Saturday, June 30, 2012

Fortune Fantasy Executive Game

Found this link for Fortune Magazine's Fantasy Executive Game. Its two minutes of fun. Go check it out (if you're into that kinda thing).

See my team below. Click here to play.

Let me know how your selection goes! 

Thursday, June 28, 2012

The Other Manmohan?

Today I learnt that, as of April 2012, the IMF employs an economist/researcher named Manmohan Singh. Look.

That is all.

P.S.: Here's a photo of the man I managed to find. Rather dashing chap, ain't he? 


I cannot believe that I have missed this when it was making its way up the shitter.

What, you ask? 

That LIBOR, which is as basic a rate as you can find in the whole of finance, was consistently manipulated by Barclays (and God knows who else).

If you're a finance guy, think of it for a second. LIBOR is the bedrock of any (and most) deals done throughout the world. There are more than $360 TRILLION worth of contracts which are based directly on the LIBOR rate. 360-Fucking-Trillion. And these guys are manipulating this rate. It is insane. 

The best part? Barclays paid a $450 million fine and (I suppose) walks away. That's it. Nothing more. That 0.000125% of whatever damage they may have caused.

And there might be some criminal cases against a few employees, who obviously cannot afford to pay $450 million.

As I say again, this is insane. They manipulated LIBOR. Look, I know the world of high finance isn't all fairies and chocolates, but even I thought there would be a limit somewhere. Duping retail investors, forcible foreclosures etc. etc. are basically crimes by finance against outsiders (or normal society, as we call them). I wan't as jaded as to think finance guys would turn on other finance guys, especially on something as fundamental as this.

Must know more about this. I am woefully under-educated. Stay tuned. 

Wednesday, June 27, 2012

Whew... Finally!

PM takes stock of economic situation

You all can totally chill now. The PM (now also the FM) has finally decided to 'take stock' of the economic situation.

I know, I know, you all might be thinking why he hadn't gotten around to it earlier. But better late than never, yes?

I feel totally confident already. 

Tuesday, June 26, 2012

We'll never let you go...

You see all these MF ads wherever you turn. Some new scheme launching or something else. Although the ads have come down since their peak in 2008-09 (remember the marketing blitz associated with the Reliance Small Cap fund launch?), their ads are still pretty common.

But the thing is, once you do actually start a SIP, they make it as difficult as humanly possible to stop you from getting out. Actually, what they do is they count on our laziness to postpone tasks and to generally put things off to drag out the thing as long as possible.

I started off with SIPs sometime in 2009-10 and was looking to make a few changes this past year. Here's how I fared.

Reliance SIP: You can download the form, fill it and send it to them. No online stopping business. If they don't get the form 21 days before the next SIP date, they automatically disregard the request and don't bother to inform you. 

HDFC SIP: Just creating an online login involves sending in some form (in triplicate, I think). I haven't been bothered (yet). Couldn't cross pehla padaav only.

Sundaram BNP Paribas: No online forms. You can buy anything you like, and generally transact in any way, except stopping your SIP. No forms, period. Write a letter mentioning all relevant details, then hand-deliver it to one of four offices in Mumbai and that too 30 days before the next SIP. Or else, thank you, come again.

Fidelity: They allow you to invest/redeem/switch/SIP etc. etc. but nothing on their system allows you to stop one. Frankly, I still don't know how. Couldn't find anything on the website. Might have to call up the helpline and ask. Their website doesn't even have a search facility.

Birla Sun Life MF: Nothing to stop a SIP within their customer login. Again, you can purchase, redeem, switch, start an SIP/SWP, but no stopping. One document states that cancellation request has to reach their office 30 days before next SIP, but how to go about doing it I don't know. I couldn't find out how to cancel on the website. Again, will require calling them up I suppose.

ICICI Pru MF - Have a cancel iSIP option when you login to their customer desk, but not one if you've started the old-fashioned way i.e. by filling out a form. Still, something better than nothing, yes? They have a FAQ section, which absolutely does not tell you anything about how to stop your SIP. Le sigh...

Can't SEBI make giving a simple "Stop SIP" button on the website mandatory? Or AMFI? Someone? Anyone?

Wednesday, June 20, 2012

CDR Cases - India (Oh, and copying?)

Two quick graphs on CDR cases in India via Reuters:

Any way you look at it, industry's not going to be able to pull on (well) for much longer. 


The above was my original post. These pictures, I originally got from a Moneycontrol article titled: Deadbeat corporate borrowers? Not in India
Then I went searching on Reuters and to my surprise, got the same article, with the same title, same authors, same photo even and the same copy here: Deadbeat corporate borrowers? Not in India
See for yourself:

Agreed, on moneycontrol, it was filed under 'Wire News' but can we still do that? Just copy paste stuff from reputed news sites, without linking to the original, and scrape page views off? I guess I should get someone to write a script for me that does the same. Pageviews guaranteed.

Tuesday, June 19, 2012

Legal Opinions on Blackmail

That's what it looks like from this report in Rediff:

Telcos must drop cases against govt to get spectrum

Apparently, DoT has asked the Attorney General if such a clause is viable.

Whatever else you might say, brazenness does not appear to be one of DoT's or GoI's short-comings...

Monday, June 18, 2012

Soros on Europe


"Best thing ever written on the Euro crisis"

"Brilliant ... a dynamo"

That, and more, are the phrases being flung about for a speech given by George Soros at the Festival of Economics, Trento Italy. You can read the speech here and it really is a remarkable piece of analysis.

Points I could gather (but you really should read the speech on your own and draw conclusions):

  • Economics is a social science; modelling it on Physics is a waste. Current economic theory ignores participants
  • Economics tried to make up for this by using an axiomatic approach. Upto a point it worked, but current theories are far removed from it.
  • Quote: "I am not well qualified to criticize the theory of rational expectations and the efficient market hypothesis because as a market participant I considered them so unrealistic that I never bothered to study them." (And this is the stuff churned out in countless MBA colleges as gospel)
  • Different approach: Relation between participants and situations. First, people seek to understand the situation and second, to impact it. When both are working together, they form a feedback loop (reflexivity). Together, it ensures that "people's interpretation of reality never quite corresponds to reality itself".
  • His model is boom-bust process or bubbles which are built into the markets and not the result of outside influence. As per above theory, there is an underlying trend, but people misinterpret it, leading to bubbles. Develops slowly but bursts fast because of leverage.
  • Financial markets tend equally to bubbles as to equilibrium. Bubbles lead to crises lead to regulation; all the while in a reflexive loop.
  • TA, DA! - The European Union is a bubble. Read again, not the Euro, not the Euro crisis, but The Union, as a political entity is a bubble. Euro crisis is a result of this bubble. 
  • Goes on to describe the boom phase - ideal of a unified, democratic, equal Europe, to be achieved via piecemeal social engineering (solve one problem, confronted by another, solve that and go on and on), led by Germany and German sacrifices.
  • Indirectly hints at the exact moment in time when Euro crisis really started - When Angela Merkel said that guarantees to financial institutions should come from individual countries and not Europe. Ideal of a united Europe was lost there.
  • Main problem of Europe - monetary union without political union, which was believed to be surmountable. But now it is known that even bigger problem was that states simply couldn't print money (in effect, members did not have control over money supply). When crisis came, Europe was simply divided between debtor and creditor states.
  • Debtors countries were like third-world countries (like in Asian crisis) having issued bonds in a currency it did not control (effectively of the creditor countries)
  • When markets finally realized that those countries could default, risk premiums rose and now banks hold bonds which are already defaulting, or about to.
  • Two major components of crisis - Sovereign Debt crisis (mainly Greece) and Banking crisis (rest of Europe)
  • Creditor countries equally, if not more to blame for flawed policies
  • All countries tried to buy time, usually it works, this time failed because of political disintegration of the European Bubble mentioned above. 
  • Some more technical stuff that you really should read about how this break-up will actually come about
  • In his opinion, authorities have 3-months time to reverse current trends. Oh, and authorities = Germany
  • Possible solutions and ways out...
  • Orderly breakup of Euro possible
We don't even begin to think like this...Fantastic.

Sunday, June 17, 2012

Trading in INR

Nice post out on Ajay Shah's blog on the daily trading in the rupee. Allow me to quote him liberally. He and Vimal Balasubramaniam try to answer four specific questions:

  • How big is the daily trading in the rupee?
  • Where does the rupee stand, in global rankings of currencies?
  • Where does trading take place?
  • Where are we on the onshore versus offshore distinction?
For the answers, head over to his post 'Trading in the rupee: Starting to look like serious numbers'

For the tl;dr version go to the absolute end, where he gives the conclusions. But I recommend reading the entire piece at least once.

Everyone and his aunt wants the same thing: Get our house in order. But the question is, who will do it?

Thursday, June 14, 2012

Things Analysts Say - I

A classic bit of analyst-speak from PL's Amisha Vora:

Translation: Markets will go up, markets will go down. Translation 2: We really don't have a clue what the markets are going to do.

Wow. This is our industry folks...

Wednesday, June 13, 2012

A to Z of Bad Banking

Via The Independent. Putting up the entire thing here in case they decide to ever yank the page... See especially Bonus and Zoo.

Asset Backed Security: Or one of the things responsible for the mess we're in. You bundle together assets that are otherwise difficult to sell or trade, such as mortgages or car loans. You then sell shares in them to a variety of investors around the world such as banks, pension funds, even local councils (this was done with US sub-prime home loans, contaminating the globe when they went pop).
Adoboli, Kweku. The London-based UBS trader accused of fraud and false accounting over a $2bn trading loss, charges he denies.
Bonus: The prospect of which is what gets bankers out of bed in morning.
And Bad Debt. Loans, or other forms of credit, which don't look like they will be repaid. Lots of the Asset Backed Securities sold prior to the financial crisis count as this now.
Credit Default Swap: Or CDS. Derivative that is very similar to insurance. The buyer pays a premium and receives a pay-out if a company, or a country, goes bust. Neither buyer nor seller need to have any connection to the company (or country) concerned, which makes it look not so much like insurance as it does a bet: hedge funds and banks often buy them when their analysts think that a company (or country) is set to go belly up.
And Collateralised Debt Obligation or CDO. A type of Asset Backed Security (See Bad Debt).
And Chief Investment Office. The JP Morgan unit now showing losses of more than $3bn (and rising). JP says that its job was Hedging. Critics allege that its activities look rather more like Proprietary Trading.
Diamond, Bob: The chief executive of Barclays who has become the lightning rod for the controversy over Bonus(es) in Britain on account of his £17m pay package in 2011. Most of this came in the form of bonuses despite Barclays missing the financial targets he set.
And Derivatives. Lots of which are traded by investment banks. A derivative is a contract between two parties. Payments between them depend on the performance of an underlying variable. That variable can be a share price, or a currency or even the weather. Named because the contract is derived from the underlying variable. The number of these in circulation has been growing rapidly. You can even get derivatives of derivatives. Things get really interesting when an unexpected event, such as the credit crunch, throws the trading positions that banks take in derivatives into a spin.
Excess: Which is what the banking industry indulged in with wild abandon before the credit crunch got under way in 2007.
Fabulous Fab: Or Fabrice Tourre. The 31-year-old Frenchman and former Goldman Sachs employee is awaiting trial for fraud in the US where regulators allege that he failed to disclose that a hedge fund helped pick the debt that was bundled up into a CDO that he created with the intention of betting that it would blow up (with the help of CDSs). Goldman settled fraud charges for $550m without admitting liability after it did indeed blow up. Mr Tourre, whose lovelorn emails to a co-worker were published as part of the case, was earning $2m a year by the age of 28. His thirties have been harder. The New York Post has described him as a "weenie" and he's recently been doing volunteer work in Rwanda while studying for a PhD.
And Financial Conduct Authority, which will take over the job of Britain's chief financial watchdog from the Financial Services Authority, although the Bank of England's Prudential Regulation Authority will keep tabs on the financial health of banks.
Glass-Steagall Act: A US law dating from the 1930s' Wall Street Crash which was designed to control financial speculation and separate retail banks from investment banks. No longer in force. Which shows just how little we have learnt from history.
Hedging: A hedge is an investment position taken by a financial company with the intention of covering losses from another position. For example: Some brokers allow clients to take out Contracts for Difference (CFDs), which are bets on whether a share price will rise or fall. If a client places a bet with his broker that BP will rise, the broker then buys enough BP shares to cover the bet (this is the hedge). If the share rises, the broker can pay the client with its BP share profits. If the share falls, the client pays. The broker makes money either way by charging a fee. Hedges usually involve Derivatives and can get much, much more complex than the above example.
Inter-broker Dealer (IBD): These companies allow banks to trade all sorts of financial instruments with each other, anonymously. They are regularly involved in court battles with other IBDs over staff poaching. These tend to be quite colourful. Previous examples have featured revelations of cocaine use, strip clubs, and lots and lots of booze. The City at its most raw. Examples include ICAP, BGC Partners, Tullett Prebon.
Jamie: The nickname favoured by James Dimon, the boss of JP Morgan. A New Yorker who seemed to walk on water while steering an (apparently) smooth course through the financial crisis after which his bank emerged as the world's biggest. He was leading the industry's attack on banking reform until it emerged that JP had lost $2bn after a single London-based trader was allowed to build up huge positions in Derivatives. Oops.
Kerviel, Jerome: Another French rogue trader who racked up €4.9bn in losses at French bank Société Générale. A native of Britanny, he briefly became a counter-culture icon and is now appealing a conviction for breach of trust. The bank said he was a rogue trader who acted alone. This has been greeted with a degree of scepticism.
Lloyd, Blankfein: The boss of Goldman Sachs and crown prince of casino capitalism. A former lawyer turned financial trader, he joined Goldman when the latter bought J Aron & Co. Paunchy, bearded and with a fondness for conventional gambling (on the Las Vegas gaming tables) in an earlier life, he smartened up his act and became a master of the financial casino. Made $72m in 2007, according to Forbes magazine, which gave him the number one slot in its "Biggest CEO Outrages of 2009" after he told The Sunday Times that he was "just a banker doing God's work".
And London Whale. The Nickname of Bruno Iksil, yet another French trader. He built up huge trading positions, largely in debt, for JP Morgan's Chief Investment Office. They have now started to show huge losses.
Market abuse: In simple terms this is using knowledge you have but which other people don't have – either deliberately or by accident – to make a profit from shares, bonds, or anything else covered by the Financial Services & Markets Act. Also covers share ramping (spreading rumours to push up the price of shares that you hold) and various other nefarious practices. The FSA has become quite serious about policing it of late.
Non-status lending: Another way of saying sub-prime lending. It means lending to people with poor credit ratings. People who have previously defaulted on debts, or who don't have much of a credit history, for example. A major cause of the financial crisis. With interest rates low, banks started looking around for ways of generating higher yields. They thought non-status lending was the answer. By packaging up parcels of loans to these people you create a product with a potentially handsome yield because non-status borrowers have to pay very high interest rates whatever the base rates set by central banks like the Bank of England do. While more non-status borrowers tend to default than is usual with "prime" borrowers, this was supposedly factored into the way the products (Asset Backed Securities) were set up. Worked fine until nearly all the borrowers started defaulting.
Options: No not the Derivative of that name. Options as in share options. A way of paying executives and bankers by allowing them to buy shares at a fixed (low) price with the intention of selling them on at higher prices. Rather fallen by the wayside in favour of restricted shares, which are bought by the bank and handed over as a bonus at a later date if certain (usually rather simple) performance criteria are met. Regulators have demanded such shares be clawed back if banks make losses attributable to particular bankers. When Lloyds Banking Group clawed back shares from former executives in charge at the time of the Payment Protection Insurance scandal the squeals from the City could be heard in Outer Mongolia.
Proprietary Trading: Banks tend to have a lot of money sloshing around. They can either hold it safely in low-risk places, or they can use it to trade, taking bets on how markets will perform usually through the use of Derivatives. Can generate huge profits for banks and huge bonuses for bankers. Can also generate huge losses for taxpayers if things go wrong (But Bonus(es) tend not to be too badly hit).
Queen of Wall Street: The nickname given to Ina Drew, who has been dethroned thanks to being in overall charge of JP Morgan's Chief Investment Office when it started racking up big losses. Ms Drew will take the crown jewels with her: she made $15m a year before "retiring" and her pension plan is likely to be eye-popping.
Regulation: There wasn't much of this in the run up to the financial crisis. Bankers now claim the pendulum has swung too far the other way with ever higher capital requirements being imposed to cover banks against future losses and the European Parliament considering measures to force ever-lower bonuses. And Royal Bank of Scotland. Too little of that Regulation allowed its chief executive Fred Goodwin to steer the bank on to the rocks requiring a multibillion pound bail out.
Squid, Great Vampire, Wrapped Around the face of Humanity, Relentlessly Jamming its Blood Funnel into Anything That Smells Like Money: The memorable description of Goldman Sachs made by journalist Matt Taibi in Rolling Stone magazine in a lengthy evisceration of the company.
And SAS. The legendary regiment of which JP Morgan's top London dealmaker Ian Hannam is a veteran. After his discharge he turned to finance and transformed the face of the FTSE 100 index of Britain's biggest companies by filling it up with Kazakh copper miners and other assorted natural resources operations. This is controversial largely because their only connection with this country, aside from being listed here, is that their chief executives occasionally drop into London for a spot of lunch. Currently fighting an attempt by the FSA to fine him £400,000 for Market Abuse.
Trader: The boys, and occasionally girls, who take the big risks for banks and pocket the really big Bonus(es). They are also the people who make the really big losses but, until regulators forced a change in the rules, only after those bonuses had been banked.
Up the Creek: Which is where an economy like Britain's, which is horribly over-reliant on the City and financial services, has been left as a result of the financial crisis.
Volcker Rule: Named for Paul Volcker, a former chairman of the US Federal Reserve who proposed it. The rule is part of the US Dodd-Frank reforms which are designed to stop banks from making certain speculative investments and indulging in Proprietary Trading. Mr Volcker has suggested that such activities don't do anything to benefit customers but played a key role in the financial crisis. Jamie doesn't seem to like him very much and has been quite rude about him. However, some nasty people have suggested that the activities of the Chief Investment Office operated by JP Morgan rather proves Mr Volcker's point.
Wall Street: America's financial centre and where most of its big banks and brokers have their headquarters. Bitterly resented by Main Street, which is coda for pretty much everyone who suffers when it makes mistakes. Republicans have sought to exploit this resentment even though they receive quite a lot of money from Wall Street.
X Factor: Simon Cowell's TV show is often cited alongside the Bonus(es) lavished on bankers as a social ill. Some conservatives blame them for fostering a (possibly mythical) get rich quick or sulk about it mentality among Britain's youth.
Yesterday: The Beatles song, the lyrics to which are rather appropriate. It does seem like "Yesterday all our troubles were so far away". Thanks to the bankers and their financial crisis, swiftly followed by the eurozone crisis, they're pretty sure to be here to stay. Sir Paul McCartney said he believed in Yesterday. It's not a sentiment that's widely shared given what bankers were allowed to get up to then.
Zoo: A place where animals are held captive for people to go and see. The behaviour of said animals tends to be rather more civilised than that of the species frequenting the trading floors of big banks, and much of the rest of the banking industry, for that matter.

Yes, I know I've only been curating stuff... Will write more original stuff soon!  

Monday, June 4, 2012

Restricted Stock and Dividend Equivalents

Yeah, about that 'Think Different' post I wrote on Tim Cook. Some other things to note, because its not as simple as it looks.

Basically, the story goes that Apple's CEO gave up $75 million in dividend income, over a period of 10 years. Now I was happy amazed to see someone voluntarily give up that much amount of money. After a while, I was also puzzled. How could he get dividends on stocks that he doesn't even own right now? 

So I went to the SEC filing. Turns out I got confused between Stock Options and Restricted Stocks (which is what Tim Cook owns). Stock Options give an employee the right to purchase stock in the future, while restricted stock already belong to the employee, but he just isn't allowed to vest it or sell it. That's my (rather) crude interpretation of the situation. 

Still, dividend equivalents are something new. From the filing below, I'm able to make out that restricted stock do not participate in the normal dividend payout, which is why they had to pass a resolution to basically say that all restricted stocks will also get a cash amount (not a dividend) equal to the dividend amount. 

Of course, some companies pay out the dividend equivalent as part of an executive's yearly pay (which is a highly dubious move, IMHO) . Apple seems to be doing the right thing in vesting the dividend equivalent along with the stock itself.

Again, Bravo TC! 

Item 5.02.    Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (e) Compensatory Arrangements with Certain Officers.On May 24, 2012, the Compensation Committee (the "Committee") of the Board of Directors of Apple Inc. (the "Company") approved amendments to each outstanding and unvested restricted stock unit award granted by the Company to its employees (other than Timothy D. Cook, the Company's Chief Executive Officer). The amendments provide that if the Company pays an ordinary cash dividend on its common stock, each award will be credited with an amount equal to the per-share cash dividend paid by the Company, multiplied by the total number of restricted stock units subject to the award that are outstanding immediately prior to the record date for such dividend. The amounts that are credited to each award are referred to as "dividend equivalents." Any dividend equivalents credited to an award will be subject to the same vesting, payment and other terms and conditions as the unvested restricted stock units to which the dividend equivalents relate. Depending on the domicile of the employee, accumulated dividend equivalents will either be paid in cash or used to offset employee taxes due upon vesting of the restricted stock units.
The Committee determined these amendments were appropriate in light of the Company's announcement on March 19, 2012 that it intends to commence paying ordinary cash dividends of $2.65 per share to its shareholders on a quarterly basis sometime during the fourth quarter of its 2012 fiscal year. As restricted stock units are not outstanding shares of common stock and thus would not otherwise be entitled to participate in such dividends, the crediting of dividend equivalents is intended to preserve the equity-based incentives intended by the Company when the awards were granted and to treat the award holders consistently with shareholders.
At Mr. Cook's request, none of his restricted stock units will participate in dividend equivalents. Assuming a quarterly dividend of $2.65 per share over the vesting periods of his 1.125 million outstanding restricted stock units, Mr. Cook will forego approximately $75 million in dividend equivalent value.

Friday, June 1, 2012

Nomura has some interesting shareholders

A Nomura shareholder's proposal, offered without comment via Dealbreaker

The Financial Modeler's Manifesto

From Emanuel Derman and Paul Wilmott - The Financial Modeler's Manifesto

The Modeler's Hippocratic oath (based on the original Hippocratic Oath) is amusing:

The Modelers' Hippocratic Oath
~ I will remember that I didn't make the world, and it doesn't satisfy my equations.
~ Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.
~ I will never sacrifice reality for elegance without explaining why I have done so.
~ Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.
~ I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.

Nah, don't see it taking off ;)