On the Ground in the United States
Today we are on the ground in the
Consumer confidence is at an all time low in the
More than 2,000 people are declaring bankruptcy daily
Thousands upon thousands of jobs have been lost in recent months due to the sub-prime crises…
I am starting to wonder, what were the behaviors that got us into such a mess?
I think we can beak it down into a few root causes:
Second, Poor financial education and a lack of financial sophistication
And finally, consumer traps and the wide availability of credit with “sub-prime” terms
We want it all, we want it now. We want it bigger, better, flashier… and chances are, we are going to charge it. The consumer mentality in the
From movies, to music, magazines, and books, popular culture is increasingly more focused on the pursuit of not life, liberty, and happiness, but diamonds, designer clothes, and the newest BMW.
They are pumping out the message that we deserve everything and anything, and the worst part is we are buying it, literally.
This point was truly driven home while I was working part-time at a
One day a woman came in to sign up for the VS card (all it takes is a driver’s license and a debit or credit card). She had just obtained her first credit card from a questionable company. She was approved for the card (it is almost impossible to get denied) and was awarded a $500 limit. She proceeded to spend the limit almost to the dollar and then walked out. She took the bus home.
Regardless of financial stability it is incredibly easy to obtain credit in the
According to a BusinessWeek article “Wages for the working poor have been stagnant for three decades. Meanwhile, their spending has consistently and significantly exceeded their income since the mid-1980s. They are making up the difference by borrowing more. From 1989 through 2004, the total amount owed by households earning $30,000 or less a year has grown 247%, to $691 billion, according to the most recent Federal Reserve data available.”
This has all been made possible through wide spread high interest, high fee financing, or subprime lending in other words.
Driving down the block in my hometown of
“No Credit, No Problem”
“Financing for All”
“Rent to Own”
“Quick Cash”
Pay Day loan services, check cashing companies, rental services, used car dealerships all encourage low-income consumers to live beyond their means as they reap the benefits. In addition, the people they are targeting are frequently un-educated and easily susceptible to scams…. Something they are all too willing to take advantage of.
You might be wondering “Why on earth would these companies be targeting people low-income, low-revenue individuals who might never be able to repay?”
The truth is that it is a major, fast expanding business. In fact, these “alternative financial services” businesses generate more than US$250 billion a year.
Major
So, with all the constant “buy, buy, buy” messages, the wide availability of credit and credit with “subprime” rates, it is no surprise that the
Only time will tell if behaviors and regulations will adapt to rid the county of this “affluenza” and spending craze.
Algorithmic trading on the SGX: less clarity, more volatility
The point of the cut in the time it takes to consummate a trade from miniscule to even more miniscule is to allow traders to employ algorithmic programs. It's also called automated trading or program trading. It's when computers take over the job of brokers. There are some excellent articles around on this subject, such as this one from BusinessWeek a few years ago. The area of automated trading is an industry unto itself. There is even a magazine and a podcast on the subject.
Suffice to say, algorithmic trading will create:
1. Greater secrecy. It'll be harder to find out who's moving large positions because this will be done incrementally, and
2. Greater volatility. A third of all EU and US stock trades in 2006 were driven by automatic programs, according to this article on Wikipedia. That is, driven not by fundamentals but by technical trading.
It'll "enhance SGX's market liquidity and depth" alright. But I can't see how either of them will be good for investors. Recall, investors are those poor souls who buy stocks for what they're actually for: Dividend payouts and capital appreciation. There is already enough noise around to distract us from this. The last thing we need is to be tossed around by ever growing storms of volatility, and a decreased understanding of who is buying or selling what.
As I said, I am loath to critique new technology on the basis of resistance to change. It just means that investors will have to keep getting smarter. And not just investors. As Futures & Options Week points out, the increase in automated trading "presents a challenge to clearing operations" because lightning fast trades require lightning fast clearing. Let's hope the SGX is also geared up for that.
Mark Laudi, who fears the Singapore Exchange will become evermore Singapore's third casino.
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Labels: algorithmic trading, automated trading, program trading, Proximity Hosting Services, SGX, Singapore Exchange, SingTel
Journalists and companies – complicity exposed
I really wonder whether Singaporean investors realise just what a bunch of lazy freeloaders reporters are. Already much of Singapore business journalism is nothing more than an exercise in rewriting press releases (without also reading the statutory announcement). It's the only exercise they get. The news Singapore investors consume is written by people who spend hours at press briefings in hotel ballrooms, consuming wonderful food and beverages which, inevitably, are paid for by shareholders.
The problem started with the fact that companies whose headquarters are not located within a ten minute taxi ride of the Toa Payoh/MacRitchie Reservoir area struggle to get media attention (because a trip out to Jurong and Tuas, or Changi Business Park is oh, so far away). To address this issue, they resort to renting out a function room in an inner-city hotel and serve up a big meal.
What disgusts me is not just that companies do this in the hope that they get more, and more favourable editorial coverage. What disgusts me is that they succeed with this tactic. Journalists lap this sort of thing up and complain audibly when companies don't put on a spread. To think that in other markets journalists refuse the offer of a glass of water from their hosts at press conferences, lest it be seen as interference with the editorial process!
I accept that things are done differently in Asia, and that much more effort goes into welcoming visitors, making them comfortable, offering refreshments and so on. But when it comes to corporate governance and competing in a globalised world, these customs should not apply to journalists under the special circumstances of an earnings briefing.
I have raised this point with David Gerald, the President of the Securities Investors Association (Singapore), who routinely encourages shareholders not to attend Annual General Meetings just for the food. My point is: journalists should not attend press briefings just for the food, then return to the newsroom to rewrite the press release without also reading the statutory announcement.
For as long as companies put on lavish lunches and dinners for reporters, readers and viewers of the financial media cannot possibly expect to be well served.
Mark Laudi, who attended the Banyan Tree earnings briefing at the Fullerton Hotel on Thursday. Yes, he also ate a plate of food so as not to offend his hosts. But he would have been just as happy if no food was served.
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Labels: Banyan Tree, journalists, SIAS
No news is bad news, and silence is not golden
Sometimes, disclosing what hasn't happened is as important as disclosing what has. And in this regard the Singapore Exchange is spot on (see end of this blog) when it praises companies which have provided updates on the impact of the earthquake in China on their businesses even though little or nothing happened to them. If only all companies did this on other occasions, too.
Talk to any 5-year-old and they'll tell you that not admitting to doing something wrong is not the same as lying. Conveniently forgetting to mention what hasn't happened is not the same as denying that they did something wrong, they say.
Fortunately, most SGX-listed companies are not run by 5-year-olds. Why is it, then, that the SGX had to "contact listed companies with known Sichuan operations" to establish whether the quake affected them.
Just as people visiting China would have phoned home to tell friends and relatives they're alright, SGX-listed companies with China connections should take the initiative to "phone home" to their part owners (that is, investors who bought their stock on the SGX) - even if they have nothing to say other than everything is okay.
So, we concur entirely with the SGX when it "encourages listed companies to continue heightened vigilance on disclosure" for the rest of the year, and the next fifty years (words and emphasis added).
This clearly should apply to all companies, but particularly those whose operations are in countries that are not easily accessible, where Singapore investors can go easily and see for themselves.
So, congratulations to those companies which have made announcements sofar in the last two days:
Anwell Technologies
China Eratat Sports
China New Town Development
Wilmar International
Sapphire Corp
China Dairy
China Zaino
Asia Water Technology
(Add your company name by making a comment, if you also did the right thing but are not listed here)
And special mentions to
CapitaLand
Radiance Electronics
Sino-Environment Tech
Sihuan Pharma
for contributing funds to the relief effort.
Mark Laudi, who wonders when Singapore companies with operations in Burma – such as DBS, UOB, OCBC, Keppel Corp, CNA Group and Shangri-La – will say something about whether the cyclone in Myanmar impacted their operations there.
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SGX Encourages Listed Companies to Continue Heightened Vigilance on Disclosure 15 May
SGX would like to extend our heartfelt sympathies and condolences to the people and families affected by the earthquake in China.
We have contacted listed companies with known Sichuan operations and been informed that most of them are unaffected by the quake. We also note that several listed companies have updated investors on the impact of the China earthquake on their businesses via SGXNET.
Listed companies are aware of their responsibility to make timely and accurate disclosure of material information. We encourage them to continue their heightened vigilance with regard to disclosure of material developments. In this connection, foreign listed companies can tap on their Singapore directors in the discharge of their disclosure responsibilities.
Labels: Anwell, Asia Water Technology, CapitaLand, China, China Dairy, China New Town, CNA, earthquake, Eratat, Keppel, Radiance, Sapphire, SGX, Shangri-La, Sihuan Pharma, Sino-Environment, Wilmar, Zaino
Shareholders will not be complaining that they can continue to milk the cash cow SingTel for dividends. Particularly during the uncertain and directionless market, when capital gains are no longer a sure thing, good dividend payers are very welcome. But a look through the Cashflow statement indicates that despite the billion dollar revenues and cashflows, SingTel could only afford to raise its dividend because it borrowed more money.
It's not rocket science:
The business generated S$5.45 bln in cash (Net Cash inflow from operating activities).
SingTel invested S$2.75 bln in associate companies, plant and equipment.
It also paid out dividends during the year of S$3,435.4 bln, compared to S$1.92 bln last year. The difference: S$1.515 bln.
How did it pay for this increase, even as it repaid loans worth S$3.75 bln?
Well, it borrowed S$4.93 bln in fresh funds, which means on balance it took out new loans worth S$1.67 bln.
Next question: is there necessarily anything wrong with borrowing to pay dividends?
Probably not. It's not uncommon, in other countries, too.
The reason companies do it is to maintain confidence in their shares. There's little that scares people away more, particularly during the uncertain and directionless markets I already mentioned, than a cut in the dividend.
But shareholders would be wise to pay attention to the cashflow statement to ensure that dividends aren't artificially propped up by loans even as sales are falling and the business is failing. That doesn't seem to be the case with SingTel, which generated sales worth more than S$14.8 bln! But few if any other companies can boast of similar revenue profiles.
Cash is king.
Mark Laudi, who doesn't own any SingTel shares, but sometimes wishes he did.
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Labels: dividends, Singapore Telecom, SingTel
Press Releases <> Significant Announcements
Today's announcement is a case in point. If the announcement title 'Creative Introduces the Vado Pocket Video Cam - Capture Life - See it, Shoot it, Share it - All in an Instant' doesn't already give it away, the absence of any forecast on the impact on earnings - not even the obligatory but completely useless "this announcement is not likely to impact earnings this year" - is sure to make you see this press release for what it is.
We don't have anything personal against Creative's Corporate Communications Manager Jenny Wong, nor Yap Meng Lee from August Consulting, whose names grace the documents. In a way, I sympathise with Creative because of the tough ride they've been through. Wong and agency haven't exactly had a lot of good news to announce over the last year or five. But the SGX significant announcements page just isn't the place if the announcement is not significant.
Plus it's not like these postings have their desired effect. A scan over the last three months worth of announcements show that out of the nine announcements in that time, four were product press releases (the others were meaningful announcements about the sale and leaseback of their building, financial results and a tie-up with InnoMedia). A check on Google shows none of these four were picked up by the press.
This is where the Investor Relations Professionals Association (Singapore) – set up with the blessing of the SGX – can have an influence. If it wants to do something really useful, it would ask the SGX to split the current corporate announcements page into two: one for the really meaningful stuff which serious investors need to make investment decisions, and another for all the rest. This would include glossy PowerPoint presentations, press releases and so on, which are not permitted to say anything more than the statutory announcement anyway (and usually say a whole lot less). I suspect the IRPAS would not agitate for such a change, given that the Association's Board of Directors is made up entirely of investor relations people (or in any event corporate types who stand to benefit from putting a message out there), not the audience of investors and analysts who are at the receiving end of their output.
For the sake of clarity and an informed (not clouded) market, let's get rid of the PR stuff and cut to the real game on the SGX announcements page.
Mark Laudi
Labels: Creative Technology, Investor Relations Professionals Association (Singapore), IRPAS, Singapore Exchange
Microsoft vs Yahoo - Microsoft will win
Google is the dominant player in the online search game. Maybe not in every country. Yahoo is still very strong in China, while Google is not. But clearly Yahoo has a fight on its hands for dominance of online advertising. Note how Yahoo sought a white knight in the face of Microsoft's bid. Ironically, Yahoo approached its main competitor Google. Google, which was already warning it was going to fight a Microsoft-Yahoo tie-up on the grounds it would be uncompetitive, offered to share its search technology with Yahoo.
End result:
• Google became stronger by showing its dominance in the search game. It can't make a move on Yahoo because that will never get past the competition authorities. But by sharing its search technology it already smacks of a merger by stealth.
• Yahoo revealed its weakness by scampering for a saviour. Now that Microsoft launched a bid, the company is in play. Everytime the stockprice falls, people will say Microsoft will make another bid for it. It won't end until its taken over.
• Microsoft certainly didn't want to see a Yahoo-Google tie-up, and it was a good enough pretext for Ballmer to walk away from it. But come on, is he really now no longer interested in Yahoo? Microsoft is still the one with multi-billion dollar cashflows. Having shown his hand, Ballmer is committed to winning the game, or forever be reflecting on 'the one that got away'.
But don't forget shareholders. At the end of the day, it's their call. And right now, I would rather be Steve Ballmer than Jerry Yang. Yang has to explain to Yahoo shareholders why he said no to Microsoft's offer, which valued the company at substantially more than the market did.
My call: Microsoft will wait for a while to see what happens next. Yahoo's stockprice will fall further. Yahoo only has two choices: play ball with the arch-competitor Google, or Microsoft. Ballmer will then make another bid. Shareholders, who are unhappy with Yang for not saying yes to the now-defunct first bid, will be glad to accept.
Google may argue against a merger on competitiveness grounds. It knows Microsoft is still on the nose in many countries over its dominance in software. It will want to play on the fears that Microsoft will do to online search what it did to operating systems and office software. But then again, Google is already the Microsoft of the online search game. Regulators may take the other view and think that a little competition to Google will do advertisers more good than harm. Any advertiser, who has seen search terms become more and more expensive on a per-click basis, will testify to that.
But Microsoft will win it. Ballmer reminds me of Rupert Murdoch. Back in 2000, the News Corp chief wanted to get control of the US satellite television network Direct-TV. That was then owned by Hughes Electronics, owned by General Motors. News Corp lost a hostile takeover battle to Echostar. But Echostar's deal didn't go through. In stepped Rupert Murdoch again. He had the last laugh afterall.
The same will happen for Microsoft.
It's funny how these things turn out.
Mark Laudi, who predicts another Microsoft bid will come before the end of 2008.
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Labels: Jerry Yang, Microsoft, Steve Ballmer, Yahoo
Comments on the Russian front
Just because Bolotin is 157th on the list of Russian billionaires doesn't make him a bad guy. Afterall, even though he is worth 3.9 bln Rubles that only translates into US$140 mln. And getting less by the week.
We should also avoid any finger-pointing, just because Bolotin's Most has a virtual monopoly over the manufacture of tractors in Russia.
And when Russia's online daily newspaper Kommersant reports that "Mikhail Bolotin's successes are directly connected with Vladimir Putin's presidency", we had better consider the facts ourselves before jumping to conclusions. After all, if we were to invite only those Russian businesspeople who achieved their wealth without Mr Putin's help, we'd have a pretty empty list.
I am also certain that if Mr Bolotin wishes to list his tractor concern on the Singapore Exchange in November this year, the Monetary Authority of Singapore would have a pretty good look at it.
Mark Laudi, who has never met Mikhail Bolotin.
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Labels: Dunham-Bush, Mikhail Bolotin
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