Firing John Thain Should Be Ken Lewis's Last Act At Bank Of America (BAC)

Firing John Thain Should Be Ken Lewis's Last Act At Bank Of America (BAC)

Posted Jan 22, 2009 02:07pm EST by Henry Blodget in Newsmakers, Banking
Related: BAC, MER, ^DJI

From Clusterstock, Jan. 22, 2009:

Ken Lewis has now successfully focused some of the outrage about the destruction of Bank of America (BAC) on John Thain.
Thain was the one responsible for that $15 billion loss. Thain was the one who approved $15 billion of bailout-funded bonuses. Thain was the one who spent $1.2 million decorating his office. And now, a month after the bonus and loss outrages, Ken Lewis has finally fired John Thain.
As he should have. Someone has to take direct responsibility for that loss, the taxpayer-funded bonuses, and the humiliation of Ken Lewis. And John Thain's that man.
But don't let this distract you from who is ultimately responsible.
No one forced Ken Lewis to buy Merrill Lynch--the decision that, more than any other, destroyed Bank of America shareholders. No one forced Bank of America to approve the $15 billion in bailout-funded bonuses Merrill just paid to its workforce.
John Thain isn't responsible for those decisions. Ken Lewis is. If Bank of America's board doesn't finally acknowledge this and throw him out, the board should be thrown out, too.
For more news, go to Clusterstock.

http://finance.yahoo.com/tech-ticker/article/162333/Firing-John-Thain-Should-Be-Ken-Lewis

Broken Financials: Are Bank Stocks Going to Zero?

Broken Financials: Are Bank Stocks Going to Zero?

Posted Jan 22, 2009 03:39pm EST by Aaron Task in Investing, Banking, Housing
Related: XLF, BAC, JPM, FITB, NTRS, C, ^DJI


After hitting a 14-year low Tuesday, the financial sector enjoyed a reprieve Wednesday on news of some big purchases by insiders, namely JPMorgan CEO Jamie Dimon and Bank of America's Ken Lewis.
But the sector was back in the dregs Thursday on news of John Thain's ouster from Bank of America (and ridiculous spending spree), change at the very top of Citigroup and a big loss at Fifth Third Bancorp.
But with the financial sector now less than 10% of the S&P 500's market-cap (down from 22% at its peak) and so much bad news "priced in," there have to be bargains in the banks, right?
Wrong! says John Roque, technical analyst at Natixis Bleichroeder.
While he can find at least one bank stock worth investigating, Roque believes investors would be wise to avoid banks, homebuilders and other housing-related stocks for the foreseeable future.
"Those sectors have been broken and are not going to come back for a long time," he said, predicting it will be a very long time before these stocks return to their peaks, if ever.
Disclosure: Roque has no positions in any of the stocks mentioned in the accompanying video.



http://finance.yahoo.com/tech-ticker/article/162574/Broken-Financials-Are-Bank-Stocks-Going-to-Zero?tickers=XLF,BAC,JPM,FITB,NTRS,C,%5EDJI

Social risk

Social risk

Social risk is difficult to quantify. It reflects the potentially adverse impact changing public attitudes can have on a firm’s ability to sell its product.

It is really a form of business risk that impacts a specific firm or industry.
· No one likes ugly smoke-stacks, for instance. Local opposition to apparent pollution might lead to a boycott of company products.
· Past examples of social risk issues include nuclear power, the spotted owl, furs, cigarette advertisements, concern with cholesterol, and the gasoline consumption of SUVs.

According to the Social Investment Forum, there is more than $2 trillion invested in socially screened portfolios in the United States. This is a 47% increase since 1999.

While there are various social screening criteria, avoiding tobacco investments is the most common.

Other criteria appearing in more than half of the institutional screens are related to
· the environment,
· human rights,
· employment/equality,
· gambling,
· alcohol, and
· weapons.

Less common criteria involve
· labour relations,
· animal testing/rights,
· community investing,
· community relations,
· executive compensation,
· abortion/birth control, and
· international labour standards.

Social investing does not necessarily avoid things; sometimes it seeks things out, and not always with good outcomes.
· In 1990 the state of Connecticut Employee Pension Plan, under political pressure, invested $25 million in the stock of Colt Firearms in order to keep 925 local jobs from being lost. Colt filed for bankruptcy 2 years later. This government attempt to help one group of citizens wound up hurting another, as the entire investment was lost.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Political risk

Political risk

Political risk reflects the possibility that a foreign government will interfere with a firm’s preferred manner of conducting business.

The level of interference can be modest, such as requiring that a certain number of first-line supervisors be local nationals rather than “foreigners.”

More severe instances of political risk include:
· restrictions on the repatriation of dividends,
· mandatory local investments, or
· even the host-country government assuming control of the foreign firm through nationalization.

For multinational corporations, political risk is a fact of life. Firms learn to estimate the level of this risk in different parts of the world, as well as how to reduce its impact and to postpone or avoid its effects.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Foreign exchange risk

Foreign exchange risk

Foreign exchange risk reflects the possibility of loss due to adverse changes in the relative values of world currencies.

Suppose an investor buys securities in an Australian company for AUD25 at a time when the exchange rate is one Australian dollar per 75 cents U.S. One year later the share price is AUD30, and 70 cents will buy one Australian dollars.
· To an Australian, the shares appreciated by 20%, from AUD25 to AUD30.
· From the perspective of a U.S. investor, the adverse change in the exchange rate reduced the actual gain on the investment to 12%. The U.S. investor wants to begin and end with U.S. dollars.
· Foreign exchange risk reduced the true economic return from a U.S. investor’s perspective.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Interest rate risk

Interest rate risk

Interest rate risk is the chance of a loss in portfolio value due to an adverse change in interest rates.

When interest rates change, the value of a fixed income security also changes.

Rising interest rates depress bond prices, and vice versa.

Default risk: Default risk is the same as credit risk. It reflects the fact that a borrower might be unable or unwilling to honour the terms of an agreement to pay principal and interest on a loan.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Purchasing power risk

Purchasing power risk

Purchasing power risk reflects the possibility that the rate of return on an investment will be insufficient to offset the rise in the cost of living.

During the early 1980s, the prime interest rate rose to 23% and inflation hit double-digit rates. At the same time, passbook savings accounts yielded about 5%. In retrospect, bank depositors would have been better advised to purchase canned goods and stack them in the basement. The interest earned from the savings account would have been insufficient to match the increase in the cost of food.

The stock market is generally considered to be a hedge against inflation. (Some analysts disagree with this generalization. Over long periods it is true; over shorter periods in history, it has not always been true.)

A well-diversified stock portfolio has little purchasing power risk, while an investment in fixed rate securities has plenty of it.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Financial risk

Financial risk

Financial risk is associated with the bottom of the income statement; it deals with earnings and how business risk and the financial structure of the firm impact them.

This type of risk is related to the firm’s use of financial leverage (debt).

Interest payments are fixed costs the firm must pay to stay out of bankruptcy, regardless of the firm’s profitability.

Some people, in fact, will say that a firm with no debt has no financial risk.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Business risk

Business risk

Business risk is the variability in a firm’s sales or in its ability to sell its product.

It is associated with the top of the income statement.

Business risk surfaces for a number of reasons.

1. For instance, consumer tastes may change.
   
2. An automobile company might introduce a new compact car at a time when people are looking for larger luxury cars or minivans.
   
3. A clothing manufacturer might be unable to react quickly to shifting fashion styles.
   
4. Business risk also arises from macroeconomic changes, such as

• a recession leading to reduced consumer spending, or
• high interest rates making people reluctant to buy houses.

Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Partitioning Risk

Partitioning Risk


Risk has many subsets.


Total risk is all-inclusive and refers to the overall variability of the returns of a financial asset.


The two components of total risk are
· Un-diversifiable risk (also called systematic risk or market risk) and
· diversifiable risk (also called unsystematic risk).


Undiversifiable risk is that which must be borne by virtue of being in the market. This risk arises from systematic factors that affect all securities. We quantify systematic risk by beta.

Subsets of Risks:

Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk

Risk and the Income Statement
Sales: Foreign exchange risk, Social risk, Business risk
Tax: Political risk
Dividends: Political risk
Contribution to Retained Earnings: Financial risk

Risk and the Balance Sheet
Total Assets
Financial assets: Interest rate risk, default risk, systematic and unsystematic risk, foreign exchange risk.
Real assets: Foreign exchange risk

Total Liabilities and Net Worth
Liabilities: Interest rate risk, foreign exchange risk
Net worth: Purchasing power risk

Asian economic woe grows as China slows and Japanese exports plunge

Asian economic woe grows as China slows and Japanese exports plunge

China's economy may have ground to a halt entirely between the third and fourth quarters of last year and Japanese exports plunged 35pc in December, underlining the scale of the slowdown in Asia.

By Malcolm Moore in Shanghai
Last Updated: 7:39AM GMT 22 Jan 2009

China's national statistics bureau said gross domestic product had grown at an annual rate of 6.8pc in the fourth quarter of 2008, compared to a gain of 9pc in the previous three months.
The annual rate of growth for the world's third-largest economy was the lowest since the second quarter of 1998. "The international financial crisis is deepening and spreading with a continuing negative impact on the domestic economy," said Ma Jiantang, head of the statistics bureau.
Although the annual rate of growth was 6.8pc, economists speculated that the actual growth between September and December last year could have been zero, or even negative.
"My rough assumption is that it was basically zero," said Stephen Green, an economist at Standard Chartered bank in Shanghai. However, he added, recent revisions to Chinese GDP figures made an accurate calculation impossible. Mr Green also predicted that GDP may not grow in the first quarter of this year, compared to the last quarter.
Japanese exporters endured a torrid December as demand for a range of goods fell sharply. Exports to the US fell 26pc, those to Europe dropped 41.8pc and those to China were down 35pc.
In China, much of the slowdown has been blamed on a lack of demand from the rest of the world for Chinese-made goods. Wen Jiabao, the prime minister, said earlier this week that the outlook for Chinese employment is "very grim" as factories shut down and foreign companies rein in their spending.
Mr Wen will visit the UK next week, and Gordon Brown has already called upon him to make sure that China plays its part in stabilising the global economy. "We need China to play a full role, in partnership with us, if we are to restore confidence, growth and jobs," said Mr Brown.
China, however, has insisted that it must get its own house in order first, and there are indications that the government has already instructed banks to unleash credit into the market. The value of loans issued in November and December soared by nearly 19pc.
"It is hard to overestimate the potential importance of this," said Mr Green. "Mature economies' banking systems are currently flooded with liquidity that is not being lent out. China's interbank market is similarly flooded, but the difference is that the banks are lending."
The banks are likely to be ordered to finance a large chunk of the Pounds400 billion fiscal stimulus package that the Chinese government announced in November. There is a further Pounds2 trillion of spending demands from local governments across China that they may also be called upon to help with, irrespective of the possibility of bad loans.
Other bright spots included a slight rebound in industrial production growth to 5.7pc in December from 5.2pc in November, and a strong set of retail sales figures, where growth was 19pc.
Goldman Sachs, which issued one of the most bearish predictions for Chinese economic growth in 2009, at 6pc, admitted that there are "rising upside risks" that they may be incorrect, given the money flooding into the market.
"Our checks with commercial banks suggest the value of loans extended in January is likely to be even larger than the amount in December," said Yu Song, an economist at Goldman, adding that falling inflation also raised the possibility of further interest rate cuts.
However, Goldman said that China could be hit by even weaker export demand and maintained its prediction for now. "It is way too early to even claim the worst is over," said Mr Green. "Exports and domestic consumption, as well as profit growth, are now slowing and they will continue to grind lower over the year. Property still looks fragile, as does private investor sentiment. Even if we reach 8pc growth for this year, it will not feel like it," he added.


http://www.telegraph.co.uk/news/worldnews/asia/china/4312120/Asian-economic-woe-grows-as-China-slows-and-Japanese-exports-plunge.html

Risk Aversion

Risk Aversion

One of the key concepts in finance is the fact that a safe dollar is worth more than a risky dollar.

This important principle compares one safe dollar with one risk dollar. Any one who invests in the stock market is exchanging bird –in-the-hand safe dollars for a chance at a greater number of future dollars.

It is wrong to say that a risk-averse person will not take a risk. We are all risk averse, yet we take risks all the time.

----

Risk Aversion and Rational People

Suppose a person is given a choice between the following two alternatives:

Alternative A $100 for certain
Alternative B 50% chance of $100, 50% chance of $0

No rational person would select B. Its average payoff is $50, only half what A offers with certainty.

Now consider another set of choices:

Alternative C $100 for certain
Alternative D 50% chance of $0, 50% chance of $200

D has an average payoff of $100, the same as C.
C, however, is safer than D.
People do not like a risk, and a rational person will choose the certain $100 over the risky $100.

Let’s now consider a more complicated example.

On a television game show, a contestant wins the right to spin a lottery wheel once. The wheel shows numbers 1 through 100, and a pinter selcts one number when the wheel stops. Which payoff schedule should the contestant choose from the four choices listed below.

Choice 1
Resulting Number….Payoff
1-50….$110
51-100….$90
Avg….$100
Choice 2
Resulting Number….Payoff
1-50….$200
51-100….$0
Avg….$100
Choice 3
Resulting Number….Payoff
1-90….$50
91-100….$550
Avg….$100
Choice 4
Resulting Number….Payoff
1-99….$1000
100….-$89,000
Avg….$100

Each of the choices has the same average payoff, but the consequences of the two possible outcomes with each choice vary widely.

Choice 1 is the safest alternative in the minds of many people.

Choice 2 offers a reasonable shot at $200. People who select this option reasons, “If my number doesn’t come up, at least I haven’t lost anything.” From an economic point of view, this logic is faulty. The person did lose something: the certain minimum payoff of $90 associated with Choice 1; this loss is an opportunity cost.
In other words, by choosing 1, a contestant will get at least $90. But the contestant gives up at least $90 in exchange for a try at a bigger return with the other choices.

Choice 3 offers a much higher possible return than 2 but ensures a payoff of at least $50. Some people select this option partly because of the entertainment value of the game.

What about Choice 4, with its high likelihood of a $1,000 payout? If the lottery wheel stops on the number 100, however, the contestant suffers a huge loss. Some people (and some investment portfolios) cannot tolerate any chance of such a loss and consequently could not seriously consider an option such as Choice 4.

Each of these alternatives has analogies in the investment world.

Choice 1 is much like buying shares of a conservative electric utility stock.

Choice 2 is akin to purchasing a stock option.

Choice 3 might be a convertible bond, with its assurance of steady interest income, and a chance for large gains if the underlying stock rises sharply.

Choice 4 is similar to a program of writing naked, out-of-the-money call options. With such a program the likelihood is high that the options will expire worthless (to the call writer’s benefit), but there is also a small chance that the options will become extremely valuable, in which case the call writer is in deep trouble.

----

Risk and Time

Peter L. Bernstein, founder of the Journal of Portfolio Management and well respected on Wall Street, said, “Risk and time are dancing partners in an eternal dance.” It is easy to overlook this important point. Probability theory deals with HOW MUCH and HOW LIKELY but says nothing about WHEN. The market crashed in 1929 and in 1987. It is likely to do so again.

Bernstein also said, “Risk and time are opposite sides of the same coin.” How likely is the market to crash tomorrow? A betting person (which investment analysts and advisors typically will not admit to being) is more likely to put money on NO CRASH tomorrow.

On the other hand, how likely is a market crash sometime in the next 50 years? This time frame puts a different light on the situation; most people certainly would agree that the probability of a crash anytime in the next 50 years is greater than the probability of a crash tomorrow.

In finance, we typically measure risk by the variance or standard deviation of returns. Daily returns are different from weekly, monthly, or annual returns. For returns to be comparable, we must measure them over consistent time intervals. The dispersion of a forecast (such as a future stock price) increases indefinitely as the length of the forecast (or holding period) approaches infinity. Logically speaking, the standard deviation of daily stock returns is smaller than the standard deviation of annual returns.

It is important to note that while the returns over a long horizon may be more uncertain, history suggests that over long periods of time there is also less likelihood that the investment will lose money.

Consider the information in Table below:
http://spreadsheets.google.com/ccc?key=pJV5vBExPQ_AehxWIo5vCRA&hl=en

These figures are the result of a 2,500 trial simulation of a $1,000 stock investment assuming an average annual return of 12%, but with a 20% annual standard deviation.

The longer the term of the investment, the greater is the mean return - but the greater the range between the minimum and maximum values.

Note also the longer the term of the investment, the less the likelihood of losing money and the greater the likelihood that the investment will at least keep up with an assumed average inflation rate of 3%.

----

Summary:

It is wrong to say that a risk averse person will not take a risk.

People have different degrees of risk aversion; some people are more willing to take a chance than are others.

An opportunity cost is what is given up in exchange for a chance at something better.

"Risk and time are dancing partners in an eternal dance." - Peter Bernstein

Forecast variance increases indefinitely as the length of the forecast period approaches infinity.

Safe and Risky Investments

Safe and Risky Investments

Joe Conservative hates risk and is terrified of the prospects of losing money. He is strictly a bank CD man, being highly suspicious of the stock market. His girlfriend, Rita Riskaverse, doesn’t like risk either, but she studied investments in college and knows something about the relationship between risk and return.

Joe and Rita eventually get married but decide it makes sense for them to handle their investments individually. Joe puts $100,000 in a bank certificate of deposit earning 6% annually, while Rita spreads her $100,000 equally across five stocks, putting $20,000 in each one.

Twenty years later the two lovebirds decide to do some joint financial planning, which requires them to disclose the performance of their personal investment accounts.

Rita does some calculations on the performance of her five stocks. She tells Joe “I had one stock go bankrupt, two that earned less than your 6% from the bank, one that earned 8%, and one that earned 12%.”

Joe responds, “I told you the stock market was too risky. You should have listened to me.”

Suppressing a smirk, Rita shows Joe the data below.

----
Joes’s Bank CD:
$100,000 x (1.06)^20 = $320,714

Rita’s Stocks:
Stock A: worthless $0
Stock B: $20,000 x (1.03)^20 = $36,122
Stock C: $20,000 x (1.05)^20 = $53,066
Stock D: $20,000 x (1.08)^20 = $93,219
Stock E: $20,000 x (1.12)^20 = $192,926
Total = $375,373
----

Joe can’t believe it. Rita had one stock go under, two that were below-average performers, and two that did okay but certainly didn’t set the world on fire. It seems like luck to him that her portfolio is worth more than his – although he can’t put his finger on what was lucky. It just doesn’t seem fair.

The Problem with Losses

The Problem with Losses

Big Losses

This investment has an expected return of 9.50%. Standard statistical thinking tells us if we invest in this stock and hold it, some years we will have high returns and some years low returns, but that, on average, the return will be 9.50%. This assumption is true, but it is also a potentially misleading result.

Suppose an investor buys this stock and holds it 10 years. In each of 9 of these years, the stock advances 20%; in the other year it falls 90%. The 10 year arithmetic average return is 9%
{=(9x20% - 90%)/10}, slightly below the return predicted by the distribution.

In reality, a $1000 investment, however, would be worth only $1,000(1.20^9)(0.10) = $516, less than the starting value! The compound annual rate of return is a negative 6.40%.

Learning points:

1. A large one-period loss can overwhelm a series of gains.
2. If an initial investment falls by 50%, for instance, it must gain 100% to return to its original value.
3. Big losses complicate actual returns, and investors learn to avoid situations where they may lurk.
   
   

Small Losses

Over time, even small losses can be a problem if too many of them occur.

An example will show why. Suppose the proverbial statistical marble jar contains two colors of marbles: red and green. The red marbles symbolize a 10% gain in the stock market, while the green marbles symbolize a 10% loss. If, in simulating an investment and taking a number of marbles from the jar, we draw exactly the same number of red and green marbles, how did the investment fare?

The return is negative, but there is no way to tell how badly things turned out, because what matters is not the proportion of winners to losers, but the number of losers.

As the number of draw increases, the terminal value of the investment declines.

After about 1,000 draws from the jar, the investment is nearly worthless. #

# In the stock market, such an investment could not survive. No security should have an expected return of zero. No one would buy it. Consequently, its price would fall until it offered a return consistent with its risk.

Learnng point:

Over time, even small losses can be a problem if too many of them occur.

Risk and the Time Horizon

There is an important distinction between:

• the probability of losing money and
• the amount of money that you might lose.

Suppose you model a $100 investment by flipping coins. Heads means you win $1, and tails means you lose 50 cents. After one flip, there is a 50% chance of a loss. This declines to 25% after two flips and is down to 12.5% after three flips. After 10 flips, the probability of a loss is only 0.10%.

The maximum loss, however, increases with each succeeding toss of the coin. The maximum loss after one flip is $0.50, after two flips is $1.00 and after three is $1.50.

If you define risk as the probability of losing money, then risk decreases as the time horizon increases.

However, if you define risk as the amount of money you might lose, it increases as the time horizon lengthens.

Learning points:

1. In general, the longer you hold a common stock investment, the lower the likelihood that you will lose money.
2. On the other hand, the longer you hold the investment, the greater the amount you might lose.
3. The extent of the risk depends on how you define it.

Advice for Uncertain Times

Ben Stein How Not to Ruin Your Life

Advice for Uncertain Times
by Ben Stein
Posted on Tuesday, January 20, 2009, 12:00AM

The night before Dr. Martin Luther King, Jr., was assassinated in Memphis, he gave a memorable, inspiring speech. At its end, he said, "I don't know what's going to happen with me now. We've got some difficult days ahead...."
Unfortunately, this is true now about the American (and global) economy. I wish I could say I knew what was going to happen in the future. I have learned that I do not. I was not given the gift or the burden of foresight. I thought that our government would not let the bottom fall out. I was wrong. I am sorry.
So given that I do not know the future, what can I tell you that will be useful? Actually, quite a bit.
Cash Really Is King
First, taking the advice of my dear pal Ray Lucia, rock and roll star and investment guru, I can tell you that, no matter what happens, it will be good to have a nice chunk of money in cash or near cash. Yes, I know we may soon have inflation. But if we do, the rates on money market funds will rise. Cash is just a lovely thing to have in almost situation. Cash or near cash offers a level of comfort that even a large portfolio of stocks does not offer.
Taking a cue from my dear pal Phil DeMuth of Conservative Wealth Management, I can tell you that, if you think we are definitely at a bottom, you might be fooled. While Phil's research tells us that we may be near a bottom by postwar metrics of price, price to earnings, and price to dividends, we may have ( as Phil puts it ) "jumped the tracks of history."
My own view is that we have been fooled so much in the past 15 months about what real earnings are, what real book value is, that we cannot trust the data given to us. Yes, by current price-earnings measures, stocks look fairly reasonable. But we don't really know what true earnings are. That is the vicious truth. So if we are in the quicksand of not being able to rely on the data our companies give out, then anything can happen. Yes, we may be at a bottom or near it. Or we may not be anywhere near a bottom.
Anything Can Happen
Just to illustrate, who would have dreamed a few weeks ago that Citi would be in the kind of trouble it is in, even after a $45 BILLION infusion from the federal government? Anything can happen in the treacherous world in which we find ourselves.
Third, taking counsel from my pal Barron Thomas, very possibly the best salesman on the planet, I will tell you a rule of indisputable value in this or any economic situation: WORK.
Barron is in the real estate and private plane businesses. These are both highly impacted by the economic slowdown. How does Barron deal with it? He gets up at 5 a.m. every day and works the phones from 7 a.m. to 7 p.m., goes home, makes notes, and then sleeps well until he starts all over again. And he closes the deals. There are still plenty of people who will make the deal at the right price.
Keep on Working
Next, from yours truly: Work is deeply therapeutic. It makes us feel better. It gives us a much better attitude about ourselves. It makes us feel as if we are worth something. A middle class person who works has a far better self image than a rich person who does not work. Work is a gift, a sacrament, a true blessing. Plus, people who work are generally going to have higher incomes and higher standards of life than people who do not work.
If times are tough, work harder than ever. You will get through the rough patches and learn how strong you really are. Do not seek to avoid work -- embrace it.
Then, finally, I will tell you something I do when I feel buffeted by the markets. I dig into the 12-step program that has saved my life for the past 20 years. Using its precepts, I say to myself, "I am powerless over the stock market. It is all up to God. I do the very best I can, and after that, it's up to God."
Know What's Important
If you don't believe in God, then you can substitute "fate." Powerlessness is a huge source of power. Try it. You will like it.
"We shall overcome," we used to sing at civil rights demonstrations when we were getting tear gassed. "We are not afraid." Now I lie in bed at night and say to myself that if the men and women at military hospitals in this country and abroad can get through what they do, if their families can go through what they go through, then I can deal with market volatility -- trivial by comparison.
And so -- here it is. I do not know how it -- the stock market and economic turmoil -- will end, but to paraphrase The Bard, it will end, and that suffices.

http://finance.yahoo.com/expert/article/yourlife/135453

UK cannot take Iceland's soft option

UK cannot take Iceland's soft option
The British government faces an excruciating choice. It cannot let Royal Bank of Scotland and its fellow mega-banks go to the wall. Yet it risks being swamped by the massive foreign debts of these lenders if it takes on their dollar, euro and yen exposure by opting for full nationalisation.

By Ambrose Evans-PritchardLast Updated: 7:00PM GMT 20 Jan 2009
Comments 0 Comment on this article

Britain has foreign reserves of under $61bn dollars (£43.7bn), less than Malaysia or Thailand. The foreign liabilities of the UK banks are $4.4 trillion – or twice annual GDP – according to the Bank of England. The mismatch is perilous.
It is why sterling has crashed 10 cents from $1.49 to $1.39 against the dollar in two days. The markets have given their verdict on Gordon Brown's latest effort to "save the world".
Credit default swaps (CDS) measuring risk on British debt have reached an all-time high of 125, just below Portugal. The yield spread on 10-year Gilts over German Bunds has doubled to 53 since last week.
Standard & Poor's has quashed rumours that it will soon strip Britain of its AAA credit rating – an indignity averted even after the International Monetary Fund bail-out in 1976. But there was a sting yesterday as it responded to the Treasury plan for the banks. "Market confidence in the sector has eroded to such a degree that it is not clear whether these measures by themselves will bring about a material improvement," the IMF said. "As a result, full nationalisation of some banks remains a possibility in our view."
Spain was relegated from AAA to AA+ on Monday, and Spain's public debt is a much lower share of GDP.
"If Spain can get downgraded, then the risks for the UK are self-evident," said Graham Turner, of GFC Economics. "The increase in the UK gross public debt burden – 11.8 percentage points in just one year – is troubling. The market rightly fears the long-term fiscal costs of a collapsing banking system. Rising Gilt yields are the main impact of the botched move from the UK Treasury."
Mr Turner said the British Government had taken far too long to resort to quantitative easing – printing money – and had wasted months with fiscal frippery as debt deflation throttled the banks.
The parallels with Iceland are disturbing. The country was ruined by the antics of its three big banks. They built up foreign liabilities equal to 900pc of GDP. Operating as hedge funds, they borrowed in dollars, euros and pounds to speculate. However, the state lacked the foreign reserves to match this leverage.
But Iceland at least had the luxury of letting banks default – shifting losses on to the rest of the world. It refused to honour foreign debts.
"They drew a line," said Jerry Rawclifffe, who tracks Iceland for Fitch Ratings. "They created new banks, parking the old losses in resolution committees. It is not easy for other governments to walk away. They have a duty of care."
Indeed, if Britain walked away from UK banks' $4.4 trillion of foreign liabilities – worth eight times Lehman Brothers – it would destroy the credibility of the City and take the whole world into deeper depression.
"The UK cannot go down that route because it would set off an asset price death spiral," said Marc Ostwald, a bond expert at Monument Securities. "The Western banking system is already on life support. That would turn it off altogether."
So whatever the temptations, and whatever the feelings of righteousness over the follies of the RBS leadership in its debt-driven campaign of Napoleonic expansion, the Treasury is wedded to the banks and all their sins. Chancellor Alistair Darling cannot copy Iceland.
S&P's lead UK analyst, Trevor Cullinan, said the Government faces a "severe test" and will be judged by its actions, but he doubts whether matters will reach such a dangerous pass.
"The challenges to UK banks are significant amid a correction in property prices and a contraction of GDP. Nevertheless, the situation is very different from Iceland. The UK benefits from sterling, which is a major global funding currency. UK access to external funding is far more secure. In a worst-case scenario we estimate the cost of recapitalising the UK banking system to be in the region of £83bn (5.7pc of GDP)," he said.
The Government can take out derivatives contracts on currency markets to hedge the foreign debt risk. Perhaps it already has. The banks have $4.4 trillion foreign assets to offset their liabilities, of course. But what is their real value in this climate?
Britain is not alone in its current distress, although the fall in sterling speaks for itself. The sovereign debt of Russia, Ukraine, Greece, Italy, Belgium, Austria, The Netherlands, Ireland, Australia, New Zealand and Korea is all being tested by the markets. The core of countries deemed safe is shrinking by the day to a half dozen. Sadly, Britain is no longer one of them.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4299883/UK-cannot-take-Icelands-soft-option.html

World economy 'close to the bottom' of liquidity cycle

World economy 'close to the bottom' of liquidity cycle
Morgan Stanley has begun to detect early signs that the global economy may be nearing the bottom of the cycle.

By Ambrose Evans-PritchardLast Updated: 9:27PM GMT 18 Jan 2009
It is advising clients to ignore the deep gloom in the markets and focus on deeper fundamental forces as a fresh phase of liquidity gathers strength. However, it is still too early to buy stocks.
"Excess liquidity has started to rise again in the G5 (US, Japan, Germany, Britain and France) for the first time inalmost three years," said Joachim Fels, the US bank's research chief.
"In our view, this marks the beginning of a new global liquidity cycle in 2009. It is driven by unprecedented easing of monetary policy as well as the gradual healing of impaired financial systems."
Dr Fels uses a complex recipe to measure the excess money sloshing through the world's financial system. This is how each long cycle of rising asset prices first builds a foundation.
"As in past episodes, excess liquidity will find its way into asset markets. To some extent, this has already started to happen, with government bond yields having been pushed to new lows, credit spreads coming in and equities having bounced off their lows from last Autumn."
The bank favours corporate credit at this stage rather than government bonds. It likes emerging markets such as the BRICS – Brazil, Russia, India and China – rather than equities in the old world.
Dr Fels says liquidity is the key driver of asset booms and busts. It drove the bond rally in the early 1990s and the dotcom bubble in the late-1990s.
Morgan Stanley said investors must monitor the entire global liquidity picture to understand what is going on in today's cross-border markets.
Teun Draaisma, the bank's European investment guru, said stocks tend to rally roughly six months before the US property market touches bottom in each cycle – although that is not what occurred in the relatively modest housing slide in the early-1930s.
By this measure, it is still too early to take the plunge in the stock markets. His team expects US house prices to keep falling until the middle of 2010, dropping a total of 46pc from peak to trough. They are down 24pc so far.
"Patience is the golden rule in bear markets, and the bigger the crisis, the more patience is required," he said.

http://www.telegraph.co.uk/finance/globalbusiness/4284602/World-economy-close-to-the-bottom-of-liquidity-cycle.html

Bank of England to buy bonds and loans in first step towards quantitative easing

The iconic columns of the Bank of England in London. Photo: EPA

Bank of England to buy bonds and loans in first step towards quantitative easing
The Government has taken the first step towards quantitative easing by authorising the Bank of England to buy up to £50bn of private sector assets as part of a wider drive to get banks lending again.

By Angela Monaghan Last Updated: 2:52PM GMT 19 Jan 2009

Under the scheme the Bank will be able to buy corporate bonds and consumer loans under the Government's new credit guarantee scheme.
Mervyn King, the Bank's Governor, said the new facility would "provide an important additional tool to improve financing conditions in the economy."
The move is not quantitative easing as it does not involve an increase in the money supply, but some said it could mark the beginning of a shift in that direction.
"This framework could readily evolve into full-blown quantitative easing - we would expect it to do so given the proximity of Bank Rate a de facto zero bound and deteriorating economic conditions, perhaps as soon as March/April," said Ross Walker, economist at Royal Bank of Scotland.
Quantitative easing, also known as printing money, is a more unconventional tool available to the Bank beyond interest rates as it attempts to halt the pace of economic decline in the UK.
The programme announced by the Treasury today comes into effect on February 2, before the next vote on interest rates by the Bank's Monetary Policy Committee on February 5.
"In effect one can argue that this makes the Bank of England the UK's 'bad bank', even if there are some limits to the risk that is being transferred," said Marc Ostwald, strategist at Monument Securities. "Cynics could also argue that Brown and Darling are merely passing the buck to the MPC in terms of exit strategy."
It is part of a broader programme announced by the Treasury this morning allow banks to exchange cash or shares for a Government guarantee on their "toxic" debts. As part of the rescue package, the taxpayer has taken an even bigger stake in Royal Bank of Scotland
The package comes before the first official confirmation on Friday that the UK is in recession. The Office for National Statistics is expected to reveal a sharp decline in gross domestic product in the final quarter of 2008, following a 0.6pc contraction in the third quarter. A technical recession occurs when the economy shrinks for two successive quarters.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4288754/Bank-of-England-to-buy-bonds-and-loans-in-first-step-towards-quantitative-easing.html

What we do when interest rates fail

What we do when interest rates fail
Mervyn King sets out the future for monetary policy, writes Edmund Conway

Last Updated: 8:13PM GMT 20 Jan 2009
You know things have come to a pretty pass when the Bank of England Governor admits that his main tool for influencing the economy – the UK benchmark interest rate – is no longer working.
But that is precisely what Mervyn King did last night. In a remarkable speech, he told Britons for the first time to brace themselves for quantitative easing. His acknowledgement that the UK central bank will have to resort to this drastic new method – used rarely in the history of finance – is likely to go down as one of the landmark moments in the financial crisis.
Equally striking as his confirmation that the Bank may soon embark on a policy of directly pumping cash into the economy was his stark description of the scale of the current malaise. Activity and confidence throughout the global economy had "fallen off a cliff", he said, with shares in London falling at one of the fastest rates in history and exports and output from here to the Far East dropping dramatically.
It is only against such a backdrop that such drastic action is necessary, he said. The plan the Bank intends to follow bears some resemblance to the scheme already in place in the US. The Bank has been granted permission by the Treasury to spend up to £50bn on assets, which it will then keep on its books with a view to selling them off later. The assets, which include commercial bonds and asset-backed securities, will be bought off private investors in the secondary markets – but this time the Bank will give them cash in return for the investments. The result will be an expansion of the Bank's balance sheet. For those who really follow such things, this is not quantitative easing, but what Ben Bernanke recently described as "credit easing".
In Mr King's words, which are worth quoting at length: "The disruption to the banking system has impaired the effectiveness of our conventional interest rate instrument. And with Bank Rate already at its lowest level in the Bank's history, it is sensible for the [Monetary Policy Committee] to prepare for the possibility – and I stress that we are not there yet – that it may need to move beyond the conventional instrument of Bank Rate and consider a range of unconventional measures.
"They would take the form of purchases by the Bank of England of a range of financial assets in order to expand the amount of reserves held by commercial banks and to increase the availability of credit to companies. That should encourage the banking system to expand the supply of broad money by lending to the private sector and also help companies to raise finance from capital markets."
The new asset purchase scheme will in fact give the Bank two powers beyond the ability to expand its own balance sheet. The first is to influence the pricing of a particular species of investment. If it believes the markets for certain corporate bonds are frozen, for instance, it may concentrate on buying them to help improve liquidity.
Second, and perhaps most importantly of all, it can, with the permission of the Treasury, opt to under-fund the Government's budget deficit. This means selling off fewer gilts than is necessary to pay for the assets, and is similar to what Japan did in the late 1990s, and what the Federal Reserve has now moved onto now. This is real quantitative easing. Interestingly, however, Mr King was reticent on how and when such a move would take place. It is hardly surprising. This kind of central bank activity has the potential to be highly inflationary. That should not be an immediate concern, given that the UK is now facing deflation.

http://www.telegraph.co.uk/finance/comment/edmundconway/4299635/What-we-do-when-interest-rates-fail.html

Sterling slumps to eight-year low after second bank bail-out

Sterling slumps to eight-year low after second bank bail-out

Sterling tumbled below the $1.40 mark against the dollar for the first time in almost a decade and fell against the rest of the world's major currencies as the UK Government's second bail-out of the country's banks underlined the dangers facing the economy.

By Angela MonaghanLast Updated: 6:37PM GMT 20 Jan 2009


The pound, which was trading above the $2 mark less than 12 months ago, slumped to below the $1.40 mark for the first time since June 2001 in morning trading in London after registering a fall of more than three cents yesterday.
Currency traders have been aggressively selling the pound as the depth of the recession facing the UK becomes clearer. Interest rates are now at 1.5pc and most analysts expect the Bank of England to continue cutting close to zero in an effort to get money moving around the economy again.
"Sterling has struggled due to the announcement of the new policy measures, in addition to reports of big losses in the UK banking sector," analysts at UBS said this morning.
Analysts are concerned that the second bail-out will substantially increase Britain's debt beyond the 8pc of gross domestic product projected by the Chancellor Alistair Darling at the Pre-Budget Report in November.
Prime Minister Gordon Brown admitted yesterday that he does not know how much the second bail-out of the banks will cost.
Steve Barrow, currency strategist at Standard Bank, predicts that the pound will slide to around $1.35 against the dollar over the next month or two.
He argues that although the US banking system has been hit by similar difficulties to the UK, sterling is particularly vulnerable to a weak performance from the financial sector and banking shares.
"One clear reason for the closer relationship in the UK is that the dollar can act as a safe-haven in times of global stress," he said.
Sterling is now down 28pc against the dollar in the past year and in December sterling teetered on the brink of parity with the euro for the first time.
This morning it tumbled more than 2p to 92.75 and fell to a record low of 124.77 versus the yen.
Jim Rogers, the co-founder of Quantum fund with George Soros, today told Bloomberg News that “I would urge you to sell any sterling you might have.”

http://www.telegraph.co.uk/finance/financetopics/recession/4295391/Sterling-slumps-to-eight-year-low-after-second-bank-bail-out.html

How to Profit From the Credit Crunch

JANUARY 17, 2009, 11:11 P.M. ET
How to Profit From the Credit Crunch

By MARK GONGLOFF
Investors shell-shocked by two nasty bear markets in stocks in less than a decade are starting to look elsewhere for good returns. In the wake of the worst credit crunch since the Great Depression, some analysts suggest they might take a look at, believe it or not, credit.

Their reasoning: Bonds and other credit instruments have arguably suffered much more than stocks during this downturn, meaning they could have further to climb when the economy starts to recover. What's more, as credit led the economy and stocks into the valley, it might have to lead them back out, meaning it could recover before stocks do.
Stocks "are historically first out of the block" in a recovery, says Binky Chadha, chief U.S. equity strategist at Deutsche Bank, "but given the credit crisis this time, credit has to recover before we can get equity returns."
Stocks took several steps back from a recovery last week, when the Dow Jones Industrial Average fell 3.7%. The blue-chip index is down 5.6% so far this year and 42% from its record high in October 2007. Last November, at the depths of the current bear market, the Dow was off 47% from its record, the worst decline since the 1930s.
But the suffering in the credit market has been unprecedented, as investors have come to avoid credit risk like poison. They have demanded record-high interest rates on debt, at levels that suggest a record wave of corporate defaults.
On the bright side, this offers investors a hefty yield -- even after a slight recovery in credit markets in recent weeks, which has pushed interest rates lower.
Many analysts say bonds still offer "equity-like" returns, but that may be underselling them: There is a chance some bonds can offer better returns than stocks.

'Astounding' Yields

For example, the yields on corporate bonds that ratings agencies consider below-investment-grade -- so-called junk bonds -- are 16 percentage points higher, on average, than yields on U.S. government debt of similar duration, according to Merrill Lynch data. A 10-year junk bond might yield 18%, compared with roughly 2% for the 10-year Treasury note.

That is an astounding gap; two years ago, junk bonds yielded just two percentage points more than Treasurys. This "spread" is not much lower than its record high of about 22 percentage points, set in November. Many analysts say this represents a much direr outlook for the economy and corporate bankruptcies than even the stock market does.
"Yield levels and the expected default rates they imply are way out of line with everything but a nuclear bomb," says Vinny Catalano, chief investment strategist at Blue Marble Research.
Safer debts have lower yields, just as more-creditworthy individual borrowers get lower rates when they apply for a loan. Bonds for companies with an "A" credit rating -- roughly middle of the pack for investment-grade bonds -- yield five percentage points more, on average, than Treasurys. Historically the spread is about one point.
Municipal bonds, which state and local governments use to pay for building bridges and libraries, yield nearly one percentage point more than Treasurys. Typically, given the rarity of municipal defaults and the tax-exempt status of their bonds, they yield slightly less than Treasurys.
These safer credit risks don't offer enormous returns, but if the stock market is flat, or worse, in 2009, then they could look much more appetizing. And despite a recent swoon, stocks could still be in store for a big disappointment if the economy fails to rebound sharply in the second half of the year, as many in the stock market still hope. Bonds, on the other hand, may already be priced for big disappointment.

No Certainty for Stocks

"We're really not even close to a point yet where we could state with confidence that equities will significantly outperform corporate bonds over the next six months," says John Lonski, managing director and economist at credit-rating agency Moody's.
But there are risks to wading into debt. If the economy roars back much more quickly than economists expect, bonds would still rally, but stocks might surge even more.
On the other hand, an economy that stays sluggish for a long time could spawn a growing wave of corporate bankruptcies that burn debt holders. What keeps policy makers awake at night is a worry that stimulus measures won't break the vicious cycle gripping the economy right now, in which tight credit hurts the economy, which hurts borrowers' ability to repay their debt and leads to still-tighter credit.
Even assuming some benefit from stimulus, Moody's expects high-yield-debt default rates to surge to 15% by the end of 2009, from just 4% at the end of 2008. That would be a record high for defaults in the modern era of junk bonds, which began in the 1980s.
Investment-grade default rates have been much lower, but will likely rise, as well. An economy that fails to respond to stimulus could push defaults still higher.
Meanwhile, some $758 billion in corporate debt is coming due in 2009, according to Standard & Poor's, meaning companies will have to either pay what they owe or refinance. Most of these debts were incurred five or 10 years ago, when rates were much lower, so refinancing will mean significantly higher borrowing costs for most companies. Less-creditworthy companies may not be able to get new financing at all. This increases the risk that companies won't be able to pay their debts.
In other words, very high yields on corporate bonds may be perfectly appropriate, given the risk that they could turn to dust in your hands. "It is still a very treacherous economic climate, and one has to proceed with caution" when buying debt, says Mr. Lonski.
Write to Mark Gongloff at mark.gongloff@wsj.com

http://online.wsj.com/article/SB123224182986193619.html

Success is 'something we attract'

Tue, Jan 20, 2009

AsiaOne

Success is 'something we attract'
By Lorna Tan

Founder of personal development firm Mind Edge and performance coach Alan Yip, 45, loves to trade in shares and invest in properties. But that is how he lost his hard-earned savings during the Asian financial crisis, so he is more careful now.
A Hong Kong citizen who is a Singapore permanent resident, Mr Yip became interested in property investing when he was working in Indianapolis in the United States as a computer programmer in a utilities firm.
'I was able to buy properties without any down payment so I became a property investor. At one time, I had eight landed investment properties in Indianapolis, Greenwood and Bloomington. I only had to make sure that the rental income from these properties covered the mortgage payments and maintenance,' he recalled.
In the US, it is possible to buy resale properties without a down payment as certain financial bodies allow mortgages to be transferred from seller to buyer without the need for bank approval.
The eight properties yielded a combined monthly rental income of US$2,000 to US$2,500. When he sold them a year after he was posted to Singapore by a chemical technology firm to set up its Asia-Pacific operations in 1996, he pocketed a profit of US$80,000.
This buoyed his confidence in properties, and fuelled other purchases when his siblings in Hong Kong roped him in when they bought three retail shops and a condominium in 1996.
'I was reckless in managing my money then. I didn't even ask for the details of these property investments and simply wired them the money, which amounted to about $150,000,' he said.
When the Hong Kong property market headed south during the Asian financial crisis a year later, they were forced to sell the properties at a loss and Mr Yip never got his money back.
In the same period, he lost another $100,000 from his Singapore, Malaysian and Hong Kong stocks.
In 2003, Mr Yip started Mind Edge with borrowed funds of $50,000. The company, which reaches out to students, parents and corporate entities, now generates an annual revenue of more than $1 million. This year, the firm with 17 staff plans to expand to Malaysia, Indonesia and Thailand.
Mr Yip is married to housewife Karen Leong, 31, and they have a daughter, Tiffany, four. His first book FUNtastic Parenting, on parenting, will be launched next month.
Q: What are your money habits?
I'm definitely a saver. I have separate bank accounts for different purposes. Every month, I put 10 per cent each in savings and stock investing. Another 10 per cent goes into an account meant for vacation and fun and 5 per cent is for my personal development such as the purchase of books and videotapes and attending seminars. I'm totally obsessed with improving myself. The rest of my income is for household expenditure, allowances for parents and wife, and insurance.
Q: What financial planning have you done for yourself?
I have primarily invested in Singapore stocks, properties and my business. I've been trading stocks since I arrived here in 1996.
I used to be crazy over share trading, doing my own analysis with information from books, newspapers, annual reports and journals.
Now I don't follow the market every day. I accumulate and hold. Currently, 70 per cent of my stock portfolio is in blue chips like Singapore Exchange, Keppel Corp, Wilmar, ST Engineering and Dairy Farm, and 30 per cent in small caps like Man Wah and Cacola.
On average, I achieved respectable returns of more than 20 per cent per annum.
Q: What about insurance planning?
I have a whole life policy with HK$1.8 million (S$345,000) in coverage and two term life plans, one of which includes critical illness cover. The total coverage for the term life plans amounts to nearly $850,000. I pay about $13,000 in annual premiums.
Q: What's your investment philosophy?
Value investing, which is the investing style of gurus such as Mr Benjamin Graham and Mr Warren Buffett. That means buying at good value and holding for the long term for appreciation and dividend yields.
Q: Any other investments?
I invest in properties as I want to build up a portfolio for passive income. In 1992, I bought a 0.4ha piece of land in Bloomington, the United States, for US$75,000 and built a 2,200 sq ft home where I lived when I was in the US.
It is now generating a rental yield of 10 per cent a year and the house is worth about US$100,000 (S$149,000).
I have three investment properties in Singapore. In June 2006, I bought a 614 sq ft condo in Kallang for $447,000 and in January 2007, I bought a 969 sq ft, two-bedroom condo in Siglap for $739,000. I also own a 1,350 sq ft home office condo in Buona Vista which I bought in March 2007 for $1.08 million. The first two properties will be ready for occupancy by this year while the third will be completed by next year.
I still own an ice-cream parlour business in Bloomington which I set up with my savings of US$70,000.
I also have a collection of 15 oil paintings by Vietnamese, Thai, Australian and Chinese painters.
Q: Moneywise, what were your growing-up years like?
We were a family of seven living in a small 200 sq ft government flat in Hong Kong. I was the fourth child. My father owned a small furniture business. But he was not a good businessman - he was Mr Nice Guy to his employees, who took advantage of his leniency. I spent a lot of time observing how he dealt with his customers and employees and that is why I decided to be an entrepreneur.
My mum was my first mentor. A worker at a toy factory, she instilled in me the values of dignity and perseverance. She never complained that we were poor and we never borrowed any money although we didn't have enough food at times.
To earn extra money, my siblings and I would paint plastic toys like dinosaurs and skeletons at home, earning 50 Hong Kong cents for a pack of toys. We learnt the value of working hard and saving the money.
Q: Your best investment to date?
There are two. First, my investment in Mind Edge. I set it up in 2003 with borrowed funds from balance transfers. I had to make cold calls for the first four months and when I had no business then, it was really worrisome especially as Karen was pregnant with Tiffany then.
But I persevered, and Mind Edge has since grown to be a viable player in the field of memory training, optimal learning and peak performance technologies, with annual revenues exceeding $1 million.
Second, it's investing in myself. With continual personal development and enrichment, I have become one of the few trainers here who can charge more than $1,000 per hour. My market rate is $1,500 to $2,000 per hour.
Q: What personal development tips do you have?
I'm where I am today because I made the choice and the commitment to be the best I can be. I urge all to do the same, especially now during the downturn.
Be relentless in upgrading your own skills. Success is not something we pursue...It's something we attract by becoming an attractive person and by being positive. Be mentally tough, optimistic and hungry for knowledge.
Q: And your home now is...?
A 2,200 sq ft, four-bedroom penthouse in Kembangan which I bought in October 2007 for $1.02 million.
Q: And your car is...?
A silver Subaru Forrester Turbo.

This article was first published in The Straits Times on January 18, 2009.

http://business.asiaone.com/Business/My%2BMoney/Building%2BYour%2BNest%2BEgg/Investments%2BAnd%2BSavings/Story/A1Story20090119-115748.html

ASIAONE / BUSINESS / MY MONEY / BUILDING YOUR NEST EGG / INVESTMENTS AND SAVINGS /

Decoupling dies as half the globe hits crunch

Decoupling dies as half the globe hits crunch

By Ambrose Evans-Pritchard, International Business EditorLast Updated: 12:33AM GMT 12 Dec 2007

Economists are sceptical that cities such as Shanghai will be enough to offset a US slowdown
The rising economies of Asia are too small and deformed to rescue world growth as America, Britain, Australia, and Club Med face their day of debt reckoning. China may make matters worse, not better.

Read more of Ambrose Evans-Pritchard on the global economy

The seven pillars of global demand over the last year - measured by current account deficits - have been the United States ($793bn) (£388bn), Spain ($126bn), Britain ($87bn), Australian ($50bn) Italy ($48bn), Greece ($42bn), and Turkey ($34bn). Most are facing a housing bust. All are in trouble.

China cannot possibly step into the breach. Jahangir Aziz and Xiangming Li argue in a new IMF paper that China's economy is now so geared to the US and EU markets that a 1pc fall in external demand will lead to a 4.5pc slide in exports and 0.75pc fall in GDP.

Assumptions that it will weather a global shock are "likely to be wrong, perhaps dramatically."
China is indeed gobbling up iron ore, soybeans, and crude oil, but it still makes up less than 4pc of global consumption and is no longer adding to total demand. Imports have been more or less flat since April.

China is boosting GDP at the world's expense, by snatching markets with a cheap yuan. It is beggar-thy-neighbour growth.

Note that Goldman Sachs, Morgan Stanley, and Lehman Brothers, have all begun to tear up the "decoupling" manual. - the pre-crunch script assuring us that the world could get along fine as the US buckled.

"What began as a U.S.-specific shock is morphing into a global shock," said Peter Berezin, a Goldman Sachs strategist.

"There is a clear risk that some of the hot housing markets in Europe and some emerging markets will cool dramatically," he said. The bank has begun "shorting" the Chilean peso. Is the metals boom over?

In Europe, not a single junk bond has been issued since August. Spreads on Euribor - the rate used to price mortgages in Spain, France, Italy, and Ireland - reached 93 basis points last week, a new record. This is tantamount to four rate rises for homeowners.

Thomas Mayer, Europe economist for Deutsche Bank, said the European Central Bank must cut rates immediately, regardless of the lingering inflation threat.

"This could go beyond just a normal recession. It could turn into a real economy-wide crunch that we cannot stop," he said

Four months after the global credit system suffered its August heart attack, nothing has been resolved.

The US market for Asset Backed Commercial Paper (ABCP) shed another $23bn last week. The outstanding volume has fallen for 17 weeks in a row as lenders refuse to roll over loans, cutting off $393bn in funding since August.

For now, consensus has settled on the view that subprime losses will total $500bn, and crimp lending by $2 trillion as bank multiples kick into reverse.

This assumes there are no more shoes to drop. Yet shoes are dangling precariously across the global credit system. We may soon have to add the terms HELOCs and 'monoline insurers' to our crunch lexicon.

HELOCs are home equity loans, the money extracted from houses to pay bills and keep shopping. Many borrowers pushed their debt to 110pc of house values at the top of the bubble.
Moody's says 16.5pc of these loans are in arrears beyond 60 days. The HELOC market is roughly $600bn, so add another $100bn to the funeral pyre. These niches add up.

Monoliners are specialist insurers who earn fees by lending their AAA ratings to US states, counties, and cities for bond issues - the safest corner of the credit industry.

The nasty twist is that most have ventured into mortgage debt to spice returns. They now face enough losses to threaten their AAA standing.

A downgrade means that every bond bearing their guarantee must be downgraded pari passu. Pension funds and institutions will be forced to liquidate sub-AAA holdings. A fresh cascade of distress sales will ravage the $2,400bn 'muni' market.

The unthinkable now looms. Moody's said it was "somewhat likely" that top insurer MBIA would fall below the AAA capital requirement: Fitch warns of a "high probability" that CIFG Guaranty and Financial Guaranty will be placed on negative watch.

Both agencies are poised to issue verdicts. The insurers will then have a month to raise capital, no easy task after a 70pc crash in share prices.

US Treasury Secretary Hank Paulson confronts the very real danger of a credit implosion spiralling into a full-blown depression. Given the risks, he can be forgiven for pushing through a rescue plan last week that amounts to a flagrant abuse of contract law and capitalist principles.
His subprime rate freeze is undoubtedly a stinker. The reckless are bailed-out. Those who scrimped to amass a little equity get stiffed. Moral hazard runs amok. But bankruptcy settlements are always ugly. This differs only in scale.

Mr Paulson's New Deal may at least reduce systemic risk. Frozen rates concentrate losses in the lower tiers of mortgage debt, but rescue the upper tiers, which is where the threat lies for the financial system. Would free marketeers rather see the whole edifice of capitalism burned to the ground to make their point?

The root cause of this staggering debacle lies in errors made long ago by the Federal Reserve and fellow sinners. It was they who inflated the credit bubble by holding interest rates too low for too long. It was they who lulled their nations into suicidal levels of debt.

The strategic failure of a whole generation of economists, bankers, and policy-makers has been so enormous that it may now take a strong draught of socialism to save the Western democracies. We start - but may not end - with the nationalization of Northern Rock.



http://www.telegraph.co.uk/finance/markets/2820887/Decoupling-dies-as-half-the-globe-hits-crunch.html

Asia needs to fully wake up to the scale of the West's economic crisis

Asia needs to fully wake up to the scale of the West's economic crisis
Asia is not going to rescue the world economy.

By Ambrose Evans-Pritchard Last Updated: 10:06AM GMT 04 Jan 2009
Comments 28 Comment on this article

The news from Japan, China, and the Pacific tigers has moved from awful to calamitous since the global industrial system snapped in October.
A raw reality is being laid bare. The mercantilist export model of the East is proving dangerously geared to the debt-driven excesses of the West. As we go down, they go down too. Some are going down even harder.
Japan's industrial output contracted by 16.2pc in November, year-on-year. "For an economy which lives from the prowess of its industrial exports, this is simply earthquake," said Edward Hugh from Japan Economy Watch.
Japanese exports fell 26.7pc. Real wages fell by 3.1pc, the seventh monthly fall. Taken together, the figures are worse than anything during Japan's "Lost Decade". They have a ring of 1931.
The fall-out in Japan has already shattered the authority of premier Taro Aso. His approval rating has dropped to 21pc. The cabinet is in revolt. The world's second biggest economy no longer has a functioning government.
Credit Suisse warns that Japan could slide into deflation of minus 2pc by the autumn. Since interest rates are already near zero, which means that real rates will rise as the slump deepens – the surest path to a liquidity trap.
Kyohei Morita from Barclays Capital estimates that Japan's GDP shrank at an annual rate of 12.2pc in the fourth quarter. "It's shocking," he says. Singapore has already reported. Fourth-quarter GDP contracted at an 12.5pc annual rate.
Taiwan's exports fell 28pc in November. Shipments to China dropped 45pc. Korea's exports dropped 18pc in November and 17pc in December.
"We are looking right in the face of an unprecedented regional depression," said Frank Veneroso, the investment guru.
"If there is one part of the global disaster that is not reflected in today's massacred markets it is this Asian debacle. The source of the collapse appears to be above all a contraction in China."
One has to careful with Chinese figures. When I covered Latin America in the 1980s, veteran analysts watched electricity use to gauge economic growth since they could not trust official data. It is striking that China's power output fell 7pc in November.
Asia has clearly failed to use the fat years to break its dependency on the West. It has stuck doggedly to its export strategy – by holding down currencies, or by subtle policy bias against consumption.
In China's case it has let the wage share of GDP drop from 52pc to 40pc since 1999, according to the World Bank.
The defenders of this dead-end strategy are now coming up with astonishing proposals to put off the day of reckoning. Akio Mikuni, head of Japan's credit agency Mikuni, has called for a "Marshall Plan" to bail out America by cancelling $980bn of US Treasury bonds held by the Japanese state.
This debt jubilee does have the merit of creative thinking, but it is entirely designed to keep the old game going. "US households won't have access to credit they have enjoyed in the past. Their demand for all products, including imports, will suffer unless something is done," he said.
Let me be clear. I make no moral judgment on the "neo-Confucian" model, nor – heaven forbid – do I defend the debt depravity of the West.
A stale debate simmers over whether the Great Bubble was caused by Anglo-Saxon and Club Med hedonism, or by an Asian "Savings Glut" spilling into global bond markets and fuelling asset booms, as Washington claims. It was obviously a mix.
Two cultural systems interacted through globalisation, locking each other into a funeral dance.
The point is that this experiment has now blown up. Whether or not we slam straight into a global depression depends on how we – East, West, all of us – handle this.
The top sources of net global demand as measured by current account deficits over the last 12 months have been the US ($697bn), Spain ($166bn), Italy ($71bn), France ($57bn) Australia ($57bn), Greece (53bn), Turkey ($47bn), and Britain ($46bn).
Most are tightening their belts drastically, and in the case of Britain the shift has been so swift that the arch-sinner may soon be in surplus. If they are draining world demand, then world demand is going to collapse unless others step into the breach.
The surplus states – China ($378bn), Germany ($266bn) Japan ($176bn) – have not yet done so, which is why the global economy went off a cliff in October, November, and December. Beijing is planning a $600bn fiscal blitz.
But how much of it is an unfunded wish-list sent to local party bosses? It will not kick in until the middle of the year, an eternity away.
For now, China is dabbling with protectionism to gain time – a risky move for the top surplus country. It has let the yuan fall to the bottom of its band. Vietnam has devalued. Thailand and Taiwan are buying dollars.
Watching uneasily, the Asian Development Bank has warned against moves to "depreciate domestic currencies".
Anger is mounting in the West. Alstom chief Philippe Mellier has called for a boycott of Chinese trains.
"The Chinese market is gradually shutting down to let the Chinese companies prosper. There's no reciprocity any more," he told the Financial Times. Optimists say the collapse in oil prices will give Asia a shot in the arm. Governments are still flush, with ample scope for fiscal rescues. Asia's central banks are sitting on $4.1 trillion of reserves.
They have the means, perhaps, but do they have the will to act in time? Or do Beijing, Tokyo, Taipei, Kuala Lumpur, – and indeed Berlin – still cling to their assumption that others will spend for them?

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4093676/Asia-needs-to-fully-wake-up-to-the-scale-of-the-Wests-economic-crisis.html


Also read:
Decoupling dies as half the globe hits crunch
http://www.telegraph.co.uk/finance/markets/2820887/Decoupling-dies-as-half-the-globe-hits-crunch.html