Category: Finance

Fake investment update

On Dec 22, 2008, I announced that my good friend Dork Yenbuyer and I decided to go all in and invest our life savings in the asset of our choosing, his being yen and mine oil. To recap, here are our initial investments:

– Mr. Yenbuyer invested USD $10,000 at an exchange rate of USD $1 = JPY 89.81 and received 898,100 yen.

– I bought 233 barrels of oil at $42.96/barrel, also a $10,000 investment.

Today, here is where we would be if we immediately liquidated our positions:

– Yenbuyer: at a rate of 89.92, he is down about $12 or a value of $9987.77

– I am not doing nearly so well:  233 barrels of oil at the current price of 35.82 = $8346.06.

How are the prospects?

The yen continues to look good:

The Economist notes that forces appear aligned in favor of further yen appreciation. The article quotes former finance ministry bigwig Eisuke Sakakibara predicting that once the rate hits 85, it “will trigger a wave of stop-loss orders, sending the exchange rate quickly to ¥80 or even ¥75,” precipitating crisis response by the government to intervene, possibly in concert with the US and other G7 nations.

Oil, on the other hand, not so much. With demand likely down for the full year, prices seem to hang on whether OPEC will seriously cut production:

Tough decisions ahead

Despite oil’s record slide from $147 last year to the sub-$40 level, as production cut by OPEC is not a simple matter. Historically, when the market has been oversupplied and the price trend is bearish, some OPEC member become reluctant to cut production, in order to maintain needed revenue to fund government spending, Felson said. That tactic to maintain revenue at all costs has historically driven prices even lower, as was the case in 1997-1999. Hence, those who assume that $30 represents a floor for oil, are assuming incorrectly, he said.

“So far, it looks like a repeat of the late-1990s market. If anything, the pressure to continue to pump oil may be greater now, given the large increase in social spending many OPEC nations undertook during the oil price boom. But the reality is that OPEC must cut production now, or else,” Felson said. “If OPEC doesn’t cut again, we will see prices fall into the mid-$20 range.”

Tokyo-based scammers targeting gullible UK investors in Nigerian-style scam

This is pretty shady, but I wonder if they are really even in Tokyo?

Phil, a Financial Mail on Sunday reader from Berkshire, was contacted by Calderton Capital Partners, a Tokyo firm that offers investment advice as well as acting as middlemen in mergers and acquisitions.

Calderton had some good news for Phil. It wanted to buy his holding of shares in a small American company called TBXR, and it was willing to pay $130,000 (about £90,000). This priced his holding of just over 31,000 shares at more than $4 apiece – even though the last time Phil had checked the shares were closer to five cents (less than 4p). Still, it was certainly a generous offer. In fact, it topped the almost equally generous offer made to another reader, John from Cheshire, who was also contacted from Tokyo.

This time the contact came from a firm called Cook Capital Partners, and the caller told a curious story. John held shares in an American company called Accupoll that had filed for bankruptcy in 2006. But the caller said Accupoll had been taken over by a different company, Rudy Nutrition, and he represented a bidder who was willing to pay over $98,000 (about £68,000) for John’s shares.

Cook Capital Partners certainly seems to be a busy firm. At the same time as contacting John, it was also in touch with another Financial Mail on Sunday reader, Roger, wanting to buy his shares in yet another company, Genmed Holding Corporation.

And this was the biggest offer of them all – a mouthwatering $240,000 (£166,000) for shares that Roger had every reason to believe were actually worthless!

Now for the snags. Roger, John and Phil were all told that the shares they held carried a legal restriction that stopped the deal going through. But the good news was this restriction could be removed, if they paid legal fees up front.
…
The up-front fees were not quite the only snags though. According to investigators at Japan’s watchdog Financial Services Agency, Cook Capital Partners is a scam. It is not registered with the FSA or licensed to carry out shares deals. There is even doubt that it is actually at its Tokyo address and telephone number.

Stimulus or investment? Japan vs. USA

Ever since the start of our current financial disaster various economists and pundits have been comparing first the US banking problems with Japan’s, and then more recently the infrastructure-heavy stimulus program with Japan’s construction state. Today’s NYT has a substantial article that easily marks the most high profile comparison yet. I’m certainly no economist and I’m not even taking the time to look at numbers right now, but my quick take on the issue is that the comparison is being significantly overblown, but it is still a very worthwhile comparison to make, so that Japan’s various successes and mistakes can be absorbed as lessons. See the following summation of Japan’s massive pork spending:

Dr. Ihori of the University of Tokyo did a survey of public works in the 1990s, concluding that the spending created almost no additional economic growth. Instead of spreading beneficial ripple effects across the economy, he found that the spending actually led to declines in business investment by driving out private investors. He also said job creation was too narrowly focused in the construction industry in rural areas to give much benefit to the overall economy.

He agreed with other critics that the 1990s stimulus failed because too much of it went to roads and bridges, overbuilding this already heavily developed nation. Critics also said decisions on how to spend the money were made behind closed doors by bureaucrats, politicians and the construction industry, and often reflected political considerations more than economic. Dr. Ihori said the United States appeared to be striking a better balance by investing in new energy and information-technology infrastructure as well as replacing aging infrastructure.

Japan’s huge boom in public works spending was less a national stimulus program than a gigantic rural welfare program of pork-barrel projects designed to prop up the ailing LDP in its long decline. The money was largely directed not to the areas where it would benefit the largest number of people, but the areas where it would benefit the largest number of politicians. This was not done entirely out purely cynical political motives but also due to a genuine desire to arrest the decline of the rural regions themselves, in the face of continuing urbanization and a decline in Japan’s traditional and lionized (if anachronistic) agricultural lifestyle. Regardless of intent, a huge proportion (I won’t use words like “most” without looking at actual numerical research) of the spending was “stimulus” but not “investment”.

I am very, very wary of the general principal of “economic stimulus.” I am not opposed to government spending, or even large amounts of government spending, as long as it is being spent on something that is actually necessary or build further value in the future, i.e. services or investment. I think this attitude should be obvious from the mass transit funding letter I wrote and posted here a few days ago. In short, I worry that the discussions on spending currently ongoing in Washington may turn into a series of worthless boondoggle projects oriented at unpopulated rural areas, combined with random tax cuts and other expenditures poorly aimed at short-term (i.e. one election cycle) economic recovery, while continuing to ignore the trillions of dollars in outstanding repairs or upgrades as well as vital new investment that the country needs. I think it’s safe to say that politicians are going to spend this money. The question is, what will it buy us? Would we rather have a bunch of bridges to nowhere, vacant museums and amusement parks in virtually deserted rural towns, and paved-over mountain tops, or would we rather have a modern electrical grid, mass transit that at least meets late 20th century standards if not 21st century, a safe and reliable water system, bridges rated to not collapse, and maybe even an adequate system of public health care?

Going out in style

This guy might be a despicable investment fraud, but you can’t deny the guts it takes to try the “fake your own death” way out in this day and age:

Pilot Is Missing, and So Is His Motorcycle

 

Published: January 13, 2009

The authorities on Tuesday said that a missing financial adviser whose private plane crashed in Florida on Sunday had stored a motorcycle on the ground to aid his getaway.

The investigators say that Marcus Schrenker, 38, a financial adviser and experienced pilot from Indiana, parachuted from the small plane after faking a distress call as he flew over Alabama. The plane eventually went down in Florida, about 200 miles away, but Mr. Schrenker turned up in Childersburg, Ala., telling local officers he had been in a boating accident. He then disappeared again.

…

 

Court records show that Mr. Schrenker’s wife filed for divorce on Dec. 30. A Maryland court recently issued a judgment of more than $500,000 against one of three Indiana companies registered in his name — and all three are being investigated for securities fraud by the Indiana Secretary of State’s Office, a spokesman, Jim Gavin, said.

UPDATE: They got him.

Burying the lede?

The NYT has a new article explaining in a decent length how currency-finagling led to a codependent financial relationship between China and the US over the last few years. Yes, that’s all very informative, but as is often the case they slip the best part in towards the end, where most readers will have already given up.

In a glassed-in room in a nondescript office building in Washington, the Treasury conducts nearly daily auctions of billions of dollars’ worth of government bonds. An old Army helmet sits on a shelf: as a lark, Treasury officials have been known to strap it on while they monitor incoming bids.

With a line like that, it’s criminal that the photograph for the article was Secretary Paulson and President Hu wearing boring suits.

I am making a fictitious investment in $43 oil

NYMEX oil prices are currently $42.96. I have decided to place my fictional life savings ($10,000) to buy approx. 233 barrels of oil in the spot market. Let’s see how this fictional fee-and-tax-free portfolio does over time.

Simultaneously, my fictional friend Dork Yenbuyer has decided to place his life savings (also $10,000) in uninvested, no-interest yen cash. At the current rate, that will give him 898,100 yen. Let’s see if the superyen will go even stronger, contrary to today’s weakening of the yen against the euro.

How different, really?

Thomas P. Barnett says the institutionally entrenched bureaucracy in federal agencies is more powerful than the leaders who take over for short terms when we elect new politicians.

There is the assumption that it’s the political appointees who run things or change things or are the real power players in DC. My experience has always been that the real power in DC is the persistent class of senior bureaucrats just below the political level. The appointees typically last about 12-to-18 months, getting up to speed for most of that period and–maybe–having some actual impact if they’re quite focused in their goals. Otherwise they come and go, leaving nary a trace. They may think they run things and we may hold them ultimately responsible, but the truth is they’re more powerless than powerful.

The dominance of the bureaucracy over the elected officials and their direct appointees has been a mainstay of just about all English-language coverage of Japanese politics going back decades.

With discussion that Caroline Kennedy may be appointed to replace Hillary Clinton’s soon-to-be vacated senate, many people (such as in this piece  by Glenn Greenwald or this one by Nicholas Kristof, who also suggests an alternate and more qualified woman) are pointing out that dynastic succession is at an all-time high in American politics. (As an aside, I think I’ll take a policy in the future of never supporting any dynastic candidate. I was disgusted in 2000 when GWB made it to the nomination based on no other qualifications than his father. I was disgusted when Hillary Clinton won her seat based on the political influence of her former president husband, which is one of the reasons that led me to prefer Obama early on.) Joe Biden tried to get his son to replace him, Jesse Jackson Jr. is a leading candidate in Illinois (to be fair, his father wasn’t an office holder so it’s more of a celeb issue than legacy per se) and Greenwald points out that “at least 15 current U.S. Senators — 15 — with immediate family members who previously occupied high elected office.”

In Japan, legacy politicians are such a fact of life that the standard Japanese language Wikipedia template for Diet members actually has a field to list how far back their political dynasty goes. Here’s one example, listing a third-generation legacy.

And finally, the American financial crisis is being repeatedly compared with the Japanese crisis of the 1990s, and any number of sources are pointing to Japan’s response as either a model to follow or a model to avoid like the plague. And overnight, blatant state corporatist control of industrial policy ala MITI has gone from anathema to conventional wisdom.

All of which raises three possibilities.

A) Differences between the American system and the Japanese system have been historically exaggerated.

B) The systems are becoming more similar.

C) Current similarities are being overblown.

Comments?

Saizeriya burned by yen carry trade

Saizeriya said it signed derivatives deals with BNP Paribas Securities (Japan) Ltd. twice, in October 2007 and February 2008, to procure Australian dollars needed to import food from that country. Under the deals, Saizeriya is to receive 1 million Australian dollars every month, payments of which started in September.

If the yen weakens below the level set in the contract, Saizeriya is entitled to buy the Australian dollars at a discount. But should the yen appreciate beyond that threshold, the purchase price rises.

(Nikkei)

Did the Nikkei just collude with Aso to interfere with BOJ independence?

Bloomberg’s Japan coverage, from this morning:

All Nippon, United Parcel Forge International Cargo Deal, Nikkei Reports

All Nippon Airways Co. and United Parcel Service Inc. agreed to handle each other’s international shipments to help better position each company economically, Nikkei English News reported, without citing anyone.
—
BOJ May Have to Cut Rate as Investors See `Done Deal’ (Update1)

Oct. 30 (Bloomberg) — The Bank of Japan may have little choice but to cut interest rates tomorrow after a newspaper report raised investors’ expectations that it would.

Bloomberg, you’re not supposed to sound so obviously disgusted with another news outlet!

Sure, Bloomberg also runs stories sourced anonymously when the information is good. But the Nikkei’s case is extreme. This is just a guess, but the Nikkei’s pages often seem to contain more anonymous quotes than attributed ones.

Catching wind of a new business tie-up might be fair game, but considering the huge significance of monetary policy, and the potential for dirty tricks, there really is no business giving political insiders anonymity for the sake of a scoop, no matter who the source is. And who might that source be?

“The government is the one who wants the Bank of Japan to cut rates this week to show Japan is coordinating with other nations to ease turmoil in markets,” Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. Still, “the economy and markets could worsen further even after they reduce interest rates and that’s what the central bank has to think about at the meeting this week.”

Considering the Aso government’s lack of respect for the improvements in Japan’s economic bureaucracy over the past decade, it isn’t surprising that they show no hesitation to interfere with monetary policymaking.

To be sure, Aso has generally been cooperative in taking steps to deal with the crisis, but that’s because he is listening to the FSA, perhaps the authority on managing financial crises, and anyone could be doing that. And the effects of a potential rate cut are reported to be mostly psychological and would not take much from the BOJ’s already limited wiggle room on the policy rate.

But there is a risk that Aso’s bloviating and posturing for political gain could take a dangerous turn, such using recapitalization money to force banks to lend to insolvent small businesses or pushing for even easier money to help his election prospects. That’s what makes it so disappointing that the Nikkei, far from playing the role of watchdog, is actively enabling Aso’s backroom maneuvering.

It’s enough to make you sympathize with Koizumi-era economics brain Heizo Takenaka, who has argued for years that Japanese democracy just doesn’t work. He thinks tough decisions should be left to a single strong leader, with the Diet and bureaucrats relegated to supporting roles.

UPDATE: Oh that’s right, the kind of underwhelming spending plan was already announced this morning:

In the new stimulus package, the government will provide a total of 2 trillion yen in fixed-sum benefits to all households, instead of introducing a fixed-sum tax cut, which had been considered key to the package. Based on the total number of households as of the end of March 2008, each household would receive about 38,000 yen.

For the housing loan tax cuts, the government is expected to reduce income and resident taxes by as much as a total of 6 million yen per person, a record high, for people who have housing loans of 50 million yen or less. About 500 billion yen to 600 billion yen is expected to be necessary for this measure.

The government will introduce a fixed-amount expressway toll system, in which expressway users are charged 1,000 yen on Saturday, Sundays and national holidays, regardless of the distance the driver travels on the expressway. Tolls for all kinds of vehicles, including trucks, will be reduced by 30 percent on weekdays. The Shuto Expressway and the Hanshin Expressway will be excluded from rate reductions. About 500 billion yen will be needed to cover the cost, with the measure expected to take effect within this year and continue through the end of 2010.

Considering that Japan is generally considered to be heading into an unavoidable but relatively mild recession, and the package is in fact relatively small and focused on populist handouts, has led people to dismiss this as a political ploy. But if it’s not doing any harm, maybe in this case we can let the baby have his bottle?

Rated “MOO+”

This passage illustrates part of the reason why banks bought so many crappy mortgages:

In one email, an S&P analytical staffer emailed another that a mortgage or structured-finance deal was “ridiculous” and that “we should not be rating it.” The other S&P staffer replied that “we rate every deal,” adding that “it could be structured by cows and we would rate it.”

(source)