ARTHNEETI DECEMBER 2012 ISSUE

Dear Readers,
The government of India has a major problem to tackle this financial year- Fiscal Deficit. It has tried all possible means to reduce the deficit to the acceptable level. Subsidy bill are a major part of government spending in India. So GOI is now determined to reduce the subsidies on diesel. It has now agreed to deregulate the prices of diesel in a gradual manner. So is the case with LPG cylinders. These steps suggest the desperate need of the government to bring its spending below the threshold. Another important step that has been taken is disinvestment of PSUs. 

To read further, click here

Tools for financial education: Stockmarket Pearltrees

USE PEARLTREES INSTEAD BRO

I've been experimenting with Pearltrees as a tool for financial education. If you've never used Pearltrees before, it's a cool technology for arranging information, sites and other media into organisational trees. I used it in my last post on Goldman Sachs to show how the company is arranged, and this week I've been experimenting with it as a tool to visually represent the FTSE 100 index. The FTSE 100 is an index of the 100 largest publicly-listed companies in the UK, constituting a major chunk of the UK economy. You can explore the Pearltree in the box below, but for greater functionality, go direct to it here.

Click on the various pearls to explore the diagram. Clicking on an individual company launches a pop-up window with information. As you can see, it's a pretty simple and intuitive way to present an otherwise abstract list of companies, allowing you to hone in on the various industry sectors (note how dominant finance and mining companies are in the FTSE), and to get easy access to company wikipedia pages and websites.

Forthcoming attractions

I AM SOOO EXCITED!

I'm going to create more Pearltrees for other major global stockmarket indices. It takes a bit of time to create each one, so I've drawn up a list below of the indices that I want to target, and then as I create the Pearltrees I'll fill the links in.

1) The Dow Jones Industrial: Almost complete here

2) The Hang Seng Index (Hong Kong)
3) The CAC 40 (French)
4) The Dax (German)
5) Sensex 30 (Indian)
6) The IBEX 35 (Spanish)
7) The Nikkei 225 (Japanese)
8) The S&P / TSX 60 (Canadian)
9) Bolsa IPC (Mexican)
10) FTSE/JSE Top40 (South African)
11) CSI 300 (Chinese)
12) Bovespa (Brazilian)

On the other hand, it is possible that I will grow bored of creating Pearltrees out of the world's most powerful companies. Maybe I'll get an intern to do the rest, or a kindly team of volunteers. If you know of any other cool ways of visualising massive stock indices please let me know - Pearltrees has its limitations and I'm interested to find other tools. Hope you find this useful.

Sverige har större skulder än Grekland!

Det har varit mycket fokus på Grekland de senaste åren. Katastrof skulle kunna sammanfatta vad de flesta tycker är representativt för situationen i Grekland (inklusive jag själv här på bloggen). Vad färre uppmärksammat är att många andra länder delar ett stort problem med Grekland, nämligen höga aggregerade skuldnivåer. Även Sverige är ett av dessa länder och om man tittar på de totala skulderna i vårt land så är t.o.m. skuldnivån högre än den i Grekland (år 2010)!

Med totala skulden menas alla skulder som hålls av såväl staten, företagen och hushållen i ett land. Denna totala skuldkvot som procent av BNP är i Sverige 340% och i Grekland 262% (2010)! Siffrorna kan hittas i artikeln .... ”The Real Effects of Debt” skriven av erkända forskare vid BIS. Den stora skillnaden mellan Grekland och Sverige är att Grekland har en stor statsskuld (vilket vi ju alla vet) medan Sverige har en stor privat skuld. Medan Grekland har en privat skuldnivå på 130% (icke-finansiella företag plus hushåll) har Sverige en privat skuldnivå på 280% (icke-finansiella företag plus hushåll)! Framförallt är det bolagen som har stora skulder och jag känner att jag måste undersöka närmare vad detta beror på och hur allvarligt det må vara. En avanceradekonomi kan ju troligen klara av högra skuldnivåer än en mindre avancerad ekonomi. Frågan är också vad det skulle innebära om man också tog med banksektorns skulder. Den finansiella sektorn är ju stor i Sverige och med våra avancerade finansmarknader kan man tänka sig att det varit lätt att bygga upp höga skuldnivåer. Jag återkommer om detta men en intressant siffra att hålla i huvudet för den som gillar att måla fan på väggen är 913%. Det är statsskulden i Weimarrepublikens Tyskland i början av 20-talet (enligt Ray Dalio och Bridgewater Associates) strax innan hyperinflationen raderade ut en generations sparande och 200 miljarder mark krävdes för att köpa en brödlimpa. Vi har en bit kvar dit det medger jag....

Om vi återvänder till ”The Real Effects of Debt” så är författarnas huvudtes att tillväxten i en ekonomi påverkas negativt av för höga skuldnivåer och det är tydligt att Sverige ligger över den nivå när detta börjar märkas. Detta är trist och jag delar fullständigt förslaget att avdragsrätten för räntekostnader måste tas bort för att minska skuldsättningen. Denna artificiella subvention av låntagare på bekostnad av aktieinvesterare och sparare har otvivelaktigt spelat en stor roll för den trista situation vi nu befinner oss i.

Summa summarum: Jag är skeptisk till Sverige som destination för investeringar på lång sikt och skuldnivån är ett mycket viktigt skäl till detta. Räkenskapens dagar ligger otvivelaktigt framför oss.

The Old & New Palm Oil Growers Scheme

Both schemes have been categorized as "share-farming" interest scheme by Securities Commission of Malaysia, yet, both were in the limelight lately due to their contradict directions. The old one (Country Heights Growers Scheme) is wooing investors to terminate it, while the new one (Golden Agro Growers Scheme) is wooing investors to invest.

Why CHGS was in HOT water?

CHGS was the 1st oil palm plantation investment scheme in Malaysia. Launched in 2007, it guaranteed a 8% return annually for first 3 years, and subsequently it is projected to distribute the returns of over 11% per year throughout a period of 20 years. However, voluntary early termination of the scheme was proposed recently, citing that CHGS was unable to reach its full potential because of poor fresh fruit bunches (FFB) yield. Various factors were given such as unpredictable weather conditions, incursions of wild elephants into the estate, poor soil fertility, shortage of key personnel and manual workers, and uncompromising terrain.

How Good is GAGS?

On the other hand, the new GAGS guaranteed 7% return yearly for first 5 years. Subsequently, investors will enjoy 100% of the net profit of the plantation until 20 years maturity. Investors were told that margins associated with the palm oil industry have always been good traditionally. So, in the event of falling CPO prices, it still can make money if the estate was managed well and efficiently. A mill was also planned to be set up in 4 to 5 years to avoid uncertainties of refusal by external millers.

Are they related?

Although Finance Malaysia opines that both schemes were not related, but the timing of it is somewhat makes us curious. Is it really so coincidence? It was like giving the existing investors of CHGS the chance to switch over their investments to GAGS. Both schemes are very much similar, but with different people managing them which is the key determining factors for its success or failure. Anyway, Finance Malaysia doubt the success of the new GAGS which don't have proven track record and was planted in Sarawak where peat soil may increase the cost of planting. The problems faced by CHGS may reoccurred on GAGS in the future. Estate management plays an important part in such scheme.

Click here to read the prospectus of GAGS

NEW Aberdeen Islamic Funds

Aberdeen Islamic Asset Management Sdn Bhd has recently launched two shariah unit trust funds for the Malaysian market, the Aberdeen Islamic Malaysia Equity fund and the Aberdeen Islamic World Equity fund. The new funds are the company's 1st shariah retail products in Malaysia - and the 1st from a foreign fund manager under the special scheme - and come almost 8 years its parent company Aberdeen Asset Management Sdn Bhd was established to manage assets in Malaysia for institutions and corporate investors.

Malaysia: Turning promise into profit

Malaysia has long been rich in promise - rich because of its abundant natural resources, physical infrastructure and educated workforce. However it has not always maximize its advantages. In recent years that has changed as the country streamlines priorities. There is more emphasis now on efficiency, the private sector has a greater say across industries and more value is being created for shareholders. This enterprise is taking Malaysian companies overseas, too, helping businesses to sharpen their competitive edge.

Why Global then?

International markets are continually evolving, underpinned by increased movement of people, goods and capital around the world. But far from embracing 'globalization', research shows that investors tend to follow a home-country bias when it comes to their investments. As a result, they miss out on investments overseas that may offer steadier long-term returns as well as superior risk diversification.

Fund Detail

Source: Aberdeen Islamic Asset Management

The "Gold" Rush

India's problem of deficit is now widely known. Rising levels of both fiscal deficit and current account deficit are alarming for the country's economy. The government is using every possible tool in its hand to reduce this deficit so that India can get back on track of growth.

So now the yellow metal has been used as a tool by the government to reduce the current account deficit. Gold forms one of the biggest part of imports in India along with crude oil. So the customs duty has been increased by 2 % and now has reached 6%. Total import of gold into India in the year 2011 was more than 950 tonnes. It is estimated that there is gold worth $1.4 trillion in India. The attraction of Indians for the yellow metal has never reduced. And hence government thinks that increasing the customs duty would deter people from importing gold and thus reduce the current account deficit. Moreover the ETFs have been allowed to deposit a part of their physical gold in the banks thus increasing the circulation of gold in the economy which lies idle as of now.

However there has been a counter argument that this alone will not serve the purpose. It will only make the metal more expensive for the common man. One of the reasons why Indians love investing in gold is because they feel it is not only safe but also provides better returns compared to other investment instruments available as of now. So just raising the duty will not make much of a difference. If a real effect has to be seen then people must be provided with safer and better investment instruments only then can the attraction for this precious metal reduce.

Only time will show what effect does this increase in import duty brings with it !!!

Parth Pandya

SIMSREE Finance Forum

Combating Goldman Sachsophobia: Two resources for making Vampire Squid Calamari

Hiss...

In 2010 Rolling Stone's Matt Taibbi infamously referred to Goldman Sachs as a Vampire Squid, a term that has since then become something of an overused meme (even Taibbi has expressed ambivalence about it). He's but one individual who's tapped into disturbing imagery to describe Goldman though: For example, the other day I picked up Money and Power: How Goldman Sachs came to Rule the World by Steven Cohan, repleat with a golden snake on the cover, poised to strike. The sentiment was echoed by Alesio Rastani, the trader who upset everyone by saying Goldman rules the world.

I have no doubt that Goldman is a powerful company, and yes, they've been involved in some corrupt-as-hell deals (check out Senator Carl Levin's scathing report about them), but I sometimes suspect that the public hype around the company merely helps to reinforce it's existing self-image - presented in sanitised form in their graduate recruitment videos - as a repository for society's 'best & brightest' destined for  ubermensch greatness. Let's face it though: The average Goldman employee is statistically more likely to be a meek PhD student than a bad-ass Gordon Gekko, or for that matter, a balls-to-the-wall Richard Branson. When I ask "what kind of person aspires to work for Goldman", I see someone who seeks acceptance by the winning team. Would underdog  rogues like Chuck Norris apply for their graduate recruitment programme? Hell no!

Resource 1: What does Goldman Sachs do? An epic pearltree organisational chart
In the interests of breaking down some of the mystique around the Vampire Squid though, I made the following Pearltree diagram (Click on the title to open in a new tab):

It's not rocket science - I just went through their website and put all the pieces in order. Click on any division to expand it and see what they get up to. Over time I'm going to add more information to this, and do it for other banks too, so I'll keep you posted on that. Their securities division is the most important division in the firm, with their investment banking, investment management and 'investing and lending' (direct investing) divisions coming in tie after that. I'd say the 'investing and lending' section is worth more investigation - it's now reputed to be a source of undercover proprietary trading activities. I've included something called the 'nerve centre', which is all the departments (such as treasury and IT) that normally get overlooked, but that make the whole edifice work. Ping me a message if you think anything else should be on there.

Resource 2: Who's wants to watch Blankfein dance!

For anyone with an hour & a half to spare, I've created a Goldman Sachs video list on Youtube called, Goldman Sachs: A List of Diverse Opinions. It includes the CNBC documentary Power & Peril, which is pretty decent if you're looking for something substantial, but if you're looking for some shorter pieces, I comissioned a music video by a new band called Government Sachs, entitled Me and my Bitches. Of all the theories as to Goldman's success - superhuman talent, witchcraft etc - I think the strongest theory concerns its immense lobbying power, and the accompanying internal culture that encourages their people to seek positions of power later in life. The subtle dynamics of this process are brought out in this exchange between James Altucher and Jim Cramer (starting at around 1:20). Whatever the case, I'm going to join David Attenborough in continuing to observe the actions of the vampire squid (vampyroteuthis). If you have any insights on how to understand it's behaviour, or any other interesting videos, please do comment. Cheers