When Not To Go To HK

Was just in HK for business... never go during summer... its like a steam bath sauna every time I go out walking. Just 5 minutes and you will be bathing in your own sweat. I think I took 4 baths a day when I was there. Another reason why one should not be in HK during the last week of September and first week of October is the extended China holiday period. Smiles are forecast across much of Hong Kong for the next 8 days as a stream of visitors with money to spend pours in from the mainland.

Retailers, caterers and people in the travel sector are those who will sport the biggest grins, generated by a windfall as an estimated 8.85 million people pass through border checkpoints. The estimate by the Immigration Department shows a 10 percent increase from the number of visitors last year during the Golden Week holiday period, when most factories in the mainland are closed. This year's holiday has an additional layer on top of Hong Kong's usual shopping and sightseeing come-ons and attractions, with the Mid- Autumn Festival adding zest on October 3.

Joseph Tung Yao-chung, executive director of the Travel Industry Council of Hong Kong, said most tours were 80 to 90 percent booked, and he expects a 10 percent increase in business. The Standard reported last week that the travel sector had forecast a 5-10 percent boost despite the strains of the human swine flu (H1N1).

There is certainly confidence across the retailing, catering and travel businesses that cash registers will ring merrily, with plenty of predictions about double-digit increases in business. Gearing for the rush from the mainland, many shops are hiring extra staff for the first two weeks of October. Officers of the Immigration Department are also bracing for busy times over the next 12 days. About 3.4 million passengers - a daily average of 262,000 - are expected to pass through Lo Wu alone.

The heaviest outbound day will be October 1, when 206,000 people are expected to head into the mainland, but there will be a solid stream flowing in the opposite direction for days. The heaviest inbound day is likely to be October 4, with 196,000 visitors expected to go through the checkpoint. Passenger traffic at Lok Ma Chau is also going to be heavy over the holiday period - an estimated 1.43 million, for a daily average of 110,000 - with October 3 looking like the busiest day.

On top of stopping all leave to handle the rush, the Immigration Department will have additional security guards to help in crowd control. And department officers along with police, customs and the MTR Corporation will be in a joint command center at Lo Wu to oversee traffic and handle any emergency. The department has appealed to would-be cross-border travelers to avoid the October 1-4 period if possible and in any event to be sure all their documents, such as home visit permits, are valid.

p/s photo: Eva Huang Sheng Yi

Private Bankers & Accumulators - Recipe For Disaster

If you have a private banker, and you have been sold on accumulators structured products, go and check your account thoroughly. Accumulators were all the rage in 2007 and 2008 as they generate good fees to the bank and private bankers. I have heard many cases of some CEOs in KL being victims of these structured products as well. Maybe its too embarrassing to bring this up in a court. Accumulators can be linked to shares or currency. This form of structured product has also caused Citic Pacific to potentially lose US$2 billion when the Australian dollar plunged against the US dollar recently. It has even been termed “I Kill You Later” in Hong Kong.

His lawyer, Kristi Swartz, who refuses to identify the investor or the bank, alleges US$20 million was invested in equity accumulators without her client being informed. An expatriate businessman is in a US$30 million (HK$234 million) battle with a foreign-owned bank in Hong Kong over losses from high-risk financial products.

The first he knew of it - along with the revelation that it had all gone horribly wrong - came six months ago when he received a legal notice demanding he pay US$10 million to the bank against losses on his investments. He is now trying to recover the US$20 million as well as avoiding being hit for the other US$10 million. Swartz, who claims to have won hefty settlements for other Hong Kong people burned in the financial meltdown, said the businessman opened the account with the bank some years ago to keep savings of US$20 million as an education fund for his two children, now aged 10 and 12.

His instruction to the bank when he opened the account, the lawyer claimed, was to make conservative investments. About five years ago, the man and his family moved to South America. But he kept the money in his Hong Kong account in the belief it would be properly managed by his bank and its financial adviser. He had enjoyed a "good relationship" with the financial adviser who he dealt with at the bank, Swartz said, so he allowed the bank to have discretionary access to his account.

According to Swartz, the financial adviser involved in the case was also an expatriate, but he left the bank and Hong Kong after the bubble burst. In turn, the businessman had been shocked to discover the financial adviser had used his money to subscribe to high-risk funds such as those invested in emerging markets, which tumbled dramatically amid the financial tsunami, Swartz said.

"When the financial adviser found he was losing his clients' money in one area, he tried to put more money in some other areas to see if he could get the money back - just like gambling," she claimed. "No one would expect the market would keep going down."

The lawyer said her client was now trying to have the bank hand over copies of all the documents he had signed so he could prove he was the victim of mis- selling or that the bank breached instructions. "Twenty million US dollars may not be his whole life's savings," she added, "but it is a substantial amount - possibly the hard cash he earned during his whole life. When he came to me, he said, `Now my kids don't have any guarantee."'

Swartz said she has been or continues to be involved in 10 similar actions, which involve local Chinese and expatriates who regard Hong Kong as their home. Amounts involved in each case run into tens of millions of dollars. "Even the most sophisticated businessmen can get taken in," Swartz said of her cases. Three have been settled, she added, with banks agreeing to repay between 20 percent and about 50 percent of losses. "The banks involved are usually those that are well known - banks we trust," she said. "Customers would expect such banks to monitor the sales of such products and, surely, to look after their bank accounts."

Swartz's latest case has been revealed just weeks after Chan Wai- yee, 77, who is represented by law firm Hastings, filed a writ with the High Court to sue Swiss-based investment bank UBS, alleging she had lost nearly HK$260 million on an equity accumulator package and other high-risk financial products she had not sanctioned. As of July 23 this year, her UBS account balance was only HK$1.6 million.

Chan alleged she did not understand the documents she signed because they were in English, and no one from UBS had informed her of the risks and nature of the investments.

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What is an Accumulator and how it works? The following illustrates how a typical Accumulator linked to shares work.

The key terms to know:

1. Reference Share - The share that the investor is ‘accumulating’
2. Strike Price - The price that the investor buys the Reference Share if the share price is lower than the Knockout Price
3. Knockout Price - The share price that will trigger the the termination of the Accumulator contract. Usually just a few percentage points above the issue price
4. Observation Period - The tenor or term of the contract

The figure below explains how the Accumulator works.

• When the Reference Share price is higher than the Strike Price, the investor gets to buy the share (accumulate) at a lower price (the Strike Price) than the actual share price
• When the Reference Share price is lower than the Strike Price, the investor buys at a higher price than the actual share price. The investor also has to buy 2X the number of shares as compared to when the share price is higher than Strike Price

In effect, the investor has Bought 1 Call option and Sold 2 Put option.

What is a call/put option?
A Call Option is the right, but not the obligation, to BUYa quantity of a financial instrument (eg stock, bond, commodity) at a specific price (Strike Price) within a specific time period.
A Put Option is the right, but not the obligation, to SELLa quantity of a financial instrument (eg stock, bond, commodity) at a specific price (Strike Price) within a specific time period.

What does buying or selling an Option mean?
Buying an option simply means you Pay a premium in exchange for the right to buy (Call) or sell (Put) at the Strike Price.
Selling an option would mean you provide that right by COLLECTING a premium. You have to buy back (Put option) or sell (Call option) the instrument to the buyer.

How does all these work out?
In a Bull market, the investor is happy as he gets to buy the share at a lower price than what is in the market. However, the maximum benefit is limited by the Knockout Price. In a Sideway market, the investor is disadvantaged as he has to buy twice the amount of shares at a higher price than what is available in the market. Dollar Cost averaging does not work. In a Bear market, the investor is likely to make a substantial loss as he is forced to purchase twice the number of shares at above market rates at most if not all the time.

Who holds the risk?
The investor holds most of the risk. The benefit that the investor holds is limited by the Knockout Price. Once the Reference Share price hits or exceeds the Knockout Price, the contract will end, meaning that he will not be able to buy shares at below market price anymore. This also means that the maximum downside the bank (or another third party) is exposed to is limited by the Knockout Price. In fact, the banks could be doing a risk free business if they do not hold the Reference Share but is structuring the deal for a third party. By selling 2 times the number of Put options compared to buying Call options, the bank gets to collect the extra Put option premium. Even if the bank holds the Reference Shares, it can still be profitable to sell the shares at the Strike Price if the Strike Price has been set higher than the original share price that the bank paid for the Reference Share.

Some investors have leveraged their investments by borrowing from the bank. In such a case, they may lose more than the original principal during the current market. The bank can just collect the extra interest for the borrowing.

p/s photos: Huang Sheng Yi

2,000 Movies All On One DVD!!!

How do you like to store 2,000 movies on ONE DVD.... a piracy business owner's nightmare, so too for movie companies and producers... how easy will it be to duplicate and transfer if you could store in the one DVD. You could be a traveling piracy dealer with just a notebook and that one DVD.

Dr James Chon of the Swinburne University of Technology, holds up a DVD containing new technology that can store data in five dimensions.

May 21, 2009

Australian scientists have unveiled new DVD technology that stores data in five dimensions, making it possible to pack more than 2000 movies onto a single disc. A team of researchers at the Swinburne University of Technology in Melbourne, have used nanotechnology to boost the storage potential nearly 10,000-fold compared to standard DVDs, according to a study published in the peer-reviewed journal Nature.

"We were able to show how nanostructured material can be incorporated onto a disc in order to increase data capacity, without increasing the physical size of the disc," said Min Gu, who led the team.

Discs currently have three spatial dimensions. By using gold nanorods Gu and colleagues were able to add two additional dimensions, one based on the colour spectrum, and the other on polarisation. Because nanoparticles react to light depending on their shape, it was possible to record information in a range of different colour's wavelengths at the same physical location on the disc. Current DVDs record in a single colour wavelength using a laser.

The fifth dimension was made possible by polarisation. When light waves were projected onto the disc, the direction of the electric field within the waves aligned with the gold nanorods.

"The polarisation can be rotated 360 degrees," explained co-author James Chon.

"We were, for example, able to record at zero degree polarisation. Then on top of that, were able to record another layer of information at 90 degrees polarisation, without them interfering with each other," he said in a statement.

The researchers are still working out the speed at which the discs can be written on, and say that commercial production is at least five years off. They have signed an agreement with Korea-based Samsung, one of the world's largest electronics manufacturers. Last month, US technology giant General Electric said its researchers had developed a holographic disc which can store the equivalent of 100 standard DVDs. - AFP/SMH

p/s photo: Huang Sheng Yi

Goldman Alumni Cannot Simply Do Everything

Goldman Sachs is the only US independent firm left. The rest, Bear Stearns, Merrill lynch and Lehman Brothers - were not so lucky. Or is it luck? For years, you were golden if you hired from Goldman Sachs.

Associated Press: Alumni of the Wall Street firm have advised presidents from both parties, taken high-profile Cabinet posts, run big businesses and been involved in multimillion-dollar philanthropies.

But recent missteps have challenged the notion that Goldman only breeds winners, The Associated Press says.

Henry Paulson, who was criticized for mishandling the first incarnation of the bank bailout, is a Goldman alum. So is John Thain, who rushed billions of dollars in bonuses to Merrill Lynch employees before the investment bank had to be sold. (Henry Paulson did not handle his Treasury role well at all. The TARP program was changed and modified as he was uncertain on how to tackle the crisis. His biggest mistake was allowing Lehman Brothers to fail. Somehow if it was Goldman Sachs in trouble, I'd doubt very much he would have taken that route. As smart as he was at Goldman Sachs, it did not give him the skills and ability to tackle broader macro, monetary and economic policy issues.)

Also a Goldman vet: Robert Rubin, the Clinton treasury secretary who resigned from his senior advisory role at Citigroup last month after being criticized for missing the warning signs of the financial crisis. (As rich as Rubin was, he was mainly a trader, and a very successful trader. He shouldn't have been an economic advisor and probably contributed zilch to Citigroup.)

Those names have lent a rare tarnish to a firm sometimes called the New York Yankees of Wall Street.

”When you become a partner at Goldman, you are supposed to be the master of the universe,” Ed Yardeni, who runs his own investment consulting firm and is a well-known Wall Street economist — and himself was turned down years ago for a Goldman job, told The Associated Press.

”That meant you could run the greatest investment bank on earth, but it turns out that skill set doesn’t always translate to the White House, Treasury or other Wall Street firms.”

Goldman draws its talent from the top students from the best universities and business schools. Those given a chance to embark on Goldman’s recruiting gantlet encounter job interviews in which they are asked not just complex questions about finance but simply why they deserve to be at Goldman.

And just like the Yankees, Goldman employees are well-paid. Its 30,000 employees last year made more than $355,000 on average, including salaries, bonuses and benefits. The average at rival Morgan Stanley was about $250,000.

Those given the coveted title of partner managing director — who are considered partners — can pull in seven figures. But flashing wealth runs against the Goldman culture, and employees, dubbed ”billionaire Boy Scouts,” are expected to give to charity or perform public service.

”Does the firm create exceptional talent, or does exceptional talent create a truly great firm? I think the vast majority of ex-Goldman employees want to believe it’s a little bit of both,” Janet Hanson, a 14-year Goldman veteran who went on to found a money management firm and the global women’s networking group 85 Broads, told the news service.

Teamwork, integrity, accountability and collegiality are other prominent parts of the Goldman ethos, said Charles Ellis, author of ”The Partnership: The Making of Goldman Sachs.” That breeds loyalty not seen at other Wall Street firms.

For instance, the firm uses an evaluation system in which each employee is graded by everyone he or she works with. So low-level workers get to weigh in on their bosses.

Goldman survived the financial meltdown last fall, but not without help. It took $10 billion from the government’s Troubled Asset Relief Program, or TARP. It also received a $5 billion investment from Warren E. Buffett’s Berkshire Hathaway that came with a strong endorsement from Mr. Buffett.

That helped to stabilize Goldman but couldn’t stop the bleeding. From September through November, it lost $2.3 billion — the first quarterly loss since Goldman went public in 1999. Goldman’s chief executive Lloyd C. Blankfein is forgoing a bonus for 2008.

Still, Goldman made it out alive. That’s more than can be said for three of its former fellow investment banks – Lehman Brothers, Bear Stearns and Merrill Lynch — none of which survived the meltdown as an independent firm.

And now that fingers are pointing at top bank executives, Goldman veterans aren’t immune.

When Lehman imploded in September, it was Mr. Thain, a former Goldman president and chief operating officer, who engineered a deal to sell Merrill Lynch to Bank of America. At the time, he looked like one of the smartest guys around.

But Mr. Thain became a poster child for Wall Street greed when news surfaced that he had rushed out billions of dollars in bonuses to Merrill employees just before the Bank of America deal closed.

Then came embarrassing reports that he had spent more than $1 million to redecorate his office at Merrill. Mr. Thain later repaid the money.

”It’s not likely that he sat there and came up with ways to squeeze more for himself or the employees of Merrill Lynch. But he should have known better,” Sydney Finkelstein, a management professor at the Tuck School of Business at Dartmouth and author of the new book ”Think Again: Why Good Leaders Make Bad Decisions,” told The Associated Press. (Why did John Thain end his career by making some of his biggest mistakes towards the end. I could understand why he would ask for his $10m bonus as it was probably pre-agreed. The office refurbishment was silly, but more galling was the audacity to pay out the huge bonuses to Merrill staffers prior to being absorbed by Bank of America.)

Mr. Rubin spent most of his early career at Goldman. He joined the firm in 1966, as an associate in trading and arbitrage, became partner in 1971 and was co-senior partner — C.E.O., in Goldman-speak — from 1990 to 1992.

In 1993, Mr. Rubin left to work in the Clinton White House, and became treasury secretary in 1995. He followed a path into the public sector paved by many past Goldman leaders.

Among them was Sydney Weinberg, the firm’s senior partner from 1930 to 1969, who advised five U.S. presidents. John Whitehead worked in the State Department in the Reagan administration and as chairman of the Federal Reserve Board of New York after he left Goldman, where he was senior partner from 1976 to 1984. And former Goldman head Jon Corzine is governor of New Jersey.

”Goldman Sachs has a long history of people who have chosen to go into public service and we are proud of our alumni who have taken this path,” Goldman spokesman Ed Canaday told The Associated Press.

When Mr. Rubin joined Citigroup in 1999 as a senior adviser, it was considered a coup for the bank.

While he never had an operational role at Citi, the company still took on massive risks that resulted in losses of $18.7 billion in 2008. In early January, Mr. Rubin resigned and said he wouldn’t stand for re-election to the board.

”My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today,” Mr. Rubin said in a letter to Citi’s chief executive announcing his departure.

Mr. Paulson, too, was drawn to a role in government after leaving Goldman’s helm in 2006, after more than 30 years at the firm. He became treasury secretary in the Bush administration.

His arrival in the public sector came during a booming economy, but what soon emerged was a devastating recession matched with a financial crisis of historic proportion.

Mr. Paulson never seemed to get his hands around it, even with the help of some former Goldman executives he brought to the Treasury Department. Among them was Neel Kashkari, who was appointed to oversee TARP and formerly worked as an executive in Goldman’s San Francisco office.

None of this seriously threatens Goldman’s status on Wall Street, of course. It’s still the place to be — perhaps now more than ever, given the carnage in investment banking.

”The people they recruit have never lost anything,” Mr. Ellis told the news service. ”They have always won. That is the kind of person Goldman wants to hire.”

(Goldman's alumni used to be regarded as very smart people and was welcomed to into important public service positions. Recent history would suggests that that line of thinking could be flawed. A successful investment banker or trader still needs to "prove himself first" before being elevated to critical positions. There are specific skills and the need to have a solid understanding of the broader issues of economic policy, monetary policy and macro-cause-and-effect issues. Its the same situation in politics in many countries, for my life, I cannot appreciate how someone can be Ministry of Tourism one day and step into Ministry of Environment the next day. Yes, they can be surrounded by experienced advisors for each ministry, but positions of importance such as Ministry of Finance, Ministry of Law, Ministry of Housing, Ministry of Foreign Affairs, EPU unit, Foreign Investment unit, etc... must be helmed by people with some relevant experience - and not be divvy up like a barbecued animal after a festival.

People like Louis Gerstner - whom I think is the best manager of businesses over the last 30 years, proving his ability at American Express, RJR Nabisco and then IBM - only come around once in a blue moon.)

p/s photos: Eva Huang Sheng Yi