Of preaching health bands, talking tennis rackets and more…

Advanced Analytics software companies like SAS have been around for over 30 years now, helping corporations and governments analyse data and make better decisions, however it has been rare to have analytics touching the lives of the end customers and helping them take their daily life decisions. With just about every device which we carry and work with; from a cooking range to smart electricity meters capturing user data, analytics as a service will increasingly change our lives without the end consumer ever knowing that he is actually taking an analytically driven decision.

Take the case of the "Smartest Tennis Racket in the Planet"

Babolat is one of the leading tennis racket manufacturer in the world and has just released the Babolat Play Pure Tennis Racket - The world’s first data capturing tennis racket (and btw the same is legally approved by the ITF). From Andy Murray to Nadal, swearing by the power of the racket, it wont be long before this becomes the de-facto standard of the future. 

This smart tennis racket is revolutionizing the tennis world with just the addition of a few small additions  (a small accelerometer and gyro-meter fitted at the edge of the handle, and some more paraphernalia to transmit the data) which can record every stroke and volley done by you in the game. The data is sent to a cloud, where a whole bunch of advanced analytics (from the best analytics company in the world :) runs on it, and the end user can download the analytical insight on his performance on his iphone or android device, as to which strokes were the best, a cluster analysis on what type of shots he placed and the outliers, which shots were the weak ones, after what time did he start losing steam etc. The next version of the rackets may even talk back to him saying “'Hey, you have a weak backhand, and 75 percent of the shots you hit were backhands in the last 10 mins– why do you think you're losing?" Dont believe me as yet,  well, check out this link

Imagine the possibilities of embedding analytics into our daily life technologies:

• Imagine a health band as a patient engagement strategy or to revolutionize the way we handle disease management for patients with CVD risk, that can accurately measure your health indicators and give you back near real time trend or forecast on your health risks (Imagine the possibilities for the UAE, which ranks among the highest in cardio vascular disease risk population)

• Imagine your office chair telling you that its time to go and take a walk in the park or that you have not exercised enough today and have been just sitting around blogging or surfing the internet

Anything that moves and does not, seem to be capturing data and sending it to a cloud. Imagine how much smarter the world is headed to be into the future with analytics deployed on the cloud working on this data. It is definitely the age of analytics and specifically big data analytics, but the difference today is that in today’s world it would not just be corporations and governments using analytics for decision making, it would be end users seamlessly embedding analytics into their daily lives to take the most basic of decisions. As Tom Davenport says in his latest book “Enterprise Analytics”, this is not the age of “software as a service (SaaS), it is the age of “decisions as a service (DaaS)” enabled through software's like SAS.

Welcome to the world of analytics with preaching health bands, gossiping office chairs, talking tennis rackets and more...

Have a good week,

Because the Future is now...

What caught my attention the other day was how large corporations and key govt organizations in the region were not truly unlocking value from their data. If large corporate giants in this region were to unlock their data with powerful predictive analytics, they would probably have  insight into the pulse of a nation, better than possibly anything that the nation’s leadership has ever been used to. Aha! You obviously do not trust me, because that makes no sense (I see that smirk on your face, but I request your patience). Here is one example which I have been chewing on for a while...

Believe it or not :NBAD can predict the financial Health of UAE better than the Central Bank!

Emirates NBD and National Bank of Abu Dhabi are the largest issuer of cards in the UAE. They have such large market shares in the UAE, that their transaction data captured in the core banking system is probably the best way to track the macro economic indicators of this country than any govt department. Imagine if  we were to track the buying pattern of consumers and the usage of cards, and map it against the GDP of the country over time, with some additional variables dropped into the analysis. Predictive analytics could help and identify correlations between consumer spending and GDP and even predict the GDP into the future. After all, GDP or Gross Domestic Product is the nothing but the market value of all officially recognized final goods and services sold within a country in a year.

The advantage of the consumer cards spending data coming from the banking heavy weights in the country is a good enough sample size to be able to predict with relative accuracy the GDP Trend. Consumer spending data (as transactions) is available with the banks all the time. Mining this data for the purpose over time mapped to GDP is not rocket science, but the potential of the insight could be startling. For Starters 1) if Central bank of UAE were to get access to this data, they could track even on a daily basis the consumer spending sentiment and forecast into the future 2) Both these banks have investment arms, imagine the investment bets these banks could make in the stock market on stocks whose prices have a positive correlation with the GDP. 

UAE’s Fiscal policy think tanks may want to sit up and take note that “if you torture the data long enough, it will confess”

My USD 0.02 to end this note : Banks and governments have this rare opportunity to reinvent themselves with data analytics. Ignore the jargons IT companies throw at you like Hadoop, big data and cloud and focus on the goldmine of data you already have access to and mine them with a few smart analysts and some power tools like SAS.

Have a good weekend,

Jumping into the Gold Rush? Think again!

Undoubtedly, if there were anything like a God of Investments in Greek or Indian Mythology, it would look like a wizened 70 year old man with plastic framed glasses and an old worn out black suit or simply stated -Warren Buffett . If he says something, you’d better listen hard, because 1) he says very little and 2) he says it publicly only once a year (through his letter to the shareholders) and 3) whatever he says seems to make helluva lotta money!

His latest letter to shareholders has some candid confessions (Read Page 4 and 5), amazing insights and importantly some fascinating metaphors which will make you stop and think. Here’s a link to the actual 22 page letter and one among the many things that caught my attention is Warren Buffett’s take on Gold Investments.

He says (and I quote verbatim from Page 19 of his letter )

“Today the world's gold stock is about 170,000 metric tons. If all of this gold were melted together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be about $9.6 trillion. Call this cube Pile A.

Let's now create a Pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers -- whether jewelry and industrial users, frightened individuals, or speculators -- must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

My Take
What motivates most gold purchasers (including you and me) is the belief that our worst fears may just prove correct. An economic meltdown of catastrophic proportions will rip through our curreny holdings and we’ll be left with nothing but a sack full of paper worth zilch (al la Zimbabwe). If you are to go by what Buffet says, and also if you're sitting pretty on gold right now, I would also advise you to rebalance your portfolio by selling some gold off and book profits. However, If you’re thinking of investing in Gold right now, looking at the bull run, my advise –Don’t let greed overtake you; stay wise; invest elsewhere...for "what a wise man does in the beginning, a fool does in the end"

Happy Alpha hunting!

Conquering the next frontier in Investment Data Analytics/ mining

All of us in the portfolio/fund management technology world keep wondering, what’s the next technological wave which will sweep and change the tech landscape. The prime reason for this keen interest is because, there is very little innovation and change which happens in the fundamental operations of these businesses. A Fund is a Fund since the birth of the concept and a portfolio is a portfolio, and there are only so many ways in which it can be looked and analyzed, and we've got multiple systems which do it in today's times.

In the early 2000s, everyone wanted an STP front to back office operation, after a few years they wanted to move from thick client architecture to thin client architecture and by 2009-10 the buzz word was outsourced middle and back office operations (a mix of man and machine technology); so the question everyone seems to be asking is what more can technology deliver to us?

I was reading this fascinating article on “Big data” on the WSJ. It spoke about how a handful of cutting edge companies were helping firms comb through terabytes and pentabytes of data with intelligent algos to aggregate and identify hidden pockets of brilliance. I strongly believe this could potentially be a trend if harnessed properly by Fund/ portfolio management firms also.

Specific to the Middle East, and when the topic of discussion is large AUM asset managers, most of the back office operations systems have now been in place for a good decade+ in several organizations. Every year, several thousand transactions go into the back office database from the transaction side. From the CRM side, wealth management pumps into the database another few thousand disjointed demographic information points. Then there’s of historical prices, exchange rates, research notes etc which go into the system from a multitude of sources and reside unused except for the occasional historical unrealized gain loss report which is requested by the CEO or COO.

Here are a few thoughts which I could figure out from the limited reading that I did over the holiday season on self learning and programmable Algorithms.

There are several types of algos which are used by data analytics firms, and some of them could also find use in the asset management industry. There are “Anomaly detection algos” (in simple terms, a string which could be used by companies to identify “Is this investment transaction in pattern, or out of pattern; does it match typical portfolio manager/ trader behaviour, or not?”) and then there are Classification algos (Is this out-of-pattern activity fraudulent, or not?). The potentials are endless. From a no-brainer idea of trying to avoid an "Adobili scandal" , to analyzing your past data to help understand why loss making deals were done in the past , and maybe even learn from the mistakes and avoid such mistakes in the present and future. Now imagine if you could insert such a string into your pre/ post-trade analyses and they could be used by your middle office to comb through fewer transactions thereby reducing your workforce in the middle office compliance function.

Then there are “Clustering algorithms”, these could be used by asset management firms to better understand client behaviour from all the disjointed demographic information stored in the databases. Eg: What other people is this fund investor of yours most like? If you were to mix a Clustering algo with a recommendation algos (k+nearest neighbor algo) you could arrive at even better intelligent decisions like, What fund or ETF would this customer be most likely to accept!

I strongly believe this is the next big leap which all large cap asset/ fund managers would want to make. The technology systems are already out there. They are being cleverly used by firms in the retail FMCG industry,  credit card fraud management industry, automotive industry etc. It is only a matter of intelligently adapting these technologies to suit into our industry.

The fundamental building blocks to reaching this state start with having a strong back office and single book of records. Having multiple back office systems is not a major impediment (as long as you have the money to spend in integration), however a single book of records ensures that these systems can be easily slipped into place when the time is right. 

Ladies and gentlemen, This is our next frontier in the buy side space ...to borrow a phrase from Star Trek "to explore strange new worlds of (unstructured Data), to seek out new (alpha)and new (client needs), to boldly go where no man has gone before"

Wake me up when its over!

Here’s a limerick written by a hotshot asset management company boss that I met recently, which he emailed to his prospective clients

As markets continue to sink,

The end could be here in a blink,

All I ask you, is to stop and think

Do your portfolio managers stink?

Quite relevant, don’t you think? Sometimes having the right portfolio manager, handling your money is probably the best medicine to ensure that you have wonderful night of sleep, but sadly most of the times they just seem to stink.

Here’s a couple of half baked common man questions to test your portfolio manager’s intelligence:


-->Portfolio manager tells me to invest in Gold, but am wondering why he is not investing in Platinum, since its rarer than Gold and has more industrial/ commercial use. Is it because Fort Knox has stocked up Gold that I should also be holding Gold instead of Platinum. Ask your portfolio manager for a convincing answer and see if he doest freeze in front of these headlights.


-->Portfolio Manager explains to me how important asset allocation into Emerging markets is; however can you explain to me why you have not invested any part of my money into rice or wheat futures. With almost 7 Billion in population, am sure feeding them something would be the most valuable commodity in the world ultimately, unless of course you have an explanation that now we’re going to start wheat and rice farms on the moon?


-->The Portfolio Manager told me in the late 80s to buy and hold for long term “Motorola”, Result-Kaput! then in the early nineties you asked me to buy “Nokia” , Result – Kaput! in the turn of the new century he asked me to buy RIM – Result – Kaput! Should I trust him on his Apple stock hold decision or should I sell it?


-->Explain to me why I should not invest in Oil? When the Libyan Oil went away from the market Oil spiked, How long will we have Iran (the second largest supplier of Oil available in the market) before they go the Kim Jong ll route or the Iraq route? Unless you think Obama is going to ask back publicly for his spy drone from Iran/ Syria/ China/ Putin&Co.

Preserving wealth is not all Fun,

Who knows what’s in store in the long run,

Tomorrow there may be a Bank Run,

And then all you’ll need is a Gun!!!!

Happy 2012 everyone! :)

Microsoft Excel on Steroids!

Black has white, bull has bear ..Any guesses on what could be the antithesis of a enterprise wide portfolio management system? well, my take is Microsoft excel. I’m not trying to take credit from excel, its probably the greatest system devised ever for number crunchers and its contribution to the development of world financial markets is probably an untold story.

However what happens when you feed steroids to Microsoft Excel, you get products (Resolver Systems Inc) like there. I was having a discussion with a friend of mine, who was partially responsible for the set up of this start up firm, and the kind of fascinating stuff they have been able to do with excel, is something beyond the realms of reality. In some ways, products like these seem to distort reality. The best systems in the world sometimes fail to help a portfolio manager calculate VaR, Black-Scholes, risk ratios, attribution analysis etc, and here was a lowly excel sheet throwing out all these numbers completely accurately.

I’m not a big fan of systems like these and believe they will always live in the fringe of the financial world, and will always only have some cowboy customers (P.S: I have nothing against the good ol folks at Resolver).

Risk is a risky subject today more than ever, people put serious money based on risk numbers which are computed; would you bet a Million George Washington's on the VaR number from an excel file or would you rather bet it based on the  numbers that come from a proven system.

I'm not trying to sell you a system here, I'm just asking you guys to give it a thought. Accuracy of data, audit issue, a bad case of fat fingers..just be aware of your risks while taking the dose of Microsoft on Steroids..you may just end up with a bad case of BenJohnsonitis!

:)

An Idiot's guide to Greece & Euro Crisis

I must admit, every day I look at the papers, the greek/ euro economic crisis seems to get more confusing. I'm tired of seeing Sarkozy and Merkel smiling, winking and shaking hands, trying to explain how the ECB is this seemingly endless supply of money. I'm tired of them trying to explain to me math which even a 5th grader knows does not tally up!!!

I chanced upon this this blog post floating around in cyberspace, read on, I assure you, it is one of the best metaphorical explanations of the Greek/ Euro economic crisis.

Here Goes...
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Greek Economy Illustration :)

Let’s pretend for a moment that Greece is a human being. I’ll call him George.

George is a hairdresser and makes $40,000 per year. George has limited assets. He has zero savings, no precious metals, and is way underwater on his mortgage. His credit card debt is over $100,000, and his bare minimum living expenses are $45,000 annually, over 10% more than he makes. George’s credit is pitiful, and he cannot obtain any more new loans.

George’s neighbor Hans has a big family. All the kids work hard and contribute to the family savings. Hans sees George’s plight and decides the neighborhood has to stick together; he starts loaning George some money out of his family’s savings, and eventually begins to take on more and more of George’s personal debts.

Many of the other neighbors– Luciano, Seamus, and Juan– are in the same boat as George: drowning in debt with massive personal expenses and no hope to pay them back.

Everyone is looking to Hans for help.  He’s the responsible one in the neighborhood. Now, Hans doesn’t want them all to go bust because he knows it would be bad for the neighborhood property values… but Hans’s children are balking at the prospect of working hard on their newspaper routes just so that George can keep his plasma screen TV.

Very soon, George is going to run out of options and will have to have a difficult conversation with his credit card companies. In the real world, there is no other choice.

In the pretend world of politics, however, European leaders have been able to convince everyone that it’s all under control. Never mind that the whole situation has completely fractured capital markets; traditional valuation metrics have taken a back seat to rumors of secret meetings and loud talk of bailout plans.

Think about it: Dexia passed summer bank stress tests with flying colors. A couple of months later it’s going bust. How can markets function without confidence in balance sheet accuracy? Or whether a government will even be around tomorrow? 

Do yourself a favor and stop watching their lips move. These ‘plans’ are nothing more than lies and misdirection. Just like our friend George, a Greek default has to happen.  Politicians can pretend whatever they want, but in the real world where we live, financial deadbeats have no other options.

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Brilliant! huh..well I didnt write it, though I saw this blog post (copied) on several websites. I think the original owner deserves his due for this super simple explanation on the Euro zone Financial situation. For the source blog on this article visit this link

In a Topsy turvy world...Apple rules!

Over the last last few weeks, we have seen so many topsy turvy things going on across the globe; It started off with some fireworks by a Christian Fundamentalist in Norway, then we had AAA go down to AA+, the Italians and the Galics gave markets a panic attack and now we've got some Mogadishu style rioting happening right in the middle of London!!!

But here's something for the stock market junkie; in this upside down world of slipping valuations, guess what , we passed a historic milestone in which a toy maker just surpassed in market cap valuations, a company extracting and processing the most valuable product for the modern industrial economy !!! Beat that!

Yes sir, you heard me right, in the post lunch trading session on 09th August 2011, Apple (AAPL) , the toy maker, surpassed Exxon Mobil (XOM) as the most valuable company in the US stock market with a whooping valuation of 341.9 Bn.

I'm not stupid enough to try and guess where the stock market is headed or where AAPL is headed, but one thing I can assure you is that this is one heck of a topsy turvy world, so hold on to your seat belts...and keep calm through the ride.

A word from a comment I found on Seekingalpha.com on Why Apple; "Apple is not a tech company or a Internet company or a dot.com type of investment. It is a powerful and unique business enterprise that has no equivalent precedent. We are not aware of any company that has integrated so many synergistic and successful businesses into a successful enterprise system under one management roof, an ecosystem that has unprecedented customer friendliness and stickiness. In the past no one company has been able to pull this kind of thing off."

Maybe that's the logic behind Wall Street's valuations on Apple...what say?

P.S: A big Thank you to Ali Shahin for the graph from Thomson Reuters Eikon :)

The "excel" germ cell !!

I was having this intense discussion with a friend of mine, trying to convince him to upgrade himself from a $30 Microsoft Excel to a sophisticated (more expensive than $30) system, when he stopped me in mid sentence and said, “you know what Anup, for the last two decades I have taken my core business decisions on numbers popping out from an excel file and I’ve never had a problem. The only times I ever had a problem all I had to do was re-boot my machine and lo! Everything was back to normal”.

I had heard this so many times in my life, I knew I had to get some quantified data regarding the perils of Microsoft Excel to convince my friend, and last week bumped into an outstanding Spreadsheet Risk Management presentation done by Protiviti.

Based on their analysis, here’s what could happen to my friend with his excel sheets, if his guardian angel takes a nap

Honest Mistakes can happen: like …S#*t happens!
• Fidelity : A Missing Minus sign caused Fidelity Magellen Fund to overstate projected earnings by USD 2.6 Bn and miss a promised dividend

• Fannie Mae : After releasing Q3 earnings figures , Fannie Mae had to restate its unrealized gains by USD 1.2 Bn. This was a result of “honest mistakes made in a spreadsheet used in the implementation of a new accounting standard”

• Provident Financial : Provident earnings for 1997 to 2002 had to be restated by USD 70 Mn, due to an error in a spreadsheet model calculating the debt amortization

And if you have a rotten apple around : S#it will definitely happen!
• Allfirst : US Subsidiary of Allied Irsih Banks : A currency Trader John Rusnak began losing money in trades in 1997. He used a series of Spreadsheet entries to hide his losses, which continued to increase. When the fraud was discovered, his losses amounted to USD 691. 2 Mn. Turns out, AIB ended up selling off All first Subsidiary all because of our helpful little Excel spreadsheets.

Anyone who’s got a Dog named “Macro”, or who gets into an elevator and double clicks the button for the floor he wants, may find all the examples mentioned above as “doomsday” predictions; but for the average Joe who believes in safe sex, I think the examples above and a read through of the Protiviti report are good enough to stop misusing excel and making it a replacement for your core business applications.

Ok, so don’t you guys want to know what happened to the guy who told me he’d re-boot his machine? I went back to office and sent him an email “The term reboot comes from the middle ages. Horses which stopped in mid-stride required a boot to the rear to start again. Thus the term to rear-boot, later abbreviated into reboot!!!! Wake up buddy, we’re no longer in the middle ages”

On a more serious note "Guys, Wake up"?

Waiting for Jordan’s slam dunk!

“Some people want it to happen, some wish it would happen, others make it happen”….here I am wondering who’s making this happen and why???? Though Michael Jordan said this in the context of Basketball, this sort of fits in quite snugly with what’s going on with this new coziness between Jordan and the GCC too.

The news last week that Jordan has received an initial nod to join the GCC came as a surprise to a lot of people, but someone definitely had been working on it in the background to make this happen. While for the GCC it may be political reasons, for Jordan it makes quite a bit of economic sense too.

- Think about it, when Oman and Bahrain went into a tail spin earlier this year with political unrest, the GCC promptly announced that they’ll be happy to loan a few billion (USD 20 Billion ) to prop their economies. Jordan got no such comfort.

- While Bahrain and Oman lived the high life on borrowed cheap oil supplies from the GCC (with market rate oil imports their fiscal deficits would have been uglier), the Hashemite Kingdom of Jordan kept looking on with hungry eyes. (Jordan incidentally imports 95% of its energy requirements)

I may be oversimplifying things here, but everyone I talk to say Jordan's woes have its sources in not having oil, water and all that blah!, but hey there are countries and emirates in the region which have made better progress than Jordan over the years without water and oil reserves. Jordan with the cutest local economy, open regulatory policies and an amazing educated workforce which most of the GCC countries would not be able to catch up on in the next few decades is a no-brainer for progress. Isnt it!

And then Bang! Reality - Anywhere else in the world, I would have thought the potential of having a few billion in soft loans being pumped into the economy would have moved financial markets, but in Sleepy hollow Amman, the exchange barely moved a needle. In fact if I’m not mistaken it went down by some basis points last week in the middle of all this. (but I’m happy to be corrected on it). Why?

What’s even more curious is when nearly 40% of the total Amman Exchange market capitalization is held by two stocks – Arab Bank and HBTF, shouldn’t these stocks have moved more positively on this news and indirectly the exchange as a whole. I mean, think about it, with the announcement coming in, this time next year, Banks will be comfortable with the fact that their govt exchequer will have some more money if ever an intervention is required into the economy; Jordanians will have access to lower gas prices and oil prices and will be in a temporary state of emotional euphoria on joining this club…but if the stock prices are any indicator ..there’s something that I’m missing out on.

I’m thinking everyone’s feeling this is just a PR Gimmick, and no one thinks this will see the light of the day until the next few years.

Can someone please wake me up when Jordan is ready to do a slam dunk! Until then…itzzzz bizzzzzness azzz uzzzual…zzzzzzzz

Oil on the boil!!!

“it's at $110, now edging $117, omg! someone just said $220! its getting higher…getting higher…aaah!” I had a general idea on why the oil prices were going up…but can someone really visualize a globe with oil prices at 220!!!. The guys at Nomura who sent a "Oil Market Update" on 23rd Feb 2011 think its quite a possibility. I was keen to learn about the method en route to this bet. Before that, let me confess, I badly needed to get my head around some basics of this oil business, because trust me, in the coming weeks, coffee table conversations would all revolve around this topic.

So I went to the Texan and said “What’s the meaning of oil at 110?” He said “That’s the cost of door delivery at Cushing, Oklahoma (USA) for 158.9 liters (one barrel) of light crude oil or delivering the same quantity of Brent (Oil) at a place called Sullom Voe in Scotland, you Stupid”. I wasn’t done yet “Ok, so if there are millions of barrels of oil being transported…who the heck is this company which makes all these empty barrels?”. Clearly Mr. Tex was amazed at my ignorance “They stopped sending oil in barrels when oil tankers were invented, Stupid”. I have one more question for an encore “errr… am assuming oil tankers are cheaper to transport oil than transporting them in barrels in a cargo ship, which is why they stopped oil barrels, right!” The guy was shocked “You are so..so stupid Anup, didn’t you even know that way back in the 20th century, in Russia when they were still using oil barrels, half the cost of petroleum production went to manufacturing of these leaky unreliable barrels. I’m also guessing Anup, you don’t know that, the average cost of oil transportation via an oil tanker is only 2-3 cents per gallon…” (Oh! I can delete this paragraph of my conversations with Mr. T, because you guys knew all of this; apologies.)

Coming to Nomura’s research. This is what they had to say on Oil at $220 :

“In order to estimate the possible impact MENA crisis has on oil supply and prices, we analyse the past crises that have rocked the region. There have been a few events that drove oil prices higher, most of which are during the period in which OPEC controlled oil prices. For example, during the 1973 Arab-Israel war, OPEC increased oil prices by US$6.5/bbl or 128%, while in 1979-1981 the Iran revolution followed by the Iran-Iraq war saw oil prices move up by about 77%. In fact the only major event that is comparable is the Gulf War in 1990-91 as it is the only event in the Middle East which seems close to the ongoing crisis during the free-market pricing era. Before the Gulf War, OPEC spare capacity stood at 5.9mmbbl/d. During the war, OPEC production capacity was severely reduced (OPEC spare capacity came down to less than 2.0mmbbl/d) and oil prices jumped 130% in a period of two and a half months”

Gulp…ok, so there is precedence and with Gaddafi still hanging around in Libya...(maybe i should just go back to farming olives). What category of an economic havoc does a jump even half the size of what is mentioned above happen in an already weakened European Union or United States! Wait read on ..there’s more

"If Libya and Algeria go offline, one can see a 3.1mmbbl/d of reduction in production…., we could see a spike in oil prices in case supply is actually disrupted, given the uncertainty that it would bring. Based on the Gulf war, coupled with the fact that demand is much higher now, we estimate oil could fetch well above USD 220/bbl, should libya and Algeria stop production."


After reading till now, am assuming everyone’s on their seat edges and waiting for the climax (reading becomes faster…) Is this the reason for oil to touch $220. Is there anything more…let's keep reading

"Currently, OPEC spare capacity stands at 5.2mmbbl/d with 3.5mmbbl/d of that coming from Saudi Arabia. As a result, we believe that there is enough spare capacity available in the OPEC to ward off any near-term supply disruptions owing to the crisis as it stands currently. If the situation in the region were to worsen in a way that it encompasses other oil producing countries as well in the future, the oil supply-demand balance could change very rapidly. In particular, if the crisis were to spread to Saudi Arabia, , there can be real threat to global oil production, the impact of which is impossible to ascertain on prices….Overall, we do not rule out the possibility of oil prices touching record highs in excess of US$220/bbl in the near term, should the MENA crisis continue to spread over the coming weeks "

Phew...So there are two caveats in this whole $220 story by Nomura:)

1) There’s spare capacity in the United States of Saudi Arabia, which could be tapped on request

2) This scenario is only possible with Saudi Arabia also joining the party with Libya and Algeria (Fat chance of KSA slipping into any chaos)


Ok guys, go back to your boring lives now, there’s nothing called Crude at $220 anytime soon. For those interested in this sensational report by Nomura , you can download the Nomura Research out here via Scribd.

The odds of freedom

I overheard someone saying "Is the world as I have known it, coming to an end? Everything seems to have turned upside down!!!" . How true, we have not even completed 50 days in 2011 and have seen two revolutions begin and end with an outcome, and those two sparking off several more freedom struggles across the region.

I have friends who have participated in the freedom struggle, friends who landed up in these countries on regular business trips and got caught up in it, friends who tweeted without sleeping across these times, but what I definitely do not have is a friend who has bet his money on a fall of a regime. Even the most die hard of Egyptian revolutionaries were unsure of the outcome of their protests, though they protested, wished and prayed for the fall. Why am I saying all this, well here goes…

I realize this may be trivializing the whole revolution story a bit, but couldn’t resist posting this and adding my two bits of thought into it. The Telegraph says that, Paddy Power – an Irish Bookmaker is offering odds on the next country to force their leader down and says Yemen is the clear favorite in the same.

Paddy Power is a blocked website in the country I live in (can anyone post me the latest odds please on the comments section),but this is what the Telegraph says are the odds offered by Paddy Power on a revolution.

15/8 Yemen
9/4 Jordan
7/2 Algeria
7/2 Morocco
8/1 Bahrain
12/1 Iran
16/1 Libya
16/1 Sudan
16/1 Iraq
20/1 Saudi Arabia
20/1 Syria

For the uninitiated on betting odds, it means they say Yemen are clear favorites for a revolution while Syria has the lowest chances of any among the list.

What do I have to add:

- If you’re a betting person, I’d suggest you put some money into the Bahrain bit. The odds are quite good to make some money

- The list has Iraq in it, wonder why. Who’s the leader anyway out there????

- Did you notice UAE and Qatar are not on the list ; am all smiles. Lovin it..lovin it :)

The secret to happiness is freedom, the secret to freedom is courage; here’s wishing the oppressed and demoralized, the courage to stand up and fight for their happiness....

Fat Cats in the Middle East!

A friend of mine posted a link on a social networking site, and I decided to dig into it over the weekend, as I needed a break from work and this entire non stop Egypt telecasts. A certain Professor Majid Ezzati of the Imperial College, London along with his team conducted a 28 year research (1980 to 2008) on global obesity trends and published it a few weeks back. If you go to the link, you’ll find the research results on a well designed online dashboard on global BMI (Body mass index) levels etc.

Before I say anything else, let me congratulate all of you living in the GCC, you just made it to the top of Professor Ezzati’s list of the fattest people in the world. The GCC ranks among the fattest in the world (With so many bankers (fat cats) in this region, that must have been easy to plot) .But after two decades of analysis the professor and his team have figured that the thinnest people live in Congo and the fattest people live in some pacific island country whose name I cant even pronounce (Nauru), but that’s not the reason for this blog post.

If you dig into the stats of the GCC Region, this is what comes up,

- As per the global ranking Kuwait ranks among the top 10 fattest countries in the world even beating Burgerland United States of America to it.

- Qatar is not that easily beaten and ranks among the 11th fattest country in the world closely followed by United Arab Emirates ranked number 13.

- If you sort the data by sex, Kuwaiti women seem to be fatter than the Kuwaiti men, while Qatari men are fatter than Qatari women.

- The fattest people in the GCC live in Kuwait and the thinnest live in Oman. GCC rankings are as follows (Fattest to thinnest) – Kuwait(29.15), Qatar (28.14), UAE (28.05), Saudi Arabia (27.91), Bahrain (27.82) and Oman (26.24)
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On a global level: Congo has the thinnest people in the world (wonder if it has to do with the fact that you can’t easily find a McDonalds or KFC in Congo), followed by Ethiopia, Bangladesh and Afghanistan (no wonder the afghans seem to be running circles around the NATO security forces)

Europe: The Irish are the fattest Europeans (ok…cant blame them..Irish cream is not exactly made out of low fat milk is it?) and the Italian studs are the thinnest of them all

Asia angle: The Vietnamese and the Indians rank among the top 10 thinnest countries in the world ranked number 9 & 10. I can vouch for the Indians being thin from the angle that Indians discovered the Veggie burger only a few years back, but Vietnam…anyone has a theory on that one?

As always, am wondering how the government PR spin doctors, will spin this data and make it sound positive, if they ever come across it. Who knows, tomorrow’s road show opening line or newspaper headlines could be – “D^&% is such a great city to make money that in no time we’ll turn you all into fat cats and now its been substantially proven, another reason why you should buy into our Sukuk!!!

Thank you

What’s in a four letter word…?

Four letter words can pack quite a punch as we all know very well, right!. When Jim o’Neill of Goldman Sachs uttered the four letter word ‘BRIC’ in a research report on emerging markets way back in 2003, he had the whole financial and political world chanting it in unison. The second time around Jim got around grouping countries and creating a new four letter acronym, he had the world watching him very closely. I would believe he would be so powerful an economist by now, that there would be countries lobbying to just get into his list.

FT news on 17 Jan 2011 reveals (Article titled: BRIC creator adds newcomers to list) that Jim is about to release his next batch of emerging countries four letter word this month. (It’s a side story that Jim is a lazy guy who takes 7 years to come up with a four letter word). As per the news report, Goldman Sachs Asset Management plans to add Mexico, South Korea, Turkey and Indonesia into this new grouping and it goes on to quote Jim O’Neill who said that ‘any economy from the emerging markets world that is already 1 per cent of global GDP or more, and has the potential for that to rise, has the ability to be taken seriously’

I did my paper napkin math and what he says does add up. The World GDP (Nominal) is at USD 58 Trillion and all of Jim’s new countries seem to be above the 1% of world GDP inflection point. Turkey has a GDP of around USD 600 Bn, Indonesia has a GDP of USD 540 Bn, South Korea has a GDP of 840 Bn while Mexico leads the pack with 880 Bn.

With some smart global lobbying and Goldman Sachs apple polishing, some policy maker in Saudi Arabia (At 440 Bn..they're a few hundred billion short of Indonesia...but closing in fast) or maybe Egypt (similar population as Turkey...ahem GDP is a bit lower) should have tried to make a pitch to these guys to get included. I understand there may be more reasons that what I want to know to start thinking why Iran could not lobby itself into the list, but the others surely are Big Brother’s regional darlings, aren’t they? Someone once told me“Everyone is beautiful, if you squint a bit”, hmm...am wondering how much you need to squint for UAE to make it into this list :-0

The amount of global publicity that Goldman Sachs has got out of coining this smart little term, gave quite a few smart alecks an idea to copy and come up with similar acronyms. For Eg; There’s this certain private Equity Fund manager in UAE which kept harping on a 6 letter word and included a whole bunch of disjointed countries from the Middle East, North Africa and South Asia (you’ve probably guessed the name by now) in every presentation by its management. I mean think about bit, who in the right mind would take them seriously if it includes on one side a country which just had a revolt, another country which had the biggest floods history has ever seen and 20 others. Well so much for that superpower economic bloc term and its creators.

My guess is that the guys at Goldman Sachs would be thinking even harder than last time around since they have to live up to the success of BRIC. My take is that they’d call it The MIST Economies (Mexico, Indonesia, South Korea and Turkey), but we’ll have to wait till the end of the month to know that.

Well here’s wishing the good folks at Goldman Sachs all the very best with their second four letter word creation.

What’s in a name…well sometimes everything? What say?

James Bond and the Middle East markets

We’ve seen quite a bit in 2010, haven’t we, and if you ask me it’s almost been like watching a James Bond Movie with its high points, creepy suspense and finally the ‘good guy saves the world’ moments. Scandals, unexpected stock market busts, political turmoil, bad guys beating up the good guy and finally histories (sporting) being created. Over the Christmas weekend, I was having lunch with a friend and we got into discussing the same and comparing the stock market with a action thriller movie and here’s the thought.

You're watching a thriller, you laugh at the happy moments, lose interest at the slow dragging dialogues and then when the suspense creeps in and the movie twists and turns, it scares the living daylights out of you. The movie could as well be called “The Middle East stock Market” and it wouldn’t be any different.

Ok, there are no blond babes and Daniel Craigs in tight shorts strutting around (thankfully) in our 3000Xtra/ Eikon terminals, but think of it laterally and you’ll find a action thriller storyline no different from DFM, ADX, Doha or Tadawul markets. In a Bond movie for example – we know what we’re getting into even before the movie begins, Bond is going to walk around with the coolest gadgets, hottest babes and get himself nearly killed (remember you nodded in agreement with the word ‘nearly’).

Take this classic James bond movie clip (Click Here) , Bond is all tied up and has a laser which is slowly going to cut him into two pieces and burn his “ahem! ahem!” off. Even if we have 30+ years of past James bond movies (stock market) data, which points out that James Bond cannot at any instance have his “ahem! Ahem!” burnt into fine dust particles; you still sit up at the edge and experience anxiety and tension, wondering ‘what next’.

Ever thought why this happens, and the only answer we could figure out was that , we experience this anxiety because in those 'moments', we're not only following the movie (stock market) with our eyes, but also our brain cells move into autopilot and an emotional brain takes over.. That means the intellectual brain goes into sleep mode and the emotional one takes complete control. Makes sense?

When we’re watching the movie (market), we’re not thinking of the long term, we’re sucked into thinking of the moment and we get drawn into the emotion and struggle to see the big picture. If the movie shifts from being a James Bond movie to watching ‘Dracula’, what would be the reaction - we hold our partner’s hand tightly (strictly speaking it may not be the way it happens in the market situation). Ok, maybe you don’t hold your partners hand, you probably just close your eyes..right?

I think its great advise when someone says with reference to the market that - Get out of the momentary reaction (short term) and focus on the big picture (long term), its also great advise when someone tells us to supplement emotion with intelligence when handling the stock market…but hey, it would make the whole James Bond movie one heck of a bore!!!

All this year end intellectual exercise is fine, but hey what’s a good ol’ action thriller without enjoying its moments :)

Happy New Year 2011 to all of you,

A City is where your heart (money) is...

Guess what, some nut offered me this really juicy offer from New York a month back and I decided to say no to it. No I’m not mentally ill; I just have a problem with reality. To top the job losses, and meager commissions, the poor investment banking souls I know down there are into their last million and are still taxed to death.

I wanted to quantify my argument, since my wife had already started apartment hunting in NY when she heard about this. I did a bit of research and came across this interesting study done by Mercer Inc (www.mercer.com). It’s called the Worldwide Cost of Living Survey 2010. From what I could read, these are the cities which I knocked out of the list and here’s a few surprise cities I’ve added

- Africa : I know Africa is booming, but just in case you get a $$$ million dollar offer from a blue chip investment bank in Luanda, Angola, remember it’s the most expensive city in the world for expats to live in. Chad and Gabon are also quite expensive and rank number 3 and 7 globally. Errr..and just a bit of friendly advise from someone who’s been quite a bit,.” In case you didn’t know…everything. I repeat everything.. in Africa bites too’

- Europe: Oh Africa is not in your radar and its Europe, I would highly recommend that you ignore all offers from London, Paris and Frankfurt and if you get one from Tirana in Albania, grab it with both hands. It’s apparently the cheapest city to live in all of Europe!!!! Oh! You’ve accumulated a zillion miles on Skywards already, am not sure what you’ll do with that, the only airline which could take you to Albania is Albanian airlines and they fly converted Hercules and Antonov Cargo planes.

- Americas: You’re looking at the Americas, how nice, you and my wife will get along well….the last I heard the economic crisis is so bad out there, they caught a truck load of Americans trying to sneak into Mexico!!! On a more serious note, It turns out Sao Paulo (21), Brazil is more expensive than New York (27). If any of you get tickled into packing your bags for this rapidly developing economy, you’d better read the fine print very carefully. Am sure most of us won’t look very good dancing around in a thong at the Rio Carnival to earn a few extra bucks to make ends meet.

- The United States of India : And if you thought you should take revenge on Indians because they just off-shored some jobs from your office to Slumdog millionaire country, think again. Someone calculated that if you’re a single guy with no kids and were offered a Million dollar job in Mumbai, 458K would get eaten up by the tax bogeyman. So let’s get India out of the list too.

Just for the heck, let me throw in some stats which I found on another blog (Singapore Hedge Fund) “KPMG’s calculations are based on the assumption that the employee is single, has no children and earns a salary of 1 million pounds a year. Tax and social security payments are calculated from Jan. 1 to Dec. 31, 2010 As of April 2010

City -->Income Tax -->Social Security -->Total
London --> £477,519 --> £13,759 --> £491,278
Frankfurt -->£476,469 -->£10,339 -->£486,808
Paris -->£350,786 -->£110,342 --> £461,128
New York -->£414,250 -->£18,520 -->£432,770
Tokyo -->£349,655 -->£12,260 -->£361,915

Good ol Dubai, Abu Dhabi, Jeddah and Muscat rank quite low in this list!!! Add in the Sun, the bling, gasoline costs and friends like you, I’ll happily pay my traffic fines and toll tax and stick around here for some more time.

Stick around guys and God bless!

The day I met Dubai in hospital

It was a cold November morning last year and I was on my way to meet my friend ‘Dubai' at the hospital Intensive care. I had heard of his ill health and it came as a shocker to me (and a lot of us) that such a healthy looking person from the outside could have been so terminally ill on the inside. A debt restructuring consultant friend of mine who was part of the team tending to him at the ICU had said he was in the weakest condition they had ever seen a patient of this category.

As I walked into the hospital on that day, I could see a team of fund managers and bankers all standing outside the hospital and shouting in the top of their voice that they had been predicting this situation for my friend for the past 2 years, but no one had been listening!!!. I said to myself ‘That was not true, you guys may not have necessarily created this mess, but you didn’t help him in any way and only goaded him along into this path to the ICU’, but I kept quiet and didn’t want to add to the cacophony.

Today, a year had passed since that fatal day and I was on my way to meet my dear friend. It was a near miracle, Dubai had survived a very close shave with death and had lived to tell the tale. As I walked into Dubai’s residence, I could see the change. A couple of years back the same place was filled with blue/ black suited men with cheques waiting for signatures, now they were no more there. The suits had been asked to stay off for a while by the expert team of medics.

I spotted my friend resting in the shaded greens and on first glance it was evident, I was looking at a new Dubai in front of me. Gone was the naughtiness and innocence from those eyes and there seemed to be a sheet of boredom drawn over the eyes. He saw that I noticed the same and said “I know, the doctors (restructuring consultants) worked very hard, but there is no medication for bringing back a state of mind to its old self, medical science has only found cures to bring back the body to its old self, not the mind”. I nodded quietly. I knew what he was going through.

A year on, from the state I had seen him at the hospital when some of his Nakheel cells had turned cancerous and resulted in several more related complications, he was now physically back to his old healthy self. The team of consultants, bankers and Global lobbyists had worked tirelessly on him by bringing in infusion of new capital medication; undertaking continuous chemotherapy to remove the advanced real estate/ mortgage finance cancer cells. Importantly they also made him live a completely changed lifestyle away from the private equity vices.

As I was leaving the house later in the day, I reflected on what this Reborn Dubai had told me and thought; “Miraculously the body was almost back to the old self, but the mind …that may need more time to recover. The confidence had been shattered, and the only medication for treating that was time”

As they say in Spanish "El tiempo da beun consejo"....time will tell

(Disclaimer: These views are purely personal and do not in any way represent the views of my employer)