Sunday, November 30, 2008
Friday, November 21, 2008
Are foreign workers any good?
No, I do not really want to debate on the merits and/or pits and falls of having foreign workers in the country. No doubt, they have their merits, although it's hard to educate the man on the street to understand the economics behind this. But I do think that the the social cost, which are mostly intangible especially in the initial stage, have to be considered.
In terms of tangibility, the area of the foreign workers' dorms along Old Tampines road is always filled with rubbish especially on certain hill slopes, and pictures of foreign workers relaxing and partying on the slope after work form in my mind. Whatever happen to green and clean Singapore? Ok, probably this is a sweeping statement and the new generation of Singaporeans aren't too particular about keeping the environment clean. But if you are to ply along the dorms of foreign workers, more likely than not you will see the same scenario. The psychological impact on locals is also evident, and I believe I do not have to talk about it too much.
The government allocates 20% of local university places for foreign students and if you belong to the engineering school or faculty of sciences, that would be most apparent. While I do not object to welcoming foreign talents with open arms since having them around increase competiton and raise the overall quality of the university, 20% is a bit too much in my own honest opinion. The ministers gave the reason of locals not wanting to study these important majors with most opting for business and arts. Well, one can't blame the young 18 year olds from having such preference given the much glamor and $$$ associated especially with the heated marketing campaign and competition among SMU, NUS Business School/ FASS and NTU Business School/ School of Humanities and Social Sciences. On the other hand, no marketing effort to spruce up the dull and boring image of engineering and science was done.
Technology is associated with being hip, world-changing, full of impact, and highly lucrative in universities such as MIT, Stanford (ok, having Silicon Valley next door is a marketing ploy in itself) and also universities in Japan and Taiwan where technology is the main catalyst of economic growth. Electrical Engineering, one of the most 'common' engine majors where NUS/NTU students do not view it with much pride, is actually one of the most competitive course to get in alongside traditional competitive courses like medicine and law in the National Taiwan University. But Singapore isn't doing so bad, with 80% of the global market share in microchip processors and a vibrant life science research center, the Biopolis.
So why aren't the students here viewing technology as an attractive option? Some, or rather, most said engineering/science subjects are too boring. So are they? Or is it the way it was being taught? Business/arts subjects are relatively easier to be perceived to be more interesting since it is mostly qualitative and can be related to real life easily, while the poor engine student struggles to make sense how knowing digital signal processing or linear predictive coding or symbol synchronization can make a difference to his life. This is one of the Singapore Economy-Education Paradox (ok, there's no such term, i coined it myself), where the economy's star industry is not reflected in the education system despite the close connection between the labor force and education. Another example would be while Singapore has one of the best ports in the world, no one seems to be very interested in logistics and port management. In fact, there is no such specialized bachelor degree offered in the 3 local universities. The closest one can find is the Bachelor of Engineering (Industrial & Systems Engineering) offered by NUS and till recently, the Bachelor of Science in Maritime Studies (with Business Major option) offered by NTU, as well as the 3 local business school bachelor degree with concentration in Operations Management.
And then the controversial issue of too many MOE scholarships being given out to foreign students especially those from India and China. With their home countries coming up as super-powers, which student in their right mind, in all logic and patriotism, would choose to settle in tiny limited opportunities Singapore? The resources spent on each undergraduate MOE scholar are immense, estimated at a conservative S$125,000! And that is no small figure. For those unfortunate Singaporeans who didn't get to be admitted into the local universities end up having to spend a fortune on private institutions such as SIM or MDIS, and also most commonly opt to go over to Australia and UK.
For the uninformed, one can get a very good undergraduate/ masters education in countries such as Germany, France, Sweden and Switzerland at a bargain. Look beyond the normal destinations. Sure, there may be some language barriers but there are also some english programmes. Education in Germany is in fact free! And there's Lund University and Stockholm School of Economics, both free as well (although there are plans to charge international students now) Or take the University of St. Gallen, which is one of the more renowned university in Switzerland. Total annual tuition fees is only 1170 Swiss Francs or in today's exchange rate, around S$1480. Take in the estimated living expenses of 2000 Swiss Francs per month, the annual education in Switzerland would cost around S$ 31,000. Almost equivalent to (just) the annual tuition fees at aussie universities. And I believe Europe would be a nicer and enriching place to receive your education than Australia.
In terms of tangibility, the area of the foreign workers' dorms along Old Tampines road is always filled with rubbish especially on certain hill slopes, and pictures of foreign workers relaxing and partying on the slope after work form in my mind. Whatever happen to green and clean Singapore? Ok, probably this is a sweeping statement and the new generation of Singaporeans aren't too particular about keeping the environment clean. But if you are to ply along the dorms of foreign workers, more likely than not you will see the same scenario. The psychological impact on locals is also evident, and I believe I do not have to talk about it too much.
The government allocates 20% of local university places for foreign students and if you belong to the engineering school or faculty of sciences, that would be most apparent. While I do not object to welcoming foreign talents with open arms since having them around increase competiton and raise the overall quality of the university, 20% is a bit too much in my own honest opinion. The ministers gave the reason of locals not wanting to study these important majors with most opting for business and arts. Well, one can't blame the young 18 year olds from having such preference given the much glamor and $$$ associated especially with the heated marketing campaign and competition among SMU, NUS Business School/ FASS and NTU Business School/ School of Humanities and Social Sciences. On the other hand, no marketing effort to spruce up the dull and boring image of engineering and science was done.
Technology is associated with being hip, world-changing, full of impact, and highly lucrative in universities such as MIT, Stanford (ok, having Silicon Valley next door is a marketing ploy in itself) and also universities in Japan and Taiwan where technology is the main catalyst of economic growth. Electrical Engineering, one of the most 'common' engine majors where NUS/NTU students do not view it with much pride, is actually one of the most competitive course to get in alongside traditional competitive courses like medicine and law in the National Taiwan University. But Singapore isn't doing so bad, with 80% of the global market share in microchip processors and a vibrant life science research center, the Biopolis.
So why aren't the students here viewing technology as an attractive option? Some, or rather, most said engineering/science subjects are too boring. So are they? Or is it the way it was being taught? Business/arts subjects are relatively easier to be perceived to be more interesting since it is mostly qualitative and can be related to real life easily, while the poor engine student struggles to make sense how knowing digital signal processing or linear predictive coding or symbol synchronization can make a difference to his life. This is one of the Singapore Economy-Education Paradox (ok, there's no such term, i coined it myself), where the economy's star industry is not reflected in the education system despite the close connection between the labor force and education. Another example would be while Singapore has one of the best ports in the world, no one seems to be very interested in logistics and port management. In fact, there is no such specialized bachelor degree offered in the 3 local universities. The closest one can find is the Bachelor of Engineering (Industrial & Systems Engineering) offered by NUS and till recently, the Bachelor of Science in Maritime Studies (with Business Major option) offered by NTU, as well as the 3 local business school bachelor degree with concentration in Operations Management.
And then the controversial issue of too many MOE scholarships being given out to foreign students especially those from India and China. With their home countries coming up as super-powers, which student in their right mind, in all logic and patriotism, would choose to settle in tiny limited opportunities Singapore? The resources spent on each undergraduate MOE scholar are immense, estimated at a conservative S$125,000! And that is no small figure. For those unfortunate Singaporeans who didn't get to be admitted into the local universities end up having to spend a fortune on private institutions such as SIM or MDIS, and also most commonly opt to go over to Australia and UK.
For the uninformed, one can get a very good undergraduate/ masters education in countries such as Germany, France, Sweden and Switzerland at a bargain. Look beyond the normal destinations. Sure, there may be some language barriers but there are also some english programmes. Education in Germany is in fact free! And there's Lund University and Stockholm School of Economics, both free as well (although there are plans to charge international students now) Or take the University of St. Gallen, which is one of the more renowned university in Switzerland. Total annual tuition fees is only 1170 Swiss Francs or in today's exchange rate, around S$1480. Take in the estimated living expenses of 2000 Swiss Francs per month, the annual education in Switzerland would cost around S$ 31,000. Almost equivalent to (just) the annual tuition fees at aussie universities. And I believe Europe would be a nicer and enriching place to receive your education than Australia.
Sunday, November 16, 2008
Cost of Living
This is kinda random. I was reading through Bloomberg when this heading attracted me.
Cost of Living in U.S. Probably Dropped by the Most in Almost Sixty Years - "Prices May Have Tumbled as Economy Sank: U.S. Economy Preview "
Well, with the USD strengthening so much against the SGD, I was pretty devastated. I can still vividly remember the rate is 1.43 in May. And now it's 1.52 and going on strong.....And apparently the rental fees I am inquiring will be increased 2-5%....
Cost of Living in U.S. Probably Dropped by the Most in Almost Sixty Years - "Prices May Have Tumbled as Economy Sank: U.S. Economy Preview "
Well, with the USD strengthening so much against the SGD, I was pretty devastated. I can still vividly remember the rate is 1.43 in May. And now it's 1.52 and going on strong.....And apparently the rental fees I am inquiring will be increased 2-5%....
Saturday, November 15, 2008
Classical or Keynesian prevails?
I would love to post many of my thoughts especially after the turbulent October month but work load is not granting me the luxury of time. Facing this trade-off, to maximize my utility, this post would be 'pretty' summarized.
"Poor economic data exacerbates financial market" - But OF COURSE!! People reacted to bad news and now many companies are firing. The top catalyst has to be Lehman's bankruptcy. With uncertainty in the market, of course people will consume less and bad news such as increased unemployment, slowing sales in X company and declining profits in Y company would follow. What else do you expect? So it sets off a string of 'bad news on bad news' and what we see today is a lot of over-reaction and subsequent moral hazards playing out. I won't be surprised if after Hong Kong, more countries such as Japan (wait, has it ever really recover from the asset bubble a decade ago? lolz), Taiwan, Malaysia, Indonesia etc goes into technical recession.
10,000 miles away from U.S., DBS fired 900 staff and still have the cheek to say, "We are fundamentally strong, but is now prudent for us to realign ourselves to the challenging economic outlook." I would believe it's to raise enough capital for the payout of the Lehman minibonds which had angered the public. What's an easier way to ensure you have enough money for the payout in the very short term? Just fire off some, or rather, lotsa people in your company especially middle/ top management since they are the most expensive to retain!
While I may sympathize with some (some, mind you) that seemed to have been 'conned' into buying those risky products, somehow I would very much believe there are those who understands such risk, took the plunge and are now trying their luck at getting back some monies. See, moral hazard increased.
Switching back to the States, GM starts to approach the Fed for help citing that the cost of the company's collapse will cost the country more than to save it. GM sells cars. So if they can't sell their cars, it's obviously their own problem and why should the citizens pick up the tab for that? This happens in the mist of unprecedented government bailouts and companies seem to be taking advantage of this 'goodwill'. Moral Hazard is at play again. If GM can't sell their cars, so be it. Let it collapse. The law of the urban jungle cites only the fittest survive. No point spending to maintain a 'unrealized loss' akin to throwing money into a black hole.
How long more can the Fed continue to rescue the frail economy? As mass amount of assets lost value, money supply could shrink--recipe for a deflationary economy. But U.S. is lucky as it is the only country in the world where it can print more money and countries around the world are willing to buy them. But then, there is still a limit to how long more the world can and are willing to sustain the world's largest economy.
Then we have Alan Greenspan admitting the laissez-faire form of economics theory is flawed. Well, that is itself a centuries old debating topic. While the classical form of economics seemed to have failed in the current context, some may yet remember how the Keynesian way was rebutted as out of fashion during the economic boom of U.S. just 8-10 years ago (or even longer) where classical theory showed economic superiority.
I would not take sides although I am more of a Keynesian. Simply because if humans need laws and constitutions established to ensure law and order in the society, it just makes sense to have some regulation in place in the economy.
So what are you? A classical? Or a Keynesian?
P.S. Somehow I am glad yet grim that I would soon have the chance to assess the greatest financial fallout in the States since the Great Depression.
"Poor economic data exacerbates financial market" - But OF COURSE!! People reacted to bad news and now many companies are firing. The top catalyst has to be Lehman's bankruptcy. With uncertainty in the market, of course people will consume less and bad news such as increased unemployment, slowing sales in X company and declining profits in Y company would follow. What else do you expect? So it sets off a string of 'bad news on bad news' and what we see today is a lot of over-reaction and subsequent moral hazards playing out. I won't be surprised if after Hong Kong, more countries such as Japan (wait, has it ever really recover from the asset bubble a decade ago? lolz), Taiwan, Malaysia, Indonesia etc goes into technical recession.
10,000 miles away from U.S., DBS fired 900 staff and still have the cheek to say, "We are fundamentally strong, but is now prudent for us to realign ourselves to the challenging economic outlook." I would believe it's to raise enough capital for the payout of the Lehman minibonds which had angered the public. What's an easier way to ensure you have enough money for the payout in the very short term? Just fire off some, or rather, lotsa people in your company especially middle/ top management since they are the most expensive to retain!
While I may sympathize with some (some, mind you) that seemed to have been 'conned' into buying those risky products, somehow I would very much believe there are those who understands such risk, took the plunge and are now trying their luck at getting back some monies. See, moral hazard increased.
Switching back to the States, GM starts to approach the Fed for help citing that the cost of the company's collapse will cost the country more than to save it. GM sells cars. So if they can't sell their cars, it's obviously their own problem and why should the citizens pick up the tab for that? This happens in the mist of unprecedented government bailouts and companies seem to be taking advantage of this 'goodwill'. Moral Hazard is at play again. If GM can't sell their cars, so be it. Let it collapse. The law of the urban jungle cites only the fittest survive. No point spending to maintain a 'unrealized loss' akin to throwing money into a black hole.
How long more can the Fed continue to rescue the frail economy? As mass amount of assets lost value, money supply could shrink--recipe for a deflationary economy. But U.S. is lucky as it is the only country in the world where it can print more money and countries around the world are willing to buy them. But then, there is still a limit to how long more the world can and are willing to sustain the world's largest economy.
Then we have Alan Greenspan admitting the laissez-faire form of economics theory is flawed. Well, that is itself a centuries old debating topic. While the classical form of economics seemed to have failed in the current context, some may yet remember how the Keynesian way was rebutted as out of fashion during the economic boom of U.S. just 8-10 years ago (or even longer) where classical theory showed economic superiority.
I would not take sides although I am more of a Keynesian. Simply because if humans need laws and constitutions established to ensure law and order in the society, it just makes sense to have some regulation in place in the economy.
So what are you? A classical? Or a Keynesian?
P.S. Somehow I am glad yet grim that I would soon have the chance to assess the greatest financial fallout in the States since the Great Depression.
Thursday, October 23, 2008
Comments on Samsung F480
Ok, this is not an economics topic, or anything related to my 'original posts'. I test drive a Samsung HP F480 and part of the condition attached is I have to do a review of the HP in my blog. So here it goes:
Cons:
A Personal Comment:
I think the Ultra edition is wonderful. I used the U600 before it spoils (just a couple of months after warranty ends...I hope the same thing don't happen for my Omnia or else I'll suspect Samsung is deliberately causing their products to fail) and out of novelty, I bought the so called 'i-Phone killer' Samsung Omnia. From what I know, Samsung has stopped producing the Ultra edition which to me is a pity. Samsung seems to be rolling out touchscreen phones as the main focus with the Omnia, Innov8 and then this F480 (it's newer than Omnia apparently).
In short, I'll prefer Omnia over F480 any time.
Pros:
- Aesthetically appealing (I love the leather cover & the half metal casing looks cool)
- Small and Light (although Ultra edition still trumps.)
- Alternative to Samsung Omnia (which I am currently using)
- 5MP Camera, no more bringing out of digital camera
- Interface considered quite intuitive
Cons:
- Screen not very responsive sometimes.
- Does not run on Windows mobile = limited applications.
- The camera function of Samsung still lose out to Sony Ericsson and Nokia. This applies to the Omnia too. The flash is simply a LED, far inferior to Sony Ericsson's Cyber-shot Xenon flash. The shots becomes very pixeated when using the zoom for photos/ videos recordings. (the digital camera market is still very safe!) This also implies night shots are lousy.
- Touch screen is a killer for people with thick fingers. And there is no stylus! I tried to use my Omnia stylus and strangely, it doesn't work! Apparently the screen only works with fingers (some heat detecting technology?).
- The small screen of F480 means people will only buy it for the better aesthetic appeal (though it's subjective) and a pain to use especially when sms-ing. Omnia will almost definitely cannibalize the product. LG's Soul looks almost exactly the same as F480 minus the leather design (which gives F480 the edge).
- It's obviously a phone for women. Guys will go for Omnia, since it's more masculine and functional.
A Personal Comment:
I think the Ultra edition is wonderful. I used the U600 before it spoils (just a couple of months after warranty ends...I hope the same thing don't happen for my Omnia or else I'll suspect Samsung is deliberately causing their products to fail) and out of novelty, I bought the so called 'i-Phone killer' Samsung Omnia. From what I know, Samsung has stopped producing the Ultra edition which to me is a pity. Samsung seems to be rolling out touchscreen phones as the main focus with the Omnia, Innov8 and then this F480 (it's newer than Omnia apparently).
In short, I'll prefer Omnia over F480 any time.
Friday, October 10, 2008
Welcome to Recession
Finally the dreaded word was confirmed. Singapore is technically in recession, although that is jolly well anticipated given the market turmoil happening over at the States. The weakness of an export-driven economy flares up again. So how bad is the economy now? To give a perspective, the US stock market falls 7 days consecutively with the DJIA falling below 9000 points since 2003, the Japanese yen reaching a new high, a slowing economy in the U.S. showing up in the USD-SGD exchange rate now at 1.46 (it was 1.36 when i went China 4 months ago), the quick fire interest rate cut showing up in AUD-SGD E/R at below 1 (bid is 0.98 last check), and the stock of Citigroup is now traded at US$12.93 versus a high of US$48.95 for the last 52 weeks with the news of Wells Fargo trumping Citi's bid for Wachovia wreaking further havoc to the stock.
Why was I so concern? Coz I bought Citi heavily for my portfolio with a bet that Citi will win (damn it!). Luckily it's virtual. Haha. I admit it's pure speculation. But then, given the irrationality in the market, investment analysis no longer makes much sense. Prices just keep going down and down and down. Even with strong fundamentals, most stock prices are still going south. Probably the only consulation is dropping oil price. No amount of measures, be it massive amount of money pumped into the money market or coordinated interest rate cuts seemed to stem the market downturn with everyone adopting a wait and see attitude and the component of trust and confidence in the government and central banks dissipating.
Can the recession in Singapore be entirely blamed on U.S.? Probably, given our export driven economy. One interesting contrast is the low unemployment rate in Singapore although there might be some changes in the near future. Companies are now nervous about spending and banks are not lending to one another. One leads to another and you have a credit crunch that keeps getting worse. I remembered just a year ago the authorities are heaping on the strong economic growth in the country therefore justifying the wage raise for our dear government. Now, I must admit that they are indeed far sighted, to increase their wages at the peak of the economy.
So how will the Singapore authorities pull off this problem? For most countries, the most direct method would be to cut interest rate. But that was not the tool for MAS. Being a small country, we are basically price takers. And the MAS chooses to play around with the SGD exchange rate against a basket of currencies instead. To help propel growth, the variable bandwidth would be lossened to help export and also against inflation. We may also see the government increase public spending to expand the economy at least in the short term. How long the recession is going to last is everyone's guess. Economists put it at 12-15 months. Technically, the U.S. is not in recession yet, although all of us knows it is. The bottoming may not be ending any time soon.
So what's you gonna do now? Stop spending and eat more at home.
Why was I so concern? Coz I bought Citi heavily for my portfolio with a bet that Citi will win (damn it!). Luckily it's virtual. Haha. I admit it's pure speculation. But then, given the irrationality in the market, investment analysis no longer makes much sense. Prices just keep going down and down and down. Even with strong fundamentals, most stock prices are still going south. Probably the only consulation is dropping oil price. No amount of measures, be it massive amount of money pumped into the money market or coordinated interest rate cuts seemed to stem the market downturn with everyone adopting a wait and see attitude and the component of trust and confidence in the government and central banks dissipating.
Can the recession in Singapore be entirely blamed on U.S.? Probably, given our export driven economy. One interesting contrast is the low unemployment rate in Singapore although there might be some changes in the near future. Companies are now nervous about spending and banks are not lending to one another. One leads to another and you have a credit crunch that keeps getting worse. I remembered just a year ago the authorities are heaping on the strong economic growth in the country therefore justifying the wage raise for our dear government. Now, I must admit that they are indeed far sighted, to increase their wages at the peak of the economy.
So how will the Singapore authorities pull off this problem? For most countries, the most direct method would be to cut interest rate. But that was not the tool for MAS. Being a small country, we are basically price takers. And the MAS chooses to play around with the SGD exchange rate against a basket of currencies instead. To help propel growth, the variable bandwidth would be lossened to help export and also against inflation. We may also see the government increase public spending to expand the economy at least in the short term. How long the recession is going to last is everyone's guess. Economists put it at 12-15 months. Technically, the U.S. is not in recession yet, although all of us knows it is. The bottoming may not be ending any time soon.
So what's you gonna do now? Stop spending and eat more at home.
Wednesday, September 24, 2008
Financial Downturns = Opportunities?
I think I don't have to talk much about the recent (or rather, an issue that has been brewing for more than 1 year) financial meltdown at Wallstreet given the great publicity and tremendous amount of news pouring in every day every hour every minute. 'Too big to fail' is no longer a guarantee when you see giants like Merrill, Lehman, Fannie Mae & Freddic Mac all going down. Morgan and Goldman were also compelled to turn to depository capital thereby ending the era of Investment Banking Giants as the standalone model gets questioned.
Just when Warren Buffet fans can still recall the guru saying that he won't touch IBs as they are overpriced, the news today scream "Buffet to Invest $5 billion in Goldman".
So what do you think about the US government pumping in more than US$700 bn into the money market and the curb down on short selling? Firstly, where does the US Government gets that much money? From taxpayers of course. And probably by printing more money (since the supposedly independent Fed is now a 'lackey' of the government) as well, you never know. And while all that liquidity pumped in may calm the market, it did not solve the problem at all.
The crisis starts from those institutions in taking in too much risk, a typical Moral Hazard. Whether or not Morgan or Goldman is a pure IB or now a bank holding does little, if not, nothing to solve the root problem. If one is greedy, and wants to take in more risk at the expense of others, you can do so anywhere. The institution does not matters. Even worse, should the management be as short sighted as Merrill or Lehman, more people's hard earned deposits will be at risk. Sure, some will argue that as bank holdings, these institutions are now regulated. But with all the hoo haa of the subprime crisis, few can still remember how a bank in UK almost failed due to the subprime as well. If you have forgot about this, please google "Northern Rock". And should such an episode play out again with the IBs replaced as banks, you get a magnitude of bank runs that will be more entangled with the people's lives and economy resulting in even worse consequences.
And with more money pumped into the money market system, one can expect inflation to come. Higher inflation to justify lower unemployment rate, back to the older styled Phillips curve. Should inflation spirals faster than expected, expect a very reactive interest rate cut.
On the topic of short selling, I have mixed thoughts about it. Sure, it did boost confidence into the capital markets. After all, the market is oiled by confidence. Without this, everything does not run anymore. And I am happy to present you a view by someone in the hedge fund research industry where I had interned:
Just when Warren Buffet fans can still recall the guru saying that he won't touch IBs as they are overpriced, the news today scream "Buffet to Invest $5 billion in Goldman".
So what do you think about the US government pumping in more than US$700 bn into the money market and the curb down on short selling? Firstly, where does the US Government gets that much money? From taxpayers of course. And probably by printing more money (since the supposedly independent Fed is now a 'lackey' of the government) as well, you never know. And while all that liquidity pumped in may calm the market, it did not solve the problem at all.
The crisis starts from those institutions in taking in too much risk, a typical Moral Hazard. Whether or not Morgan or Goldman is a pure IB or now a bank holding does little, if not, nothing to solve the root problem. If one is greedy, and wants to take in more risk at the expense of others, you can do so anywhere. The institution does not matters. Even worse, should the management be as short sighted as Merrill or Lehman, more people's hard earned deposits will be at risk. Sure, some will argue that as bank holdings, these institutions are now regulated. But with all the hoo haa of the subprime crisis, few can still remember how a bank in UK almost failed due to the subprime as well. If you have forgot about this, please google "Northern Rock". And should such an episode play out again with the IBs replaced as banks, you get a magnitude of bank runs that will be more entangled with the people's lives and economy resulting in even worse consequences.
And with more money pumped into the money market system, one can expect inflation to come. Higher inflation to justify lower unemployment rate, back to the older styled Phillips curve. Should inflation spirals faster than expected, expect a very reactive interest rate cut.
On the topic of short selling, I have mixed thoughts about it. Sure, it did boost confidence into the capital markets. After all, the market is oiled by confidence. Without this, everything does not run anymore. And I am happy to present you a view by someone in the hedge fund research industry where I had interned:
Anyway, i disagree it is a necessary step. Short-selling is not theIt does pay to never rely fully on the news that was reported even in the US press:)
cause of the problem, it is a reaction. Also, people are just
bunching the different types of short selling together and saying
it's wrong. I think naked short-selling is detrimental because there
is a potential supply-demand mismatch but covered short selling is
perfectly fine.
In times of stress, the short sellers are actually the providers of
liquidity because the people who actually own the shares are loathe
to sell since it means monetizing losses. And by banning short
selling now, all the regulators have done is move people who want to
short to using derivatives such as swaps and structured notes. So,
they still have not resolved the issue of short-selling, but only
push it to a different part of the financial system. And worse, at
least short selling is regulated as it needs to go through the
exchange so there is a clearing house. But shorting via derivatives
is not.
Next, there are also a lot of strategies that have a valid reason to
short eg all the relative value, arbitrage strategies. They are not
shorting to make a firm go bust, they are shorting to hedge out an
undesirable exposure in their portfolio. There is no evidence to say
that short-sellers caused the demise of the market. A market comes
down because no one wants to buy in the first place so selling (in
any form) will push the price down. Short-selling is just an easy
scapegoat because most people don't understand how it works and there
is no clarity on that aspect of the market. In the past year, it has
been relatively difficult to short-sell because brokers are charging
very high costs of borrow so in fact, shorting of stocks amongst
hedge funds has really not been that prevalent (at least in the funds
in the emerging markets). Most have preferred to use cash or buy put
options and others will short index futures.
And finally, if short-selling really was the main culprit for the
mess, that means there needed to have been massive amounts of short-
selling in the system in order for the prices to be pushed down to
these levels, then someone or some group of people must be making
bucketloads of money. The people who are most likely to use shorts
are bank prop desks and hedge funds. Banks are going bankrupt so
they're definitely not short-selling. Most hedge funds are in the
red for the year and the ones who are positive total around 10 -20
funds of which a number are trading credit, commodities and futures
rather than outright equity. So, I have not been able to find any
beneficiaries from these mythical volumes of short-selling, then is
short-selling really as big as the papers make it out be? I think it
is just simple dumping of stock due to lack of confidence that is the
real problem.
Another anecdote, I was talking to a guy at Goldman Sachs who covers
the pension funds. The pension funds are cash rich and they all agree
that the markets are cheap now but they don't want to buy anything
because they don't trust the brokers and the custodian banks. This is
a full-blown confidence crisis on the mechanisms of trade rather than
problems with the trades themselves.
Subscribe to:
Posts (Atom)
