Longing for the Love Generation

Me! Me! I want to be loved  (~*:

RMI: Equity Investing in Good and Bad times

The academic who gave the talk didnt explain clearly what excactly are equities except just cursorily saying there are on the opposite side of the asset statement in a balance sheet namely Preference shares or Common stock. What constitutes good times or bad times were also poorly explained, the only investment product that was explained in detail while comparing the returns and volatility over 2006 to 2008 on charts were REITS. It was interesting how different REITS in various countries performed in good and bad times.South Korea being the only country in the black for this past 1 year. Another learning point :  the REIT or any other investments’ beta or volatility is an indicator of how much the prices follow the market. REITS avoid double taxation on corporate income and pass most of the profits directly to investor.

Either this person is too cautious in not wanting to incur additional legal risk, although disclaimers were mentioned repeatedly at the start of the lecture, or he is really plain dumb and uncritical. PHD from Indianna University?

When asked how REITS might ‘cook the books’ (Since NAV = Shareholdings transparent – libablities opaque), the qns was dismissed that Singapore REITS are fine and only HongKong ones commit fraud. Does he trust the singapore regulators? The HK examples he mentioned wasnt even explained. This is a known  unknown risk which investors should know how creative accounting is done so it can be spotted early on.

Unlike the previous two professors from last 2 weeks’ seminars,they did try to explain their case-studies using fictious examples like reliable corp or super reliable corp without getting too much into technical jagon or legal tangle. It was hummourous and many lay people could understand. The high-notes products were even mentioned and explained in black&white figures.

This Dr in Finance is totally crap period. I feel for the students in Sch of Business  to have such a lousy lecturer. You can find his name in the seminar schedules on RMI’s website.

Other investment products mentioned were:

1. ETF for Retail investors to buy and sell over exchange
   for institutional investors to trade through creation and redemption process
   Check volume and liquidity before investing
2. Mutual Fund are open ended with daily NAV (most of unit trust in sg)
3. Unit Trust have Fixed termination date which may be dynamic to check prospectus
   They are not actively managed.

RMI: Structured Financial Products: Are they right for you?

Wow CDS ,  CLN,  CDO all very smart products designed by really smart people (I’m not trying to be sarcastic here). I’m amazed you can buy insurance on defaults as well as deaths, Example say in the construction industry, I’m a contractor who has gotten a project from a developer who is rated Aaa. The developer pays me a monthly portion of the total contract sum over a period of 5 years. Cashflow is important to me as I have manage my worker’s payroll, if the developer bankrupts and defaults,I lose my staff and consequently go bankrupt as well. So I go the banker and take out a CDS. The banker agrees to be the counterparty with the Aaa developer as the reference entity. The bank charges a premium of 350 bps over the risk-free rate. However the banker is smart, he knows that even though the developer is rated Aaa, the construction industry is a cut-troat business and it might bankrupt the bank, cuz he loans out money to the developer as well. So the smart banker becomes a CLN issuer and sells ‘minibombs’ to the unsuspecting architect is only good at intellecual talk, as does know how to calculate risks in terms of figures. Being a retail investor, the architects put up a sum money to the bank to buy the ‘minibombs’ which infact is collateral incase the developer dies. The smart banker invests the collateral in sub-prime mortgages in the construction industry for high returns of 1000 bps returning only 500 bps to the stupid architect. Without actually informing the architect of the risk, because in the contract the banker included a smart clause :- “The CLN will not be able to determine the composition of the underlying securities as at the date of this pricing contract”. So in fact the risk of the unknown unknown is not factored into the CLN but the architect only knows the banker is Aaa rated as well. So once the construction industry collapses due to sub-prime, the architect is first to die, then the developer, then the bank who loaned to the developer. Only me the contractor underdog at the bottom of the construction food chain laughs all the way to the bank to collect my CDS insurance payout. Ok very complicated example, the moral of the story at the end of the day is

Know the known risks.
Understand the known unknowns factors
and minimise the unknown unknowns

And dont be a stupid architect, esp an intellectual one

Confused? Ha only if you are not smarter than the bankers.

The underlying securities are invested in CDOs of CDS in effect mulitying the toxicity like a nuclear reaction. ie risk buying into more risk to generate returns.

CDS: Credit default swaps
CLN: Credit Linked Notes
CDO: Credit Debt Obligations

The Grasshopper and the Ant

I loved Walt Disney cartoons when I was young, each were inspirational with moral fibre. Nowadays, clearly cartoons are all about fighting and violence, think Pokemon. This particular one I remember very clearly , perhaps why I thought ants are fascinating creatures. Parallel to the sub-prime crisis , the grasshopper is an excellent personification of America as well : “The world owes me a living”. Now that we are approaching financial winter, hardwork is key to survival.

Weakening SGD,but USD will weaken more

Never believe a talking head esp a US banker,unless you want to learn a painful lesson. I’m waiting for USDSGD to hit 1.55-1.6 before I convert all my USD denominated equities into SGD. US is printing deadman’s money, it is going to be more worthless than toilet paper looking at the huge amount of trade deficit it has with it’s major trading partners and the economic downturn ahead.

http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_301554.html?vgnmr=1

“THE Singapore dollar is set to weaken sharply to $1.80 against the greenback within the next year, leading United States investment bank Morgan Stanley has predicted.

On Wednesday night, the exchange rate was about S$1.50 to the US dollar.

Morgan Stanley believes Singapore, like many export-oriented nations, will experience a more than expected weakness in its currency ahead.

However the Government is likely to endorse this currency weakness in order to support exports amid the global downturn. A weaker Singdollar generally makes exports relatively cheaper.

Mr Stephen Jen, the US bank’s global head of currency research, made the prediction here on Wednesday at the Morgan Stanley Asia Pacific Summit.”

RMI: Are Bonds really as safe as they are believed to be?

Having attended the lecture , I realised my knowledge of bonds were really way off. Bonds are risky due to fluctuations in interest rate (callable bonds) and volatility in exchange rate (foreign currency denominated bonds), people buy bonds not to reduce risk, although they are less risky than equities,but for the purpose of matching maturity for cash outflow planning. As bonds are required legally to give regular coupon payments over their lifespan. Several important information to take note when buying bonds, besides the returns.

• Who is issuing the bond , country or company
• What currency is the bond denominated against
• What is the duration of the bond

Mainly 3 types Risk when buying bonds

1. Maturity risk – interest rate can change over the timespan of the bond, which affects your opportunity cost
2. Currency conversion risk – high coupon rate might be negated by exchange rate loss
3. Credit Default risk – issuer might go bankrupt or stop paying bond ( country issued bonds might not have zero default risk, gov may default on their own currency denominated debts, ie Russian government defaulted on GKO-OFZ during 1998 ruble crisis.

Prof Duan hinted that US treasury bond might have currency conversion risk , which is in line with the advice Jim Rogers is giving to short US bonds. US is printing money to service it’s debt obligations, causing hyper-inflation.

Credit Default risk usually measured by rating S&P,moody’s
No way to measure recovery rate , only known at auctions.

Thank God I’m here in NUS during this recessionary period to attend such useful and free lectures on finance.

Financial Managment Lecture series

Mark your calendars!

RMI Public Lecture Series on Enhancing Financial Risk Management Knowledge Do you wish you had a better understanding of financial risk? High Notes, Minibonds, MBS, CDO? Here is an opportunity for you to get the knowledge you want. The Risk Management Institute at the National University of Singapore is offering a public lecture series in English and Mandarin to educate Singaporeans on financial risk management and investing.

The lecture series is free and open to all – from JC students to working people to retirees.

Venue:
Auditorium, University Hall, Level 2
Lee Kong Chian Wing, Lower Kent Ridge Road   NUS Main Campus
Time:
The lectures will be started from 7:00 to 8:00 p.m. with ½ hours of Q&A later.
Refreshments will be provided starting at 6:30 p.m.

Details @ http://www.rmi.nus.edu.sg/events/public%20lectures/index.html

The mathematics of art

Mathematics has transformed the art of origami and soon it shall transform architecture too. Design is no longer a problem of aesthetics but a function of science as well. Especially so when one is talking about sustainable design. Everything an architect puts down on paper has to be objectively quantified and mathematics offers a solution to the equation of measuring greenness. Computers and technology multiplies the efficiency and effectiveness of this process many-fold.

Red-nano caught Red-handed

I’m be really stupid to believe this mistake? haha what do you think is the value of $50 and $100 in 6 nov 1958 when a bowl of noodles just cost only 5cents.Assuming if I’ve $100 back then,why would I want to enroll in local chinese communist schools knowing that I have the deep pockets to go cambridge and graduate as a top-class propagandist with honours in fabricating history . Red-nano is a product of Singapore Press Holdings.