Category Archives: Investing

Affluence Intelligence

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Money, Happiness, and Sustainability

 

By Stephen Goldbart , Ph.D.
Created Dec 29 2011 – 3:12am

2012: The great wheel of time is making its inexorable turn, granting us a new beginning and an opportunity to step back, review, and renew.  You can use this moment of transition to start the new year with a fresh attitude and a doable plan about the spending, saving, and sharing of your money—to live your priorities with greater satisfaction and happiness.  Perhaps you are among the many who have suffered from the financial anxiety epidemic—you want to shed your fears, and regain a sense of being in charge of your financial destiny.

But how to get there?  What will make this year different from all the rest?  Yes, you have started many a new year with good intentions, maybe tried a new tack, and then found yourself once again, adrift on the seas of old patterns and habits. How can you get on a positive financial track when we see (and feel the effect of) world economies struggling to accomplish this goal? How can you live a happy and satisfying life making decisions that result in financial sustainability?

We know you can,  And the fact that there is change in the air, and butterflies in your gut, will help motivate you to step outside of old habits and patterns, increase your Affluence Intelligence, and take actions that will give you a life that is aligned with your values, that is fun, and that is sustainable.

Let’s start with an attitude adjustment.  Too many of us make financial decisions based on impulse (“I must have it now”); finding comfort in old ideas and habits; and well worn, obsolete facts.  It is time to wake up to the fact that the economics of today is not the economics of your past, or the economics of your fantasy life.   You can blame it on the internet, globalization, population growth, rising 3rd world economies, expensive wars, too much or too little government, or the Great Recession.  It is all of the above, and more.  Truth be told:   Your psychological and economic operating system is going through a major firmware revision. You need to upgrade your program or find that your software won’t run very well or may not run at all.

So we need to think about our money and our lives with a broader perspective, with a mindset/operating system that can handle the dynamics of economic and systemic change in our lives and in the larger community.  Certainly, we can no longer expect or rely upon any single institution, whether it is a corporate employer, or the government, to be a reliable contributor toward your financial sustainability.  But how do we make decisions that will result in the ongoing sustenance of our personal and financial resources?  Instead of asking the economists, who don’t seem to have any great answers these days, let’s consider some key ideas from Environmental Science.  All living systems are characterized by either regenerative (growing, building, spiraling upward) or degenerative (reducing, depleting, spiraling downward) processes.  Regeneration creates and harnesses energy, degeneration depletes and wastes energy.  In our financial lives, we make financial decisions that are regenerative, such as starting a business that grows and thrives, or saving money to attain long term objectives—purchase of a home, or retirement.  And we make decisions that are degenerative, such as living outside of our actual means, accruing a massive creating credit card debt, or buying gifts that we can’t afford.  Degenerative processes can get progressively worse, in which (for example) your debt becomes the primary driving force of your financial destiny.

In fact each of us has a unique balance of both degenerative and regenerative financial processes.  Few of us will only make only regenerative financial decisions; we live in a culture that continually pushes us to ‘have fun and pay later’; to enjoy immediate gratification and not think of its price.  But if we want money and happiness, if we want sustainability and financial resilience, then we need to make sure that our regenerative actions trump our degenerative actions.

Therefore, sustainability in and of itself is a moving target.  What you really want to aim for is what we call Regenerative Economics, in which you make money and lifestyle decisions that support you, your family, and your community’s capacity to grow and regenerate.  Each of us needs to craft a plan, a personal lifestyle design that is attuned to your unique personal and financial ecology that will guide your financial decision-making so you can reach your unique balance point.  Simply put:  there can be no sustainability without regenerativity!

So it is time to turn up the thermostat on your Affluence Intelligence: Take the test, determine your Affluence Intelligence Quotient, and make a plan to leverage or improve your AIQ.

Here are some tips to inform your new year’s intentions and actions, based on our many years of working with people who have attain both personal and financial success:

1.  Have your values drive your money not your money drive your values.  Money is a tool to live your values, to help provide for your sustenance, care, and satisfactions.  This is the single most important lesion we have learned from our successful clients.  Know that your self worth is not equal to your financial worth.   Don’t let money become your primary value.  It is not a substitute for self esteem, love, connection, real productivity, or personal integrity.

2.  Use a Regenerative Economics mindset:  Review your spending and saving decisions.  Are these decisions regenerative or degenerative?   What do you need to do to shift the balance?

3. Practice conscious consumption:  Ask yourself:  is this purchase a need or a want?

4. If you need to earn or save more money, keep in mind: Spending less is earning more.

5. Nourish your physical and emotional health.  Don’t defy common sense:  if a financially related activity is making you sick, stop doing it….now!  Your health, your time is precious, and not for sale.

6. Take Action:  Create a three month plan for yourself, with doable action steps that you will implement tomorrow.   In our book we describe a step by step method for creating such a plan.

  • No excuses. Walk your talk, implement your plan.

7.  Get support.  Find a person (not your spouse) who is willing to be your Affluence Intelligence Buddy, a source of support and accountability.

8. Buy Local: Purchasing from local business enterprises put money back into your neighbor’s pockets, an activity that is regenerative for you and the community in which you live.

9.  For each discretionary dollar of spending,  put a predetermined percentage of that amount into saving and or charity.

10. Give to a charity or cause that matters to you.  Giving, whether it is in the form of money or your time, will make you feel rich, and is regenerative. We have been amazed by the powerful sense of fulfillment and satisfaction that many of our successful clients experience through their generosity in giving both their money and their time.  Whatever you can afford, no matter how little time you have to give, it will make a difference-for you and for the receiver of your gift.

http://www.psychologytoday.com/blog/affluence-intelligence/201112/money-happiness-and-sustainability

The Carrian Group

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The Carrian Group was a Hong Kong conglomerate founded by George Tan, a Singaporean Civil Engineer working in Hong Kong as a project manager for a land development company. The Group’s principal holding company Carrian Holdings, Ltd. was founded in 1977.

In January 1980, the group, through a 75% owned subsidiary, purchased Gammon House (a commercial Office building, now Bank of America Tower) in Central District, Hong Kong for $998 million. It grabbed the limelight in April 1980 when it announced the sale of Gammon House for a staggering HK$1.68 billion, a price that surprised Hong Kong’s Property and Financial markets and developed public interest in Carrian.

In the same year, Carrian capitalized on its notoriety by acquiring a publicly listed Hong Kong company, renaming it Carrian Investments Ltd., and using it as a vehicle to raise funds from the financial markets.

The group grew rapidly in the early 1980s to include properties in Malaysia, Thailand, Singapore, Philippines, Japan, and the United States. At its peak, the Carrian Group owned businesses in Real Estate, Finance, Shipping, Insurance (China Insurance Underwriters Ltd), Hotels, Catering and Transportation (A Taxi fleet that was the largest ever in Hong Kong).

Carrian Group became involved in a scandal with Bank Bumiputra Malaysia Berhad of Malaysia and Hong Kong-based Bumiputra Malaysia Finance. Following allegations of accounting fraud, a murder of a bank auditor, and the suicide of the firm’s adviser, the Carrian Group collapsed in 1983, the largest bankruptcy in Hong Kong.

Buying Insurance

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This is a post by d.o.g. from the ValueBuddies forum.

WARNING: LONG POST

There are a few basic types of insurance available to the consumer:

  • Life Insurance
  • Hospitalization & Surgical (H&S) Insurance
  • Disability Income
  • Critical Illness

    • 1. Life insurance

    This pays upon death or total permanent disability (TPD). It can be for a limited term i.e. 5, 10, 20 years etc, or it can be for the insured’s lifetime (whole life).

    Term insurance is very cheap because it only covers the actual risk of death/TPD. Since it is pure insurance, all the premium paid is an expense and cannot be recovered. It is very useful for paying off liabilities that have a reasonably clear expiry date e.g. children graduate from university (age 25), aged parents pass away (age 100) etc.

    Another reason term insurance is so cheap is because it’s a commodity – you are either dead or not dead (produce death certificate) and you are either TPD or not TPD (produce doctor’s certificate). So the insurers cannot try to mislead you with smoke and mirrors or fancy names. Delaying payout will just hurt their own reputation and future business. So they are forced to compete on price, which is a great benefit to consumers.

    Term policies are usually structured so that the payments are level during the life of the policy. However, since the age of the insured will affect the odds of death/TPD, the premiums will be calculated based on the aging of the insured during the policy. A term policy of any given duration will be more expensive for an older person than a younger one.

    Whole life insurance essentially splits the premium paid into 2 portions: a small part actually pays for term life insurance (and is not recovered), while the bulk of the money is invested on your behalf by the insurer. Over time, the invested money grows, while the actual insurance coverage declines. The sum of the invested money and the remaining insurance coverage forms the “sum assured”. This is not seen by the consumer – the internal offset is calculated by the insurer and only the sum assured is shown to the consumer. By the time the consumer is old e.g. age 65 there is actually little or no insurance coverage left, only the investment sum.

    Endowment plans are dressed-up whole life plans where even less of the money pays for insurance. They are basically an investment product masquerading as insurance. Education plans are just endowment plans with a nice name.

    Insurance-linked products (ILPs) are even more blatant investment products where as little as 1% of the money is actually used to buy insurance initially so the insurance cover is laughable, usually only 125% of the invested sum. Since your investment sum is already 100% of this amount you are only buying an additional 25% of insurance cover. More insidiously, as you get older the sum deducted for life insurance (mortality charges) goes up, so less and less of your money is invested. When you are very old the mortality charges increase exponentially and exceed your investment returns, so the total value of your investment will decline rapidly.

    I have discussed term, whole life, endowment and ILP policies together because they offer varying combinations of insurance and investment. Unless you are totally incompetent at investing AND cannot find the discipline to invest in a low-cost index fund, the most sensible ratio is 100% insurance and zero investment i.e. completely separate insurance and investment.

    2. Hospitalization & Surgical (H&S) Insurance

    This pays hospital bills. Qualifying expenses are paid up to the limit specified in the policy. There is usually both an annual limit and a lifetime limit. Beyond these the consumer must pay, first out of Medisave and then out of pocket.

    There are Shield-type plans offered by the local insurers that serve this function. The premiums can be paid out of Medisave. The limitations are that they all set a minimum bill size (excess) before the policy kicks in, and the qualifying amount is only partially reimbursed, usually 85%. So for small bills the consumer pays everything out of Medisave and his/her own pocket. Some insurers offer a rider, payable only by cash, that can pay the 15% co-payment, or cover the excess. Talk to an insurance broker if you are not clear.

    There are also other non-Shield plans that do not require an excess and can pay 100% of the bill, but the premiums must be paid by cash.

    H&S premiums go up as you get older to reflect the increased likelihood of hospitalization as well as the increased bill size. The Shield-type plans have lifetime coverage versions available. IMHO everyone should buy the most coverage they can afford, because (a) it’s paid from Medisave which cannot otherwise be used, and (b) coverage can be reduced in future if premiums go up, but is almost impossible to increase if illnesses strike.

    3. Disability Income

    This pays when you are unable to work for any reason, or when you are disabled and can only earn a fraction of your former wages. The policy kicks in after a set period, usually 60 days, and pays a percentage, often 75%, of the difference between your new wage and your old one. It will pay until you are 65. So if you earn $3,000 at age 30 and are suddenly struck down and become a quadriplegic, after 60 days the policy will kick in and pay $2,250 per month until you are 65.

    This type of policy is very useful because few people finish their working life without any type of extended absence from work. So if you get into a car accident and are out of work for 6 months, you only lose 2 months of income instead of 6. In the worst case when you become a vegetable, your policy will cover your long-term care until you are 65. It is also of the greatest value at the point when you need it most – at the start of your career when your only asset is your ability to work.

    Policies differ by waiting period, percentage of reimbursement and last payment. Obviously the cheapest policies will have longer waiting periods e.g. 90 days, lower reimbursement e.g. 2/3 and earlier last payments e.g. age 50.

    However, it is not easy to find a good disability income policy. Some of the insurers have revised their policies for the worse. So read the fine print carefully.

    Some insurers offer a “hospital income” policy which pays you a set sum for each day you are in hospital. This is basically an inferior version of disability income, since it only pays when you are in hospital and not when you are at home recovering. The sums are typically about $100 per day which will not cover the hospital bill, and there is no payment when you are recovering at home. Use H&S to cover the hospital bill, and use disability income to replace lost income. A hospital income policy is basically a waste of money.

    4. Critical Illness

    This policy pays upon diagnosis of the onset of any one in a set list of 30 “dread diseases”. The local insurers now use a common pool of definitions for the diseases, so it is no longer possible to shop around for the most lenient insurers. However, different insurers have different diseases in their set of 30 e.g. some may have lupus (for women) while others may not. Note that the required diagnosis can be very specific. If it says “2 or more artery blockages” and you get a heart attack involving 1 blocked artery, tough luck, there will be no payment. Once payment is made the policy expires. Some policies allow multiple claims, but this is obviously a marketing trick – you have already paid for the higher coverage in your premiums.

    Since it is rare to get a dread disease without going to hospital, it is debatable whether critical illness coverage is truly useful. It CAN be useful for miscellaneous expenses like a wheelchair or a maid, but these can often be self-insured from savings. It may be OK to not have critical illness coverage. It is not OK to go without H&S coverage.

    Critical illness policies come in both term, rider and whole life versions. The rider is basically an extra premium on top of an existing policy that gives the critical illness coverage. Again, if you decide to buy a critical illness plan, it is probably best to buy term. That way you get the most coverage for your dollar.

    ===
    IMHO the order of priority for insurance expenses should be:

    1. H&S
    2. Disability income
    3. Term life (if there are liabilties that need to be paid)
    4. Critical illness (optional)

    It may sound obvious, but people who do not have dependents should not buy ANY life insurance since nobody will be financially worse off if they die. Likewise there is no point buying life insurance on the life of a child, because the death of a child does not result in economic loss (emotional loss yes, but money can’t make up for that).

    Also, VERY IMPORTANT: make sure that whatever H&S and critical illness policies you buy are GUARANTEED RENEWABLE, not just renewable. The reason is that H&S policies that are merely renewable (not guaranteed) will obviously not be renewed once you make a claim i.e. your coverage is one-use only. The insurer may also decline to renew your critical illness coverage if you fall ill, even if you don’t make a claim. Such “renewable” plans are MUCH cheaper and the agent may try to sell you one on the basis of affordability. DO NOT TAKE IT. Only buy GUARANTEED RENEWABLE plans.

    Finally, remember that by law all regulated financial products in Singapore, including insurance, must come with a 14-day “free look” period during which you can cancel the purchase and get all your money back. No questions asked, 100% refund. So you can change your mind – but do it quick!

    mrEngineer wrote:Lastly, I believe all the agents I have met have wasted my time by trying to sell me life policies. Where should I go to look for term policies? Should I go to the insurance company directly? Any recommedations from forumers?

    I personally use an insurance broker. An insurance broker represents many different insurers so you can pick and choose the policy that best fits your needs. Because some insurers e.g. Great Eastern and AIA only use exclusive (tied) agents, you won’t be able to buy their policies from an insurance broker. So you may need to talk to 3 people (one broker and 2 tied agents) if you want to get a complete overview.

    If you are short of time then at least talk to the insurance broker. At the least, even if you can’t get the best policies, you will avoid the worst policies.

    Watch your money grow

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    Watch your money grow
    Buying the right timepiece can pay off quickly
    Peter McGarrity
    SCMP Jan 09, 2011

    jaeger_lecoultre

    Buying a new watch is in many ways similar to buying a new car – a premium is paid for the latest models and once you take it out of the dealer’s showroom its value will likely drop by around 30 per cent.

    However, in certain circumstances it is possible to make money from buying watches. At the top end of the market, it is easier simply because you can buy more exquisite pieces, the supply of which is strictly limited by the manufacturer.

    For example, at a recent Sotheby’s auction in Hong Kong a 2009 Patek Philippe diamond and platinum perpetual calendar sold for HK$2.1 million, handing the owner a healthy HK$500,000 profit on the purchase price in under a year.

    Now before you rush out and buy an expensive watch – and try to justify the purchase to your spouse as a wise investment – there are certain factors to consider. In the middle range of the market (HK$40,000 to HK$100,000) it is considerably more difficult to make money from your collection.

    Vanessa Herrera, head of the watch department at Sotheby’s Hong Kong, said: “If you want to buy a watch as an investment in this sector of the market, you should focus on brands that have an established history and are able to tie in their newer pieces to that history, creating a narrative that purchasers can relate to.”

    Certain brands such as Patek Philippe, Rolex and Cartier have been very successful at this, and so it is no surprise that their watches do particularly well at resale. For example, Patek has created an aura of timelessness and nostalgia by implying that their watches are heirlooms to be passed down to the next generation and the current owner is just a temporary custodian.

    Panerai is another brand that uses this technique with great success. The company, which originally made military instruments for the Italian navy, now makes huge diving watches. The advertising features the company’s military connections and the connotations associated with this: precision, robustness, manliness.

    These factors, plus an ever-increasing demand (often from desk-bound businessmen) for larger and more rugged timepieces, have helped add to the desirability factor of the watches.

    As a result, select Panerai titanium models from only five or six years ago are now selling for more than double their original price.

    Herrera’s other suggestion for those buying in the middle range is to buy recently discontinued models of successful brands that have been replaced with updated versions.

    “In the short term, when a new model of a successful brand is launched, people will be looking to buy that model, but during this time the recently discontinued pieces are neglected and so the price drops. I recommend you take the opportunity to pick up one of these watches during this time because when the novelty of the new model has worn off, the price [of the discontinued model] will go up again,” she said.

    If you are interested in investing, Hong Kong is as good a place as any in the world to start. China is the largest market in the world for Swiss watches, accounting for more than 25 per cent of total worldwide sales.

    Hong Kong-based international finance lawyer Neil Campbell has been buying for about 15 years and his collection includes six Rolexes, two Jaeger-Le Coultres, two Cartiers, a Panerai and a Franck Muller. His primary motive for buying watches is pleasure – he enjoys looking at them and above all wearing them.

    However, Campbell, who has never sold one of his watches, is also an astute reader of the market. Many of the watches in his collection have gone up in value and most, if not all, have at least maintained their value.

    He considers one of his best purchases to be a Jaeger-Le Coultre with a rose gold case and a black dial. Jaeger no longer makes this watch with a black dial and has no plans to do so in the near future.

    “A dealer in Switzerland told me to hang on to this watch as it is in much demand and that if I lost it I would be unlikely to be able to get hold of another one,” he said.

    Another of his successful purchases is a Rolex Daytona – again with a black dial. “This watch retails at HK$73,000 but it is almost impossible to buy a new one from a Rolex dealer. I picked this one up for HK$82,000 a couple of months ago and it is already retailing on the second-hand market at HK$95,000.”

    For would-be investors, the watch market is a highly visible one as manufacturers publish the recommended retail purchase price for models and authorised dealers are bound by this recommendation. The internet has also transformed trading. It is now easy to purchase watches from dealers around the world and compare prices.

    However, as with buying anything on the internet, there are issues to consider. One of the main stumbling blocks is that the seller is unlikely to be an authorised dealer and any warranty it gives will not be backed by the original manufacturer.

    Other common problems include the difficulty in confirming whether you will receive the watch’s original case, tools and receipt – the absence of which will affect value if you try to resell. There are also many fakes.

    Most serious collectors avoid the internet simply because there is no substitute to seeing your purchase first hand. Campbell cites an example of how he once saw a Rolex Milgauss with a green sapphire crystal (it gives a greenish hue around the edge of the dial) on the internet and was not particularly impressed. But later when he was shown one by a dealer, he liked it so much, he bought it on the spot.

    If you are uncertain about the value of the watch that you want to buy or sell, you can always contact an auction house. Sotheby’s, for example, has a database on watch prices and tracks sales around the world. Even if you have no intention of bidding at an auction you will be able to speak to an expert and access some top quality advice free of charge.

    When you are purchasing a watch with a view to resell, it is important to remember that even though the watch market is global, there are some regional variations. There is a strong preference in Asia for new pieces, whereas in Europe a vintage or antique watch that has obviously been worn and reeks of old money can command a premium. Even flaws such as the discolouration of the dial – a common occurrence on certain types of vintage and antique Rolexes – can add value to the piece.

    According to Julian Chow Shum of David Watch, “the trend in Western markets is for solid, durable, practical watches which are suitable for everyday use. In the Asian market, we like more luxury, more diamonds, rose gold and complications”.

    International watch dealer Marc Djunbushian said of the vintage and antique market: “It is difficult to make money in this sector of the market if your budget is under HK$100,000.

    “If you have a bigger budget, there is money to be made, especially in minute-repeating watches and enamel watches, because both require the attention of master craftsmen. What I have learned from my 15 years’ experience as an expert is that perfection, rarity and complication will always bring a profit.”

    Djunbushian recommends “watches from the ’70s that use different materials and have unusual designs” as more affordable investments. Already dealers in Europe are holding on to these pieces in anticipation of future demand.

    Another tip from both Djunbushian and Herrera is pocket watches. These types of European watches are in high demand in China (especially the ones in gold) and good pieces can still be picked up for a reasonable price.

    If you are thinking purely in terms of investment, few would dispute that there are much easier ways of making money than in the watch market, especially if your budget is limited. However, if you are interested in watches, then it seems that if you follow a few simple principles it is possible to combine your interest and either maintain the value of your collection over time or even realise a healthy profit.

    Hugh Hendry

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    Maverick fund manager shares his contrarian views, obsession with China

    The New York Times in London
    Jul 25, 2010

    Hugh Hendry has a big mouth, as Hugh Hendry will tell you.

    With a sharp wit and a sharper tongue, Hendry, a plain-spoken Scot, has positioned himself as the public contrarian thinker of London’s very private hedge fund community.

    The euro? It’s finished. China? Headed for a fall. President Barack Obama? “If there was a way to short Obama, I would,” says the man who runs Eclectica Asset Management.

    It is an old-school macroeconomic fund company with a think-big, globe-straddling style more akin to the Quantum Fund, of George Soros fame, than to the hi-tech razzle-dazzle of Wall Street’s math-loving quant analysts.

    At 41, Hendry is emerging from the normally secretive world of hedge funds to captivate fans and foes with a surprising level of candour.

    Last May, on British television, he verbally sparred with Jeffrey Sachs, director of the Earth Institute at Columbia University, and perhaps the best-known economist writing on developmental issues.

    Before that, he took on Joseph Stiglitz, the Nobel laureate, about the future of the euro. “Hello, can I tell you about the real world?” Hendry interjected at one point. It was a huge hit on YouTube.

    His verbal pyrotechnics have won Hendry a reputation for challenging the economics establishment. He is regarded and appreciated by many as overly pessimistic about, well, just about everything.

    His big worry lately has been China. Like James Chanos, a prominent hedge fund manager in the United States, Hendry says he believes China’s days of heady growth are numbered. A crisis is coming, he insists.

    Hendry has made – and sometimes lost – money for his investors. Eclectica’s flagship fund, the Eclectica Fund, is up about 13 per cent this year, besting by far the average 1.3 per cent loss among similar funds.

    But returns have been erratic – “too much sex, drugs and rock ‘n roll” for some investors, he concedes. In 2008, the Eclectica Fund was up 50 per cent one month and down 15 per cent another. Hendry plans to change that.

    The firm bet correctly that the financial troubles plaguing Greece would eventually ripple through to the market for German bonds, considered the European equivalent of ultra-safe US Treasury securities. But the firm lost money betting on European sovereign debt in the first quarter of last year.

    Last week, Hendry was musing about the financial world in his office behind a scruffy shopping mall in the Bayswater section of London. No Savile Row here: He was sporting a white oxford shirt, jeans and blue Converse Chuck Taylor sneakers, along with a three-day stubble and hipster horn-rim glasses.

    His latest obsession is China. He likens the country to Starbucks: good at growing quickly but not so good at creating wealth. “The idea is that things would happen today that are commonly thought of as impossible, most notably a significant reversal of China,” Hendry said.

    Maps cover the walls of his office. On one, blue magnetic pins plot his recent trip through China. He filmed himself there in front of huge, empty office buildings and giant new bridges in the middle of nowhere – signs, he said, of a credit bubble.

    Hendry is devising ways to bet on a spectacular deterioration of China’s economy. He declined to divulge any details.

    His outspokenness has won him both fans and detractors.

    Marc Faber, the money manager known as Doctor Doom for his bearish views, calls Hendry “a deep thinker”. “He has strong views and expresses them, not to get publicity but because he has a great understanding of the markets,” Faber said.

    Some London investors are less charitable. Two declined to comment on Hendry, saying they did not want to “get into a fight” with him.

    Hendry certainly does not fit the stereotype of a discreet London moneyman.

    The son of a truck driver, he was the first in his family to attend a university – Strathclyde, in Glasgow, not Oxbridge. He studied accounting and joined Baillie Gifford, a large Edinburgh money manager.

    Frustrated that he could not challenge the investment strategies of his bosses, he jumped to Credit Suisse Asset Management in London. There, a chance meeting with an equally opinionated hedge fund manager, Crispin Odey, led to a job.

    Before long, Hendry struck out on his own.

    The inspiration for his investment approach comes from an unlikely source: The Gap in the Curtain, a 1932 novel by John Buchan that is borderline science fiction. The plot centres on five people who are chosen by a scientist to take part in an experiment that will let them glimpse one year into the future.

    Hendry calls the novel “the best investment book ever written” because it taught him to envision the future without neglecting what happened leading up to it, a mistake many investors make, he said.

    More Ayn Rand

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    aston_martin_one_77_images_001

    “In the name of the best within you, do not sacrifice this world to those who are its worst. In the name of the values that keep you alive, do not let your vision of man be distorted by the ugly, the cowardly, the mindless in those who have never achieved his title.

    Do not lose your knowledge that man’s proper estate is an upright posture, an intransigent mind and a step that travels unlimited roads. Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach.

    Check your road and the nature of your battle. The world you desired can be won, it exists, it is real, it is possible, it is yours.”

    ~ Part Three / Chapter 7 This is John Galt Speaking

    Ayn Rand

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    “The world you desired can be won, it exists, it is real, it is possible, it is yours. But to win it requires total dedication and a total break with the world of your past, with the doctrine that man is a sacrificial animal who exists for the pleasure of others. Fight for the value of your person. Fight for the virtue of your pride. Fight for the essence, which is man, for his sovereign rational mind. Fight with the radiant certainty and the absolute rectitude of knowing that yours is the morality of life and yours is the battle for any achievement, any value, any grandeur, any goodness, any joy that has ever existed on this earth.”

    ~ Ayn Rand’s last public speech (New Orleans Nov 1981)

    Knowledge

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    Avoid processing more information than you can digest: it is better to know less and understand more.

    Data is not information until it has been collected, collated and organized.

    Information is not knowledge until it is absorbed and comprehended.

    Knowledge is not understanding nor wisdom, until it is associated with life experience and given perspective.

    bquote

    HK$567 billion floods into HK

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    HK$567 billion floods into HK
    Dennis Eng and Maria Chan
    Nov 20, 2009

    27icc-600

    A total of HK$567.5 billion flowed into Hong Kong from October 1 last year to last Friday in what Hong Kong Monetary Authority chief executive Norman Chan Tak-lam described as an unprecedented situation.

    The huge inflow, especially since the beginning of this year, targeted mainly stock and property investments, Chan said. A splurge on stocks has boosted the Hang Seng Index from a low of 11,345 in March to a close of 22,643 yesterday.

    Property prices have also risen – about 30 per cent on average – this year, with prices for some luxury properties setting new records despite little evidence that Hong Kong has shrugged off its recessionary woes.

    The surge in the stock market is most evident in the gains registered by the Exchange Fund, a reserve that backs the local currency. The fund reported a HK$96.9 billion gain in the first nine months of this year, more than offsetting the HK$75 billion fall last year. In the third quarter alone, the fund recorded a rise of HK$71.9 billion, with equity investment income accounting for 57.7 per cent of the total. The government pocketed HK$25.6 billion in investment gains for the first nine months.

    Chan said the fund continued to perform well last month but declined to predict if the full-year figure would top HK$100 billion. The fund’s investment holdings mainly include stocks and bonds. Chan said he would consider further diversifying the fund’s investments, possibly including the mainland currency, to help stabilise the rate of return.

    “There are still many uncertainties,” he said. Chan attributed the flood of liquidity to measures introduced to help prop up the ailing economy but warned of ballooning asset prices as a result.

    “There are some potential risks, including inflation and an asset bubble,” Chan said.

    “I am not worried about governments pulling out too soon, but rather that it will be too late.”

    He said it was a matter of time before central banks around the world withdrew those measures. But maintaining the measures for too long risked more fund inflows, further inflating asset prices. Interest rates could also rise if the flood of funds left Hong Kong, posing dangers to economic growth and hurting homebuyers who were enjoying record-low borrowing costs.

    The huge funds inflow has dragged down the three-month Hibor – the interest rate banks impose to lend funds to one another – to 0.12 per cent. Chan advised aspiring homebuyers to evaluate their ability to make mortgage repayments if the rate rose.

    In an attempt to head off possible risks from an interest rate rise, the authority recently required banks to lend no more than 60 per cent of the value of properties selling for more than HK$20 million. But there were no plans to impose this requirement for mass-market housing, Chan said. Banks can usually lend up to 70 per cent of a property’s value.

    The record-low borrowing costs and ample liquidity have seen funds flow from bank deposits to assets like stocks and properties in an attempt to generate higher returns.

    Buoyed by the increased activity, the stock and property markets are expected to earn the government more in stamp duty than the HK$25 billion it estimated for this financial year.

    KPMG tax partner Jennifer Wong How-yee said the government could reap an additional HK$11 billion in stamp duty paid on stock transactions and an extra HK$5 billion on duties for properties.

    Revenue from the sale of land and the payment of land premiums by developers could also exceed expectations. Just HK$4.1 billion of the estimated HK$16.5 billion in land income has been realised, although this does not include HK$9.59 billion in land premium that Henderson Land and New World Development will add to public coffers for their Lok Wo Sha site in Wu Kai Sha.

    Two sites in Tai Po will also be auctioned at the end of next month and are expected to fetch up to HK$12.4 billion.

    But Agnes Chan Sui-kuen, a tax partner at accounting firm Ernst & Young, said the package of relief measures announced in May that cost the government HK$16.8 billion was expected to largely cancel out any extra revenue flowing in. The government estimated a deficit of HK$39.87 billion in its budget for 2009-10. In the six months to September 30, the administration reported a deficit of HK$64.78 billion.

    The financial year runs from April 1 to March 31.

    Economic data suggests the impact of the global financial meltdown on Hong Kong was not as severe as the Asian financial crisis more than a decade ago. At that time, the city’s gross domestic product shrank 8.9 per cent from the third quarter of 1997 to the end of 1998. Between the second quarter of last year and the first quarter of this year, GDP contracted 7.8 per cent.

    Longchenpa: Taking Adversity as the Path

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    Assailed by afflictions, we discover Dharma
    And find the way to liberation. Thank you, evil forces!

    When sorrows invade the mind, we discover Dharma
    And find lasting happiness. Thank you, sorrows!

    Through harm caused by spirits we discover Dharma
    And find fearlessness. Thank you, ghosts and demons!

    Through people’s hate we discover Dharma
    And find benefits and happiness. Thank you, those who hate us!

    Through cruel adversity, we discover Dharma
    And find the unchanging way. Thank you, adversity!

    Through being impelled to by others, we discover Dharma
    And find the essential meaning. Thank you, all who drive us on!

    We dedicate our merit to you all, to repay your kindness.

    Gyalwa Longchenpa

    STATEMENT ON U.S. ECONOMIC OUTLOOK BY DR. NOURIEL ROUBINI

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    July 16, 2009

    STATEMENT ON U.S. ECONOMIC OUTLOOK BY DR. NOURIEL ROUBINI

    The following is a statement from Dr. Nouriel Roubini, Chairman of RGE Monitor and Professor, New York University, Stern School of Business:

    “It has been widely reported today that I have stated that the recession will be over “this year” and that I have “improved” my economic outlook. Despite those reports – however – my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.

    “I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If as I predicted the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year’s end.

    “Indeed, last year I argued that this will be a long and deep and protracted U-shaped recession that would last 24 months. Meanwhile, the consensus argued that this would be a short and shallow V-shaped 8 months long recession (like those in 1990-91 and 2001). That debate is over today as we are in the 19th month of a severe recession; so the V is out of the window and we are in a deep U-shaped recession. If that recession were to be over by year end – as I have consistently predicted – it would have lasted 24 months and thus been three times longer than the previous two and five times deeper – in terms of cumulative GDP contraction – than the previous two. So, there is nothing new in my remarks today about the recession being over at the end of this year.

    “I have also consistently argued – including in my remarks today – that while the consensus predicts that the US economy will go back close to potential growth by next year, I see instead a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%.

    “I have also consistently argued that there is a risk of a double-dip W-shaped recession toward the end of 2010, as a tough policy dilemma will emerge next year: on one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant. On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long term interest rates (because of concerns about medium term fiscal sustainability and because of an increase in expected inflation) and thus would lead to a crowding out of private demand.

    “While the recession will be over by the end of the year the recovery will be weak given the debt overhang in the household sector, the financial system and the corporate sector; and now there is also a massive re-leveraging of the public sector with unsustainable fiscal deficits and public debt accumulation.

    “Also, as I fleshed out in detail in recent remarks the labor markets is still very weak: I predict a peak unemployment rate of close to 11% in 2010. Such large unemployment rate will have negative effects on labor income and consumption growth; will postpone the bottoming out of the housing sector; will lead to larger defaults and losses on bank loans (residential and commercial mortgages, credit cards, auto loans, leveraged loans); will increase the size of the budget deficit (even before any additional stimulus is implemented); and will increase protectionist pressures.

    “So, yes there is light at the end of the tunnel for the US and the global economy; but as I have consistently argued the recession will continue through the end of the year, and the recovery will be weak and at risk of a double dip, as the challenge of getting right the timing and size of the exit strategy for monetary and fiscal policy easing will be daunting.

    Temasek should clear the air

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    Temasek should clear the air
    It must not shrug off BoA losses as a blip if it is to emerge stronger
    By Ignatius Low, Money Editor
    Straits Times

    What is one to make of Temasek’s decision to sell its entire stake in Bank of America (BoA)?

    The move has resulted in one of the largest-ever realised losses from a single investment in Singapore’s history. The number is so large – at least US$2.3 billion (S$3.4 billion) – that one has to wonder exactly what it was that compelled Temasek to bite the bullet.

    After all, outgoing CEO Ho Ching reiterated this week that the investment fund takes a long-term view, at least 10 years and up to 50 years. So it could have well waited a few years for the global economy to recover and cash out then.

    Instead, it will now face the wrath of the Singapore public, already shaken by news that Temasek’s portfolio shrank 31 per cent in the wake of the financial crisis and its recent $401.5 million investment in Australia’s ABC Learning Centres has likely lost most of its value.

    There are probably three reasons why Temasek chose to cash out.

    The first has to do with the fact that, unlike the Government of Singapore Investment Corporation (GIC), which invested in UBS and Citigroup, Temasek did not end up with what it paid for.

    Temasek’s original US$5.1 billion investment was in Merrill Lynch, a truly global business engaged in high-yielding activities like corporate finance and private banking. BoA, on the other hand, is focused on more traditional businesses like consumer and corporate lending.

    More importantly, Temasek owned as much as 13.7 per cent of Merrill. But after BoA’s takeover, it owned only about 3 per cent of the merged entity. In other words, Temasek went from owning a major stake in a global investment bank to a minor stake in a gigantic US lender.

    If BoA did not fit into Temasek’s strategy, it was entitled to exit the investment. If Merrill had been bought by a similar type of institution, say JP Morgan or Goldman Sachs, Temasek would not have been in such a dilemma today.

    Secondly, there were very real fears a few months ago that major US banks could be nationalised.

    If a bank like BoA was nationalised, the value of its shares would likely plunge to zero or near-zero. That risk was enough to prompt many other shareholders to rush to exit their investments early this year, however painful the loss.

    Finally, BoA is showing some signs of distress. A recent US government stress test showed that 10 US banks needed US$74.6 billion more in capital, with BoA making up almost half that amount at US$33.9 billion.

    Leadership problems have also emerged. Once hailed as a hero, chief executive Kenneth Lewis was recently ousted as BoA chairman. His position as CEO is now in doubt, and the US government has urged BoA to revamp its board.

    So if one is inclined to take a charitable view, Temasek’s action is similar to that of an investor cutting his losses and trying to recoup his money by betting on winners somewhere else. But such arguments are unlikely to assuage Temasek’s critics.

    There is just no running away from the fact that the investment fund has lost as much as US$4.6 billion of the nation’s reserves (the topmost end of the loss range) from a single investment in just over a year.

    Here, Temasek will need to clear the air on two major issues. The first is the timing of the sale.

    Temasek unloaded all its shares by the end of the first quarter of this year when prices averaged US$6.73, just before an April rally that saw BoA shares double from US$7 to US$14. It is impossible to time the market perfectly, of course, but could Temasek have waited a little while more for the situation to improve?

    Just three days ago, US Treasury Secretary Timothy Geithner was quoted as saying that the US financial system has completed a big part of a painful adjustment away from its excessively leveraged state, and was ‘starting to heal’.

    Tellingly, none of the other sovereign wealth funds that had ploughed into the global investment banks at roughly the same time had exited their investments.

    The Singapore Government has already admitted to buying into these mega-banks too early. Did Temasek make it two wrongs by also selling too early? Could it have hedged its bets by selling only part of its stake?

    The second issue is whether Temasek had taken sufficient measures to protect itself against downside risk, knowing full well that it was investing such a hefty amount in a US bank in the middle of a gathering financial storm.

    The comparison with GIC is illustrative. GIC invested US$6.88 billion in Citigroup just one month after Temasek’s investment in Merrill Lynch. But GIC’s investment came with a protection clause: It could opt not to convert its investment into shares should the stock price dip, and instead receive 7 per cent in coupon interest in perpetuity.

    That clause came in handy when it was asked by the US government to convert its investment into shares three months ago. To give up its right to that coupon interest income, Citigroup was forced to offer GIC and other similar investors a fairly low conversion price of US$3.25 a share – so low that other Citigroup shareholders complained.

    As a result, GIC is not in Temasek’s position. It is, in fact, sitting on a small paper gain today, going by Citigroup’s closing price of US$3.55 yesterday.

    To be fair, neither Temasek nor GIC – or any shrewd investor – could have predicted the ferocious market meltdown that occurred in September last year. These are, after all, extraordinary times, and so extraordinary outcomes – and losses – will be expected.

    Still, Temasek should not shrug off the loss as yet another wiggle in the curve it had no control over. It must not stop doing what it does best, which is to continue to be aggressive and obtain the best possible returns for the people of Singapore.

    But some serious soul-searching is in order at the 35-year-old institution so it can emerge stronger and better-equipped for the job ahead.

    Thriving bear sees many more US bank failures

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    Thriving bear sees many more US bank failures
    Reuters in New York
    Apr 04, 2009

    John Jacquemin, a hedge fund manager of Mooring Financial Corp, who predicted the credit crisis and tripled his investors’ money over the past two years, warned that hundreds of United States banks were doomed to fail and that an economic recovery was far away.

    Mooring Financial has posted 10 consecutive years of gains snapping up loans at distressed prices, while his two-year-old Intrepid Opportunities Fund generated 222 per cent returns betting against corporate debt and financial stocks.

    Beyond a housing glut and slower consumer spending, Mr Jacquemin said he remained bearish because banks and regulators had not confronted the mountains of bad loans still on banks’ books.

    While banks needed to mark down bonds to prevailing market prices, “with whole loans, they don’t have to and they haven’t”, he said.

    “If they did, there would be literally hundreds and hundreds of insolvent banks,” he said.

    Eighteen years ago, Mr Jacquemin was a commercial lender who snapped up loans sold by Resolution Trust and the Federal Deposit Insurance Corp in the wake of the savings and loans crisis.

    Mr Jacquemin said government agencies were aggressive in closing failed banks, selling branches and deposits to the highest bidders. Today, he contends, officials have been more tentative, allowing weak banks to hobble along.

    “If the banks sold these loans for what they could get, they would be insolvent,” Mr Jacquemin said. “The difference between now and the 1990s is the government today is not closing banks down.”

    This approach would only prolong the crisis.

    “They’re not being aggressive because it would scare the hell out of us,” Mr Jacquemin said. “But we can’t get rid of the problem the way they’re approaching it now … [The government] ought to be closing the weak banks and helping recapitalise the stronger ones.”

    Little-known Mooring Financial has generated returns on par with renowned credit market bear John Paulson and his hedge fund firm Paulson.

    Mr Jacquemin’s Mooring Capital Fund has never had a losing year and returned 12 per cent a year, on average, for 10 years buying distressed loans and debt.

    The excesses of the credit bubble – reckless leverage and frothy property markets – prompted him to launch Intrepid Opportunities in February 2007.

    The fund shorted indices that tracked bond and mortgage markets, as well as bet against banks, credit card lenders and other financial companies.

    The new fund soared 56 per cent last year, when equities fell 40 per cent and the average hedge fund dropped 18 per cent.

    Mr Jacquemin said the firm, which manages US$400 million, was seeking new investors.

    While bank shares have rallied in recent weeks, Mr Jacquemin has maintained his negative views on corporate bonds and finance stocks.

    He predicts rising commercial property defaults and worries that consumer spending will never rebound to pre-crisis levels.

    Mr Jacquemin said housing prices would not improve until the glut of empty units was absorbed – a process that will take at least 18 months and as long as 2-1/2 years.