Thursday, March 29, 2007


The Equaliser
Important Insights For Coffee Shop Talk


Casual conversations can sometimes elicit the roll of our eyes, and sometimes I have to stop myself wanting to explain an investing issue further among friends as it could drag on and on. However, when you can add logic and persuasion into an investing issue, we musn't be stingy.

There are again two types of people in the world when it comes to knowledge and information dissemination. Group one are those who will try and get by by hoarding as much knowledge and information for their advantage (what the rest don't know would benefit me, I have leverage and the edge). Group one are also those who are likely to "lord over people" with their "extra knowledge and information". For example, they are the ones who may have a passion for wines and would read up voraciously on it, and in social settings will snigger and gently shake their heads at any faux pas or shallow commentary on certain wines - that's lording over people. Get me away from these types. No one is better or should be compared based on what they know, who they know, what jobs they do, how much they earn, ... we just are. Nobody will know everything, can the same wine expert tell me the difference between a Montecristo Edmundo and a Trinidad Robusto Extra? Or what's a kimedashi, okuridashi and oshidashi in sumo? So why lord over people in the first place?

Group two are those who will share their expertise, and are willing to be corrected, and learn from each other. I am sure you have worked for bosses/superiors from the two groups - one will only share only a part of what he knows, while another who will committ to telling and sharing everything. Naturally the second one will do much better in his life and career: the person who is more willing to share all will learn a lot more. Group one types lack confidence and has a low self-esteem, too cynical and probably a boot licker at the right opportunity, kowtow to the seemingly high and mighty - please ....

My favourite word in English/French is egalite or egalitarian. Meaning: asserting, resulting from, or characterized by belief in the equality of all people, esp. in political, economic, or social life. I don't lose out if others benefit, its all in your mindset, which is why I blog, I believe the internet is The Great Egalite (French), the great equaliser. Of course, equality is a desired quality to aspire to, and true equality must not be based on a desired quality as reality may dictate that the flip side is true. True equality can only be pursued when you are convinced that ITS TRUE, just existing gives you the "rights", that should be the entire argument and basis. Or if you are spiritually minded, the maker maketh, hence I am. No one can or should make another person anything "less". My blog welcomes group two types; if you are in group one, well ... , hope you grow up someday and you will lead a happier life.

More Insights

a) Private equity or buyout firms now have at least US$1.6 trillion to spend, and much of it has not been used. They will need to invest and put it to work to make their cut. Expect more aggressive buyouts of much bigger firms, and not just confined to the US. How big is US$1.6 trillion, well the first two weeks of March wiped out US$800bn from US equity markets. The funds under PE could have easily covered the hole.
b) Greenspan should be shot (metaphorically). As in the movie The Departed, you should be very careful when you change indentity. You are no longer the Federal reserve top dog, just a retired dog. Common courtesy and professional courtesy would dictate that you give Bernanke room to establish his views and not impede his work. Knowing that there is still a big group of investors who will listen to what you say: you have to be careful. Alan, why else would people pay you US$150,000 per speech if they didn't think you have something knowledgable to say? While Bernanke has been trying to eliminate the fear of a hard landing, you come and literally-single-handedly caused the markets to drop and cause all to concentrate on the ugly side of subprime. Your intentions may be very honourable but you gotta let the man do his job. Every word you say will be compared and put next to what Bernanke has been espousing - at a time when Bernanke is trying to establish credibility and persuasive powers, Alan you are not helping.
c) Yen carry trade, let's get a real perspective. The first two weeks of March saw about US$2.2 trillion erased from global market capitalisation. Let's remember that the approximate global market cap is around US$43 trillion, which is very close to the world's GDP of US$48 trillion. Now the total outstanding yen carry trades is anywhere between US$200bn to US$500bn depending on who you listen to. Hence to blame the unwinding prospects as dangerous may be flawed. There may be some ripple-effect when a reversal happens but it does not look terribly dangerous. The media and the bears would want us all to believe that yen carry trade is responsible for the majority of equity buyers in the last 24 months - not true.
d) Relative pain threshold. we lost US$2.2 trillion in a matter of days, but last May we lost an even bigger sum of US$5.3 trillion. Does anyone remember May 2006?? When investors got spooked by the emerging markets currency scare (remember the Brazilian real, Turkish lira and SA rand). The global markets handled that quite well. Of course markets in March 2007 is a lot higher than a year ago, but relative pain threshold is not as severe as many would want to make it out to be.
e) As for subprime, the delinquency rates has jumped from 7% to 12%. OK let's be more pessimistic and raise that to 15% delinquency in the next couple of months ahead. We must remember that subprime is only 6% of the entire mortgage market. The average delinquency rate for the entire mortgage market in the US is 1.4%-1.5%. Even with the subprime effect, it will only push the rate to 1.6%-1.8% max in the coming months. Let's get a real perspective. Plus US labour mart still good, don't scare yourself shitless.

p/s my favourite sumo wrestler Asashoryu (next to Chyonofuji), who is also the the yokozuna (grand champion)... the fact that he is from Mongolia is a plus in my books ... imagine Genghiz and Kublai Khan without their wild horses!!!

3 comments:

ToeBear said...

i agree with what you said, people who does not share don't go far...i always believe in open source concept...life will be much better if more people think like you....keep it up.

Toebear

Andrew Lim said...

Can you tell me why those warrants are still trading at a lower premium now although their mother share has almost recovered back to the pre-correction levels? It is so hard to set an entry and exit price since the premium can varies from time to time

bOcyOGL said...

People who share and teach has greater careers.. I like (and hope to practise) this saying but there are a lot of business owners worry that if they teach too much their prodigy will one day leave and open shop opposite the street (and I think it happens so much that I myself became worried that it will one day happen to my family business, which already happen once in history).

Please enlighten me if you may