Power And Dollar

Is New Japanese Ambassador To China Sinking Your 401k?

Japan just named its new ambassador to China without much notice in the States.  But do you own Japanese companies’ stocks?  How much does China affect Japanese manufacturers who have factories in China?  Current ambassador Uichirou Niwa (丹羽宇一郎) will be replaced by Masato Kitera (木寺昌人).  Shortly after the announcement of the appointment, Euro started appreciating against Japanese Yen from 102 to 102.50 similar to US’ appreciation against Yen from 74.40 to 74.85 in 30 minutes. Although US’s currency strength maybe explained by the better than expected unemployment data.  However, USD was actually depreciating against EUR at the same time when JPY was depreciating against all currencies.

So, if Kitera’s appointment has anything to do with the JPY depreciation, what was the rationale in the market at the time?

Kitera has no diplomatic experience in China.  Neither can he speak the language.  It is certainly not an advantage for a diplomat.  However, this is also a reverse to the earlier policy of Japanese Prime Minister Noda (野田 佳彦) to use civilian (current ambassador Niwa is not a civil servant) instead of foreign ministry’s bureaucrats for Japan’s ambassador to China.  Is this a signal interpreted by the market that Prime Minister Noda influence is waning?

Kitera’s career has been mainly related to international organizations, such as foreign aid (Grant Aid Division of Foreign Ministry), Minister to UN and WTO etc.  What does say about the intent of Japan in its relations to China amid the recent controversies over the island dispute?

His skills of cooperation with many different entities are certainly valuable.  Are there no suitable candidates who have host country knowledge and diplomatic skills to smoothen the relationship?  Is this appointment part of the upcoming lower house election calculation? 

If former, then it may show some distrust of the political elite over the close relationship between the bureaucrats with China.  If latter, then this is a clear signal that Japan may become more aggressive against China over the island dispute, despite the US public announcements toward a more peaceful environment during the US election season.  As a stretch, this appointment may enlarge the diplomatic battle field since Kitera may be able to draw his knowledge in the international institution areas.

If Japan actually cannot feel confident about the diplomatic abilities among the China experienced bureaucrats, then this appointment further shows the talent shortage of Japan, now reaching a higher level of the civil servants than previously thought. 

Since 1995, Japan ambassador to China has been around 60 years old, compared to US to China around 57 and China to Japan around 54.  Japan’s labor force has aged tremendously over the two decades without back fill.  The death of Nishimiya (西宮 伸一), the Japan to China ambassador to be, certainly was an accident, although indicative of Japan’s talent pool.  This appointment may serve as an additional indication that Japan is running out of candidates to manage its complicated affairs against a rising power.

This may further affect its trading strength in its future trade negotiation against China in the China, Korea and Japan trilateral relationships.  Export heavy companies in Japan will be further negatively impact, such as auto manufacturers.

October 5, 2012 Posted by | China, finance, Investment, Japan, opinion, politics, stock, trading | Leave a comment

Did Obama Plagiarize Glass And Stegall?

Did Obama’s Volcker’s Rule announcement contribute to the drop of DJ?  Did Obama plagiarize Glass and Stegall?  Pundits all over the place say that is the result of the Volcker’s Rule.  One, Volcker’s Rule alone did not necessitate the fall.  Two, who among these pundits actually read what the White House press release, and not the Bloomberg announcement, is about?  Three, Volcker’s Rule is not “new”.  Volcker’s Rule is actually a re-tro.  Four and finally, what is the implication/impact (theoretical or academic) of Volcker’s Rule?  What can we learn from Geithner’s opposition to this Volcker’s Rule?

Yahoo (of all places) actually hit it right: there are plenty of reasons for DJ to fall.  Realizing the profits from Massachusetts Senator election is quite a good reason already.  In fact, the rise of DJ on Tuesday contradicts the fall of DJ on Thursday: DJ rose because the market expected that having 1 more Republican in the Senate would derail the agenda of Obama.  If investors believed in that, then the investors could not have believed Obama’s Volcker’s Rule would become law.  So, Volcker’s Rule alone did not create the fall.

The White House press release regarding Volcker’s Rule actually gives very little information.  And luck would have it that everything covered by Obama’s 01.21 announcement is already covered by H.R.4173 – Wall Street Reform and Consumer Protection Act of 2009.  Quite possibly, nothing is new. 

Worse, nothing is new: Glass-Steagall Act probably covered everything Volcker’s Rule is about.  Since Volcker’s Rule is not in the legislation form, no comparison can be done.  In fact even Volcker calls it “in the spirit” of Glass-Steagall Act.  It further proves that Obama named it Volcker’s Rule for political purposes: to show he is doing something to punish the bad guys (banks) for the rest of us. 

Preventing banks from having private equity funds, hedge funds et etc do decrease profits of the banks.  However, these funds make up 5% of revenues of Bank of America (NYSE: BAC), Citi (NYSE: C) and the like.  Yes, it does strengthen the point that this rule is for show, especially after the Massachusetts’ loss.  However, Volcker’s insistence on this issue has a point: it takes 5% of their revenue.  However, these banks are using depositors’ money to play these large bets, using FDIC’s insurance to back themselves up, and twisting their risk adjusted return on capital (RAROC).  Here is an example:  How much can $1000 bet if you were to trade on currencies?  Answer: with $1k, you can trade the equivalent of $100k of Japanese yen, British pound, Euro and so on.  If the currency fluctates 1%, the $1k is already gone.  If the market swings more than 1%, the bank has to lose all of its money (the $1k depositors’ money) and more.  So, these banks are misappropriating depositors’ money (which would be illegal in insurance laws), making taxpayers pay for their risk, and presenting themselves before the eyes of investors. 

What it really does is to draw out a lot of hot money from the market: less money will change hands on a daily basis.  That affects all industries.  Investors (institutional espeically) will have to play with real money, if this works.  Retail investors will make up a greater proportion of money in the market than before.  Market will be more difficult to be manipulated than before by a few players.  Will that shrink the whole market? Probably.  However (or hopefully), it will mean everyone will be trading with a saner head since no one will be playing with free money.

January 25, 2010 Posted by | banking, Current Events, Investment, legislation, market, Money, obama, opinion, Palin, politics, Thoughts, trading, US politics, wordpress-political-blogs | 3 Comments

Geithner: What Did You ACTUALLY Say?

http://www.reuters.com/article/newsOne/idUSTRE52O6JP20090325?sp=true

 

Geithner had a hearing, not quite an announcement on future regulation framework.  And you cannot get much out of a hearing.  So, if you were looking for a pdf of details that can help you get a feeling if Citi (NYSE:C) will get more oversight versus Northern Trust (NASDAQ:NTRS) or Union Bank of California, then sorry.

 

This is the best article I can come up with so far: 

http://www.reuters.com/article/newsOne/idUSTRE52O6JP20090325?sp=true

 

This article says merger of regulators is now a lower priority than before.  The consequence for that is the work force continues to be in limbo.  This is not the time to make these regulator employees second guessing where their jobs will be.  The administration would want them to strengthen enforcement.  The impact of this is on banks, not banks regulated by Federal Reserve (largest banks), but OCC and OTS.

 

Another interesting point is about Mark-To-Market.  Is Geithner really thinking about modifying Mark-To-Market?  This will be a plus for the banks that operate in metropolitans since theirs assets more volatile.  

 

Securitization: Congressmen maybe simplifying the problem.  However, that can be one of the fixes.  Just don’t believe that is THE fix.

 

Most of the consumer protections make sense.  However, it looks like one thing is forgotten, unless will be included in the details: education loans got loads of undesirable business practices behind the scene.  This is a good time to take care of that too.

 

Provision standard:  be careful with this one.  Geithner may end up hurting the small banks as well.  The original intent was to decrease systematic risk, i.e. reduce largest banks’ influence and increase the market share of the small ones.

 

Credit rating agency: Geithner may as well talk about appraisal firms.

 

The international settlement part will play well with countries who want more multi-polar settings.

 

It is now becoming a pattern that Geithner / Obama always gives expectation of a “plan” and then end up with a power point presentation.

March 26, 2009 Posted by | banking, Current Events, 美國, economics, Investment, legislation, politics, wordpress-political-blogs | Leave a comment

How Long Can You Wait For A GM Bailout?

GM (NYSE: GM), Chrsyler and Ford (NYSE: F) are asking for a nagging for an auto industry bailout.  This is what should have been expected once the $700B bailout flood gate is open.  After the auto industry will be the steel industry, the building industry.  If you bailed one, you need to bail all. 

 

Obama said the auto industry is important.  That may be an electoral language.  It may be too early to tell if he will deliver or break the promise.  However, one thing is certain: he should focus more on transition than governing.  For that reason, he is likely to remain mute on this issue.  

 

What about Bush?  Bush already said he will not bail out.  Some think Bush is using that to bait Senate to rectify trade treaties.  It is more likely Bush is being a prudent and a responsible out going president – do nothing.  This is best described by Treasury Secretary Paulson’s article on NYTimes.  During a transition period, the stunt show could have been to advocate for McCain (“who else can steer us through this mess?” Not that it worked).  Once the election is (or was) out of the equation, the job (Paulson’s job) is make sure the ammunition is available for Obama and hope that Paulson does (did) not have to use the ammunition or use all the ammunition.  Here is why: Paulson’s reputation will be the first for crucifixion under the Obama administration when Obama is up for a recovery failure.   The best Paulson can offer is to recommend the best talent he can find.  

 

The starting point to any bailout is the House.  Will House give the money?  Even if Pelosi wants it, she is unlikely to get the ammunition to push it through, given the controversy of the $700B and the margin that vote had.  Suppose it passes, it does not have enough votes to override Bush.  

 

Will Obama ask for it?  Who will take credit for the bailout?  Or the blame?  Who will have to be accountable to the execution of the bailout, if the money actually goes through?  Obama administration or Bush administration?  Obama wants no ambiguity.  Bush is unlikely to want to create another potential mess for a Democrat to manipulate against him.  The $700B stunt show is already enough for both Bush and Obama.  

 

So, the story is then: forget about trading auto stocks based on political news or even the hearing.  No matter how appeal the hearing will turn out to be, the earliest possible actionable news is after Obama’s cabinet becomes clear, if not after inauguration.  

November 19, 2008 Posted by | Barack Obama, business, Current Events, Democrats, economics, Investment, legislation, Money, obama, politics, Republican, stock, wordpress-political-blogs | 1 Comment

$700B buys a Wall Street PATRIOT ACT

Warren Buffet has called the credit derivatives the “financial weapons of mass desctruction”.  To combat this financial weapon of mass destruction, Bush administration is getting another Patriot Act with a price tag of $700B.  Pentagon runs about $500B.  Paulson is essentially asking to run the biggest show now.  The best part of this proposal is that Paulson left out the oversight part.  Even McCain is screaming about oversight now.

 

$700B of spending without oversight.  Hm… does it sound like the No-fly list created by PATRIOT Act?

 

Patriot Act was the last option before the Al Qaeda Armageddon.  Paulson now delivers the rescue of last resort (the latest?) before the financial weapon of mass destruction.  A nice parallel.

 

Forbes gives a good article about all the major points of the Paulson proposal here.

http://www.forbes.com/home/2008/09/20/banking-bailout-paulson-biz-wall-cx_lm_0920questions2.html

 

The foreign participant part is just special interest (executive compensation too), no different from any other legislator who wants a dip.  The interesting part is, so far, this plan seems to only focus on bailing the banks and leaves out the individual homeowners.

 

Working off these assets is a huge task.  If this bail out effort has the budget constraint of 700B, then prioritizing the assets itself is highly political, especially during an election year.  

 

The unfortunate part of this story is that he only gets to stage the show, not really running it since he will be leaving office by the time everything is running.  Is this thing going to be cost effective?  Is it going to be worth the money?  Or is it another gig of pork barrel and plum jobs?  Remember how the contractors got nice deals out of the war against terrorism? And somehow quite a good amount of them are friends of Cheney?  Is this the Paulson version now?

Fear is the best friend of politicians.

September 22, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Election 2008, Investment, John McCain, mccain, obama, Palin, politics, Regulation, Republican, Sarah Palin, wordpress-political-blogs | 5 Comments

Why AIG? Why Not Lehman?

Bush administration has been acting already.  We just don’t know if the actions are effective.  Why did the government bail out AIG (NYSE: AIG) and not Lehman (NYSE: LEH)?  And now with US$180B from central banks all over the place, would that not be enough for Lehman?  Why did the market react so well to the AIG bail out news initially and fell flat the following day (449 points)?

 

Lehman’s failure is expected to be well contained within the market.  Federal Reserve considered AIG’s failure to be contagious.  Since asset seller always knows more about the sale than the buyer, Federal Reservemay have advanced knowledge (they must have studied the books and saw it coming.  Else Federal Reserve cannot come up with a number, any number, just enough to be a lifeline.) about AIG’s books and prompted the bail out.  Furthermore, Lehman, Merrill (NYSE:MER) (sold, not bail out), and AIG may give a strong appearance of cascade effect.  Therefore, propping up someone may be necessary to give the signal that Treasury continues to back up the market and will not let a free fall. 

 

Bailing out AIG gave confidence on the day of bail out news release because the market thought “Thank God they bailed out AIG”.  However, the fall on 2008.09.17 is the result of an after thought: “Since AIG is not a primary dealer to the Federal Reserve, its exposure should not be the greatest.  Therefore, if AIG can go down, ….”

 

The not bail out of Lehman is giving some other information. 

 

Is Federal Reservebeing selective about the bail out based on the quality of portfolio rather than the dollar amount required?  After all, Federal Reservebailed AIG, Freddie, Fannie and Bear Stearns and not Lehman.  On top of that, Federal Reserveengineered Countrywide and Merrill sales.  Bear Stearns was just the first time.  By the time Freddie and Fannie got their bailouts, Treasury should have a good experience by then (sadly).  

 

Is Federal Reservebeing selective about the bail out based on the exposure of counter party risks (I doubt this part of AIG’s books is public information.  I can only suspect that LA Times is making a speculation.)?  Is that why Lehman is not saved?  Therefore, “Too Big To Fail” is based not on dollars but counter parties.  Will that encourage other firms to increase its counter party risks in order to secure itself to be bail-able?

 

Federal Reservehas been trying to implement other controls to fix the market.  Is Federal Reservestudying the second wave of controls based on Lehman’s failure?  In this case, it would be very clear that we can expect more failures since the previously implemented controls failed to prevent more meltdowns.

September 18, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Investment, John McCain, mccain, obama, Palin, politics, Republican, Sarah Palin, wordpress-political-blogs | 3 Comments

The Danger Of The Merrill Purchase To You

Thank God, they bailed out AIG”?  Can we say “Thank God, Bank of America bought Merrill”?

Do you think the Merrill (NYSE:MER) take-over by Bank of America (NYSE:BAC) is better than the bankruptcy of Lehman (NYSE:LEH)?  Because at least the company is saved?  Not really, unless you are an employee of Lehman.  In fact, the Merrill take-over by Bank of America is worse to all tax payers and to anyone who is a depositor of Bank of America (Bank of America has overseas operations).  

 

Investment banks take high leverages.  Investment banks have a different nature in their business from retail or commercial banks (or wholesale banks).  That is why investment banks have a much more volatile nature than other banks.  For instance, take the year 2000 instead of 2008.  The market capitalization variation of Citi (NYSE:C) is only 29% while Goldman (NYSE: GS) is 62%.

 

The danger of this merger is that since investment banks are a lot more volatile, having a deposit bank and an investment in the same balance sheet puts the retail depositors’ money in danger.  It comes down to one question: what if the hole of investment bank is big enough to suck out all the depositors’ money?  Exactly for this reason, America got a thing called Glass-Steagall: separating investment banks and deposit banks.  This requirement is removed by another law Gramm-Leach-Bliley during Clinton Administration.

 

Glass-Steagall was created to contain the risks from the investment banking industry, preventing their risks to spread out to all over the place.  Investment banks make loads of money during the good time, i.e. high M&A seasons.  During the bad times, like we have now, investment banks sink harder than Titanic. 

 

This merger means more of FDIC’s money is now exposed to a greater risk, the hole of Merrill.  Bank of America’s Tier 1 capital is now at best 7.4% Once we see formal filing, we will probably see that the Tier 1 will be even lower than 7.4%.  What is the cost to the depositors?  What can be done about it?  The fed can actually give Bank of America a greater pressure on the Tier 1 capital requirement.  It cannot fix everything, but something. 

 

Bank of America already swallowed LaSalle and Countrywide.  However, Countrywide is more about swallowing client list.  LaSalle is more about geographic expansion.  Merrill is about a new business line and new clientele.  This will be a great test of Bank of America’s management.  It’s just that Bank of America is not known for management integration.

 

Certainly Bank of America got the biggest brand in the investment bank.  What is the price in addition to the stock swap?  What is the management cost of this merger?  This will take years or even a decade to work out the integration.  How long will it take to get a divorce out of this one?

 

September 17, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, finance, Investment, John McCain, market, mccain, Money, obama, opinion, politics, Regulation, Republican, Sarah Palin, wordpress-political-blogs | Leave a comment

Whose Money Get Hurt In The Middle Of This Cold War 2?

 

Russia invaded Georgia to show Russia is still a superpower.  Certainly, Russia caught the US off guard.  And of course Russia is dragging its own feet to leaveIs the objective of “being a superpower” achievable for Russia?  What are the impacts?  What companies will get hurt the most?

 

Russia is no longer financially strapped like they were in the 90’s, thanks to the oil.  Military is a very costly adventure to archive national interests.  To assess if the objective is achievable is equivalent to ask if the economy can support such an activity.  Since exchange rate is different daily and purchasing power is different in each country.  A good way to measure the GDP is GDP by purchasing power parity (PPP).  This is a link to 2008 GDP PPP. 

 

Russia is about the scale of France, both are less than $2.1T.  The US is $13.9T while China is half of the US ($7T) and India is $3T.  Russia’s scale of economy is about 1/7 of the US and less than 1/3 of China.  Russia’s export is mainly natural resources (or defense sales).  Its exporting countries are mainly EU countries, i.e. NATO countries.  

 

Its economic structure is heavily dependent on 1 type of product to 1 geography (or even 1 buyer).  Anyone could have given a warning to a company that is so heavily dependent on 1 product to 1 buyer.  It is then very obvious that this strategy cannot last long.  

 

Since Russia’s size of economy is so small (1/7 of US), a new Cold War cannot get started.  The scale of this Cold War 2 is either small or short.  Russia’s fuel will get burnt out very fast, when compared to THE Cold War.  With the energy price keeps falling, this strategy will fail even faster.  Russia’s only hope with this strategy is to have more support from China and India to build a multi-polar world.  

 

The impact will be felt most heavily on companies where Russia constitutes a major part of their operation similar to their operation from NATO countries.  It need not be revenue, operation such as production or material input would be enough.  BP is an obvious example.  Energy is an industry where everyone will have to look for.  Heavy industry is another.  Anyone who has production sites in Russia can get stuck.  Russia’s militarism will increase friction with the NATO countries.  Pressures will not only come from international sanctions (if any), but also Russia’s suspicion against these companies’ operation in Russia and other CIS countries.  

August 19, 2008 Posted by | Barack Obama, business, Current Events, economics, Investment, John McCain, mccain, Money, obama, politics, wordpress-political-blogs | Leave a comment

Obama vs McCain Platform (Part 3): Your Taxes

Obama made his tax announcement on 2008.08.12.  This probably the most valuable plank in any election.  Yet so little attention is paid by the mainstream media.  Is the Olympics Game drowning out all the media space?  This post summarizes the most important points out of the 2 candidates studied by TaxPolicyCenter.org’s research based on IRS data.

Under Obama’s tax plan, 99% of tax units will generate more tax refund (by cash income, see Table 1 of the link).  Only the top 1% of tax units will have to pay more taxes.  

 

How much do these top 1% earn?

Well, $2,871,682. 

 

Let’s look at McCain’s tax proposal.  This is the Table 6 of the same link.  Great news!  Everyone gets to pay less taxes!  Even the top 1% pay less.  The lowest 20% of tax units pay $21 less in taxes while the top 0.1% pay $290,708 less!  One may argue that since the lowest 20% have a smaller taxable income, their smaller tax refund increase is justifiable.  That is a very sound argument.  So, let’s see if the tax refund were proportional across income groups.  

 

The lowest 20% of tax units will see an increase in after-tax income of 0.2% while the top 0.1% see an increase in after tax-income of 4.7%.  This is also McCain’s.  Even Arizona’s newspaper cries fool.

 

For Obama, the lowest 20% tax units see a 5.5% after-tax income increase while 1.9% for the highest 5% tax units, 0% for the highest 1% tax units.  The top 1% see 8.7% decrease in after- tax income and the top 0.1% see -11.4% decrease in after-tax income. 

 

People have been wondering about capital gain.  Obama’s announcement also clarified some clouds as well.  TaxPolicyCenter.org checked the numbers on this capital gain issue as well.  

 

Although 80% of the tax returns claim capital gains in 2006, they take up only 6.2% of capital gains.  These filers are all below $75k in Adjusted Gross Income.  However, 0.3% of all returns take up 60% of capital gains and they are all >$1M Adjust Gross Income filers. 

 

Obama’s tax plan was absolutely unclear prior to this announcement.  But then it is the voters who can force the candidates to be clear and accountable to their promises.  

August 15, 2008 Posted by | Barack Obama, Current Events, 美國, Democrats, economics, election, Election 2008, finance, Investment, John McCain, mccain, Money, obama, opinion, politics, Republican, wordpress-political-blogs | 3 Comments

The Common Interests of BP and Georgia, And Your Money

Ever since the Russia-Georgia conflict became the hot news item, the share prices of British Petro moves as CNN news stories are read.  BP almost became the barometer of this crisis.  Why BP?  They got their pipelines there.  BP is also having a power struggle from Russian government which wishes to take more control of BP’s operation in Russia.  Therefore, if Russia will occupy the land where BP’s pipelines are, it will carry more political risk to BP.   

 

Therefore, any news of resolution will help BP’s price.  The closing price of BP on 08.08 F is US$60.86 at LSX.  The closing price on Monday is 58.7701 down 3.4%.  The good news on Tuesday brought up the price to $59.32.  Just now, Bush’s announcement helped bring up the price to US$59.60.

 

BP is not traded in the US.

 

However, all US oil companies are going up, exactly because they are away from the conflict area, consistent with the argument from Friday’s post: political risk of this conflict was already being priced in the currency market.

 

So in the short run, Chevron, Exxon, Petro Canada, Marathon and ConocoPhillips are all going up.  Of these 5 companies, 4 are US and 1 is Canada.  The other oil company that is falling is of course Shell which is much closer to the conflict area.

 

Is the cease fire going hold?  First of all, here is the six point agreement:

1)       Negotiate the status of the 2 separatists provinces

2)       Non violence

3)       Ultimately stops military actions

4)       No interruption against humanitarian aids

5)       Georgian forces returned to permanent positions

6)       Russia returns to pre conflict positions

 

Now, Russia’s intent is on regime change because the sitting Georgian president is pro West and took Georgia to NATO.  Nothing here actually addresses the core issue.  If there is more information to what is public available, then a cease fire will actually take place.  Else, this is to buy time.  Aljazeera confirms (in addition to US/UK media) Russian troops are still moving.  Therefore, EU or France actually got a worse deal than staying silent.  A broken deal just proves than EU/France is an irrelevant and ineffective broker.  

August 13, 2008 Posted by | Current Events, 石油, 美國, economics, Investment, market, middle east, opinion, politics, stock | 1 Comment