The global financial system has collapsed. This has been acknowledged by the leaders of Asia and Europe at their meeting in Beijing. In their statement after the meeting, they pledged to rebuild the global financial system. President Sarkosky of France is providing the leadership.
The pillars of the collapsed system are:
> free market
> minimal regulation
> excessive leverage
> financial engineering
> non-regulated derivatives and swaps
> excessive reliance on private capital
> unsound banking system
> excessive rewards for corporate leaders
What will the new global financial system be based on? The leaders did not provide sufficient details. We must be ready to think of a new paradigm.
Monday, October 27, 2008
Lehman Brother bond
My friend invested $100,000 in the mini-bond, introduced to him by his stockbroker. He thought that he was investing in the Lehman Brother bond (which was A-rated at that time).
He said, "If I have actually bought the Lehman Brother bond, I would have lost my entire investment anyway. It is not fair for me to lodge a complaint about the mini-bond. It is just my bad luck".
I salute him for his honorable decision.
He said, "If I have actually bought the Lehman Brother bond, I would have lost my entire investment anyway. It is not fair for me to lodge a complaint about the mini-bond. It is just my bad luck".
I salute him for his honorable decision.
A fair compensation
Dear Mr. Tan,
Why should the investors in the mini-bonds and other notes expect to get full compensation for the investments? Surely, they know that there must be some risk, when they expect to get interest rate of 5%, when FD is only 1% or less.
Do you know that the people who invested in stocks are suffering losses of 50% or more. Can we ask for compensation? Even A-rated bonds can fail. Can the investor than ask for compensation from the distributor?
Surly all kind of investments have risk. Why should the mini-bond holders expect full compensation? Why are you supporting this unreasonable claim?
REPLY
I believe that these structured products should not be sold in the first place. If the distributor had properly described the product, it is likely that nobody would have bought them.
In my personal view, the loss should be shared equally between the distributor and the investor (i.e. noteholder). It will not be fair for the investor to shoulder the loss entirely. It is also not fair for the distributor to make a full compensation. I hope that both parties will make a compromise and agree to share the loss equally. Many investors have told me that they will accept such an offer.
Why should the investors in the mini-bonds and other notes expect to get full compensation for the investments? Surely, they know that there must be some risk, when they expect to get interest rate of 5%, when FD is only 1% or less.
Do you know that the people who invested in stocks are suffering losses of 50% or more. Can we ask for compensation? Even A-rated bonds can fail. Can the investor than ask for compensation from the distributor?
Surly all kind of investments have risk. Why should the mini-bond holders expect full compensation? Why are you supporting this unreasonable claim?
REPLY
I believe that these structured products should not be sold in the first place. If the distributor had properly described the product, it is likely that nobody would have bought them.
In my personal view, the loss should be shared equally between the distributor and the investor (i.e. noteholder). It will not be fair for the investor to shoulder the loss entirely. It is also not fair for the distributor to make a full compensation. I hope that both parties will make a compromise and agree to share the loss equally. Many investors have told me that they will accept such an offer.
Prospectus needed
Will the co-ordinator of Pinnacle Notes, and the co-ordinators of investors that bought minibonds etc from UOB Kay Hian and Phillips, please contact Adrian Tan at atans1@hotmail.com?
Volunteers are willing to analyse the prospectuses, pricing supplements, promotional materials and advertisements of Pinnacle notes, and minibonds etc that Phillips Secs and UOB Kay Hian clients bought. Copies of these materials are needed.
Volunteers are willing to analyse the prospectuses, pricing supplements, promotional materials and advertisements of Pinnacle notes, and minibonds etc that Phillips Secs and UOB Kay Hian clients bought. Copies of these materials are needed.
Sunday, October 26, 2008
A fair rate of return
Hi Mr. Tan,
Investors in Singapore have no real safe alternatives to park their money and get a fair return if they don't want any risk. So, what is a fair return for keeping money safe? My feel is that, the return should at the very least offset inflation.
However, for far too long, savings/fixed deposit rates at banks here are ridiculously low. The last time I checked, POSB/DBS, fixed deposit is at around 0.45 percent to 0.75 percent, for most people, of course, depending on amount & tenure. This can hardly offset inflation that is much higher, 5 to 6 percent.
The Singapore government has long pursued a strong SGD to fight inflation. The trinity of inflation, interest rates & foreign exchange is supposedly linked by the PPP, purchasing power parity. However, for the short term PPP may not hold and distortions can persist for years. So, with our recent SGD weakening, we would see higher SGD interest rates instead ?
Some of my friends even suggest that the the Singapore government providing long running subsidy for local banks. Just consider this, local banks take in funds from depositors at less than 1 percent rate, and then invest in Singapore Government Securites, which depending on tenure, can yield up to 3.6 percent. Banks have to hold a certain amount of SGS anyway, as stipulated under MLA requirement from the central bank, MAS.
So, assuming 3 percent spread on say, 300mil, that's 15mil, almost risk free for the banks!
Regards
Investors in Singapore have no real safe alternatives to park their money and get a fair return if they don't want any risk. So, what is a fair return for keeping money safe? My feel is that, the return should at the very least offset inflation.
However, for far too long, savings/fixed deposit rates at banks here are ridiculously low. The last time I checked, POSB/DBS, fixed deposit is at around 0.45 percent to 0.75 percent, for most people, of course, depending on amount & tenure. This can hardly offset inflation that is much higher, 5 to 6 percent.
The Singapore government has long pursued a strong SGD to fight inflation. The trinity of inflation, interest rates & foreign exchange is supposedly linked by the PPP, purchasing power parity. However, for the short term PPP may not hold and distortions can persist for years. So, with our recent SGD weakening, we would see higher SGD interest rates instead ?
Some of my friends even suggest that the the Singapore government providing long running subsidy for local banks. Just consider this, local banks take in funds from depositors at less than 1 percent rate, and then invest in Singapore Government Securites, which depending on tenure, can yield up to 3.6 percent. Banks have to hold a certain amount of SGS anyway, as stipulated under MLA requirement from the central bank, MAS.
So, assuming 3 percent spread on say, 300mil, that's 15mil, almost risk free for the banks!
Regards
Electricity prices: 82% higher her than in Hong Kong
Paul Chan wrote to the Straits Times Forum about our electricity charges. Hong Kong residence pasy 17 cents per nit. Singaporeans pay 31 cents - 82% higher. Electricity in Singapore is more expensive than in USA or France.
What is happening? I recall these events but cannot remember the details:
1. Our power plants sold by Temasek to foreign shareholders?
2. Singapore hedged the price of oil, and are now stuck with the higher contracted prices?
I like to invite the knowledgeable people to put some details into what is happening here. You can also help to search Google for the facts.
What is happening? I recall these events but cannot remember the details:
1. Our power plants sold by Temasek to foreign shareholders?
2. Singapore hedged the price of oil, and are now stuck with the higher contracted prices?
I like to invite the knowledgeable people to put some details into what is happening here. You can also help to search Google for the facts.
Profit margin in creating the structured product
Comment posted in my blog
I am greatly sadden by the losses sufered by the HN5 investors. As an insider, I understand that the sale of high notes products was a highly profitable business for the bank. The product is doubly leveraged - the first-to-default risk and the underlying collaterialsed debt obligation.
Even in early 2007 where credit risk is severely underpriced, the return for the risk undertaken that is passed to HN5 investors borders on ridiculous. The bank keeps a fat margin.
I would suggest HN5 investors ask the bank to oepn its book on the structuring profit for high notes products.
Even if the bank refuses to compensate the 'non-vulnerable' investors, the bank should not be allowed to make money from them.
It also seems that the bank is not so truthful when they said that they were caught unaware by the collapse of Lehman Brothers. i understand that bank had bought CDS protection to hedge the bank's own exposure to Lehman, and have avoided trading with Lehman to reduce counterparty exposure as early as 1Q2008
I know this would drag DBS profit and shares price down further, but my guilt does not allow me to keep quiet.
REPLY
The Petition #1 ask the Government to investigate the creation and marketing of the products. In my supporting document, I asked the Government to look into the accounts for the structured products to see how much money is taken away by the product issuer and the marketeer.
I hope that MAS will pursue this matter. If not, I will ask a Member of Parliament to raise this matter in Parliament.
I am greatly sadden by the losses sufered by the HN5 investors. As an insider, I understand that the sale of high notes products was a highly profitable business for the bank. The product is doubly leveraged - the first-to-default risk and the underlying collaterialsed debt obligation.
Even in early 2007 where credit risk is severely underpriced, the return for the risk undertaken that is passed to HN5 investors borders on ridiculous. The bank keeps a fat margin.
I would suggest HN5 investors ask the bank to oepn its book on the structuring profit for high notes products.
Even if the bank refuses to compensate the 'non-vulnerable' investors, the bank should not be allowed to make money from them.
It also seems that the bank is not so truthful when they said that they were caught unaware by the collapse of Lehman Brothers. i understand that bank had bought CDS protection to hedge the bank's own exposure to Lehman, and have avoided trading with Lehman to reduce counterparty exposure as early as 1Q2008
I know this would drag DBS profit and shares price down further, but my guilt does not allow me to keep quiet.
REPLY
The Petition #1 ask the Government to investigate the creation and marketing of the products. In my supporting document, I asked the Government to look into the accounts for the structured products to see how much money is taken away by the product issuer and the marketeer.
I hope that MAS will pursue this matter. If not, I will ask a Member of Parliament to raise this matter in Parliament.
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