Monday, May 31, 2010

Is the current turmoil a boon for exchange traded credit derivatives? - Part VIII

One month after the Lehman Brothers and AIG collapses I wrote the following on this blog [Is the current turmoil a boon for exchange traded credit derivatives? - Part V, Oct 17, 2008]: .....As I stressed a month ago (17/9 AIG+CDS=SOS) I thought the collapse of AIG would be the start.....of the new era where counterparty risk would take center stage......

Now, at least one highly influential academic, Francis Longstaff at UCLA, has studied whether this actually happened (an increased focus on counterparty risk correct). The answer is yes, at least if one believes Longstaff et al. in COUNTERPARTY CREDIT RISK AND THE CREDIT DEFAULT SWAP MARKET

The authors find clear evidence of the Lehman default (which occurred two days before the AIG collapse) changing the behavior of dealers towards counterparty risk. Two quotes from Longstaff et al. are

“Surprisingly, we find that there is little evidence that dealer credit risk was priced in the CDS market prior to the Lehman bankruptcy………. This result is consistent with market sources indicating that the Lehman default highlighted the importance of a number of counterparty credit risks that had previously been largely ignored”.

and

“How should these results be interpreted? One possibility is that prior to the Lehman bankruptcy, the market viewed the practice of collateralization as fully effective in mitigating counterparty credit risk. Subsequently, however, the market underwent a regime shift as it realized that no firm was too large to fail and that there were numerous legal pitfalls inherent in even a collateralized counterparty relationship.”

I think that is really good news, if true, and I think there will be more written on this issue in the academic community. I do not have access to the great data set that Longstaff et al. have but if I did I am sure I could come up with some really nice studies that could be done.

Saturday, May 29, 2010

Donations through CIMB Cares

In conjunction with Wesak Day, this is a very meaningful topic. 

Previously, I am facing difficulties in performing such an angel act – Donations.
I am sure everyone of you faced situations when someone approaching you to make donations to…



And, maybe you think:
“Is this fellow trying to con me?”
“Will he channel the funds for the real purpose?”
“Why not I donate directly to the designated organizations?”

Frankly, I’m thinking of the 3rd questions most of the time. (Sorry to those approaches)

However, where am I going to donate directly?
Is it very troublesome to go there?
Are there any alternative ways?

From now on, you can make donations to your favorites charity organizations, through CIMB Cares. Etc. WWF, MAKNA, Mercy Malaysia… It’s convenient, secure and 100% of your donation goes to your chosen charitable organization.



There are 4 categories of charitable organizations, namely Environment, Education, Welfare, and Healthcare. The online fund raising portal makes donating a breeze. You can make donations of any amount to any of the participating NGOs. Payments can be made as a one time donation or you can set up a standing instruction for it.

Log on www.cimbclicks.com.my/cimbcares.htm and experience the pleasure of donating today.

Saturday, May 22, 2010

In the midst of selling – Pick and Choose

As an investor, looking at the market falling freely for the whole week gave me two different approaches. Depending on your stocks to cash holdings, it could dictate your next move.

Mr. A (If you are holding many stocks)
There is a possibility that your heart beat is getting greater, and you are thinking whether to sell your holdings now.

Mr. B (If you are holding many cash)
There is a possibility that your mouth is getting bigger, trying to swallow whatever stocks you had targeted for long time, and you are thinking whether to utilize your holdings now.

Whether you are A or B, my advise would be keeps on holding to what you have now.

WHY?


Answer to Mr. A
If you want to sell, you should sell it earlier, before the week, not after. Depending on type of stocks you are holding now, some may fall less, and some may fall crazily over the week.

Those that fall less, most of them is dividend counters, which means the price is relatively stable. If you sell now, it would not make a lot of difference, and you will lose for brokerage fees.

On the other hand, those falls crazily are those speculative/growth counters, which largely based on the sentiment of the market. In stead, you should buy before the sentiment going up again, but not now.


Answer to Mr. B
I know you are so tempted to enter the market now, fearing that the market will stage a strong rebound after one whole week of falling. However, in my opinion, this is in the midst of falling only. Actually, you can start buying now if you do not mind. The mega sales is going for another week or two, just be patience.


When is a better time to enter?
Technically, the next support level would be around 1,230, last seen in Oct 2009. Go down further, would be 1,155. Anyway, value will start to emerge at 1,230 which mean there is another 55 points to go. So, wait for the number (or buy 4D now) before entering the market.


One last Tips:
Pick and choose for those fundamentally strong companies, which have fallen hard and still remain in the radar of investors, like Faber, Unisem, Evergreen.

Wednesday, May 19, 2010

Änglarnas stad i lågor!


Vilken tråkig nyhetsdag! Först chockbeskedet från våra teutonska grannar där man förbjuder blankning av aktier, statsobligationer samt credit default swaps (vilket vanvett).... :( Och sedan nyhetsbilderna från “mitt” Bangkok! Affärskomplexet Central World tycks stå i brand och börsen (Stock Exchange of Thailand) likaså. Hundratals döda och skadade. Vilken chock!

Jag har tillbringat långa perioder i Bangkok som gästprofessor vid olika universitet och som turist och har lärt mig tycka mycket om denna kaotiska, förorenade och trafikerade metropol. Jag har också besökt börsen ett flertal gånger samt var varannan dag handlat på Central World!! Det gör det extra chockerande. Man kanske inte ska förstora upp det hela men man ska komma ihåg att detta inte är Kirgisistan eller Kongo, utan en av Asiens tigrar.

Vad som ska hända nu kan man förstås bara sia om. Oroväckande är dock att oron spritt sig till nordöstra Thailand med städerna Udon Thani och Khon Kaen. Thailändarna är ju "fredliga" av sig men samtidigt är det ett djupt ojämlikt land och egentligen har det ju bara varit en fråga om tid innan den bakomliggande konflikten mellan landsbygd och stad skulle komma upp till ytan. Det är väl bara att hoppas att saker lugnar ner sig. Synd bara att "demokratin" i Thailand fått sig en knäpp på näsan. Detta kan väl knappast vara bra för framtiden?

Apropå finans, detta är ju en finansblog, för den som funderar på att köpa aktiefonder med fokus på Thailand tycker jag först han/hon ska läsa min varnings-blog om Thailand (och Iran och Syd-Afrika) från April 2009 Fråga din bankman om han vet vem Abhisit Vejjajiva är! Notera att två av dessa länder haft gatustrider sedan mitt inlägg…….

Monday, May 17, 2010

Snart är vi alla moraliskt bankrutta!

Jag brukar stolt och med stor säkerhet i rösten påstå att jag är marknadsfundamentalist och ideologisk kapitalist. Och lika säker som jag är på att fria marknader skapar välstånd och tillväxt, lika säker är jag på att centralplanering är av ondo. På sista tiden har jag dock börjat känna oro över att den fria marknadsekonomi vi tror oss leva i sedan ngt århundrade, eller som vi i alla fall tror kommer att infinna sig en vacker dag, är lika mycket av en utopi som den kommunism vi såg under ett halvt århundrade i t.ex. Sovjetunionen. En schimär helt enkelt.

Jag tänkte bara ta två små exempel för att peka på vad jag menar:

Fria marknader bygger på att individer, företag och länder talar sanning.... Detta verkar dock komma på skam. OK, de flesta liberaler ser mellan fingrarna med statlig (nattväktarstaten) inblandning åtminstone för att försvara privat egendom. Men, om vi nu ska ha en stat, borde inte staten skydda oss mot stöld och förskingring (ofta begången av inhemska aktörer) likväl som den skyddar oss mot militära aggressioner från främmande makter. Leeson, Maddoff och Sir Stanford är bara toppen på isberget. Bakom dessa explicita stölder finns de mer subtila transfereringarna av kapital från rättmätiga ägare till ”tjuvar och banditer”. Centralbankernas artificiellt låga räntor flyttar kapital (helt orättmätigt) från sparare till låntagare och finansinspektionernas slapphänta behandling av banker flyttar kapital (helt orättmätigt) från skattebetalare till bankchefer/bankanställda. Samspelet mellan statliga institutioner, politikens värld och storkapitalet suddas ut (Stockholmssyndromet?) och de som har tillträde till denna inre cirkel berikar sig på outsiderns bekostnad. Och på kuppen förlorar prismekanismen sin viktiga roll!

Fria marknader bygger på att den som satsar på fel häst förlorar sina pengar.... Är det verkligen någon som tror att detta gäller längre? Banksystemet, husköpare, Grekland,…. osv. Bail-out listan kan göras lång. Alltför lång. Hur liberalt är egentligen ett system där risktagare (så fort de utgör en politisk/svågerpolitisk kritisk massa) inte längre tillåts förlora kapital och där oskyldiga får stå för notan? Varför tvingas inte husköpare som utan insikt satsar flera årslöner på en tillgång med osäkert framtida värde, bankirer som spelat K2-högt med andras pengar och länder som levt över sina tillgångar i decennier betala för sina gärningar? Varför ska bail-outs och moral hazard-skapande politik rädda deras skinn om och om igen?

Jag är rädd att detta tummande på den fria marknadskapitalismen inte bara kommer att leda oss över ruinens brant utan dessutom kommer att skapa en befolkning av moraliskt bankrutta individer. Rättvisa och individuellt ansvarstagande kastas överbord i stället för att halas till mastens topp!

Saturday, May 15, 2010

EPF i-Akaun

Since EPF go online years ago, many people are disappointed by the way the website was maintained and updated. However, as time goes by, EPF had done a face-lift to its website. If you noticed, I could say that EPF website nowadays is very informative, convenient, well-organized. 


I know, I know, maybe you are saying: “Is it really so goooood ???”
The fact is, I am not a EPF staff, then why I need to praise them?

From now onwards, there will be an EPF series written in this blog.
In this 1st series, I would like to touch on i-Akaun by EPF.


What is i-Akaun?

i-Akaun is a member’s or an employer’s personal account to be used on the Internet, specifically on myEPF portal. By having this account, users are able to access EPF services that are being offered online.

What are the online services offered?
For members:
- View and print account statement for current and previous year.
- View withdrawal status and history.
- View EPF transaction activities.
- Update mailing address and personal details.
- View eligible withdrawal amount for various approved purposes.

For employers:
- Checking and printing the current and previous account statements.
- Checking the EPF transaction activities.
- Access to Form A: Credited contribution archive.
- Checking employee’s EPF number.
- Checking contribution with incomplete information.
- Dividend share calculator for Government employers.
- Registration of new employees.

Wow… How to set up my EPF i-Akaun ?

For members:
  1. Visit the Smart Kiosk or Counter to generate your own Activation Code.
  2. Then, surf the EPF website to activate your i-Akaun before the expiry date.
For employers:
  1. Register i-Akaun for Employer at the EPF website.
  2. EPF will e-mail or mail you the details of your Activation Code for confirmation purposes.
  3. Visit any EPF offices together with a copy of the e-mail/letter to collect the Activation Code. Please bring the required documents stated.
  4. Activate your i-Akaun before the expiry date.
Since you may faced difficulties to locate EPF offices, I suggest you to get it done easily at any of the EPF kiosks which can be found in certain branches of the following bank:
- AmBank
- RHB Bank
- RHB Easy
- RHB Islamic
- CIMB Bank
- Public Bank
- HSBC Bank
- CitiBank
- National Heart Institute
- Permodalan Nasional Bhd

 It’s FREE + Hassle Free. What are you waiting for?

Source: EPF website (http://www.kwsp.gov.my/)

Monday, May 10, 2010

Special Coverage: Web of Europe’s Crisis

$1 trillion rescue package by European Union.
Global share markets reacting positively towards EU latest move.
Euro gains 2.7% in one day boosted by EU and IMF.
European markets posted best one day gain this year.

Sounds GOOD?

This is the power of UNITY showed by EU countries during this round of financial meltdown. After a frantic talk on Monday, European officials agreed the 16 euro nations would put up $572 billion in new loans and $78 billion under an existing lending program. Meanwhile, IMF will pump in another $325 billion, adding up to a rescue package of nearly $1 trillion.

However, many economists and analysts are still concern as to how the money would be dispensed and on what terms. A lot of them citing the euro rescue won’t solve the main problems plaguing the economies of Greece, Spain, Portugal, Ireland and Italy, which is low growth and weak balance sheets.

Let’s enlarge the chart below (you must) to have a clear picture of the debt-ridden countries, taken from www.nytimes.com


Now, you still believe that EU nations are really so UNITED?

The reality is that the Germans, French and the rest of Europe have little choice, but to bail out the troubled members to prevent them from failing. With cross-border banking and borrowing, many countries on the periphery of Europe owe vast sums to one another, as well as to richer neighbors like Germany and France. A default by a single nation would send other countries tumbling.

Who is the “Tai-Ko” (number 1)?
Congratulations to GREECE, who owes:
  • $9.7 billion to Portugal
  • $8.5 billion to Ireland
  • $6.9 billion to Italy
Second layer of Debt:
Portugal owes $86 billion to Spain.
Nearly 1/3 of Portugal’s debt is held by Spain.
With unemployment at 20%, Spain is among the weakest economy in Europe.
And, Spain owes:
  • $31 billion to Italy
  • $30 billion to Ireland
  • $28 billion to Portugal
Third layer of Debt:
Collectively, these PIIGS owes:
  • $704 billion to Germany
  • $911 billion to France
  • $418 billion to Britain (Here’s how Britain also came into picture)
Interestingly, Italy owes France $511 billion, or 20% of French GDP!!!
Now, I am not surprise that “French fries Italy’s Pizza”…

Conclusion: German and France are FORCED to bail out PIIGS.

Saturday, May 8, 2010

Focus of the Week: GREECE crisis – World wide version

With Greece having trouble, it is now pulling other assets too:
  • US Dow Jones plunged as much as 9% on Thursday before recovering to end 3% down.
  • MSCI’s emerging markets index lost 11% since mid-April.
  • Crude oil price has fallen 14% over the past week, with Greek crisis putting the brakes on speculators as well as fears for Chinese growth.
  • Commodities indexes have lost 5% in a week.

The question in all investors mind this week would be:
When would this stopped?

 
To contain the infections, Euro zone leaders decided on Friday they have special measures ready before financial markets open on Monday to prevent financial turmoil in Greece spreading to other countries such as Spain and Portugal.

 
However, European Commission President Jose Manuel Barroso declined to give any details of the proposals, which will be presented to all 27 EU finance ministers for approval on Sunday.
 
 
The EU summit, called to discuss longer-term efforts to coordinate economic policies, turned into a crisis-management session, with the euro facing its stiffest test since its debut in 1999.

 
High deficits coupled with low economic growth has threaten Portugal, Spain and Ireland to follow the crisis leading path of Greece, most probably forcing them to seek financial aid too.
 
People worry that if Greece is Bear Stearns, Portugal is Lehman and Spain AIG”. BNP Paribas said during past week, a phrase that gained much circulation last week.

PIIGS (Portugal, Italy, Ireland, Greece, and Spain) can’t fly – the Greece problem. An article by Tan Sri Lin See-Yan saying that these countries need to seek IMF help before it was too late.
 
Hopefully, the share markets around the world would stop falling as intended by EU. 

Thursday, May 6, 2010

New Fund: OSK-UOB Capital Protected US Recovery Fund

Yet, another capital protected fund will be launched by OSK-UOB investment bank.

The 3-year closed-end capital-protected fund is aiming to provide investors regular income over the medium term. The theme for this fund is "US Recovery". The fund will be offer for subscription from May 10 to June 23.

The fund's principal strategy is to invest 87% to 93% in zero-coupon negotiable instruments of deposits (ZNIDs) to accord the capital protection and the remainder in a 3-year over-the-counter US option.

Min. Initial Investment : Rm1000

Valutor under press - Del II

Jag tillhör den skara som kan gotta sig åt att ha prickat helt rätt vad gäller euro-problemen vi nu observerar på marknaden. Redan under 2008 (se Valutor under press, Nov 19, 2008), d.v.s. för 18 månader sedan, skrev jag t.ex. följande:

........Vad värre är är att jag tror på möjliga problem även för euron (både vad gäller priset på valutan och för samarbetet som sådant)! Få verkar idag tro att eurosamarbetet står inför så svåra utmaningar att vissa länder kommer att fundera på att lämna euron. Det gör dock jag. Jag tror vissa länder (Italien, Spanien, Grekland, Irland?) kommer att få mycket mer problem än andra (Tyskland, Finland?) och att det åtminstone kommer göra att vi under snart kommer att få se rubriker i tidningarna likt ”Italien tvingas kanske ge upp euron!”. I värsta fall kanske ordet ”kanske” utelämas i rubrikerna...
...... [High on Finance, Nov 19, 2008]

I samma artikel pekade jag ut Estland och Danmark som länder med valutor som var övervärderade mot svenska kronan. Jag får dock erkänna att jag ofta tycks ha rätt i sak men ändå inte lyckas tjäna så mkt på mina prediktioner. Åtminstone inte i det korta perspektivet. Ta t.ex. Estland: även om det mycket riktigt stormade rejält ett tag efter min prediktion så föll ju inte peggen. Dvs ONLY A SMALL PROFIT FOR ME (4% årlig avkastning)! Och ta Danmark: även om svenska kronan mkt riktigt förstärkts något (från 1.3639 till 1.3047) så är det ju inte diekt ngn lysande trade….. Dvs ONLY A SMALL PROFIT FOR ME (3% årlig avkastning)! Frågan är om samma sak ska hända med euron. Sedan min prediktion har euron försvagats, men inte dramatiskt (från 10.40 till 9.70).Dvs ONLY A SMALL PROFIT FOR ME (4% årlig avkastning)! Dvs trots att jag hade rätt när jag sa att vi snart skulle få läsa rubriker likt ”Italien tvingas kanske ge upp euron” så har jag ej gjort en "Soros" eller "Paulson".

Det ska dock kommas ihåg att jag fortsätter (hypotetiskt förstås då jag aldrig avslöjar vad jag egentligen köper/säljer) att shorta baltiska valutor och danska kronor och euron! Dvs, spelet är inte över än. Jag nöjer mig inte med de (teoretiska) småsmulor jag fått hittills!

Jag tror på en fortsatt förstärkning av SEK!