Wednesday, June 29, 2011

Updates On HK Property Market

Despite concerns over a property bubble in Hong Kong and government efforts to cool the red-hot sector, two Hong Kong tycoons: Cheung Kong Holding’s Li Ka-Shing and Henderson Land’s Lee Shau kee have been snapping up shares in their own firms.

Robert Halili, Managing Director at Asia Insider told CNBC on Wednesday, this insider buying is encouraging news for shareholders and investors looking to bet on the real estate sector.

“The one thing I want to point out to investors is that whenever these 2 titans buy at the same time, it is almost like a solar eclipse. It only happens once in a blue moon.”

Out of the $2.6 billion dollars invested in property-related stocks over the last 10 weeks, according to Halili, Lee Shau-kee’s purchase of 39 million shares in Henderson Land accounted for $2 billion or 76 percent of the total amount.

“Prior to this year, the chairman [of Henderson Land] acquired an average of 8.5 million shares worth $309 million per year from 1993 to 2010,” he added.

So, who do you believe, the property tycoons or the more rational government officials and analysts???

Protestors are on the streets all around the world these days. In Europe people are angered by harsh austerity measures, in the Middle East they are trying to topple failed governments and on the mainland protests are invariably sparked by some form of brutality — driving over a protestor in Mongolia or pushing around a pregnant street vendor in Guangzhou. The world’s masses seem to be taking to the streets.

Except in Hong Kong, where life goes on in its disconnected-from-the-woes-of-the-rest-of-the-globe bubble, which is of course encapsulated in another bubble: the housing one. Property prices remain outlandishly high, despite signs around the world that the economic outlook isn’t exactly rosy.

The reasons are myriad, yet simple. The masses are provided with subsidised public housing. The next layer, the middle class, owns housing that is then rented out, often to foreigners whose companies enable them to discount the rent from their taxes, providing enough of a subsidy to let them rent a small flat with a maid’s room for the same price they would pay back home for a McMansion with a garden, pool and two-car garage in the suburbs of a major metropolitan area. Their landlord doesn’t need to work, but rather lives off the rental income. Then there’s the next layer — housing owned by wealthier Hong Kong families or corporations that is rented to companies that pay outlandish rents for their senior expat staff. The company writes it off as a business cost and the Hong Kong family or business laughs all the way to the bank.

The Hong Kong Monetary Authority (HKMA) has tried to keep the genie in the bottle through policy measures. On June 10, Norman Chan, the chief executive of the HKMA, announced the latest tightening measures: with immediate effect, a 50% down payment will be needed for transactions of more than HK$10 million ($1.3 million), from the previous limit of HK$12 million. Down payments of 40% are needed for homes costing between HK$7million and HK$10 million (previously the band was between HK$8 million and HK$12 million) and subject to a maximum mortgage cap of HK$5 million. A 30% down payment is still applicable for homes below HK$7 million (previously HK$8 million). The HKMA also imposed a new rule, lifting the down payment requirement by 10% for mortgage applications with principal income sourced outside Hong Kong, but of course if this is targeted at mainland buyers (more on them later) it’s meaningless, as most don’t borrow from Hong Kong banks anyway. As a result, analysts have generally viewed such tightening measures as having a limited effect.

Rating agencies such as Standard & Poor’s forecast a stable outlook for Hong Kong’s property market, though sensibly warn that the market is vulnerable to external shocks. S&P notes that the credit profiles of rated developers have a reasonable buffer thanks to that recurring rental income from a diverse population.

But it cautions about the possibility of a “sharp correction in prices”, noting in a June 14 report that “affordability has deteriorated because of high prices and could weaken further if interest rates rise from their current low levels”. The rating agency further points out that “strong liquidity could reverse because capital flows are fickle. Hong Kong is susceptible to external shocks, due to its open economy and free capital movement”.

External shocks to watch out for include “a sharp rise in interest rates, a hard landing in China’s economy, and a significant adjustment in equity markets", Christopher Lee, director corporate ratings for S&P, said in an interview.

The China connection
The recent financial crisis underscored one of the most important buyers in the Hong Kong market of late: mainland Chinese. During the crisis, Chinese investors flooded to Hong Kong, snapping up property, particularly in the high-end residential sector. And the influx continues.

According to Centaline, 24.9% of all primary transactions were by mainland buyers in the first four months of 2011, up from 24.1% in the second half of 2010. They are most active in the high-end property market, making up 38.1% of buyers in the primary market and 22% in the secondary market for transactions above HK$12 million, an increase from 33.8% and 20.8% in the second half of 2010, respectively.

That’s good for Hong Kong developers, but bad for renters or other potential buyers, who have stood on the sideline watching prices skyrocket. But a shock to China’s economic and credit conditions could trigger a correction in the high-end property market, which would then have a knock-on effect in mass-market prices, notes S&P. That shock might already be in the works. In the same report, S&P downgraded China property, pointing out worsening borrowing conditions.

If the mainland market cools and oversupply ensues, cash-strapped developers could fall into a price war to attract customers, who might then reconsider buying back home rather than in Hong Kong.

For our readers, many of whom have tried to play the Hong Kong property market by buying property here in the hopes of flipping it before leaving, it’s possible you’re sitting on — or nearing — the peak of this cycle.

“We believe the various measures that have been put up have brought a cooling effect to the secondary market, and thus transaction volume will stay low given a reduction in both supply and demand, continuing policy risks and concerns about potential asset bubbles,” explained Ken Yeung, Citi’s Hong Kong real estate analyst.

“Prices that are supported by thin transaction volumes may not be sustainable,” added S&P’s Lee.

Of course, it depends on what you own — and are trying to sell. Colliers International reasons that supply-demand imbalances and inflationary pressure continue to drive rents upwards. The average luxury rent increased 3.62% quarter-on-quarter in the first quarter of 2011 to HK$45.42 per sq ft per month, only 0.7% below the previous peak in mid-2008.

“In spite of the market consolidation in terms of sales volume during the short-to-medium run, the sustained low-interest-rate environment, rising inflation and tight luxury residential supply will drive the price growth for luxury residential further. Luxury residential property prices are forecast to grow 6% in the next 12 months,” Colliers forecast in a recent property report.

Some property specialists (particularly those who aren’t employed by companies trying to sell you property) note that the so-called supply shortage in Hong Kong is a myth. By some estimates there are as many as 200,000 empty flats in the city — certainly not a shortage that warrants price hikes. So why the high prices? Landlords are willing to sit on empty (unrented) supply.

“Prices have been sustained by the flood of liquidity and currently very low interest rates,” said Lee. “There may not be a shortage of apartments, but landlords are not renting them at below market rates. Therefore, prices are sustained by expectations of prices remaining high or continuing to grow.”

In other words, market fundamentals be damned. Given the eternal optimism of Hong Kong developers and sellers, trying to time the market is even more difficult in Hong Kong than anywhere else, and in the best of situations it is as safe a game as juggling lit firecrackers. The high could be this week, or a year from now, or five years from now. But given the global skittishness, it’s perhaps time to take a look at how much you’ve made from a property investment, and question if it’s good enough.

Bears Are Prowling

On June 10, the government announced the launch of eight sites for sale, on which it expects developers to build 6,000 flats. The move coincided with an order from the Hong Kong Monetary Authority that banks should lend no more than 50 per cent on homes valued at above HK$10 million (US$1.3 million) (down from a cap of 60 per cent).

The authority for the first time also added tougher restrictions on non-resident borrowers. Momentum is also building for the government to revive its subsidised Home Ownership Scheme, suspended in 2002. Koh said the resumption of the scheme would shorten the cycle, bringing the correction forward into the second half of this year.

“Things have certainly taken a turn for the worse,” said Lee Wee Liat, head of regional research at Samsung Securities (Asia). The government’s willingness to resume building subsidised housing for sale, together with measures targeting foreign investment demand, showed a determination to cool the market down, he noted. “A short-term correction is now possible,”

he said.

The latest data suggest a slowing in demand. Just 21 new homes were sold over last weekend — down from the 47 homes sold over the previous weekend, according to Samsung.

Secondary transaction volumes also fell to their lowest level so far this year, with just 21 flats sold at the 10 largest residential estates tracked by Midland Realty, down from 24 the previous weekend.

Developer Cheung Kong (Holdings) has lowered asking prices at its Uptown apartment block in Yuen Long by between 5 per cent and 8 per cent, putting new average selling prices in the range of HK$5,300 (US$681) to HK$5,500 (US$706) per sq ft, noted Lee in his latest research report.

For Husbands & Wives

The speaker is a renowned marriage counsellor in HK, and he gives funny insights into how marriage breaks up and how to make it better. Its in Cantonese. Though some will say the advice is a bit archaic and chauvinistic, but I think there is a lot of truth in what he says.

I know many husbands will try to get their wives to watch the video immediately.

Thursday, June 23, 2011

The Lowdown On Football Jersey Sponsors

It cost millions to sponsor a top club's jersey a year. There is much politics and interesting twists to which company gets which club and how much they paid. Bottom line a jersey sponsorship may only pay for 3 or 4 top players' annual salaries only, but every bit helps I guess.

Following the article is a series of tabulation of the top sponsored jerseys. But first, we can look forward to the jersey for Cardiff City, owned by Vincent Tan. In fact, the club has had to reject many potential advertisers. (So, what's next higher title after Tan Sri for Vincent Tan?). This may look like a joke, but its not. Hold on tight for next season's Cardiff City's jersey .... (I reiterate, this is not a joke!!!):

Hot off the press, Genting is the new sponsor for Aston Villa jersey, Malaysia Booooleehh ... (gee, I cringe whenever I hear that!!!)

Aston Villa Nike 2011/12 Away Football Kit / Soccer Jersey

Wall Street Journal

The biggest deals in football used to be multimillion dollar transfers to land the sport's biggest stars. These days, arguably the most important signings for Europe's top clubs are the corporate sponsors on the front of their uniforms.

Research released last Thursday paints a rosy picture of the commercial value of European club football, with shirt sponsorship up nearly 20% across the major leagues.

The European Jersey Report by sports marketing consultancy Sport+Markt aggregates the amount of money received from shirt sponsorship by all clubs competing in the top leagues of England, Italy, Spain, France, Germany and the Netherlands. The study showed that shirt sponsorship revenue for these clubs increased by 18% to €470.7 million ($656.2 million), a jump of €75.2 million from previous studies.

The 20 teams in England's Premier League attracted the most money—a combined total of €129 million, up from €84 million—ahead of Germany's Bundesliga (€118.5 million), Serie A in Italy (€65.9 million). For the first time since the company began compiling its findings, clubs in Ligue 1, the French first division (€58.8 million) placed higher than those in Spain's La Liga (€57.5 million). In all, only Serie A recorded a decline in total revenue for its clubs.

Beneath the headline figures, however, the detail tells a different story. Far from being a sign of health, the study reveals the extent to which the world's most popular sport has grown dependent on money from the gambling sector. It also provides evidence of the broad and widening divide between a small number of elite clubs and the rest, a fault line that threatens to undermine the long-term health of the sport.

Two sectors dominate jersey sponsorship: banking and gambling. The latter is largely due to the liberalization of the French gambling market, said Gareth Moore, a director for Sport+Markt. France opened up its online horse-racing and sports-betting industry to competition in June, relaxing a state monopoly on gambling that traces back to the 16th century.

Online gaming companies such as BetClic Enterprises Ltd and Bwin Interactive Entertainment AG now see football shirts as a way of differentiating their brands in a very competitive market. BetClic ranks third among a host of new brands entering the football market with €20 million paid for jersey sponsorship deals with Juventus FC, Olympique Lyonnais and Olympique Marseille.

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This season, seven of the 20 clubs in the English Premier League have jerseys emblazoned with the names of online betting companies and in Spain, Real Madrid's famous white jersey carries the corporate logo of Bwin, the club's major sponsor following a deal worth roughly €23 million.

"Betting and gambling have helped to deliver significant revenues for football clubs across Europe in what are challenging economic times and the importance of the sector cannot be overlooked," said Mr. Moore, who suggests future liberalization of the gambling market, particularly in Germany, will ensure the market for elite football jerseys continues to rise.

Despite this optimism, the presence of so many online gambling companies raises issues beyond football. "It's an example of how gambling is thrust in our faces following the liberalization of the law," said Professor Jim Orford, an expert in the psychological effects of gambling at Birmingham University in the U.K. Children are particularly exposed to football sponsorship, according to Prof. Orford, since there is no way to stop them seeing the logos on television.

This talks to another point: the perception, commonly held among marketers, that football shirt sponsorship is in essence a blunt instrument.

In modern marketing terms, shirt sponsorship deals are "a bit of a relic," according to Tim Crow, chief executive of U.K.-based sports sponsorship consultants Synergy. "It's really a 20th century media buy—the players as walking billboards—rather than 21st century sponsorship, which is a highly sophisticated form of marketing involving engagement and dialogue with consumers," he said.

Mr. Crow suggests the market for jersey sponsorship will continue to be sustained by companies with low brand awareness, who will buy it just for the media exposure. But only the big clubs are price-setters, because of the amount of fans they have around the world. "The other clubs are price-takers because they have much smaller fan bases," he said.

This is true of each of the European leagues. In the Premier League the disparity between the elite few and the rest is stark, with the ability to offer a global media platform the dividing line between haves and have-nots.

Jersey sponsorship revenue from just three clubs—Manchester United, Liverpool and Chelsea—makes up 49.1% of the €129 million total received by all 20 league teams. Standard Chartered PLC, the U.K.-based but Asia-focused bank, signed up with Liverpool for more than €23 million a year, the same amount paid by U.S. insurance broker Aon Corp. to splash its logo on Manchester United's jerseys.

Lower down the league, however, teams such as Blackpool and Wolverhampton Wanderers operate on a fraction of these sums. The shirt sponsorship deals for those two clubs are estimated at less than €1 million.

The inability to fetch a competitive price has forced some clubs to innovate. Newly promoted West Bromwich Albion sought permission to sell its shirt on a match by match basis, with local shop-fitters Esprit signing up for a non-televised game, following similar short-term deals with betting companies Blue Square Ltd and Victor Chandler International Ltd.

Tottenham Hotspur even sold its shirt twice—once for Premier League games and the other for games in the UEFA Champions League. The commercial realpolitik of such a deal was revealed by Mike Lynch, chief executive of software company Autonomy PLC, which sponsor's Spurs' league shirt.

"We were getting phone calls from every sport under the sun as normal sponsors disappeared," Mr. Lynch said. "The [Spurs] price fell to a fraction of the normal rate the closer we got to the season." Despite being the biggest software company in the U.K., Mr. Lynch said the firm's brand is virtually unknown to the general public, a situation it sought to rectify ahead of a consumer launch over the next year.

Manchester United have recently set about carving their rights into smaller region-specific chunks, with three new partners announced including communications group Telekom Malaysia, Turkish Airlines and South Africa's MTN Group. The club also has country specific partnerships with firms including India's Bharti Airtel and Saudi Telecom Company. "These companies have rights to Manchester United IP around which they can activate globally," said Richard Arnold the club's commercial director.

Barcelona - Qatar Foundation, an educational organisation, secured a 5 year deal, annually costing $41m. Why, who knows, how it translates to their foundation's work is anyone's guess.
Bayern Munich - The German telecommunications giant will be spending $35.7m a year on this.

Liverpool - Gee, no more free Carlsberg beer??? Now, big strong and friendly, and spending $33m a year on this.

Manchester United - MU switched to this Chicago based insurer after the collapse of AIG. Cost $32.75m a year. Would have been more but the savvy marketing guys got regional jersey sponsors to top it all off. Manchester United have recently set about carving their rights into smaller region-specific chunks, with three new partners announced including communications group Telekom Malaysia, Turkish Airlines and South Africa's MTN Group. The club also has country specific partnerships with firms including India's Bharti Airtel and Saudi Telecom Company.
Real Madrid - The Austrian internet betting site will be paying $29m a year. Bwin swooped in after last year's sponsor BenQ of Taiwan, suffered almost the same demise as Mourinho's success rate, the company went bankrupt.

AC Milan - The embattled and viagra ladened Berlusconi owns this club. Emirates Airlines will pay $20.5m for this, but Emirates Airlines is also sponsoring France's Paris Saint Germain, Germany's Hamburger and England's Arsenal. How many people you have to fly to pay for all this???

Tottenham Hotspurs - When one is not enough, get two sponsors, Investec is an asset manager, while Autonomy is a software company. The former will be for cup matches and the latter for league matches. Total $20.4m a year. If Spurs exit early from cup matches, Investec will be making a sorry decision indeed.

Chelsea - Roman does not need this type of money to help him. Roman has had a history of neglecting this type of indirect marketing deals till this deal, guess he may finally need some money to help him. Just $16.3m a year.
Manchester City - Etihad got in cheap considering the amount of money spent by the new owner. Etihad Airways will only pay $12.3m a year.

Monday, June 20, 2011

There Is (Really) Wind And Water In My Stocks

I decided to feature this again, because obviously fundamentals analysis and/or technicals charting do not always bring the desired results. Every year we look forward to the CLSA fengshui chart prediction just for a chuckle. But seriously, the masters they employ seem to be getting better and better. I suspect in the early days they hired a few masters to help them come up with the report. Over the years they probably got a better idea of who among those masters were better than the rest.

Seriously, ask any market expert, analyst or strategist in January what their market prediction would be for 2011, I think 99.9999% will never draw the chart as shown above for February and March 2011. I think fengshui is basically 10% OK and 90% crap. I mean seriously, it was meant for divining burial sites ... somehow people get carried away using it to divine for everything else.

However, when it presents tangible results, you could show me a kid throwing dice but has an 80% accuracy using the dice to predict stock market movements, hey, I will listen. Just look at the chart above, they got February and March spot on, these are usually very bullish months.

The KLCI chart starts from January, the CLSA fungshui chart starts from February, look at February, spot on. March was flat just like the wind-water chart. There was supposed to some improvement in April according to the wind-water chart, and wallah, so it came to be. May was flat, correct again. June was supposed to dip down again, well, the reality was more flattish trading but I wouldn't say they were wrong cause the conditions weren't good for the markets in June. June and feb are supposed to see the year lows, hence we all should be buying NOW!!!

But were they just lucky? OK, let's look at the prediction in the Water Pig year of 2010 above, the blue line representing the Hang Seng index. Any economic statistician will be able to conclude that there is a at least an 80%-90% correlation between the two lines. Save for the last 2 months of 2010 - must be the Justin Beiber effect throwing the wind and water factors into chaos.

Let's throw out our thinking caps, CFAs and degrees for the moment and assume the 2011 prediction is probably correct. Here are the pointers:

a) March 2011 and June 2011 will be the LOWEST point for the markets for the whole of 2011, yea ... although there will be a dip in second half of June back to the same level but everything else is roses.

b) Stay fully invested and trade from now till early June. The first couple of weeks of June, try and sell everything. Hmmm ... could that have something to do with our Malaysian elections???

c) Buy like nobody's business in the last week of June, sell everything in the week leading up to Merdeka Day, go for a 4 week round the world holiday in September. Buy like nobody's business in the last few days of September.

d) Trade like crazy till November, sell everything in the last week of November. Use part of gains to buy lots of Christmas presents and prepare for a festive CNY. Buy like crazy after Christmas.

If only .... but still I will be watching the chart and markets closely. Damn if I am going to be beaten by wind and water in my stocks again.

Sunday, June 12, 2011

World's Strongest Banks by Bloomberg (Or Are They)

Picked up my favourite magazine, Bloomberg Markets, and splashed as one of the top articles was The World's Strongest Banks. The list is all too predictable but this is where STATISTICS LIE. I am not saying the banks weren't great, but they are not as great as the article made them out to be.

I have no questions about the methodology as they looked at the usual Tier 1 capital to risk weighted assets, NPL to total assets, loan loss reserves to non performing assets, deposits to funding and efficiency (costs to revenue).

Singapore banks came in numbers 1, 5 and 6. Canadian banks came in 3, 4, 12, 17 and 19. What's the common denominator - strong property markets. If the Singapore and Canadian property markets were to fall 20%, I can assure you the whole lot would be out of top 20.

The article seems to be pushing for banks to remain traditionally old school banks. Nothing wrong with that. But how can a bank be strong just because other property markets have fallen substantially but their local turfs have not - I would take that with a grain of salt.

The second argument is that banks that do little or none of the exotics, derivatives, tend to do a lot better. Again, don't blame the weapons, blame the person operating the weapons. The risk is not in derivatives or exotics but risk management, or in the banks' case, the number of times capital was leveraged.

Yes, plenty of major banks over geared their balance sheet, but they were paid to be aggressive. The true mettle of a strong bank is to provide as many services as possible, pushing the envelope, and yet managing their risks well. Those banks that just do the humdrum may be solid but they will eventually be eclipsed, or be masters of their small pond only.

To that end, I would not be moved by an article about World's Strongest Banks but rather the World's Great Banks (which would not just measure provisions and deposits but how they continued to be in the forefront of expansion and global conquerors). Yes, many of those global conquerors have been decimated, but herein lies the next wave of kings. The real kings will never come from the DBS or OCBC or Toronto Dominion.

What's more relevant is to look further down the list and to see some of these battered down conquerors still making the list after plentiful of writedowns, smacks on their bottoms for misusing their balance sheet, taken govenment aid and repaying back. To me, these are the Great Banks, if you do not push the envelope, you would never be kings, just a kampung player.

To follow on, I would note these following banks with greater respect: #9 UBS, #13 Credit Suisse, #14 JP Morgan, #16 Citigroup.

The Bloomberg piece:

Ask David Conner, chief executive officer of Oversea-Chinese Banking Corp., what makes a world-class bank and he smiles and tells the story of how he was hired. It was April 2002, and Singapore’s banks faced a struggling economy, poor demand for credit and rising competition from foreign lenders that had just won greater access to the Singaporean market.

Conner, then 53, had taken charge of OCBC after 25 years as an executive at Citigroup Inc divisions in Singapore, India and Japan. When Conner -- who grew up in St. Louis -- sat down with OCBC’s top directors, they told him they wanted him to make the lender a world-class bank, Bloomberg Markets magazine reports in its June issue.

“What is a world-class bank to you?” Conner asked.

One board member responded, “You tell us.”

Conner worked up a presentation outlining his goals. Among the high points: focus on the customer, establish a strong capital base and minimize risks. He appears to have achieved those goals. Based on its performance for the 2010 fiscal year, OCBC, founded in 1932, ranks as the world’s strongest bank, according to data compiled by Bloomberg.

OCBC is one of three Singaporean banks that make the top six in the Bloomberg Markets ranking. The other country that’s prominent on the list is Canada. National Bank of Canada is No. 3, and the country has five banks in the top 20.

No. 2 is Svenska Handelsbanken of Sweden.

Size Overrated

Canada’s performance in the ranking “shows that size is not everything in financial services,” says Louis Vachon, CEO of National Bank.

Just three U.S. banks - Fifth Bancorp (No. 7), JP Morgan (No. 14) and Citigroup (No. 16) -- make the top 20.

The ranking includes banks with at least $100 billion in assets. It weighs and combines five criteria, including Tier 1 capital compared with risk-weighted assets; nonperforming assets compared with total assets; and efficiency, a comparison of costs against revenues.

Tier 1 capital includes a bank’s cash reserves, outstanding common stock and some classes of preferred stock, all of which combine to act as a shock absorber against losses when the economy hits a rough patch.

“Singapore banks would score very high here largely because, historically, the Monetary Authority of Singapore has always required Singapore banks to keep more Tier 1 capital than other banks,” Conner says.

DBS, UOB Also on List

The MAS is both the central bank and chief regulator of Singapore’s financial system.

Singapore’s DBS Group ranks No. 5, while UOB is No. 6. OCBC has operations in 15 countries, including a strong presence in China, HK, Indonesia, Malaysia and Taiwan. It was founded by the Lee family, and their descendants are still the biggest shareholders.

Billionaire Lee Seng Wee, 80, is a former chairman of the bank and still sits on its board. His son, Lee Tih Shih, 47, is also a board member.

Hugh Young is a Singapore-based managing director of Aberdeen Asset Management. Aberdeen owns about 6 percent of OCBC and more than 4 percent of UOB. Young says he’s not surprised that Singaporean banks score so highly on a global ranking.

‘Stupid Things’

“We are big holders of OCBC and UOB and have been for a long time simply because they don’t do the stupid things Western banks do,” says Young, who helps manage $70 billion in Asian equities. “They don’t do things like lending 120 percent of the value of a property to people without a job, and they don’t do stupid things in the derivatives markets and proprietary trading.”

Not all of the strongest banks are exemplars of smart banking practices. No. 16 Citigroup was rescued by $45 billion in U.S. Treasury loans and investments in 2008 after it was deemed by the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury to be “systemically important.” Its stock has quadrupled since it hit its all-time low on March 5, 2009. At the end of last week Citi did a reverse split of its shares, which raised the price ten-fold, to $44.16 at the close of trading May 9.

Citi Recovery

“Citi is a much underappreciated recovery story,” says Kevin Conn, an equities analyst and co-head of the financial services research team at Boston-based MFS Investment Management. “They overmedicated the balance sheet, raising too much equity and setting up massive reserves. It’s a very strong balance sheet at this point.”

All major banks march to the tune of the Basel Committee on Banking Supervision, an arm of the Bank for International Settlements, based in Basel, Switzerland. The committee issued its first internationally agreed upon capital guidelines, known as Basel I, in 1988. The early rules focused narrowly on banks’ credit risk: the possibility that borrowers might not pay back their bank loans. The committee recommended that banks’ cash reserves, common and preferred stock total at least 4 percent of assets.

The rules changed in 2004 with the adoption by regulators of Basel II, which set more-sophisticated guidelines for how to assess and quantify the risk of a bank’s assets, much as a modern blood test breaks down cholesterol into good HDL and worrisome LDL.

Risk-Weighted Assets

Under the standard Basel II guidelines, just 35 percent of a mortgage issued to a family with an excellent credit history would be counted as a risk-weighted asset, while an investment in a hedge fund would get counted for risk purposes at 400 percent of the amount invested.

Bank managements aim to keep their risk-weighted assets -- the bad cholesterol -- low because regulators insist that banks hold precious capital, such as retained earnings, against it.

The 2008 to 2009 financial breakdown sent regulators hurrying back to Basel to rewrite the rules one more time. Basel III, whose basic outlines were approved in November, raises requirements for Tier 1 capital to 6 percent starting in 2015. Basel III also phases in extra capital cushions for very large banks, which could take the total capital requirement north of 10 percent.

Full implementation of Basel III will be phased in over six years to assuage fears by both bankers and regulators that the new capital rules would suppress lending if implemented too quickly.

Warning Labels

“Broad-brush-stroke regulatory changes should come with a warning label and with sufficient time for informative exchanges between affected parties,” wrote Donna Alexander, CEO of BAFT- IFSA, a banking-industry trade group, in a September note to members.

Although Asian banks have fared better than their Western counterparts in the downturn, Conner also worries about the impact of Basel III’s capital requirements.

“Keeping the capital ratio high all the time makes it potentially difficult to expand,” he says. “We are operating under considerable uncertainty, and as a result, we’ve added significant amounts of capital.”

Some banks cruise far ahead of regulators.

“For Canadian banks, having higher capital ratios than anyone else in the world is a source of pride,” says Mario Mendonca, a financial services analyst at investment firm Canaccord Genuity in Toronto. Canada’s banks held average Tier 1 capital of 9.8 percent in 2008, as the financial crisis set in.

No Crisis at Canada Banks

The extra cushion paid off when U.S. banks teetered on the edge of failure in the fall of 2008 and had to be bailed out with $700 billion from the Treasury.

“We all went into the downturn with very strong quality of capital,” says Edmund Clark, CEO of Canada’s Toronto Dominion Bank, No. 12 on the strongest-bank list. Canada also suffered a much milder housing downturn than the U.S.

U.S. banks, meanwhile, are still working to implement the 2004 Basel II accords.

“Currently, in the U.S., none of the banks are calculating their capital requirements based on the Basel II numbers,” says Hugh Carney, senior counsel at the American Bankers Association.

The banks, Carney says, are in a transitional phase called a parallel run, which means they are still operating under Basel I and are testing and calibrating the risk sensitivity of their loans and investments under Basel II. U.S. banks will only shift to Basel II risk assessments once the Fed approves their risk- weighting methodology, Carney says.

Thursday, June 09, 2011

Warren Buffett Is Not Infallible

Why bother writing this? I am a fan of Buffett's investing philosophy and long term returns. However, before anyone starts to deify him, its worth noting that Buffett is very human, fallible like the rest of us. To identify the "oops" by Buffett is not to shame him but to give clarity to him as a person. He is very normal and is open to make mistakes. Not a saintly investor as some might try to opine but a flawed one who is possibly the best investor for the past 50 years.


The Sokol Incident: Sokol basically bought a few million shares of Lubrizol Corp for himself, and shortly after recommended Buffett and Berkshire to buy the company. Berkshire did buy in the end. Initially Buffett insisted that Sokol did nothing wrong, although later a Berkshire committee said the opposite in "a scathing report". Now Buffet is done defending Sokol. During the meeting, he said he should have probed more deeply when Sokol first revealed in January that he owned Lubrizol stock. "I obviously made a big mistake by not saying, 'Well when did you buy it,'" said Buffett. He called the Sokol situation "inexplicable and inexcusable." Apart from openly stating that Sokol violated the rules, Buffet also said he regretted the lack of initial outrage over the matter.

Coca-Cola: Buffett was on the audit committee for Coca-Cola, and an investor, when the SEC found that the company had misled investors about its earnings through the 1990s. The buck stops with the audit committee.

Moody's Corp: This one really irked me no end. Buffett has plenty to say about the market's exuberence and ponied up many reasons for the global subprime crisis. But never did he admit anything wrong about the ratings agencies in general. Why? Because Buffett is a substantial shareholder of Moody's. We are not talking of hundreds of ratings companies here, the top 3, namely Moody's, S&P and Fitch are responsible for giving AAA to so many CDOs, which led many investors to blindly rely on the strength and integrity of those papers. The silence by Buffett on this was deafening. The CEO of Berkshire Hathaway has said very little about his 13% stake in the rating firm, which has come under heavy fire for its role in the financial crisis. You know the complaints by now: That Moody’s and rivals S&P and Fitch negligently inflated ratings on mortgage securities, as they grew ever keener to win business from Wall Street banks and other underwriters.

Deloitte & Touche Incident: Berkshire kept D&T as its outside auditors AFTER learning that Deloitte's vice chairman had been trading in and out of Berkshire shares while he was on Berkshire's audit committee. That caused D&T and Berkshire to violate SEC's auditor-independence rules.

Munger, Family & Sons: If we can criticise Singapore Inc for this kind of transgressions, Buffett and Berkshire committed the same mistakes. Berkshire's VIP investing partner and vice chairman is Charlie Munger. How the hell can Berkshire still send so much legal fees to Munger's old law firm of Munger, Tolles & Olson. Very weak transparency and corporate governance here.

Buffett's Mclean Incident: If you happen to lost bucket loads of money buying and selling Mclean or any of the Chinese footwear companies, don't worry, you are in good company. Buffett also reveals that he spent $244 million for shares of two Irish banks that "appeared cheap" to him. At the end of the year, they were written down to their market price of $27 million, for a loss of 89 percent, and they've continued to drop.

Do What I Say, Not Do What I Did: He railed against derivatives as weapons of mass destruction, and now turns out to have been sitting on a $68 billion pile of credit default swaps and exotic put options on various stock market indexes. And having vowed never again to become entangled in a big Wall Street investment bank, he has gone and sunk $10 billion into Goldman Sachs, a virtual re-enactment of his investment in Salomon Brothers--cash for reputation.

Tax Them, Don't Tax Me: Buffett's views on taxation, especially those on estate taxes, have been pathetic. There is a sordid irony if not an artificiality or phoniness about urging the continuity of high estate taxes and concomitantly avoiding the situation through setting up trusts and foundations. Evidence of avoiding income taxes is evident throughout Berkshire's life, as the company and Buffett have always used the IRS Tax Code to their advantage. There is clearly nothing wrong with that but similarly, it is somewhat disingenuous to urge higher taxes after a career of avoiding them.

Wednesday, June 08, 2011

The Conquest Of Happiness

Mr. Koon has written on this important topic and I have to agree with him on this. The only quibble I have is that Bertrand Russell is a known atheist - hence his framing of happiness has to be "without God/religion". Still, its a wonderful template that emanates from a massive amount of introspection, trying to find one's place on earth, and leaving it a better place than when we arrive.

The conquest of happiness

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WEDNESDAY, 03 MARCH 2010 08:04

The Perak Academy is a non-profit body which organizes projects and activities involving intellectual discourse, research, writing, fine arts and performing arts.

It organizes the popular 'Perak Lectures” series with speakers of national and international standing invited to speak on a variety of topics aimed at stimulating and disseminating intellectual discussion. Below we reproduce a recent talk delivered to the Academy by Mr Koon Yew Yin.

The conquest of happiness

The Perak Academy invited me to give a talk recently on Feb 26. After my speech, many listeners wanted a copy of the text. Hence, my sharing an edited version here.

A few years ago, I wrote ‘A philosophy of happiness’ for a dying friend but the Academy decided that this wasn’t quite suitable. Perhaps they thought that given the circumstances of that last occasion, it was too much of a risk to tempt fate. Generally Malaysians do not like to take risks.

Instead of my original suggested topic, the Academy decided on a slight variation: ‘The conquest of happiness”.

How does one conquer happiness? This question derives comes from the eponymous book by Bertrand Russell – a 1930 classic. But why should anyone want to ‘conquer’ happiness? What does conquering happiness involve?

The author, a Nobel laureate, is considered one of the greatest (if not the greatest) philosopher in modern history. Many consider Russell’s book as a present day substitute for the Bible. It is a roadmap to help you achieve your ultimate aim in life.

The causes of unhappiness and happiness lie partly in the social system, partly in one’s individual psychology and partly in human nature.

Social systems – war, bad political leaders, cruelty and economic exploitation – create a lot of unhappiness.

Individual psychology depends on how you are taught when young, how you react/respond to certain ideas and your own experiences in life.

Human nature is the inbuilt system, for example, the traits of envy and jealousy which are inbuilt defects. A baby is not taught to be envious yet it would scream if its mother so much as carries another child. The baby’s inherent possessiveness is actually something natural.

What is envy?

Bertrand Russell said envy is one of the most potent causes of unhappiness. It is a universal and most unfortunate aspect of human nature because not only is the envious person rendered unhappy, he also wishes to inflict misfortune on others.

Although envy is generally seen as something negative, it can nonetheless be a driving force for man to perform better or improve himself.

Individuals with narcissistic personality disorder are often envious of others or they believe others are envious of him or her. Aristotle defined ‘envy’ as pain caused by the good fortune of others.

‘Envy’ and ‘jealousy’ are often used interchangeably, but in their correct usage, the words stand for two different and distinct emotions. Jealousy is the fear of losing a loved one to a rival, while envy is the frustration caused by another person having something that one does not have.

Envy typically involves two persons, and jealousy involves three. “Thou shall not covet thy neighbour’s wife, slaves or donkey” is the seventh Commandment delivered by Moses. In Islam, envy (hassad in Arabic) can destroy one’s good deeds and therefore, one must be content with what God has given by saying Maashallah (God has willed it).

According to the Buddha, “Mind is the forerunner of states of existence. Mind is chief, and (those states) are caused by the mind. If one speaks and acts with a pure mind, surely happiness will follow like one’s own shadow!”

In Buddhism, the third of the Four Noble Truths states “to eliminate suffering, eliminate craving.” Thus, its teachings establish happiness as beyond material and emotional possession, and attainable only through an attentive practice by which craving and aversion are extinguished.

I know all of you have achieved some degree of success in life, but you just cannot waltz through life and expect to be happy. First you need to know the principles that make people happy. Then let your conscious beliefs be so vivid and emphatic that they make an impression upon yourself until you finally attain the third stage – the transformation of your life into a life of happiness.

For example, in doing charity; all members of service clubs know that their mission is to do charity but many of them have not got it into their system and practice. I speak from personal experience as various service clubs could not accept my challenge that I would donate an equal amount to the sums they raise, on a dollar-for-dollar basis.

If you can follow these three steps for each of the following 14 characteristics [below] described in Russell's framework, you will be giving yourself the best chance of achieving not just happiness but also freedom from the ‘human bondage’.

You will no longer feel so coerced by the dictates of society and the demands of your parents, but rather be a more self-determining human being. You will be happy and free.

Bertrand Russell’s 14 steps

First you must know how to conquer unhappiness.

1. Don’t be taken in by melancholy

Melancholy is only a passing mood; don’t mistake it for wisdom. Prolonged sadness can lead to mental depression, a sickness associated with suicidal tendency. You must believe that you can change your mood simply by doing something different – play a game or talk to a good friend for diversion.

2. Don't get caught in the competitive treadmill

Life is always a struggle. You compete in school, in university and at work … always wanting to do better and making more money. You really do not need so much to be happy. You must know when to stop chasing material possessions and learn to be contented. You cannot be happy if you are still greedy for more and more.

Feeling happy is the only true success. Don’t work so hard until you forget how to be happy.

3. Develop the right attitude to boredom and excitement

Everyone has a natural fear of boredom. That is why one always has the urge to find things to do. Very few people can just sit down, do nothing and simply enjoy peace and tranquility (but give it a try!). Do not fear a little boredom for a certain amount of boredom in life is to be expected.

The opposite of boredom is excitement but be careful in seeking it. Incidentally, there is a recent news report from Australia that the easy availability of Viagra and other stimulants has raised the level of sexual activity amongst senior citizens (that is, those over 75) to exceptional levels of excitement. Just imagine that. Excitement is best sought in small doses and in the right places.

4. Make your worries concrete, don’t suppress them

Get a sense of perspective. Ask yourself “what is the worst thing that can possibly happen?” For example if your doctor tells you that your disease is incurable, you must realise that worry will not make you better. The best you can do is to find enjoyment every day for whatever life you have left.

On the other hand though, when you have a difficult problem, do not suppress it because it will not go away by itself. Face it, grapple with it and try to find a way to resolve it. Do what you can and believe that it will be alright when the time comes. Remember! Prolonged worrying can cause mental depression.

5. Don’t envy, admire!

Since I have already touched on envy and jealousy at the start of my talk, I only wish to add this: Enjoy what you have for its own sake. Don’t compare yourself with others who are more successful than you.

When you are sad, compare yourself with people who are in a worse situation.

6. Fight back against guilt and shame

When you are young, you are easily influenced by your religious teachers and your parents. As a result, your conscience is formed. Many things you like to do but are considered sinful will make you unhappy as your conscience pricks you. Unless you are able to change your mindset, you will be unhappy.

According to Bertrand Russell, consensual sex between two adults can be very thrilling and the partners should not be made to feel ashamed or guilty. Russell expounded this concept almost a century ago. Today a majority of the people – at least in this auditorium – are prepared to accept the idea. A minority though would think that Russell was encouraging divorce as he was an atheist.

Statistics show that more than 50% of people in Europe and the US are divorced. Frequently many marriages that are unhappy do not end in divorce only because of the constraining factors of religion, children, guilt and shame. So to be happy, you need to understand and appreciate Russell’s philosophy on this issue.

7. Don’t suffer from an exaggerated sense of injustice

We must be concerned about politics because it affects all of us in so many ways and impacts on the future of our children. But you must bear in mind that you alone cannot change the situation or the flow of current affairs. After you have done what you can, leave it to fate and don’t be unhappy.

8. Don’t care too much what others think

"Respect public opinion only to avoid starvation and jail."

Normally you will not feel happy to do something without your spouse’s approval, or that of friends and family. But you must not be afraid to exercise your own judgment in certain important matters, e.g. when to buy and when to sell shares. Your wife may not be giving the best advice on these matters.

Everyone has his own opinion but who is right and who is wrong is a constant puzzle. For example, the Catholics forbid divorce but it is allowed by the Muslim and the civil courts.

The secrets of happiness

Now you must know how to conquer happiness. The next six measures make up Steps 9 to 14 of the Bertrand Russell philosophy to happiness.

1. Cultivate zest

Get into the habit of taking a lively and friendly interest in everything. The more things a man is interested in, the more opportunities he has to make himself happy. An introvert cannot be happy. Outside working hours, you must have a lot of free time to make yourself happy. Make new friends, have more hobbies, play games, surf the Internet, watch football and movies, etc.

2. Be affectionate

Do not be afraid to show kindness and affection to people e.g. tipping waiters and the jaga kereta. You cannot be happy if you do not have the feeling that you are doing something good and people love you. You will feel happy if you can make someone happy.

You can create happiness by offering scholarships to help needy students without expecting anything in return. I have done so and found happiness in this. All the recipients have to promise me is that when they are financially solvent they will help other needy students. In this way, they will continue to do charity and create happiness after I die.

Avoid an argument because no one wins in any argument. Remember how you felt the last time you had an argument with someone. When you receive affection or admiration, you would feel secure and this enables you to perform better. By the same token, you should do the same unto others.

Here I would like to quote from Russell’s book again. “The best type of affection is reciprocally life-giving: each receives affection with joy and gives it without effort, and each finds the whole world more interesting in consequence of the existence of this reciprocal happiness. There is, however, another kind, by no means uncommon, in which one person sucks the vitality of the other, one receives what the other gives, but gives almost nothing in return. Some very vital people belong to this bloodsucking type. They extract the vitality from one victim after another, but while they prosper and grow interesting, those upon whom they live grow pale and dim and dull.”

3. Be a good parent

Give your child time and not too much money.

The bond between parents and children is often one of the greatest source of happiness. But in many cases, it is also a source of unhappiness to both parties. In fact, studies show that in most cases, at least one of both parties is unhappy in the relationship. The reasons for this phenomenon are too many and varied and would be outside the scope of this talk.

4. Do interesting, varied and constructive work

Living in a competitive world, one is born to do work. Everyone needs to work. Work prevents boredom. Even uninteresting work will make holidays more enjoyable. Work offers the opportunity for you to achieve your ambition. Try to find interesting work so that you can enjoy doing it.

5. Cultivate plenty of relaxing minor interests

Enjoy as many hobbies and pursuits as you can; make sure these provide a difference from your day job. For example: Keep a dog, read, surf the Net, play games, watch TV or contact your friends more frequently. You must realise most of your enjoyment is generated from the people closest to you – your friends, children and your spouse.

6. Find the right balance between effort and resignation

A man occupies almost all his time in worrying about his wife, children, his work and his financial position. All these burdens are bound to depress and tire him.

Very few people, except singles, have never quarreled with their spouses. Very few parents have not endured grave anxiety when their children are ill. Very few businessmen have never met financial difficulties and few professional men have not faced periods of failure. It is at such times that the wide variety of cultivated interests provides an outlet for amusement and happiness.

Joy in sharing

Let me end by emphasizing again that happiness is a state of mind.

Research has identified a number of attributes that correlate with happiness: Relationships and social interaction, marital status, employment, health, democratic freedom, optimism, religious involvement, income and proximity to other happy people.

Philosophers and religious thinkers often define happiness in terms of living or leading a good life rather than simply as an emotion. I recommend this traditional definition of happiness to all of you.

In my talk tonight, I have attempted to go beyond the conquest of happiness as it has been analysed by Bertrand Russell. This I have done by introducing an additional important element and that is the joy and contentment that comes with giving and sharing.

Finally, if even one of you here tonight goes home stimulated by this talk and feels inspired to share your talent and material wealth with others, then I will feel that it has been a successful outcome.

Thank you.


Tuesday, June 07, 2011

Hey Woman, Why You So Like Dat?

This is obviously dedicated to all women born between 1960-1990 ... with the advent of karaoke, we get to notice the nuanced "strong feelings" every time these fucking songs are played. Believe you me, these 3 songs somehow represent the angst, fear, war cry, deep set feelings of our women folk.

If you don't believe me, next time you go to a pub or karaoke, secretly ask the band or deejay to play these songs, see how the women react!!!

It is within these three songs that we should understand a lot about our women folk, is it just in Malaysia ... noooooooo... go anywhere, play these songs, you get the same reaction (or erection).

Can I try to break down these 3 fucking songs then?

The first female anthem, I Will Survive by Gloria Gaynor, its like an empowerment song. See how the ladies just jump up and start dancing and mouthing the words. Its really good to see, as if they have always have their backs to the wall, everything in society against them from the start ... you name it: parents favoring sons, having to go through menstruation (when men do not), having to endure the bloody period pains (when men do not, men just try to be a pain in the ass sometimes), having glass ceilings and a men-favouring corporate scene when they start to work, having assholes questioning that to start a family may wreck their career, having to undergo all sorts of discrimination at most levels just because they are women, having a short time span to have children and if they don't they'd be thought of as "incomplete", and before you know it ... its menopause and the fucking hormonal changes.

So, when the ladies jump up and sing this song... guys, "JOIN IN!!!"

This next song will almost get the same reaction from the ladies, because they ALL have loved the assholes cited in the song. In fact, we could be the very assholes they are singing about!!! I HATE MYSELF FOR LOVING YOU, my Gawd, can you sing that in front of your gfs/wife??? But, the girls can!!!! WHY???? Don't ask, just applaud!!!!

This song is dangerous because women REMEMBER EVERY FUCKING "BAD THING" YOU DID TO THEM (OR DIDN'T DO) ... its only with that mentality can you identify with the song so intimately .... be warned guys!!!.

This third song is a doozie. Somehow this song really gets the women going ... I am not sure if the lyrics are clear to them but it involves a lot of "out there body experiences". But somehow, women folk just love it and they really identify themselves with the song. Just grin and bear it guys. To me, the most inventive and deep meaningful lyrics of the song was punctuated by the two words "subtle whoring" .... soooo deep man.

Don't thank me guys for the valuable information! Another little baby step towards understanding this specie that is called women folk.

The wretched emotions underlying all 3 songs are probably sufficient to turn some guys gay! (Just kidding...) ; 0

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