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

Quack, Quack...said the Japanese Black Swan?

Well at least this time around, when some fund manager somewhere in the world; picks a stock and makes a nose dive into red with his NAV, and specifically when the geography is Japan; no one’s going to wag their finger in front of the guy and say ‘ I told you so’.

But on a more serious and specific to the region question, I couldn’t really understand what was the financial exposure of the middle east into Japan Equities; my guesstimate would be that it would be minimal and here’s what I found.

The following Funds managers and Funds from the Middle East have an exposure into Japan Equities

• Japan Stock Fund - Riyad Capital
• Al Arabi Japan Equity Fund - ANB Invest
• Al Mashareq Japanese Equity Fund - AlJazira Capital
• Japan Equity Fund - Samba Capital

What I’m hoping for the sake of the investors of these funds is that Japanese Insurance Companies are not part of the asset allocation strategy in these funds.

While I pray for the Japanese people, I’m hoping the Japanese Godzilla stays far away from our shores; Out here in the Middle East we have our own wars to fight and Godzillas (a.k.a Gaddafi) to deal with.

Quack, Quack.. ?