Is the oil spill a bad thing?

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Is the oil spill a bad thing? Look it the other way and read this article by Robert Kiyosaki

Think the Gulf Spill Is Bad? Wait Until the Next Disaster

by Robert Kiyosaki
Tuesday, June 22, 2010

The world knows BP is a disaster, a monster of a disaster. Every time a TV news station shows oil gushing from a broken pipe -- one mile below the ocean’s surface -- the audience feels sick. Scenes of oil-soaked pelicans struggling for life angers and saddens us. The financial losses endured by small businesses and fishermen cannot be imagined, let alone conveyed by the media interviews alone. BP is a disaster whose scope is beyond comprehension.

I was in England this month when President Barack Obama blamed and criticized BP for this tragedy. His criticism sparked the anger of the English. Politicians wanted him to tone it down, to be more careful in his choice of words. English Prime Minister David Cameron told Obama “not to go after BP for the sake of it.” Richard Branson said he was “kicking a company when it was on their knees.” Their concern was not for the environment or those suffering the ravages of this disaster. Their concern was for the pensioners who are counting on BP for a secure retirement

On June 17, the UK’s Daily Mail ran a headline screaming, “Bullied Into a £13 Cave-In." Brits are angry with Obama for pressuring BP to suspend dividend payments and set aside $20 billion for the clean up. Obama’s strong-arm position has affected British pensioners, who own 40% of BP, as well as American pension funds that own 39%. In other words, the economic damage of BP goes far beyond the Gulf. The damage is spreading to pensions, pensioners, and portfolios all around the world.

Ground Zero for the Next Disaster

While in London, I decided to go to dinner at London’s Canary Wharf, ground zero for the next BP. Only a few years ago, Canary Wharf was one of the centers of the financial universe. Condo prices were sky high, offices were packed, and high-paid bankers filled Canary Wharf with wealth and excitement. Today Canary Wharf seems to be dying. It has lost its vibrancy. Many restaurants and offices were nearly empty and there were few lights to be seen in those once high-priced condos.

Canary Wharf will be the next BP, and its BP stands for Bomb Production. Canary Wharf is much like AIG, a factory for exotic financial products known as derivatives. The problem is that most people do not know what these murky and mysterious products are ­-- and that includes the people who make or buy them. It’s why Warren Buffett has called derivatives “weapons of mass financial destruction.” That is how powerful they are.

Back in 1966, when I was a student training to be a ship’s officer, my ship carried bombs from California to Vietnam. During World War II, a ship exploded while loading bombs at Port Chicago, California, the port where the bombs were loaded onto ships. The explosion flattened everything for miles. It is said that the ship’s anchor, which weighed tons, was found more than 60 miles away. Derivatives -- financial bombs -- have the same power if they accidently detonate inside a bank’s balance sheet.

Financial Bombs

The subprime disaster was a result of financial bombs -- derivatives -- exploding in financial institutions such as AIG and Lehman Brothers, as well as banks and financial institution throughout the world. After the bombs AIG manufactured exploded, AIG received $181 billion in taxpayer funding and immediately sent $11.9 billion to France’s Societe Generale, $11.8 to Deutsche Bank, and $8.5 billion to Barclays Bank of Britain. U.S. taxpayer money was going to bail out banks around the world. During the last three months of 2008, AIG was losing more than $27 million an hour. That is how powerful these derivatives can be. The problem I see is this: There are many more such bombs still sitting in balance sheets all over the world.

Military bombs are classified by weight such as 500, 750, and 1,000 pounds, while financial bombs have interesting labels such as CDO (collateralized debt obligations), ABS (asset backed securities), and CDS (credit default swaps). While they sound exotic and sophisticated, when put in everyday language, a CDO is simply debt sold as an asset. And CDS, or swaps, are simply a form of insurance. Since the insurance industry is strictly regulated and the bomb factories producing CDS did not want to comply with insurance industry regulations, they simply called them “swaps,” rather than insurance.

To make matters worse, rating agencies such as Moody’s and S&P (and even Fed Chairman Alan Greenspan) blessed these financial bombs as safe, sound, and good for you. It was almost as good as the pope blessing these products. In 2007 the subprime boom busted, and we know what happened from there.

The problem is that approximately $700 trillion of these financial time bombs are still in the system. While people watch the BP disaster in the Gulf, few people are aware of the other BP -- the financial bomb production -- that is still going on. If this derivative market begins to collapse, we will see another disaster.

Most of us know there is not enough money in the world to fully clean up the Gulf. The same is true with the $700 trillion derivatives market. If just 1% of the $700 trillion derivatives market goes bust, that is a $7 trillion disaster. The entire U.S. economy is only $14 trillion annually. A 10% failure, equating to $70 trillion, would probably bring down the world economy. As with the BP Gulf disaster, there is not enough money in the world to clean up the next disaster.

Could It Happen?

Could such a financial disaster happen? The answer is “Yes.” In fact, just as President Obama pressured BP into doing the “right thing,” so is he pressuring the financial markets to do the right thing. The president and our congressional leaders are pushing through financial reform legislation. My concern is that, if not handled delicately, it is this financial reform that will set off the derivative time bomb -- the next BP.

Currently, derivatives are traded over-the-counter. This mean derivatives are uncontrolled, unregulated, and unsupervised. Proposed financial reform legislation is pushing to have derivatives traded through an exchange. This will bring in greater transparency and controls. My concern is, when this happens, the change to an exchange system will reveal fraud and failures we do not yet know about today. It will be like turning on the light and watching the cockroaches (bankers) run for cover.

While it is commendable that President Obama hold the rich and powerful accountable, I wonder what the price will be? And how many BPs can we afford?

How to trade with discipline

Dear All

Today I am sharing a strategy that I have been using for the past few years to train my discipline towards trading stocks. For beginners in trading stocks, there are lots of time that you know that a stock will rise but you will sell it before it reaches that price. Also, there are times when you will continue to hold the stocks rather that having a price to cut the loss. Psychology, you are letting your feeling to control over your rationality. This is a mistake that many will experience and so did myself. To train your discipline, I encourage one should go to the casino more. It is not that I encourage you to gamble, it is a good way to train your feeling and temper. How it works is every time you enter to the casino, you will bring say $200 US into it. However, you are only allowed to lose $20. You must bring $180 out. It is similar to cutting your lost. When you are buying a stock, no matter what happens, you must leave at a certain point. If you can train yourself and be able to leave the casino with $180, you are in better shape with your discipline.

Hope this helps

Thanks

MC

Bloomberg's One Beacon Court office

Bloomberg's One Beacon Court office

Thanks

Paul

via http://www.flickr.com/photos/21108344@N00/3285477494

More information on CBID

Many news organizations around the world have been cutting back on staff, resources and coverage. But a new media outfit backed by one of Hong Kong’s most prominent businessmen is bucking that trend, The New York Times’s Bettina Wassener reported.

Cai Business Indepth, known as CBID, is aiming to become a major provider of reliable financial news and analysis, in English, about one of the world’s largest and most complex economies: China. (“Cai” means finance in Mandarin.)

CBID’s baseline product — a daily wrap-up of the main business stories in greater China — was initiated Monday on the company’s Web site, www.cbid.com.

An advertising campaign will follow this week, and a suite of other products — like industry and regional reports and economic data — is planned in the coming months.

CBID hired about 30 reporters, many of them recruited from other media outlets.

Another 30 have been added at a partner publication, The Hong Kong Economic Journal, a Chinese-language daily, to provide English-language content for CBID.

And a similar number are dedicated to CBID under the umbrella of Caijing, a highly respected business magazine based in Beijing.

These partnerships and a focus on greater China should set CBID apart from larger but more diversified international news wires, said James Ogilvy-Stuart, the venture’s chief executive. His career includes a stint as the head of Asia for the Nasdaq stock market and 17 years at Bloomberg.

“There is no shortage of information about China, but only a small subset of that ever sees the light of day in English,” Mr. Ogilvy-Stuart said in an interview on Monday. “We set ourselves the task of addressing that, of creating a much clearer picture, and to bring transparency to what’s going on in the Chinese economy.”

CBID’s revenue will come mostly through subscriptions rather than advertising, Mr. Ogilvy-Stuart said. A 12-month subscription, for example, will cost $250 a month, and a three-month subscription will be $300 a month, according to the company’s Web site. For now, the company is offering free two-week trials.

“We are unashamedly focused on the institutional corporate community — we are at the premium end of what is a niche market,” Mr. Ogilvy-Stuart said. “We have a one-way bet on China.”

CBID would not discuss its ownership structure. But the service’s founders and backers, including Richard Li, who is chairman of PCCW, the main Hong Kong telecommunications company, are convinced that they are onto a winner.

The global downturn has thrust fast-growing Asia into the limelight as an engine of world growth, prompting an influx of investment by businesses seeking to capitalize on booming economies and on the rising affluence of Asia’s billions of consumers.

“The demand for business intelligence, due diligence, advice and information is almost inexhaustible in Asia,” said Gavin Greenwood of Allan & Associates, a security and political consulting firm based in Hong Kong.

Other firms also say they have seen a big increase in global interest in Asia in the last three years.

“European and American companies and investors acutely feel the need to understand the market better and are actively looking for suppliers, customers and potential business partners in the region,” said David Legg, managing director for Europe and Asia of theGerson Lehrman Group, which puts regional and industrial experts in touch with investors.

Copal Partners, whose 1,000 employees, mostly based in India, provide research and analysis services for banks, hedge funds and private equity firms, also has seen its Asia-related work soar.

Copal’s Mandarin-speaking team has doubled to 40 in the last 12 months, and China-related work, virtually nonexistent two years ago, now makes up 10 percent of revenue, according to its chief executive, Rishi Khosla.

“We’ve seen a substantial increase in demand for country analysis and corporate enquiry work in China in the last couple of years,” Ben Wootliff, who heads the corporate enquiries team of the political and security consulting firm, Control Risks Group, in Shanghai, said in an interview on Monday. “This is partly because the financial crisis has accelerated the inflow of investments here and partly because clients have become increasingly aware of the challenges and potential risks they face in doing business here.”

These, he said, include fraud and corruption and information and intellectual-property issues, policy and regulation, and, especially for firms with major long-term strategic exposure to China, wider political concerns like trade and diplomatic issues with the United States and European Union.

In the last two years, Control Risks’ China-related revenue has grown sharply, and the company is increasing its professional staff based in China by 25 percent this year.

Via financial times

CBID?

www.cbid.com

Creating the east side of Bloomberg?

Thanks

Paul Ng

BP's Tony Hayward on Way Out

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Paul Ng

Does Japan really have a public debt problem?

Does Japan really have a public debt problem?

June 13, 2010 4:19pm | Share

The conventional wisdom in both Japan itself and the west is that the country has an unmanageable public debt problem. I find this quite unpersuasive. All the country needs to do is generate, say, expectations of 3 per cent inflation and the public debt problem should melt away like snow. But the longer it waits the bigger the ultimate adjustment will need to be.

In 2010, according to the Organisation for Economic Co-operation and Development, Japan will pay net interest of 1.1 per cent of gross domestic product on net financial liabilities of 105 per cent of GDP. Since 2000, Japan’s average rate of deflation (on the GDP deflator, the widest measure of inflation) was 1.2 per cent. So let’s treat the expected real rate of interest on Japanese government borrowing at 2 per cent.

So here is the plan.

First, extend the maturity of debt to at least 15 years from the today’s average of 5.2 years. (Whoever was responsible for allowing Japanese debt to be so short term when the government can borrow at incredibly low long-term interest rates seems utterly incompetent.) That would bring average Japanese maturities above the far more sensible UK level of 13 years.

Second, hire a central bank governor who knows how to create inflation - an Argentine, for example. I am quite sure that any moderately determined central banker could do this, if he wanted to do so, by direct purchase of public and private sector assets on a sufficiently large scale. The government should prod this along by giving the Bank of Japan an inflation target of 3 per cent, after maturities have been extended, while informing the policy committee that all its members will be sacked, ignominiously, if they fail to hit the target within two years.

Third, let us suppose inflation indeed goes to 3 per cent. That should raise the interest rate on JGBs to 5 per cent. Other things equal, the market value of the outstanding net government debt would fall by 40 per cent. So now the Japanese government buys back the outstanding debt at its new market price, reducing the face value by 40 per cent of GDP. In the new inflationary environment, the Japanese find the real value of their huge holdings of cash falling sharply. So they buy real assets and consumer goods, instead, and, at last, the economy expands vigorously.

Fourth, now the government raises taxes and cuts spending, moving into a small primary surplus. Assume that the government only needs to borrow to roll over its debt and the debt ratio stabilises. How big a primary surplus is needed depends only on the relation between the real rate of interest and the rate of growth of the economy.

So there we have it. By extending maturities of debt, moving from deflation to modest inflation, Japan eliminates almost half of its outstanding debt, relative to GDP, and normalises the economy, in the process.

It is simple, really. The government has baited the trap. Now all it needs to do is spring it.

Countries with their own central banks do not need to default; they can inflate, instead. Provided they can borrow at long enough maturities and on favourable terms, the amount of inflation needed to eliminate huge debt overhangs is not enormous, provided it is unexpected. In Japan, any inflation would now be unexpected, given current long-term interest rates. So the solution there seems to be perfectly straightforward. What do you think? Leave your responses below.

via: http://blogs.ft.com/martin-wolf-exchange/2010/06/13/does-japan-really-have-a-public-debt-problem/

Written by: Martin Wolf

Thanks

Paul

A man we should read more about

Martin Wolf (born 1946) is a British journalist. He is associate editor and chief economics commentator at the Financial Times. He was awarded the CBE (Commander of the British Empire) in 2000.

Wolf is son of an Austrian Jewish father who escaped to England before World War II and a Dutch Jewish mother who lost near thirty immediate family in the Holocaust.^[2] He left Nuffield College, Oxford University with a master of philosophy degree in economics in 1971 to join the World Bank's young professionals programme, becoming a senior economist in 1974. He left the World Bank in 1981, to become Director of Studies at the Trade Policy Research Centre, in London. He joined the Financial Times in 1987; he has been associate editor since 1990 and chief economics commentator since 1996.

He was joint winner of the Wincott Foundation senior prize for excellence in financial journalism in both 1989 and 1997. He won the RTZ David Watt memorial prize in 1994. He is visiting fellow of Nuffield College, Oxford, a Special Professor at the University of Nottinghamand an honorary fellow of the Oxford Institute for Economic Policy.

He has been a forum fellow at the annual meeting of the World Economic Forum in Davos since 1999. He was awarded the honorary degree of Doctor of Letters, honoris causa, by the University of Nottingham in 2006, and was made Doctor of Science (Economics) ofUniversity of London, honoris causa, by the London School of Economics in the same year. He is a regular participant in the annualBilderberg meetings of politicians and bankers.

Thanks

Paul Ng

Steve Jobs Part 2

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Paul

What Steve Jobs Worried The Most?

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Paul

Where is the demand?

No doubt that Chinaman have become the most powerful creature in the world to support the economy. Not only they give a huge support in the C (consumption) but also the I (investment) in the component of GDP (expenditure approach) world widely. To generalize a bit, Chinaman hold a huge portion in the worldwide demand theoretically.

How about in reality? Do Chinaman really hold a huge portion of demand world widely?

In my point of view, Chinaman do hold a huge portion of demand but in a unequally distributed way. What I mean in here is that China government has the power to manipulate the demand distribution. It can easily manipulate the demand power through its emigration policy. By allowing more Chinaman to consume and invest in a place, China government can easily manipulate the demand distribution. In fact, geographical factors also affect the demand distribution. If that place is too tough or too far to reach, even China government let go the emigration restriction; Chinaman would still hesitate about emigrating to that place. You may argue that immigration policy of other countries should also affect the demand distribution. Yet, I considered this effect to be so small since I assume that every country is try to maximize its own profit (try to capture the Chinaman demand power).

So what is the effect under this unevenly distributed demand power?

Pricing problem.

Back to the basic, think about the supply and demand curve. Assuming in equilibrium in the initial point / demand suddenly boost up due to Chinaman effect / Chinaman effect is sustainable, which mean not a temporary effect / sustainable increase in the demand curve / left shift in demand curve / price upward movement

Overall, what you get should be increase in price in that particular place.

Next?

In the LR, supply side will have to work out a bit / supply increase in the market / supply curve shift / price decline / quantity increase overall and price is constant (theoretically)

Add in worldwide factor?

1. Yuan will appreciation to USD

2. Yuan will appreciate to HKD

Next?

1. Supply side cost increase (Producer cost increase due to FX movement)

2. Demand side keep on increasing (Demand curve stay constant)

3. Increase in demand is faster than increase in supply

4. Price keep on inclining

Finally?

1. Create a place like HK

2. C and I keep on increasing

3. Price keep on moving up

4. Local HK people keep on facing the currency depreciation effect

5. Demand keep on increasing but cost keep on increasing in the same time

6. To the extreme, local people gain nothing despite the Chinaman demand power

One Step Beyond?

Tell you next time

Thank you

Paul Ng

BUY BYD (1211.hk)

One of Warren's big investment BYD has dropped to $49

It would be a good time to buy some shares now

Thanks

MC

Invest in South Beach?

“This fall, I’m going to take my talents to South Beach and join the Miami Heat” (Lebron James)
This is considered the most debated free agent deal in sports history. Even president Obama has some words on it.

Lebron James decided to join the Miami Heat along with Dwyane Wade and Chris Bosh one day after the Wade and Bosh deal to sign the Heat. If anyone who does not follow Basketball, these three fellows are the top 10 players in the NBA league ( Lebron is considered the best to many NBA analyst).

According to the Associate Press, before the Cleveland Cavaliers (the team Lebron played for for the past 7 years) drafted Lebron James, the city is quiet on the street after work and the arena rarely is 50% full during a Cavalier game. After Lebron's arrival, games are mostly sold out and bars and restaurants are packed with people during a Cavalier game. This is what Lebron has changed the city.

Currently, Lebron has moved to South Beach and saying the three trio will form their own Hollywood in Florida. How is this going to help the economy in Miami?

I believe there will be great benefits to the city. More people who love basketball will move to or travel to Miami who has a great potential to win a championship or more. Also, more tourists will choose to stay in Miami longer when they go on cruise to Bahama's or the Caribbean Sea and enjoy the basketball fever.

Since more tourists will come, the demand for houses will increase, here should be great opportunities over there and investing in real estates in downtown and South Beach area will be a choice right now before the basketball season starts.

Check it out and see.

Thanks

MC

Stock of the week

Hi All

Take a look at the online contact lenses company: Coastal Contacts

Stock code: COA.TO

The business has come out of a bad quarter but it has been expanding it's plant in

its' main base Vancouver.

Stock price should be under priced.

Right now it's $1.27/ share

I am seeing it to reach $1.5 in two months.

Thanks

MC

Google TV?