Although the intention of US and China governments are good as the words goes-by, share markets could not stand it that way.

What was being implemented in China?
· Issuing government bonds with higher yield, this is to reduce the liquidity in the market, by encouraging money flowing back to the government’s war chest.
· Increasing the minimum down-payment for property purchases from 20% to 40%.
· Increased bank reserve requirement by 0.5% to 16% for big banks, and 14% for smaller banks.

What was being planned in US?
Obama’s bank plan composing two main elements:
1. Limitation of bank’s size.
2. Limitation of products and services offered, which is deem lucrative for banks.

As such, US and China market have corrected by 5.1% and 4.4% respectively. The percentage was no big deal, given the bull-run since March 2009. However, investors just can’t take it anymore, and this kind of policy changes gave them a very good excuse to take-profit now. Also, China was going to celebrate their long festive holiday next month, with many investors expected to stay side-lined instead.

Many analysts saying that investors are waiting for more clarifications in terms of China’s policy, inflation and interest rate movements. With Q4 GDP growth of 10%, China was expected to hike interest rate by 50 basis points by 2H10. Remember, this kind of measures is normal and it only happens when the situation was permitted.
Ask yourself, "I want an over-heating, or under-recovery economy?"

Meanwhile, Obama popular moves signaled a more restricted banking industry, which had gone through its worst years after some best years. These best years witnessed some good earnings, resulting from some innovating – complicated and hard to understand – products. However, those worst years was fuelled by excessive borrowings without proper risk management policies in place.

Now, Obama is doing some rectification works, but, seems that he didn’t get the backing of investment communities, whom still enjoying the spectacular bull-run. I think the market was oversold, given the not-yet-approved Obama’s plan, and minimal impacts on the earnings growth of US banks.

Tuesday, January 19, 2010

Lastfartyg och dess finansiella betydelse

Här kommer lite mer finansallmänbildning! Jag tänkte att de flesta av er kanske inte är så insatta i fraktfartygsbranschen (det är inte jag heller) och dess betydelse för finansmarknader i övrigt. Jag har tidigare diskuterat té och kaffe och deras egenskaper sett ur en investerares synvinkel. Som investerare måste man ha kolla på mycket förutom aktiekurser och marknadsräntor och faktum är att kostnaden för att frakta råvaror, som kaffe, över världshaven är en sådan viktig faktor.

Dessa är de viktigaste typerna av fartyg:

-dry bulk ships
-container ships
-oil tankers

I denna blog ska jag nöja mig med att prata om rena lastfartyg (dry bulk) och sedan återkomma till oljetankers och kontainerfartyg någon annan gång.

Den viktigaste parametern att ha koll på när man pratar om lastfartyg är helt klart det så kallade Baltic Dry Indexet. Detta index har funnits i hela 25 år och är ett index som refekterar kostnaden för att frakta dry bulk (kol, järnmalm etc.) över haven. Mer exakt baseras indexet på dagliga charterpriser noterade hos skeppsmäklare i London för ett genomsnitt av representativa rutter. Som en del av er säkert vet har detta index varit mkt volatilt den senaste tiden och under krisen såg man som värst ett fall från toppen på hela 99%! När det var som billigast kunde man hyra ett gigantiskt s.k. Capesize fartyg för typ 20000kr/dygn (jämfört med mer normala halvmiljonen eller så). D.v.s. bratsen kunde ha sina förfester på ett 700-fots lastfartyg i stället för på sin lilla 42-fots Storebro SkyCruiser!!!!

Baltic Dry Index beräknas för alla farygsstorlekar så det kan vara på plats att lista de olika lastfartygsklasserna (från störst till minst):

-Capesize (80000+ ton) Dessa fartyg är så stora att de varken går igenom Panama- eller Suez kanalen. De måste alltså runda ”the Capes” (Afrika och Sydamerika). Därav namnet.
-Panamax (60000-80000 ton) Dessa fartyg går precis igenom Panama- och Suez kanalen. Därav namnet.
-Supramax (35000-60000 ton) Dessa fartyg är havets motsvarighet till Volvo V70 i dagens Sverige. Vad namnet betyder känner jag inte till…….
-Handysize (60000-80000 ton) Detta är arbetshästen på havet! Det finns tusentals av detta fartyg och det är det vanligaste dry bulk fartyget. Som namnet avslöjar så är det en liten smidig farygstyp; folkabubblan på havet!

För att avsluta det hela vill jag återigen betona att den smarta inveteraren inte bara kan få utlopp för sina tradingidéer genom att trada direkt med Baltic Dry Index men han/hon kan också säkert använda indexen för att göra cross-asset class strategier (där indexen bara utgör triggers för handel på andra marknader som aktier eller FX).

Sunday, January 17, 2010

Unlocking the Mystery of Capital Protected Funds

Recently, there are a few capital protected funds being matured. However, most of the investors are not satisfy with the performances as promised when the fund was launched years ago. Is this the fault of investors who don’t understand it? Or, the fault of the product itself?

To make things worse, most of the investors are conservative in nature – older age group. If your mum or dad was one of them, make sure you finish this and explain to them.

Although Capital Protected Funds have been exist in Malaysia since early 20s, many investors still unclear about the structure of this type of fund. Is it safe as the name goes by? What is the return like? And, are there any terms and condition apply to it? Questions usually asked were answered below:

What are capital-protected unit trust funds?
· They are investments that promised to repay 100% of your capital, when held until maturity, which means your downside risk is protected.
· They do not guarantee returns to investors, but only promise to protect the capital invested.

So, what is the return likes?
· They allow investors to participate in the potential upside from the investments, by investing in risky assets like stocks, options or derivatives. Example, equities, bonds, commodities, indices and currencies.
· Normally, capital-protected funds are targeting 7%-10% annual return.
· Of course, they could give you zero return too. It all depends on the performance of underlying investment.



How is my capital being protected?
· It is protected by placing a large portion of capital in Zero Coupon Negotiable Instruments of Deposits (ZNIDs), which are money market instruments. ZNIDs carry a fixed interest rate, and aim to get back your 100% capital at maturity. (See Figure)
· These ZNIDs are issued and protected by Malaysian banks, with high-grade ratings.
· To make it even safer, fund manager would diversify the risks by sourcing ZNIDs issued by more than one bank.

Can I redeem before maturity? Any penalty?
· Yes, you can. But, you may not receive 100% of your initial capital. The value is based on the net asset value (NAV) at the time you redeem.
· Usually, a penalty fee of 0.5%-2% is imposed if you redeem before maturity.

Are you understood now? Be mindful if you come across capital-protected funds next time. Happy Investing.

Monday, January 11, 2010

Credit does belong in any introductory text book on Finance!


Contrary to most traditional Introductory Finance text books my book Finance (see picture on the right or link here) contains a chapter on credit (including credit derivatives). Moreover, I added in the preface of the book that I thought this was going to be the norm in the future. In 2007 I wrote:

“……contrary to typical introductory Finance textbooks, a chapter on Credit is included. ..... It is quite likely that most introductory Finance textbooks will include such a chapter in the future.”

I am happy to see in Financial Times the other day that the well known Finance professor from UCLA, A. Subrahmanyam, agrees. He says in an interview that he discusses credit and credit derivatives in his introductory class. In the article Schools learn from financial crisis and switch tracks FT writes:

“Avanidhar Subrahmanyam, a finance professor at the Anderson School of Management at UCLA, teaches an introductory finance class for first-year students. In the past, his course focused on stocks and bonds, but today it includes in-depth discussions about credit default swaps, mortgage-backed securities and collateralised debt obligations.”

It’s nice to have support from such prominent people. Also notice that Subra teaches introductory classes! UCLA seems to agree with us that full professors, if possible, should teach at the lower levels.

Monday, January 4, 2010

Konkursfrekvensen på all-time-high 2009

Standard & Poor’s rapporterar att konkursfrekvensen globalt har nått sin högsta nivå någonsin! Under 2009 gick mer än dubbelt så många företag i ”konkurs” (defaultade) som under 2008! Detta är i linje med mina prediktioner i december förra året i Min intervju i Sydsvenska Dagbladet – Del II där jag bl.a. skrev att “jag tror fortfarande att vi kommer att få se en mycket stor ökning av konkurserna framöver!”.

Jag har ingen detaljerad statistik över Svenska konkurser i nuläget men listan kan dock göras lång! Följande är några av de konkurser som funnits på DIs startsida under krisen: Sterling, Teligent, E-health, Ancora energispar, M2, Svensk fastighetsförmedling i Växjö, Notar (Norge), Lejonet & Björnen, Neonode, Eml leather, Segerström, UIQ, Stuk, Ice.net, Plastal, Svenska valutagruppen, Duka, Micro, Arvika gjuteri, Rayclinic, Lear och så slutligen Saab.

Även om det värsta troligen är över nu så tror jag konkursantalen kommer att fortsätta ligga på en hög nivå ett tag framöver, framförallt i euro-zonen. Precis som svåra förkylningar har en tendens att hänga sig kvar längre än man trodde från början så tror jag vår finansiella kris kommer att hänga kvar, i form av allehanda symptom, länge än.

Friday, January 1, 2010

2010 Economic Forecast

After some spectacular performances displayed by global equity markets, how is 2010 heading? In fact, 2009 is a year, in which, share market around the world performed the best in recent years. Indonesia is leading all the way with an awesome 87% gains, follow by China, India, Brazil, Hong Kong, Singapore, and Taiwan…

Meanwhile, Malaysia too joining the bandwagon by rising 45%, which was the index’s biggest annual gain since 1993. All of this was started since March 2009 when risks appetite increased and low interest rate environment surfaced.

Is this Sustainable?
However, all of this was fueled by excessive liquidity, couple with low interest rate, with oversold position of global markets only. The next engine would be earnings growth from companies, where this is the real food for the “Bull”. Because low interest environment forced people to invest, and a lot of people borrow USD to invest globally, which gave them handsome profit.


So, what’s the prediction of 2010?
As long as US do not hike interest rate, the current rally would persist going forward. If not, higher US interest rate will encourage people to divest all their investments globally in order to pay back the USD loans (See diagram). Anyway, US would only hike interest rate if their economy was on a stronger footing, where unemployment rate drop, retails sales up, and manufacturing sector recovering. All of this may happened in 2nd half of 2010. So, you still could enjoy your investments for few months more.

Advise:
US must work hand-in-hand with major governments to manage the reversing of interest rate environment, in order to minimize the impact of sudden currency surge of a particular country. One of it was to hike interest rate simultaneously with major countries globally. And, I believed that Obama's administration already knows it (hopefully).