The STOCK BLOCK

Robert Fisk

2011-12-12T22:30:00.003+01:00

Robert Fisk: Bankers are the dictators of the West

which then hand their democratic mandate and people's power to the banks and the derivative traders and the rating agencies, all three backed up by the slovenly and dishonest coterie of "experts" from America's top universities and "think tanks", who maintain the fiction that this is a crisis of globalisation rather than a massive financial con trick foisted on the voters.

The banks and the rating agencies have become the dictators of the West. Like the Mubaraks and Ben Alis, the banks believed – and still believe – they are owners of their countries. The elections which give them power have – through the gutlessness and collusion of governments – become as false as the polls to which the Arabs were forced to troop decade after decade to anoint their own national property owners. Goldman Sachs and the Royal Bank of Scotland became the Mubaraks and Ben Alis of the US and the UK, each gobbling up the people's wealth in bogus rewards and bonuses for their vicious bosses on a scale infinitely more rapacious than their greedy Arab dictator-brothers could imagine.

Deutsche Bank, Compensation and Benefits 2010: EUR 12'671'000'000

Financial Corruption

2011-12-03T12:13:00.002+01:00

Ron Hera shows some trends in the US (which of course are of great global influence) from the past 10+ years and, unfortunately, ongoing.

By Ron Hera: How The U.S. Will Become a 3rd World Country (Part 2)

Under ordinary circumstances, monetary inflation has the effect of redistributing wealth in favor of those who receive newly created money first. The value of money is reduced as a function of the number of currency units in the economy but recipients of newly created money can spend it before it loses value. In a declining economy, however, the wealth redistribution effects of inflation are magnified.

...

Among other things, U.S. tax policies will erode capital formation within the remnants of the middle class, which is the engine of small business creation and the source of most American jobs. The eventual result will be a three-tier socioeconomic structure consisting of a super rich wealthy class, a much poorer working class and a massive, politically and financially disenfranchised underclass, similar to that of a 3rd world country.

Occupy Paradeplatz Lindenhof Petition

2011-11-10T20:07:00.000+01:00

Zürich, Lindenhof, 2011-10-27

Die Stadt Zurich möchte scheinbar das Camp der Occupy Paradeplatz Demonstranten nicht mehr auf dem Lindenhof haben.

Schade. Einen Hafenkran an der Limmat gleich unterhalb des Lindehofs möchte sie dagegen gerne installieren.

Tagi: "Die Frage ist, ob wir gestaltete Plätze oder trostlose Flächen wollen"

Dann doch lieber ein nettes Sit-In, Aktionskunst sozusagen, für eine Gute Sache, um ein bisschen auf extreme Verwerfungen in unserem Finanzsystem hinzuweisen!

Also, jeder kann ein bisschen mitspielen, man muss nicht im Zelt überwintern - heutzutage reicht ein kleines Web Formular:-).

Hier ist die Online Petition, damit könnt ihr die Stadt Zürich über eure Meinung informieren.

Grundeinkommen

2011-10-27T19:32:00.001+02:00

Basic Income

Even the garbageman is streamlined away!

Food for thought in this video by a Swiss/German initiative.

Watch live streaming video from occupyzh at livestream.com

A version with English sub titles is here.

Via Occupy Paradeplatz (2011-10-27).

Biggest Brokest Banks

2011-09-16T18:28:00.000+02:00

Biggest banks by assets for the business year of 2010 in CHF billion:

Broken banks according to the market as of the close of 2011-09-15 by percentage of market capitalization in relation to their assets (aeh, basically liabilities;-):

Data source: Thomson Reuters Datastream

Soros on Europe

2011-09-15T19:00:00.000+02:00

From Zero Hedge: Soros Thinks The Unthinkable About Europe

All this would cost money. Under existing arrangements no more money is to be found and no new arrangements are allowed by the German Constitutional Court decision without the authorization of the Bundestag.

[Any solution] would presuppose a radical change of heart, particularly in Germany. The German public still thinks that it has a choice about whether to support the euro or to abandon it. That is a mistake. The euro exists and the assets and liabilities of the financial system are so intermingled on the basis of a common currency that a breakdown of the euro would cause a meltdown beyond the capacity of the authorities to contain. The longer it takes for the German public to realize this, the heavier the price they and the rest of the world will have to pay.

With a comment from jeff montanye:

sacrifice democracy and freedom because disentangling euro based accounting is too complex? aww, go on, give it a try. and remember: the bondholders, stockholders and current management are the first to make a sacrifice, not the last. see how far that gets you.

2011-08-17

Der Spiegel Interview with George Soros

SPIEGEL: Is the current crisis even worse than the one in 2008?

Soros: This crisis is still the continuation of the same crisis. In 2008, the financial system collapsed and it had to be put on artificial life support. The authorities managed to save the system. But the imbalances that caused the crisis have not been removed.

...

Soros: Of course, speculation will always make a crisis worse. If there is a weak point, it will expose it. And you are right, the CDS market is a very dangerous instrument and I think it should not be allowed. I am one of the very few people who argue that the CDS is a dangerous instrument because it is so lop-sided in favor of a negative outcome.

...

Soros: The indebtedness of the US is not all that high, but if a double-dip recession was in doubt a few weeks ago, it is less in doubt now, because financial markets have a very safe way of predicting the future. They cause it. And the markets have decided that America is going to see a recession, particularly after the recent downgrade of the US by the rating agency Standard & Poor’s.

SPIEGEL: President Barack Obama has been fiercely criticized for his handling of the economy. You were one of his biggest supporters in 2008. Are you happy with his economic policy?

Soros: No, of course not. But the reality is that we have had 25 years of excesses building up in America — a combustible mix of too much credit and too much leverage. You need a long time to reverse that.

...

SPIEGEL: The $800 billion stimulus program launched by Obama did not live up to that?

Soros: Obama’s stimulus program was not big enough and it was not directed at improving infrastructure nor human capital. So it was not productive enough.

SPIEGEL: And any further stimulus is now basically a non-starter, because the conservative majority in Congress is hell-bent on preventing it.

Soros: That is what is pushing the world towards another recession, into a double dip.

...

SPIEGEL: As an investor, do you listen to the rating agencies?

Soros: Well, I do not, but many other investors do.

...

SPIEGEL: In the end, will China be the only winner in this crisis?

Soros: China, of course, has been the great winner of globalization, and if globalization collapses, the Chinese will also be among the losers. So they have a strong interest in preserving the current global system. However, in some ways, they have been just as reluctant to accept it as the Germans. Germans have been hesitant to accept responsibility for Europe, and the Chinese have been hesitant to accept responsibility for the world. But they are both being pushed into it.

Busting Banks

2011-09-01T20:26:00.002+02:00

Bank price sales multiples for 2011-08-31, market cap and sales in CHF billion.

Data source: Thomson Reuters Datastream

Platinum Gold Ratio

2011-08-12T10:20:00.005+02:00

On 2011-08-09 the Platinum Gold ratio hit 1 to 1. As you can see in the chart below, this is happening the third time in the last 10+ years. And it hasn't gone much lower historically nor did it stay there for very long. And it makes sense. Platinum is the rarer, finer, heavier, more precious "White Gold"! Since then actually Gold has retreated a bit and Platinum moved slightly up again. We will see...

Tire Tycoons

2011-06-12T10:28:00.004+02:00

Tire companies and their market caps in CHF billion, source Thomson DataStream, 2011-06-12:

Car Companies

2011-06-05T18:12:00.004+02:00

Car companies and their market caps in CHF billion, source Thomson DataStream, 2011-06-05:

Silver Mine Production

2011-05-29T11:36:00.001+02:00

World Silver Mine Production

year   mio oz       t
1989    527.3   16400
1990    533.7   16600
1991    501.6   15600
1992    479.0   14900
1993    453.3   14100
1994    450.1   14000
1995    479.0   14900
1996    485.5   15100
1997    530.5   16500
1998    553.0   17200
1999    549.8   17100
2000    581.9   18100
2001    601.2   18700
2002    604.4   18800
2003    604.4   18800
2004    643.0   20000
2005    668.7   20800
2006    652.7   20300
2007    675.2   21000
2008    684.8   21300
2009    700.9   21800

Source: USGS

Compounding Interest

2011-03-17T18:02:00.004+01:00

Compounding Interest, present value, future value, etc.

Updated 2011-04-11, here is another financial calculator, that includes all different variables in a single form.

Silver

2010-11-28T20:44:00.000+01:00

Unlike gold, silver production is consumed to a very high degree!

From Wikipedia:

(a silver iodide generator for cloud seeding)

Silver ... has the highest electrical conductivity of any element and the highest thermal conductivity of any metal.

...

Today, silver metal is also used in electrical contacts and conductors, in mirrors and in catalysis of chemical reactions. Its compounds are used in photographic film and dilute silver nitrate solutions and other silver compounds are used as disinfectants and microbiocides. While many medical antimicrobial uses of silver have been supplanted by antibiotics, further research into clinical potential continues.

...

Currency

...

The name of the United Kingdom monetary unit "pound" (£) reflects the fact that it originally represented the value of one troy pound of sterling silver. In the 1800s, many nations, such as the United States and Great Britain, switched from silver to a gold standard of monetary value, then in the 20th century to fiat currency.

...

Photography and electronics

Photography used 30.98% of the silver consumed in 1998 in the form of silver nitrate and silver halides. In 2001, 23.47% was used for photography, while 20.03% was used in jewelry, 38.51% for industrial uses, and only 3.5% for coins and medals. The use of silver in photography has rapidly declined, due to the lower demand for consumer color film from the advent of digital technology, since in 2007 of the 894.5 million ounces of silver in supply, just 128.3 million ounces (14.3%) were consumed by the photographic sector, and the total amount of silver consumed in 2007 by the photographic sector compared to 1998 is just 50%.

Some electrical and electronic products use silver for its superior conductivity, even when tarnished. For example, printed circuits can be made using silver paints,[6] and computer keyboards use silver electrical contacts. Some high-end audio hardware (DACs, preamplifiers, etc.) are fully silver-wired, which is believed to cause the least loss of quality in the signal. Silver cadmium oxide is used in high voltage contacts because it can withstand arcing.

Mirrors and optics

Mirrors which need superior reflectivity for visible light are made with silver as the reflecting material in a process called silvering, though common mirrors are backed with aluminium. Using a process called sputtering, silver (and sometimes gold) can be applied to glass at various thicknesses, allowing different amounts of light to penetrate. Silver is usually reserved for coatings of specialized optics, and the silvering most often seen in architectural glass and tinted windows on vehicles is produced by sputtered aluminium, which is cheaper and less susceptible to tarnishing and corrosion. Silver is the reflective coating of choice for solar reflectors.

...

Small devices such as hearing aids and watches commonly use Silver oxide batteries due to their long life and high energy/weight ratio. Another usage is high-capacity silver-zinc and silver-cadmium batteries.

Furthermore from the Amalgam Wikipedia page, "Silver-mercury amalgams are important in dentistry".

Liechtenstein

2010-11-27T15:55:00.006+01:00

Liechtenstein, Vaduz

Bank Assets under Management,
2010-06-30

LGT     CHF  86.8 bn
LLB     CHF  46.4 bn
VPB     CHF  40.5 bn
        ============
Total   CHF 173.7 bn

2010-10-31

1.		2.
3.		4.
5.		6.
7.		8.
9.		10.
11.		12.
13.		14.
15.		16.
17.

Purchasing Power

2010-08-16T19:06:00.001+02:00

Nice graphic from DollarDaze!

Germany's Gold

2010-08-13T18:58:00.000+02:00

The German Gold treasury is actually hosted in New York, London, and Paris. Ein Schelm, wer Böses dabei denkt.

manager magazin (in German): 3440 Tonnen mythische Fracht

Nach Angaben des "World Gold Council" betragen die offiziellen Goldreserven Deutschlands derzeit 3439,5 Tonnen. Dies entspricht 45,6 Prozent der Gesamtreserven oder einem Wert von rund 36,5 Milliarden Euro. Das Edelmetall ist in Barren à 12,5 Kilo gegossen und wird überwiegend in einem Tresor in Manhattan gelagert. Dort betreibt die US-Notenbank für 60 Nationen das mit 550.000 Barren größte Goldlager der Welt.

"Der größte Teil unserer Goldreserven wird außerhalb deutscher Grenzen, wo er entstanden ist, gehalten: bei der Fed in New York, bei der Bank of England in London und der Banque de France in Paris. In dieser Reihenfolge", sagte Kotz dem Stern.

In den 50er und 60er Jahren waren der Bundesbank dort aufgrund außenwirtschaftlicher Überschüsse Deutschlands die Goldreserven von anderen Nationen übertragen worden. Wegen der hohen Kosten für Transport und Bau neuer Tresore lehnt es die Bundesbank aus betriebswirtschaftlichen Gründen ab, die Goldbarren nach Deutschland zu schaffen.

Prof. Hans-Helmut Kotz was a member of the executive board of the Bundesbank from 2002 till 2010. The stern interview was in 2004.

Kleingeld

2010-08-05T19:53:00.000+02:00

Pocket change currently in use:

No	Fractional Currency	Countries
1.	Cent	28
2.	Centavo	16
3.	Cents	10
4.	Centime	9
5.	Fils	6
6.	Centimes	4
7.	Sen	4
8.	Centesimo	3
9.	Centimos	3
10.	Bani	2
11.	Centavos	2
12.	Centimo	2
13.	Chon	2
14.	Dirham	2
15.	New Pence / Pence	2
16.	Ore	2
17.	Paisa	2
18.	Piastres	2
19.	Agorot	1
20.	Att	1
21.	Aurar (inactive)	1
22.	Avos	1
23.	Baizas	1
24.	Bututs	1
25.	Cantimo	1
26.	Centas	1
27.	Centesimos	1
28.	Chetrum	1
29.	Deni	1
30.	Dinar	1
31.	Diram	1
32.	Fen	1
33.	Fening	1
34.	Filler	1
35.	Ghana Pesewas	1
36.	Groszy	1
37.	Haleru	1
38.	Hallalas	1
39.	Hellers	1
40.	Iraimbilanja	1
41.	Khoums	1
42.	Kobo	1
43.	Kopek	1
44.	Kopeken	1
45.	Kurus	1
46.	Laari	1
47.	Lipa	1
48.	Lisente	1
49.	Lumma	1
50.	Millimes	1
51.	Mongo	1
52.	New Pence	1
53.	Ngwee	1
54.	Oere	1
55.	Paise	1
56.	Para	1
57.	Pence	1
58.	Piaster	1
59.	Piastre	1
60.	Poisha	1
61.	Pyas	1
62.	Qapik	1
63.	Qindarka	1
64.	Rappen	1
65.	Santims	1
66.	Satang	1
67.	Sene	1
68.	Seniti	1
69.	Senti	1
70.	Stotinki	1
71.	Tambala	1
72.	Tenge	1
73.	Tetri	1
74.	Thebe	1
75.	Tiin	1
76.	Tijin	1
77.	Toea	1
78.	Tyin	1
79.	XU	1

Source: SIX Telekurs

AuM

2010-08-04T18:29:00.003+02:00

Assets under Management (in German)

UBS bleibt zweitgrösster Vermögensverwalter

1 Bank of America: 1,740.51 Milliarden Dollar

2 UBS: 1,593.74 Milliarden Dollar

3 Morgan Stanley: 1,508.00 Milliarden Dollar

4 Wells Fargo: 1,218.00 Milliarden Dollar

5 Credit Suisse: 775.43 Milliarden Dollar

6 JP Morgan: 636.00 Milliarden Dollar

7 Royal Bank of Canada: 379.00 Milliarden Dollar

8 HSBC: 367.00 Milliarden Dollar

9 Deutsche Bank: 272.38 Milliarden Dollar

10 Pictet: 243.21 Milliarden Dollar
Quelle: Scorpio Partnership 2010 Global Private Banking

ISO Codes

2010-08-02T19:18:00.001+02:00

Country and currency ISO codes:

English country names and code elements

HTML
TXT

ISO 4217 currency and funds name and code elements

A Forced Investment

2010-07-22T20:48:00.008+02:00

See this video of Brady Dougan (in English), Credit Suisse CEO, best earning banker in the world (71 USD million bonus?!):

The record bonus was "a forced investment", people have to see the context.

He is sweating ... at least.

Yes, really, I am curious, why are you leading C. Suisse, and where?

Where did Ospel lead the U. B. of Switzerland? At least we know why:).

BP Gossip

2010-06-28T22:39:00.003+02:00

From the Mad Hedge Fund Trader: The Value Play on BP

Some of the chatter that came back was amazing. BP has discovered the largest and most powerful well in history, and control of it may be outside existing technology. The previous record gusher was Union Oil Co.’s Lakeview well in Maricopa, California, which spewed out a staggering 100,000 barrels a day at its peak in 1910, and created an enormous oil lake in the central part of the state. My grandfather worked there for Standard Oil during the Great Depression, and 2o years later, oil was still everywhere.

Estimates for the BP well now range up to 50% more than that. The pressures at 18,000 feet are so enormous, that drilling two more relief wells might only result in creating two more oil spills. If Obama doesn’t want to take the nuclear option, (click here for my piece at http://www.madhedgefundtrader.com/june_4__2010.html ), then there will be no other alternative but for the spill to continue until the field exhausts itself or becomes capable, possibly some time next year.

This is not the end of the world. Less than 1% of the spilled oil is ending up on the beaches. Watch TV, and that is not 150,000 barrels on the beach in Pensacola, Florida. Most of the crude is being moved parallel to the coast by the current and will eventually end up in the mid-Atlantic, where it will break down or dissipate. Tropical sunlight, salt water, and crude are all highly corrosive, and the three don’t last together long.

Using the high end estimates, and assuming that it takes a year to run out, possibly 36 million barrels will end up in the sea (pressure is declining). This is the same amount of oil that was dumped into the Atlantic during WWII, when 452 tankers were sunk by German U-boats, mostly along the US east coast, and when tar balls on the beach were a daily occurrence. This is on top of the 1.5 million barrels a year that leak into the Gulf through natural seepage, which no one ever notices.

One way or the other, this will end, and Western civilization will survive. And by the way, the crude price rise brought by the spill also marked up the value of BP’s reserves, easily allowing it to cover the cost of the clean up, no matter how big it is. This is how profitable this company is, and why they were so generous with a $20 billion contingency fund.

No sooner did I put out the call the buy the pariah stock at $29, than I hear Whitney Tilson of T2 Partners, one of the giants of the value corner in the hedge fund universe, is doing the same. Whitney has come up with a few more arguments which I haven’t thought of, which I will happily pass on.

For a start, no company has ever made more mistakes than BP, and panic is rife. Great time to buy. BP has the fourth largest revenue of any company in the world after, guess what, three other energy companies, Gazprom (GZPFY.PK), Exxon Mobile (XOM), and Royal Dutch Shell (RDS/A). Pre crisis Q1 operating profit estimates were at a staggering $34 billion, and the net at $22 billion.

While the environmental damage is substantial, it is nowhere near as bad as when 11 million barrels of crude poured into the Persian Gulf during Desert Storm in 1991, which is one sixth the size of the Gulf of Mexico.

BP Reporting

2010-06-20T13:08:00.001+02:00

This is all that is mentioned in the BP first quarter of 2010 report:

On 20 April 2010, the semi-submersible drilling rig Deepwater Horizon owned and operated by Transocean Limited caught fire in the US Gulf of Mexico and subsequently sank. The rig was drilling an exploration well on a BP deepwater lease. BP is committed to doing everything in its power to contain the environmental consequences of the incident.

Not even the death of the 11 people is mentioned.

What is also very interesting from the 2009 annual report:

Total exploration expense in 2009 of $1,116 million (2008 $882 million and 2007 $756 million) included the write-off of expenses related to unsuccessful drilling activities in the deepwater Gulf of Mexico ($391 million), India ($31 million), Angola ($28 million), Egypt ($27 million), and others ($31 million).

Put this in relation to this quote from a Deepwater Horizon witness:

[Mike Williams, the chief electronics technician on the Deepwater Horizon, and one of the last workers to leave the doomed rig] said they were told it would take 21 days; according to him, it actually took six weeks.

With the schedule slipping, Williams says a BP manager ordered a faster pace.

"And he requested to the driller, 'Hey, let's bump it up. Let's bump it up.' And what he was talking about there is he's bumping up the rate of penetration. How fast the drill bit is going down," Williams said.

Williams says going faster caused the bottom of the well to split open, swallowing tools and that drilling fluid called "mud."

"We actually got stuck. And we got stuck so bad we had to send tools down into the drill pipe and sever the pipe," Williams explained.

That well was abandoned and Deepwater Horizon had to drill a new route to the oil. It cost BP more than two weeks and millions of dollars.

"We were informed of this during one of the safety meetings, that somewhere in the neighborhood of $25 million was lost in bottom hole assembly and 'mud.' And you always kind of knew that in the back of your mind when they start throwing these big numbers around that there was gonna be a push coming, you know? A push to pick up production and pick up the pace," Williams said.

Asked if there was pressure on the crew after this happened, Williams told Pelley, "There's always pressure, but yes, the pressure was increased."

Now, how much is actually produced by BP down there in different fields in the Gulf every day?

Field                 2009
Thunder Horse  133'000 bpd
Atlantis        54'000 bpd
Mad Dog         35'000 bpd
Mars            29'000 bpd
Na Kika         27'000 bpd
Horn Mountain   25'000 bpd
King            22'000 bpd
Other           62'000 bpd
Total          387'000 bpd

So make your own guess, how much is coming out there free flowing every day!

Here is what Mad Hedge is worried about:

All of BP’s efforts to date have really been “Hail Mary’s” doomed to failure. The only real chance is to relieve the pressure by drilling several adjacent wells, and that will take months. If BP has discovered the mother of all fields with pressures so enormous, they can’t be controlled with modern technology, a possibility which some geologists admit, then more huge leaks will spring and the nuclear option will be the only one left. In the meantime, if a serious hurricane hits the region, a mathematical probability, then we will see the environmental equivalent of Chernobyl meets Katrina. In this scenario, you can kiss BP goodbye.

So how big could the field be, how much oil is down there that could potentially come up?

From Bloomberg: Anadarko Says BP Should Pay After Being Reckless

1 Billion Barrels?

The ruptured well may hold as much as 1 billion barrels, the Times reported, citing Rick Mueller, an analyst at Energy Security Analysis in Massachusetts. BP previously estimated the field contained 50 million to 100 million barrels of oil, the U.K. newspaper said.

For comparison, Exxon Valdez spilled 0.27 million barrels into the sea. Around a million is estimated to have come already out of the current leak. BTW, BP has total net proved crude oil reserves (not considering natural gas reserves) of 10.5 billion barrels.

Not that there isn't already enough oil out there in the sea (NYTimes graphic via The Big Picture):

Last not least, zero hedge has lots of interesting topographical sea maps of the area around spill:

Palladium Production

2010-06-12T21:02:00.002+02:00

Source: "Platinum 2010" by David Jollie (from Johnson Matthey)

Supply

1'000 oz	2005	2006	2007	2008	2009
South Africa	2'605	2'775	2'765	2'430	2'370
Russia
Primary	3'135	3'220	3'050	2'700	2'675
Stock Sales	1'485	700	1'490	960	960
North America	910	985	990	910	755
Zimbabwe	125	135	135	140	180
Others	145	135	150	170	160
Total Supply	8'405	7'950	8'580	7'310	7'100
Total Production	6'920	7'250	7'090	6'350	6'140

Gross Demand

Autocatalyst	3'865	4'015	4'545	4'465	4'050
Chemical	415	440	375	350	325
Dental	815	620	630	625	615
Electrical	1'275	1'495	1'550	1'370	1'270
Investment	220	50	260	420	625
Jewellery	1'490	1'140	950	985	815
Other	265	85	85	75	70
Total Gross Demand	8'345	7'845	8'395	8'290	7'770

Recycling

Autocatalyst	-625	-805	-1'015	-1'140	-965
Electrical	-305	-290	-315	-345	-395
Jewellery	-60	-135	-235	-130	-70
Total Recycling	-990	-1'230	-1'565	-1'615	-1'430

Total Net Demand	7'355	6'615	6'830	6'675	6'340

Movements in Stocks	-435	635	260	-325	-200

1 t = 32'150.75 oz

t	2005	2006	2007	2008	2009
South Africa	81.02	86.31	86.00	75.58	73.72
Russia
Primary	97.51	100.15	94.87	83.98	83.20
Stock Sales	46.19	21.77	46.34	29.86	29.86
North America	28.30	30.64	30.79	28.30	23.48
Zimbabwe	3.89	4.20	4.20	4.35	5.60
Others	4.51	4.20	4.67	5.29	4.98
Total Supply	261.42	247.27	266.87	227.37	220.83
Total Production	215.24	225.50	220.52	197.51	190.98

Gross Demand

Autocatalyst	120.21	124.88	141.37	138.88	125.97
Chemical	12.91	13.69	11.66	10.89	10.11
Dental	25.35	19.28	19.60	19.44	19.13
Electrical	39.66	46.50	48.21	42.61	39.50
Investment	6.84	1.56	8.09	13.06	19.44
Jewellery	46.34	35.46	29.55	30.64	25.35
Other	8.24	2.64	2.64	2.33	2.18
Total Gross Demand	259.56	244.01	261.11	257.85	241.67

Recycling

Autocatalyst	-19.44	-25.04	-31.57	-35.46	-30.01
Electrical	-9.49	-9.02	-9.80	-10.73	-12.29
Jewellery	-1.87	-4.20	-7.31	-4.04	-2.18
Total Recycling	-30.79	-38.26	-48.68	-50.23	-44.48

Total Net Demand	228.77	205.75	212.44	207.62	197.20

Movements in Stocks	-13.53	19.75	8.09	-10.11	-6.22

World Vehicle Productions

2010-06-08T22:55:00.004+02:00

World cars and commercial vehicle production statistics according to OICA:

Platinum Investment

2010-05-22T18:44:00.002+02:00

Reuters: Redemption possible for platinum group ETFs

Physical investment demand for platinum rose 19 percent in 2009 to 660,000 ounces, boosted by strong growth of platinum and palladium ETFs, Johnson Matthey said.

Rhind said that investment alone, which represented less than 5 percent of total demand, was not enough to keep driving prices higher.

...

Autocatalytic converter demand traditionally accounts for half of the world's total platinum consumption. Last year, auto-sector buying fell to just 32 percent, JM said.

Businessweek: Chinese Platinum Jewelry Demand to Weaken, Johnson Matthey Says

Platinum investment demand rose 19 percent to 660,000 ounces last year, while palladium investment advanced 49 percent to an all-time high 625,000 ounces. ETF Securities Ltd. started exchange-traded funds backed by both metals in the U.S. at the beginning of the year.

...

Palladium may climb to a nine-year high of $700 an ounce in the next six months as the metal’s 2009 surplus of 760,000 ounces narrows, Johnson Matthey said. Palladium more than doubled in 2009, the best performance since at least 1993, and is up 26 percent this year at $514. The metal is unlikely to fall below $475 in the next six months, Johnson Matthey said.

Well, that is funny, because the free fall of the Palladium price before 2009 was just as stunning as its recent come back. The drop this week wasn't bad either, and now 475 looks already distant and sky high. Well, just show's that reading any predictions of people who don't show a track record is just a waste of time (and people who do have a respectable track record seem to make no specific predictions).

Total rhodium demand fell 21 percent last year to a 10-year low of 529,000 ounces, widening the metal’s surplus to 241,000 ounces, and Johnson Matthey said it expects another “large” surplus this year. The metal has gained 12 percent this year to $2,800 an ounce. Rhodium is mainly used in auto catalysts and also in the chemical and glass industries.

...

Ruthenium demand fell 18 percent to 574,000 ounces last year, and iridium consumption slipped 11 percent to 91,000 ounces, Johnson Matthey said. Ruthenium is mostly used for coating computer hard disks and iridium is used in spark plugs and for growing metal oxide crystals.

Pandemic Palladium

2010-05-21T18:40:00.002+02:00

From Kitco:

Platinum, Palladium Suffer Serious Technical Damage This Week - Kitco News, May 20 2010 10:22AM

Palladium Has Biggest Two-Day Drop in 12 Years; Platinum Falls - Businessweek, May 20 2010 3:45PM

Europe’s debt crisis and slowing growth in China may erode consumption of the metals used mostly for pollution-control devices in cars. Ford Motor Co.’s deliveries in main European markets fell 17 percent in April, the first drop in 11 months. In two days, palladium dropped 19 percent, the most since May 1998. Before this month, the price surged 36 percent in 2010.

...

“People should make sure they’re the first out of the exit and not the last,” Sorrentino said.

Prices gained for 12 straight months through April. The introduction of an exchange-traded fund backed by the metal in January boosted demand, Selkin of National Securities said. An ETF for platinum was also launched in New York this year.

“There’s very high speculative interest” in the metals, said Walter de Wet, an analyst at Standard Bank Plc in London. “With risk as high as it has been, we expect to see some liquidation.”

Last not least, Jesse on Gold options/futures:

Gold and silver spot was holding the exact levels where I would have expected them to find something to hang on. Let's see stocks go into option expiration tomorrow. There are a lot of calls that are going to be expiring worthless. I wonder if they will try and jam the puts for a little whipsaw action.

I will be a little surprised if they let gold up for air before its own expiration next week.

And:

The market is rallying sharply now, and if it can retake the old support, now resistance, around 1105 it has a good chance of setting a new uptrend back to the top of the channel. This could just be a bounce. I was looking at some of the indicators last night, and they were at record oversold levels going back at least four years, including the crash.

Was all this a trading gambit mixed with petulance over the financial reform package? In a normal market I would say "nonsense." But this market is thin, like a Ponzi scheme, driven by high frequency trading and artificial liquidity. The few genuine investors are being chased and shot down like the human beings in The Planet of the Apes. The Wall Street gorillas have all the horses, nets and rifles, courtesy of the government, the regulators, and the Fed.

The smackdown in gold and silver ahead of option expiration next week, and the miners' option expiration today, was some of the most blatant and heavy handed market manipulation I have seen in a long time.

The Open Interest on the June Gold contract on May 20 increased from 216,811 to a whopping 273,541 contracts on a sharp decrease in price. This was some viciously aggressive short selling intended solely to drive down price, taking the miners down and out of the hands of the public, and weakening the resolve of the Comex gold bulls. There were roughly 18,000 call options sitting at Gold 1200 earlier this week representing 18 million ounces of gold.

Gold Benchmark

2010-05-17T19:57:00.003+02:00

Indeed, it grows very little each year, very little is consumed each year. Difficult to fake, popular and appreciated not only by woman... What better benchmark do you know?

So instead of stating the price of gold in different currencies, it makes much more sense to state everything else in gold units.

So did Robert Rethfeld: Bezugsgröße Gold

Financial Fraud System

2010-05-16T22:50:00.000+02:00

Some years ago when starting to work at a bank, I was wondering what could be the maximum amount possible to steal from a bank. After a certain threshold, a whole army would come after them, wouldn't they? Of course, unless everything gets stolen, then the thiefs are the one with the army anyway?! And that's how it turned out. The whole western capitalistic system has been subverted. And as every banker has become a bankster, it is even impossible to pinpoint any individuals. Coup d'etat. Let's see what will follow. Europe has just capitulated too. Yes, why rob a bank when you can work for one (Mr. Dougan)?! And BTW, as the final name of this crisis is still out, my pick would be "Accounting Crisis". But then, maybe just a matter of time to attach the word Catastrophe onto it.

James K. Galbraith via Jesse's Cafe Americain: The US Intelligentsia and Middle Class Are In the Firm Grip of Fear, Fraud and Denial

Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft-pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. ...

There are exceptions. A famous 1993 article entitled "Looting: Bankruptcy for Profit," by George Akerlof and Paul Romer, drew exceptionally on the experience of regulators who understood fraud. The criminologist-economist William K. Black of the University of Missouri-Kansas City is our leading systematic analyst of the relationship between financial crime and financial crisis. Black points out that accounting fraud is a sure thing when you can control the institution engaging in it: "the best way to rob a bank is to own one." The experience of the Savings and Loan crisis was of businesses taken over for the explicit purpose of stripping them, of bleeding them dry. This was established in court: there were over one thousand felony convictions in the wake of that debacle. Other useful chronicles of modern financial fraud include James Stewart's Den of Thieves on the Boesky-Milken era and Kurt Eichenwald's Conspiracy of Fools, on the Enron scandal. Yet a large gap between this history and formal analysis remains.

...

The complexity of the mortgage finance sector before the crisis highlights another characteristic marker of fraud. In the system that developed, the original mortgage documents lay buried – where they remain – in the records of the loan originators, many of them since defunct or taken over. Those records, if examined, would reveal the extent of missing documentation, of abusive practices, and of fraud. So far, we have only very limited evidence on this, notably a 2007 Fitch Ratings study of a very small sample of highly-rated RMBS, which found "fraud, abuse or missing documentation in virtually every file."

...

Latter-day financial economics is blind to all of this. It necessarily treats stocks, bonds, options, derivatives and so forth as securities whose properties can be accepted largely at face value, and quantified in terms of return and risk. That quantification permits the calculation of price, using standard formulae. But everything in the formulae depends on the instruments being as they are represented to be. For if they are not, then what formula could possibly apply?

An older strand of institutional economics understood that a security is a contract in law. It can only be as good as the legal system that stands behind it. Some fraud is inevitable, but in a functioning system it must be rare. It must be considered – and rightly – a minor problem. If fraud – or even the perception of fraud – comes to dominate the system, then there is no foundation for a market in the securities. They become trash. And more deeply, so do the institutions responsible for creating, rating and selling them. Including, so long as it fails to respond with appropriate force, the legal system itself.

Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.

Ask yourselves: is it possible for mortgage originators, ratings agencies, underwriters, insurers and supervising agencies NOT to have known that the system of housing finance had become infested with fraud? Every statistical indicator of fraudulent practice – growth and profitability – suggests otherwise. Every examination of the record so far suggests otherwise. The very language in use: "liars' loans," "ninja loans," "neutron loans," and "toxic waste," tells you that people knew. I have also heard the expression, "IBG,YBG;" the meaning of that bit of code was: "I'll be gone, you'll be gone."

...

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case.

Swiss Private Assets

2010-05-16T16:29:00.001+02:00

Private Household Assets in Switzerland 2008

Source: SN, 2009 (via B2B magazine)

43.4%  1315 Mia CHF  Immobilien
24.7%   748 Mia CHF  Versicherungen/
                     Pensionskassen
15.9%   481 Mia CHF  Bargeld/Einlagen
 5.6%   169 Mia CHF  Aktien
 5.3%   161 Mia CHF  Anteile an
                     Kollektivanlagen
 4.3%   130 Mia CHF  Schuldtitel
 0.9%    28 Mia CHF  Strukturierte
                     Produkte
       ============
       3032 Mia CHF

Off-Shore Centers

2010-05-08T18:26:00.000+02:00

Here are some off-shore assets under management numbers from the Swiss Bilanz magazin:

Location        AUM (CHF bia)
Luxemburg               3'916
Cayman Island/Caribic   3'200
Switzerland             2'655
London                  1'426
Singapore               1'222
Jersey                    420

Steve Cohen

2010-05-05T19:59:00.000+02:00

The Washington Post:

How hedge fund manager Steve Cohen averaged 30% returns for 18 years

Cohen maintains the temperature on the trading floor at 69 degrees Fahrenheit to make sure no one dozes. If a portfolio manager or analyst can't answer a question about a stock, Cohen is likely to lash out. "Do you even know how to do this . . . -ing job?" is a standard barb, current and former employees say. Portfolio managers make money, or they're fired.

...

Cohen has since returned his focus to what he has done for most of his career: buying stocks and selling them short. He typically holds positions for two to 30 days, according to a document sent to potential investors in early 2009.

Unlike many hedge funds, which tend to have a handful of executives making investment decisions, SAC runs what amounts to 100 small funds. SAC borrows as much as $4 for every $1 of its own from prime brokers, including Goldman Sachs, Morgan Stanley and J.P. Morgan Chase, then distributes the hoard to various teams.

Managers' contracts have "down-and-out" clauses: Lose 5 percent from your peak assets, and SAC can take away half of what remains. Suffer a 10 percent loss, and you could be out.

In 2008, 12 portfolio managers and their teams were fired or resigned, according to a person familiar with the matter.

Cohen, a Long Island, N.Y., native and graduate of the Wharton School of the University of Pennsylvania, taught himself to trade stocks at an early age. He is a master "tape reader," according to people who know him, able to predict the direction of a stock by watching each tick of the price and the volume of shares traded.

In addition to trading his own stocks and overseeing 300 managers, analysts and traders globally, Cohen buys and sells "minis," says one former employee. "Mini" is short for a security called the S&P 500 E-mini future, an electronically traded derivative that rises and falls with the Standard & Poor's 500-stock index and is sold in smaller units than other index futures.

"He does that all day, every day, completely intuitively," the former employee says.

Betting on a bubble

Cohen demonstrated his investing prowess during the dot-com and investing boom of the late 1990s. In 1999, at the height of the Internet bubble, the firm's biggest fund returned 69.7 percent, after fees, betting that technology shares would soar.

Then SAC turned around and bet that the Internet and tech bubble would pop, which it did. The fund earned 71.8 percent in 2000.

...

Working at SAC is tough, even as hedge funds go. One of the worst aspects, at least for people who like weekends, is Sunday "homework." Every week from 5 to 9 p.m., Cohen has his portfolio managers and analysts call in to tell him what's coming up that week for the companies they follow.

Equanimity

2010-05-03T22:17:00.004+02:00

Charlie Munger:

But you can argue that if you are not willing to react with equanimity to a market price decline of 50% two or three times a century, you are not fit to be a common shareholder and you deserve the mediocre result you are going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.

BBC NEWS Business Charlie Munger Boom and Bust Is Normal

Palladium & Rhodium

2010-05-03T20:27:00.000+02:00

From Johnson Matthey's 1h2009 report regarding palladium and rhodium in general:

The palladium market is expected to remain in fundamental surplus in 2009. Net demand is forecast to be down by 4%, although autocatalyst demand will fall less than for platinum as scrappage schemes introduced in many countries have favoured sales of small engined, gasoline powered vehicles which use palladium based technology. The booming automobile market in China is also supportive of palladium demand due to the dominance of gasoline engines. Industrial demand is expected to fall, with soft consumer demand leading to a downturn in the use of palladium in electronic applications. Although total demand will exceed mine supplies, significant sales of metal from Russian state stocks will keep the market in surplus. The average price for the first half of Johnson Matthey’s financial year
was $255/oz, down 35% compared to the same period last year.

In general, platinum can also be used in diesel catalysts, palladium is so far mostly used in standard gasoline engines. For this purposes, palladium and current levels is much cheaper and therefore preferred by manufacturers, however more palladium is needed per catalyst than when platinum is used.

The rhodium market has been relatively calm in comparison to 2008 when a record price in excess of $10,000/oz was recorded in the first half of the year before collapsing to less than $1,000/oz by November. With demand subdued due to falling car production, rhodium is expected to be in surplus in 2009. The price is nonetheless trending modestly higher in what is a small and often volatile market. The average price in the first half was $1,509/oz, substantially lower than an average in excess of $8,000/oz recorded in the same period last year.

Rhodium is also used in the jewelery business, bought in grams, and then fumed over other white precious metals to make it even more shining!

Pharmacy Sales

2010-05-01T22:11:00.005+02:00

The biggest pharmacy companies ranked by sales - half a trillion USD in total. To put it in perspective, all sales of Wal-Mart are at USD 405 bia. The company price to sales ratio for the big pharma sector is 2.65 (0.5 for Wal-Mart, just to give the number).

Sources: SIX Telekurs, FactSet, theScreener

Pharmacy Stocks

2010-04-19T19:00:00.001+02:00

Pharmacy for USD 1.1 trillion.

Sources: SIX Telekurs, theScreener

Oil Companies

2010-04-19T18:54:00.001+02:00

2010-04-16

Market Cap 
   USD Bia  Company            Dom.  Market  Cur.
    333.07  PetroChina         CN    HKG     HKD
    323.40  Exxon Mobil        US    NYX     USD
    189.13  Royal Dutch Shell  GB    LSS     GBP
    186.75  BP                 GB    LSS     GBP
    185.24  Petroleo Bras Pfd  BR    SAO     BRL
    161.83  Chevron            US    NYX     USD
    139.22  Total              FR    EPA     EUR
    132.70  Sinopec            CN    HKG     HKD
     96.93  Eni                IT    MCI     EUR
     91.62  Rosneft Oil        RU    RTD     USD
     86.87  ConocoPhillips     US    NYX     USD
     78.51  CNOOC              HK    HKG     HKD
     77.96  Statoil            NO    OSL     NOK
     69.98  Occid.Petrol Corp  US    NYX     USD
     51.25  Lukoil             RU    RTD     USD
     36.39  Apache             US    NYX     USD
     30.68  Repsol YPF         ES    MCE     EUR
     29.99  Devon Energy       US    NYX     USD
     23.28  Marathon Oil       US    NYX     USD
  2'324.80

Sources: SIX Telekurs, theScreener

Nickel Nurser

2010-04-15T19:49:00.000+02:00

In English: Penny Pincher

In German: Pfennigfuchser

In Swiss-German: Rappenspalter

Money, Money, Money

2010-04-04T11:57:00.003+02:00

ABBA - Money Money Money (Abba-dabba-doo)

I work all night, I work all day, to pay the bills I have to pay
Ain't it sad
And still there never seems to be a single penny left for me
That's too bad
In my dreams I have a plan
If I got me a wealthy man
I wouldn't have to work at all, I'd fool around and have a ball

Money, money, money
Must be funny
In the rich man's world
Money, money, money
Always sunny
In the rich man's world
Aha-ahaaa
All the things I could do
If I had a little money
It's a rich man's world

A man like that is hard to find but I can't get him off my mind
Ain't it sad
And if he happens to be free I bet he wouldn't fancy me
That's too bad
So I must leave, I'll have to go
To Las Vegas or Monaco
And win a fortune in a game, my life will never be the same

Money, money, money
Must be funny
In the rich man's world
Money, money, money
Always sunny
In the rich man's world
Aha-ahaaa
All the things I could do
If I had a little money
It's a rich man's world

Money, money, money
Must be funny
In the rich man's world
Money, money, money
Always sunny
In the rich man's world
Aha-ahaaa
All the things I could do
If I had a little money
It's a rich man's world

It's a rich man's world

giacobbo/müller

2010-03-18T22:48:00.005+01:00

In Swiss German, but it is soo funny (if you happen(ed) to live (and work) around here):

UBS Mitarbeiter 2008

And, still relevant...

Giacobbo Müller - Die Achse Kosovo-Lichtenstein

No Joke

2010-03-17T22:45:00.002+01:00

Jon Stewart: In Dodd We Trust

Viao naked capitalism.

Euro STOXX 50 in Gold OZ

2010-02-25T23:04:00.000+01:00

With talk recently about Gold being on an all time high denominated in Euro, let's have a look at the most important European index, the Euro STOXX 50: in Gold troy ounces!

(click on image for a bigger version)

What a wonderful downward trend for the Euro STOXX 50 in Gold. Or could we call it deflation?! And maybe it's inflation for Gold in terms of Euro!? Inflation - Deflation: is it just a matter of perspective?

Source Telekurs iD.

Swiss Statistic

2010-02-20T17:00:00.005+01:00

This attention-grabbing article (Unterhalt des SBB-Schienennetzes massiv teurer - OMG: CHF 850 mio!) about the cost of the Swiss railway tracks in the Swiss "Tagi" calls for looking up of the latest Swiss population statistic:

Bundesamt für Statistik: Bevölkerung - Die wichtigsten Zahlen

Wichtigste Kennzahlen
2008
Ständige Wohnbevölkerung am Jahresende (in 1000) 7701.9
65 Jahre und älter 16.6
Ausländische Staatsangehörige (in %) 21.7
Bevölkerungswachstum (in %) 1.4
Anzahl Kinder je Frau 1.48
Lebenserwartung bei der Geburt (Jahre)
Männer 79.7
Frauen 84.4
Scheidungen je 100 Heiraten 47
Haushalte
Einpersonenhaushalte (in 1000) 1246.7
Familienhaushalte mit Kindern (in 1000) 1086.3
Durchschnittliche Anzahl Personen je Privathaushalt 2.20

Turns out CHF 110 for each Swissi (per year)! Seems to be a good deal and cheap for top notch infrastructure.

P.S. according to the BAV, the CHF 850 mio are additional costs! If the Tagi is right and this is 60% of the initially planned cost, that amounts to maintenance cost of CHF 2.3 bia for the track system. This comes down to a total annual amount of CHF 294 per Swiss resident.

Gold

2010-02-13T23:34:00.006+01:00

From the World Gold Council (a bunch of gold mining corporations):

How much gold has been mined?
The best estimates available suggest that the total volume of gold ever mined up to the end of 2009 was approximately 165'000 tonnes, of which around 65% has been mined since 1950.

How much gold is still underground?
The major gold producers increased their reported reserves to 719.7 million oz or over 22,000 tonnes at the end of 2005, according to Metals Economics Group. Assuming a 10% recovery loss when the ore is extracted, this would amount to 14 years of gold production at 2005's level. In practice the amount of known resources remains fairly constant over time since the results of new exploration finds replace those resources that are exploited.

What is the average cost of mining per ounce?
The average cost of replacing and producing an ounce of gold rose to $428/oz in 2005, a ten-year high, according to Metals Economics Group, based on a study of 18 major gold producing companies. However, costs vary widely between companies and the mines themselves.

How big is a tonne of gold?
Gold is traditionally weighed in Troy Ounces (31.1035 grammes). With the density of gold at 19.32 g/cm3, a troy ounce of gold would have a volume of 1.61 cm3. A metric tonne (equals 1,000kg = 32,150.72 troy ounces) of gold would therefore have a volume of 51,762 cm3 (i.e. 1.61 x 32,150.72), which would be equivalent to a cube of side 37.27cm (Approx. 1' 3'').

Where does the word Gold come from?
The word gold appears to be derived from the Indo-European root 'yellow', reflecting one of the most obvious properties of gold. This is reflected in the similarities of the word gold in various languages: Gold (English), Gold(German), Guld (Danish), Gulden (Dutch), Goud (Afrikaans), Gull (Norwegian) and Kulta (Finnish).

With today's gold price of USD 1082.00 the total "market capitalization" of gold is:

USD 5'739'872'784'897.15

USD 5.7 trillion - 9.5% of 2008 world GDP or half of the currently estimated US bailout amount:-)

And what's the annual mining production?

The CRB Commoditiy Yearbook 2008 states for 2005:
2'470 t (record high was actually 1999/2000 with 2'570 t)
= 79.41 million ozt (82.6 million ozt)
= USD 85'924'156'234.52
= USD 85.9 billion (USD 89.4 billion)
So total world gold amount is equivalent of 66.8 years of 2008 world gold production.
P.S. 1 ozt = 31.1034768 g

And how much gold is there for any human being?

165'000'000'000 g / 6'692'030'277 people = 24.66 g / person (or 80% of a single troy once)

Here is an interesting back of the envelope calculation (thought they estimate double the amount of the WGC number and maybe make a too low assumption of today's gold production, nevertheless interesting):

If you took all of the gold in the world and put it in one place how much would there be?

And a National Geographic article about gold, mining, and its social impact:

In 2007 demand outstripped mine production by 59 percent.
...
According to the United Nations Industrial Development Organization (UNIDO), there are between 10 million and 15 million so-called artisanal miners around the world, from Mongolia to Brazil. Employing crude methods that have hardly changed in centuries, they produce about 25 percent of the world's gold and support a total of 100 million people. It's a vital activity for these people—and deadly too.

So annually: 80 mio ozt * 25% = 20 mio ozt; for lets say 10 mio workers this results in 2 ozt per worker, average per worker USD 2'000 market value - thought not what they get:

On school holidays, Rosemery sometimes helps her mother on the mountain. It is child labor, perhaps, but for a girl whose family is living hand to mouth, it also qualifies as her proudest achievement. "Last year I found two grams of gold," Rosemery says, almost giddily. "It was enough to buy my schoolbooks and uniform.

And furthermore:

The deadly effects of mercury are equally hazardous to small-scale miners. Most use mercury to separate gold from rock, spreading poison in both gas and liquid forms. UNIDO estimates that one-third of all mercury released by humans into the environment comes from artisanal gold mining.
...

View Mine Sites in a larger map

At the other end of the spectrum are vast, open-pit mines run by the world's largest mining companies. Using armadas of supersize machines, these big-footprint mines produce three-quarters of the world's gold. They can also bring jobs, technologies, and development to forgotten frontiers. Gold mining, however, generates more waste per ounce than any other metal, and the mines' mind-bending disparities of scale show why: These gashes in the Earth are so massive they can be seen from space, yet the particles being mined in them are so microscopic that, in many cases, more than 200 could fit on the head of a pin. Even at showcase mines, such as Newmont Mining Corporation's Batu Hijau operation in eastern Indonesia, where $600 million has been spent to mitigate the environmental impact, there is no avoiding the brutal calculus of gold mining. Extracting a single ounce of gold there—the amount in a typical wedding ring—requires the removal of more than 250 tons of rock and ore.
...
Up the road there is a basketball gymnasium that Newmont staffers jokingly refer to as "the second home of the Denver Nuggets."

The name is fitting for a Colorado-based gold-mining company, though there are no nuggets here. And therein lies the problem. Higher prices and advanced techniques enable companies to profitably mine microscopic flecks of gold; to separate gold and copper from rock at Batu Hijau, Newmont uses a finely tuned flotation technology that is nontoxic, unlike the potentially toxic cyanide "heap leaching" the company uses in some of its other mines. Even so, no technology can make the massive waste generated by mining magically disappear. It takes less than 16 hours to accumulate more tons of waste here than all of the tons of gold mined in human history. The waste comes in two forms: discarded rock, which is piled into flat-topped mountains spread across what used to be pristine rain forest, and tailings, the effluent from chemical processing that Newmont pipes to the bottom of the sea.

This method of "submarine tailings disposal" is effectively banned in most developed countries because of the damage the metal-heavy waste can do to the ocean environment, and Newmont practices it nowhere but in Indonesia. Four years ago an Indonesian court brought criminal charges against a Newmont subsidiary—even jailing five of its employees for a month—for pumping pollutants into the sea near its now defunct Buyat Bay mine on the island of Sulawesi. Newmont was acquitted of all charges in 2007. Despite critics' claims that the court caved in to the mining industry, Newmont defends its reliance on ocean dumping at Batu Hijau. "Land disposal would be cheaper but more damaging to the environment," argues Rachmat Makkasau, Batu Hijau's senior process manager. The tailings at Batu Hijau are released 2.1 miles offshore at a depth of 400 feet, above a steep drop-off that carries the waste down more than 10,000 feet. "We closely monitor the quality of the tailings, pipes, and seabed," says Makkasau. "At that depth, we are only affecting some 'sea insects.'"
...
Nowhere is the gold obsession more culturally entrenched than it is in India. Per capita income in this country of a billion people is $2,700, but it has been the world's runaway leader in gold demand for several decades. In 2007, India consumed 773.6 tons of gold, about 20 percent of the world gold market and more than double that purchased by either of its closest followers, China (363.3 tons) and the U.S. (278.1 tons). India produces very little gold of its own, but its citizens have hoarded up to 18,000 tons of the yellow metal—more than 40 times the amount held in the country's central bank.

India's fixation stems not simply from a love of extravagance or the rising prosperity of an emerging middle class. For Muslims, Hindus, Sikhs, and Christians alike, gold plays a central role at nearly every turning point in life—most of all when a couple marries. There are some ten million weddings in India every year, and in all but a few, gold is crucial both to the spectacle and to the culturally freighted transaction between families and generations. "It's written into our DNA," says K. A. Babu, a manager at the Alapatt jewelry store in the southwestern city of Cochin. "Gold equals good fortune."

This equation manifests itself most palpably during the springtime festival of Akshaya Tritiya, considered the most auspicious day to buy gold on the Hindu calendar. The quantity of gold jewelry Indians purchase on this day—49 tons in 2008—so exceeds the amount bought on any other day of the year throughout the world that it often nudges gold prices higher.

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Throughout the year, though, the epicenter of gold consumption is Kerala, a relatively prosperous state on India's southern tip that claims just 3 percent of the country's population but 7 to 8 percent of its gold market. It's an unusual distinction for a region that has one of the world's only democratically elected Marxist governments, but it is rooted in history. A key port in the global spice trade, Kerala gained an early exposure to gold, from the Romans who offered coins in exchange for pepper, cardamom, and cinnamon to subsequent waves of colonizers, the Portuguese, Dutch, English. But local historians say it was the region's revolt against the Hindu caste system (before which the lowest castes were allowed to adorn themselves only with polished stones and bones), and the mass conversion to Christianity and Islam that followed, that turned gold into something more than commerce: a powerful symbol of independence and upward mobility.
...
By themselves, none of these ceremonies captures how deeply gold is ingrained in the Indian economy. "Gold is the basis of our financial system," says Babu, the jewelry store manager. "People see it as the best form of security, and nothing else lets you get cash as quickly." Hoarding gold as an intergenerational family nest egg is an ancient tradition in India. So, too, is pawning gold jewelry for emergency loans—and then buying it back. Commercial banks still offer the service, after their attempt to stop it in the 1990s resulted in riots and suicides by debt-laden clients and a government command to continue the practice.

Many farmers in Kerala, however, prefer the speed and easy access of "private financiers" like George Varghese, who operates out of his home three hours south of Cochin. A balding man in his 70s, Varghese says he handles around half a million dollars in pawned gold a month, even more during harvest and wedding seasons. It's almost a perfect business, for even with interest rates that can reach one percent a day on short-term loans, very few people default. No Indian wants to let go of their gold. "Even when gold hit $1,000 an ounce, nobody sold their jewelry or coins," says Varghese. "This is their nest egg, and they trust it to keep growing."
...
In small-scale gold mining, UNIDO estimates, two to five grams of mercury are released into the environment for every gram of gold recovered—a staggering statistic, given that mercury poisoning can cause severe damage to the nervous system and all major organs. According to Peruvian environmentalists, the mercury released at La Rinconada and the nearby mining town of Ananea is contaminating rivers and lakes down to the coast of Lake Titicaca, more than a hundred miles away.

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Vetropack

2010-01-12T22:22:00.000+01:00

Some quick observations on the Vetropack 2008 annual report:

Average sales price per bottle or glass: CHF 0.18

Ukrainian currency fell in 4th quarter by 60%!

At the end of 2008, Vetropack's capacity totals 4'250 tons of glass per day in its 16 furnaces across seven locations.

Family owned business, holding is in Bülach, Swiss factory in St-Prex.

Content and Method of Determining Remuneration. The level of remuneration to members of
the BoD is determined by the BoD as a whole. Only cash benefits are paid. No share or option
plans exist. The level of remuneration to the members of the MB is determined by the Chairman of the BoD. In addition to a basic level of remuneration that reflects the responsibility borne by an individual, there is a variable performance related component based on the results of the business unit and/or the Group.

---

In 2007, glass recycling quotas reached 95% in Switzerland, 80% in Austria and 59% in Croatia. Recycling accounted for 34% in Slovakia, 50% in the Czech Republic and 23% in Ukraine.

Sales by Market Segments (4.27 billion units, 1.3 million tons of glass)

33% Beer
24% Wine
17% Food
11% Spirits
09% Mineral waters / carbonated beverages
06% Juice

Precious Metals Trends

2009-11-24T19:57:00.000+01:00

Google Precious Metals Trends

Search trend factors as of 2009-11-24:

Gold      1.0
Silver    0.57
Platinum  0.18
Palladium 0.04
Rodium    0.0

Brendan Burke

2009-11-14T12:28:00.005+01:00

This one is refreshing...

Slope of Hope, 2009-11-13: Hello My Name is Not Oulous (by Brendan Burke)

Two events led me to investing many years ago. One is the death of my granny and the other are magical invisible boots I used to sell on ebay called J-boots. The boots made your metame run fast within the medium of Everquest. I noticed an emerging shadow market of the already shadowy economy within the game Everquest, and I thought I would take a crack at finding an area to exploit that I could dominate in. There were too many sellers already so I had to get very specific and sell one particular item. I chose the J-boot because everyone had to have them, and the major sellers were not bothering to sell it due to its complicated delivery procedure. So in a fairly short period of time I had amassed a decent amount of money from death and magic virtual boots. I then decided to take that money and push it into the markets. I knew nothing about stock markets, and the year I made my first trade was 2001. Both bad and good timing.

...

For me the market has two modes of operation. Unsafe and slightly more unsafe.

When the market is plain old unsafe, I will swing trade with hold times of a few days to a few weeks, to possibly but very infrequently, a few years.

If the market is even more unsafe I will day trade only with hold times of a few minutes to all day…. every once in a while I go overnight with something that has momentum.

...

My trading style is illusion and momentum. Illusion is my basis for swing trading. Almost all value is an illusion, and I trade off people’s hopes as they relate to that illusion.

Momentum is for day trading, which is either behavioral in terms of pure price action or news driven. In the end the two blend together into a messy giant sundae, and I just try and get a few bites before it becomes a sloppy disaster.

...

1. First thing to learn is how to take a loss. How do you react? If you fall apart and its on your mind 100% of the time, then quit or change investing styles. Once you learn to how to take a loss you are ready to try trading.

2. If you are 18 to 22 and considering becoming a financial professional you are making a huge mistake. The world is divided up between creators and destroyers and those in the financial world are nothing but destroyers, myself included. Luckily it is not my background nor does it consume 100% of my time. The other half of my life is spent trying to create things. I suggest you always keep something else in your back pocket if you choose to journey as a trader, something that matters to human beings.

3. There is little or no truth and little or no value. If the stock market were functioning properly, then stock prices would not move very far and fast except in extreme cases and a public company would exist as an agreement between management and shareholders. All companies would pay dividends as soon as they achieved profit as a way of paying back those that financed their company. Sounds odd right? Thats how it should work but it doesn’t, so remember that all values are an illusion, and its your job to be a magician and make trades that profit off the best illusions.

4. Read Reminiscences of a Stock Operator. Its a great story and will make you feel like trading is akin to swashbuckling and piracy. It also lets you know who you are up against. Remember no one is on your side. Its you versus the world when you are trading for yourself. Don’t bother with any other financial books; just read novels, history, magazines, manga, cartoons, anything. Maybe check out Naseem Taleb, but his “luck” of finding a black swan makes him era specific, so his current books won’t be as useful in a few years. There is nothing worse than being a trader or a lawyer and going home only to talk about trading or the law. Fill your life with other things.

5. They always say don’t rely on luck, don’t hope, and use fact not intuition. I thrive on Luck, Hope, and Intuition, in fact I am hoping my intuition can find me a lucky trade tomorrow.

Lloyd "Gecko" Godman

2009-11-10T23:51:00.004+01:00

Lot's has been written everywhere about the bankers doing God's work... well, here is how it came about:

Times Online, 2009-11-08: I'm doing 'God's work'. Meet Mr Goldman Sachs

"Is it possible to have too much ambition? Is it possible to be too successful?" Blankfein shoots back. "I don’t want people in this firm to think that they have accomplished as much for themselves as they can and go on vacation. As the guardian of the interests of the shareholders and, by the way, for the purposes of society, I’d like them to continue to do what they are doing. I don’t want to put a cap on their ambition. It’s hard for me to argue for a cap on their compensation."

So, it’s business as usual, then, regardless of whether it makes most people howl at the moon with rage? Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe will go on raking it in, getting richer than God? An impish grin spreads across Blankfein’s face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker "doing God’s work"

Not much to see here, if you ask me, just another Peanuts/Victory line...

Good night!

Kirk Stephenson

2009-11-07T19:22:00.016+01:00

The risk of securities lending (or watch your counterparty)...

Kirk Stephenson (1961 - 2008)

This memorial website was created in the memory of our loved one, Kirk Stephenson, who died on Thursday, September 25, 2008.

...

New Zealand born, he arrived in London in 1983 when he was in his early 20's as an SG Warburg graduate trainee and he never left. After his stint in he City, he went on to work as CFO and COO at several well-respected, large organisations including Amersham Plc, Coats Plc and the international iaw firm, Freshfields. Latterly he had worked as a director for the private equity firm Olivant set up in 2006, which came to prominence earlier this year as one of the potential bidders for Northern Rock.

20 Minuten, 2008-09-29: Millionär wirft sich vor Schnellzug

Zusammen mit Luqman Arnold, der für kurze Zeit Konzernchef der UBS war, gründete Stephenson vor zwei Jahren die Beteiligungsgesellschaft Olivant Advisers. Diese übernahm im Juni dieses Jahres für über eine Milliarde Euro 2,5 Prozent der UBS-Aktien – ein folgenschwerer Fehler, wie sich mit dem Kurszerfall der UBS-Aktien herausstellte. 250 Millionen Euro soll Stephenson verloren haben.

Olivant: Statement 1 October 2008

Olivant Limited has previously indicated that it is interested in shares in UBS representing 2.78% of the company. These shares were held through Lehman Brothers International (Europe) (“LBIE”). In light of the appointment of administrators to LBIE, Olivant Limited is evaluating the position of its interest in UBS and is in contact with the administrators to secure these assets.

Olivant: Kirk Stephenson 2 October 2008

Our thoughts and condolences are with his wife and family.

London Evening Standard, 2008-10-02: Mystery of ‘lost’ shares Olivant left at Lehman

City Spy hears it was “in the small print” that they could be moved on, that Lehman could use them to raise cash. Arnold said: “We are fortunate that we are a private company, and a company which has substantial paid-up capital, which means that this is not a drama for us.”
Oh no? The shares have vanished and you can't vote? Sounds pretty dramatic. Did Stephenson know Lehman could take them? If not, why not? How did Arnold find out and how did he react? Questions, questions. Unfortunately, the COO cannot answer them.

FinishingWell, 2008-12-01: When the Pressure Became Too Great...

As Olivant's chief operating officer, Stephenson had approved the Lehman contract, and had left the firm and was negotiating a separation agreement. Several friends offered that Stephenson had recently told them that he was under enormous pressure at work. Still, his death was a tremendous shock to a wide circle of friends, not only in business, but also art and politics. Only a few weeks before Lehman's bankruptcy, Stephenson and his wife had gone to Verona, Italy, to see the opera with a friend who heads a London hedge fund. On Sunday, September 21st, Stephenson had attended his regular weekly tennis game. His playing partner said he didn't talk about specific problems, but made it clear that "things weren't easy" at work. His game was off and his spirits subdued. "He seemed down, pale, and had other things on his mind," Mr. Maher said.

Clearly, the pressure had become too great. Stephenson was known to be fastidious about everything, from his neat handwriting to his ironed handkerchiefs. Mr. Maher, his tennis partner recalled him organizing the bills in his wallet so they faced the same way and were ordered in size. "Control was a very important feature for him," Mr. Maher offered. And clearly, the economic meltdown, and his financial demise, were too much for him to handle

One year later and no news of the UBS shares... only some merger announcements of some Russian banks at the Olivant press release page. Hmm, those, Northern Rock, UBS, Lehman Brothers...

Bloomberg, 2009-09-15: London suicide connects Lehman lesson missed by Hong Kong woman

The stocks and bonds of Lehman’s London brokerage customers, used as collateral to borrow more money, were frozen on September 15. About 3,500 clients, including 700 hedge funds, couldn’t get access to an estimated $65 billion of assets. PricewaterhouseCoopers, Lehman’s UK bankruptcy administrator, is still sorting out who should get paid and how much. Some firms have closed, and others may have to wait as long as a decade to get their assets back, Tony Lomas, the PwC partner in charge of the UK administration, said in August.

It took only 10 days for the ice-nine to get to Kirk Stephenson, chief operating officer of Olivant Ltd., a London private-equity firm run by former UBS AG Chairman Luqman Arnold. On September 25, Stephenson, 47, jumped in front of a train going 125 mph at a station in Taplow, 45 kilometers west of London.

The coroner’s office for the county of Buckinghamshire ruled the death a suicide. Stephenson, a native of New Zealand, was despondent about the financial crisis and talked about killing himself one week after Lehman’s demise, according to a statement from his wife read at the coroner’s inquest.

Lehman Brothers International (Europe) was Olivant’s prime broker. It held the firm’s 2.78-percent stake in UBS, Switzerland’s largest bank by assets, according to a statement from Olivant on October 1. The shares were worth 1.6 billion francs ($1.44 billion) at the time.

The hedge fund lock-up led the UK to reconsider its procedures when firms fail. While Lehman’s broker-dealer in the US stayed out of bankruptcy long enough to process many of its trades, the business seized up in the UK.

“In the US, everything was wrapped in cotton wool for four days,” said PwC’s Lomas. In the UK, “everything failed come 7:56 a.m. that Monday morning.”

The UK had an advantage in attracting hedge fund assets before the Lehman bankruptcy. While US prime brokers face limits on how much they can loan hedge funds, those rules could be circumvented with overseas units like Lehman’s in London. Some US clients didn’t know they were customers of Lehman Brothers International (Europe).

“If you didn’t pay attention to what you were signing, you would have missed it,” said Michael Romanek, principal at Rise Partners Ltd., which arranges financing for funds from London. “It was called enhanced prime brokerage, where they could be more accommodating with more leverage or loans. It just took signing some extra papers in New York. Most people didn’t realize it.”

His legacy

No material is available.

The Run On Goldman Sachs

2009-10-25T17:25:00.002+01:00

Wall Street’s Near-Death Experience

By Andrew Ross Sorkin
November 2009

Nevertheless, Stanley Druckenmiller, a George Soros acolyte worth more than $3.5 billion, had taken most of his money out earlier that week, concerned about the firm’s solvency. If word got around that a hedge-fund manager of Druckenmiller’s reputation had lost confidence in Goldman, that alone could cause a run. Cohn called him and tried to persuade him to return the money to the firm. “I have a long memory,” Cohn, who was taking this personally, told Druckenmiller, in whose honor he had even once hosted a charity cocktail party. “Look, the one thing I’m doing is I’m learning who my friends are and who my enemies are, and I’m making lists.”

Druckenmiller, however, was unmoved. “I don’t really give a shit—it’s my money!” he shot back. Unlike most hedge funds, Druckenmiller’s consisted primarily of his own money. “It’s my livelihood,” he said. “I’ve got to protect myself, and I don’t really give a shit what you have to say.”

“You can do whatever you want,” Cohn said in carefully measured tones. But, he added, “this will change our relationship for a long time.”

SAP Observations

2009-07-12T20:42:00.004+02:00

Observations from the 1q2009 and 2008 reports

it intended to reduce its workforce globally to 48,500 positions by year-end 2009, taking full advantage of attrition as a factor in reaching this goal

Yeah, this damn attrition, we make it a positive... (and I thought that "One of SAP's greatest achievements as a company is that we are continuously recognized as an employer of choice by employees who perceive SAP a great place to work.").

On March 11, SAP and Sybase, an industry leader in delivering enterprise and mobile software, announced a partnership centred around co-innovation that will change how users access critical business information anytime, anywhere. The two companies are co-innovating and collaborating to deliver the new SAP Business Suite software for the first time to iPhone, Windows Mobile, BlackBerry and other devices by integrating it with Sybase’s industry-leading mobile enterprise application platform.

Yeah, Sybase, the great industry leader...

On March 4, SAP announced it will collaborate with Intel to optimize SAP Business One applications on Intel Xeon Processor based systems to enable small businesses to lower cost by achieving faster time to value of their IT investments. SAP and Intel intend to encourage original equipment manufacturers (OEM) and solution providers to create industry-specific bundles to leverage the results of this collaboration.

Yeah, Intel, it sucks not to control the hardware...

On March 4, SAP announced plans to integrate pre-configured ..., providing customers with instant access to trusted and timely data.

Yeah, boah, ...

SAP announced that its sustainability efforts will be led by a newly formed cross-functional sustainability organization headed by SAP’s first chief sustainability officer.

Yeah, wow, and I bet he/she will be part of the "Vorstand".

On February 4, SAP unveiled SAP Business Suite 7 software, a next-generation software suite that helps businesses to optimize their performance and reduce IT cost.

Yeah, reducing IT cost is good! Now, wait a moment, what else is new?

SAP will discontinue its U.S. GAAP reporting and will only report financial data under IFRS from fiscal 2010 onwards.

Yeah! :-)

employees working in development teams ... 15'401

Sales and marketing costs for 1q2009 was EUR 513 million compared to research and development costs of EUR 365 million (a factor of 1.4).

68% of the equity consists of goodwill! Well, well, that's the Business Objects aquisition.

Change in deferred income is very high! Why? OK, this must be the client payments in advance for the rest of the year.

We have issued loans to employees other than to members of SAP AG’s Executive Board and Supervisory Board amounting to a gross value of €63 million, and €64 million, at March 31, 2009, and December 31, 2008, respectively. Loans granted to employees primarily consist of interest-free or below-market-rate building loans which SAP discounts for financial reporting purposes based on prevailing market rates. SAP has not experienced significant default on loans to employees. There have been no loans to employees or executives to assist them in exercising stock options.

So why does SAP give loans to employees?!!!

2008

82'000 companies use SAP software.

Three founders keep holding now only 28.7% of the shares (not considering treasury shares).

SAP’s Skills On-Demand library provides employees with access to approximately 13,000 e-learning courses, books, simulations, and other learning materials that can help employees expand their skill sets and drive their career development.

...

Open Source
Software based on the concept of software developers coming together to build a virtual community and solving a common problem by developing working software.

Yeah, working software is always good.

Successful development projects under the Open Source model include Linux - a free operating system supported by SAP.

Yeah, thanks SAP!

patch support
Product support phase during which SAP provides fixes to customers. Adopted from the BusinessObjects support policy.

Yeah, good to know they have patches, aeh, support patches, aeh, have patchwork support. Patch support.

Meaning of Money

2009-06-24T21:14:00.010+02:00

Look at this very interesting chart from The Big Picture: Bailout Costs vs Big Historical Events

Well, it left out the world war I and II, still, the US compensation for the financial crisis is estimated to be at around USD 15 trillion, more than the US spend on all other major events combined (taking inflation into account)! Also for comparison, 2008 US Gross Domestic Product is USD 14 trillion.

Wow. But...

so, what did really happen? Just a few numbers changed. No one died, no houses destroyed, a few bankers out of their job. Compare this with the real events. How many tragedies for the whole world in case of the catastrophic events. In the other case, well, you had a rocket and exciting photos from moon and earth, or at least a big new junk of it.

So where is the problem? Something is obviously out of balance. Thought it is not just the current crisis. The problem is, what money measures is not necessary real value, it is really relative.

The numbers above give us some perspective how crazy the current situation is, but even more so, that our ordinary understanding of money is quite questionable.

Big Numbers

2009-05-01T12:49:00.002+02:00

Obama Budget Cuts Visualization

Big numbers made accessible... watch till the end, it's funny.

Via The Big Picture.

Buffett's Letter 2008

2009-02-28T22:33:00.003+01:00

It's Saturday night, but what the heck, Buffett's latest letter to the shareholders comes first.

Below are a few quotes. Just upfront my favorite one:

Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).
...
Derivatives contracts, in contrast, often go unsettled for years, or even decades, with counterparties building up huge claims against each other. “Paper” assets and liabilities – often hard to quantify – become important parts of financial statements though these items will not be validated for many years. Additionally, a frightening web of mutual dependence develops among huge financial institutions. Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.

What we have is not only a financial crisis, it is an accounting crisis. With complex non-linear financial instruments, accounting can't serve the purpose it is made for. Without a valid accounting, there can not be trust in the soundness of a business. This is not only a problem for banks, but any damn company (or small town) can have these instruments in their books. JP Morgan has each USD 70 to 90 billion on the asset and liabilities side in derivative instruments. These derivatives have underlyings in the trillions. What does that mean for JP Morgan (or for the rest of us)?!

So here are the remaining ones:

Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.
...
During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. I will tell you more about these later. Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.
...
Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
...
Ajit came to Berkshire in 1986. Very quickly, I realized that we had acquired an extraordinary talent.
So I did the logical thing: I wrote his parents in New Delhi and asked if they had another one like him at home.
Of course, I knew the answer before writing. There isn’t anyone like Ajit.

What's this?! Ajit has a brother taking the shots at Deutsche Bank's investment bank. Maybe I interpret too much into this, but maybe this is a sniding remark in that direction, maybe that brother exists but isn't that great as we are made to believe in taking risks.

I told you in an earlier part of this report that last year I made a major mistake of commission (and
maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.

I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes “unforced errors.”
...
When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.
...
Derivatives are dangerous. They have dramatically increased the leverage and risks in our financial system. They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks. They allowed Fannie Mae and Freddie Mac to engage in massive misstatements of earnings for years. So indecipherable were Freddie and Fannie that their federal regulator, OFHEO, whose more than 100 employees had no job except the oversight of these two institutions, totally missed their cooking of the
books.
...
Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).

For a case study on regulatory effectiveness, let’s look harder at the Freddie and Fannie example. These giant institutions were created by Congress, which retained control over them, dictating what they could and could not do. To aid its oversight, Congress created OFHEO in 1992, admonishing it to make sure the two behemoths were behaving themselves. With that move, Fannie and Freddie became the most intensely-regulated companies of which I am aware, as measured by manpower assigned to the task.
...

On June 15, 2003, OFHEO (whose annual reports are available on the Internet) sent its 2002 report to Congress – specifically to its four bosses in the Senate and House, among them none other than Messrs. Sarbanes and Oxley. The report’s 127 pages included aself-congratulatory cover-line: “Celebrating 10 Years of Excellence.” The transmittal letter and report were delivered nine days after the CEO and CFO of Freddie had resigned in disgrace and the COO had been fired. No mention of their departures was made in the letter, even while the report concluded, as it always did, that “Both Enterprises were financially sound and well managed.” In truth, both enterprises had engaged in massive accounting shenanigans for some time. Finally, in 2006, OFHEO issued a 340-page scathing chronicle of the sins of Fannie that, more or less, blamed the fiasco on every party but – you guessed it – Congress and OFHEO.
...
A normal stock or bond trade is completed in a few days with one party getting its cash, the other its securities. Counterparty risk therefore quickly disappears, which means credit problems can’t accumulate. This rapid settlement process is key to maintaining the integrity of markets. That, in fact, is a reason for NYSE and NASDAQ shortening the settlement period from five days to three days in 1995.

Derivatives contracts, in contrast, often go unsettled for years, or even decades, with counterparties building up huge claims against each other. “Paper” assets and liabilities – often hard to quantify – become important parts of financial statements though these items will not be validated for many years. Additionally, a frightening web of mutual dependence develops among huge financial institutions. Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.
...
Considering the ruin I’ve pictured, you may wonder why Berkshire is a party to 251 derivatives contracts (other than those used for operational purposes at MidAmerican and the few left over at Gen Re). The answer is simple: I believe each contract we own was mispriced at inception, sometimes dramatically so. I both initiated these positions and monitor them, a set of responsibilities consistent with my belief that the CEO of any large financial organization must be the Chief Risk Officer as well. If we lose money on our derivatives, it will be my fault.
...
In 2008 we began to write “credit default swaps” on individual companies. ... We are unlikely to expand this business to any extent because most buyers of this protection now insist that the seller post collateral, and we will not enter into such an arrangement.

This seems to indicate, CDS selling did not involve posting collateral in the past.

Real Money

2009-02-28T19:28:00.002+01:00

I read numbers for the total (current) bailout commitments in the US of between USD 8.5 and 11 trillion. As the saying goes, a trillion here, a trillion there, and soon you are talking of real money.

What do you think, that this will be to have for much cheaper in Europe?

To be forward looking, here is my name suggestion for the next currency, when this all has to be started from scratch again: the Unreal.

Second Wave

2009-02-16T22:51:00.003+01:00

Jesse's Cafe Americain: European Banks Face Devastating Exposure to Emerging Markets

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Trust

2009-02-12T22:13:00.001+01:00

Enjoy!

Congressman Capuano says "I don't have a penny of my money in your banks!!" to CEOs Feb 11 2009

Via Jesse's Cafe Americain.

Currencies and Commodities

2009-02-06T22:26:00.000+01:00

Jim Rogers: Currency Crisis is Coming this Year (05.02.09)

Jim Rogers talks Dissolution of Russia (05.02.09)

(1/2) Marc Faber - Says He'd Favor Industrial Commodities Over Gold 2009-01-06

CNBC: Dr Doom: It Pays to Wait in Asia

City Bank Run

2009-02-01T23:39:00.001+01:00

Mail Online: Revealed: Day the banks were just three hours from collapse

But shares continued to plummet, turning into a rout on the Friday when the FTSE crashed by ten per cent within minutes of opening.

Both Royal Bank of Scotland and HBOS were nearing complete collapse - but Lord Myners, who built up his fortune during a long career in the City, said the problems ran far wider.

'There were two or three hours when things felt very bad, nervous and fragile,' he said. 'Major depositors were trying to withdraw - and willing to pay penalties for early withdrawal - from a number of large banks.'
Lord Myners

Lord Myners: 'There were two or three hours when things felt very bad, nervous and fragile'

The threat to the system was so severe that the Bank of England was forced to contact RBS's creditors in New York and Tokyo to persuade them not to withdraw their funds, but it is not known which other banks faced a run on their reserves.

'We faced the very real problem of how banks could stop depositors from withdrawing their money,' a Treasury source said yesterday.

'The banks themselves were selling their shareholdings, accelerating the stock-market falls, and preparing to shut up shop.

Bloomberg: U.K.’s Myners Tells Times Bank System Nearly Failed on Oct. 10

Nothing to see here, keep going folks...

Depression

2009-01-28T20:25:00.007+01:00

You know you are living during depression times, when you read about "banksters" jumping off the windows, aeh, in front of trains, and when you have sites like these:

dabagirls.com (Dating A Banker Anonymous):

Thanks to the recession, I now have a completely devoted BF, which is exactly what I wanted. So I should be happy, right? Wrong. I’m bored and can’t stop thinking about my perpetually unattainable Euro ex-boyfriend who is recession proof courtesy of an offshore trust account. To be honest, I’m only with my BF because I just don’t have the heart to change my facebook status from “in a relationship” to “I ain’t saying I’m a gold digger, but I ain’t messin’ with no broke banker.”

cluE NO

2009-01-26T22:48:00.000+01:00

one or Honey Money...

Jesse's Café Américain: Is Money Supply a Relative Absolute?

If you have one thousand dollars in cash, in your pocket, is it completely equivalent to one thousand dollars worth of honey which you have at home in your pantry, in terms of its affect on inflation or deflation?

Forgiving the pun, the honey is decidedly less liquid than the cash.

Does it matter who is holding the money? What if the bulk of the money being added to to the economy is being given to gamblers in Las Vegas, rather than lets say farmers in Pennsylvania. Is there a difference in that money's effect on inflation or deflation?

The point is not to provide answer to these questions at this time, since this is basis for a new perspective in economics which is still in its early states.

Rather, it is to cast doubt on the certainty that what we call money is always and everywhere equivalent in force and power and influence as an economic actor no matter where and how it is held.

Some observations:

a) Money is an approximation of value at best, because we also don't know what the value of honey is either, and not all honey will be put to good use. Same as with money.

b) Money and honey, both have to flow, or they are not of much use.

c) Nevertheless money and honey function as value stores.

d) Did you know that wild honey comes from lice shit?!

Flickr impressions:

Money Supply

2009-01-04T15:37:00.004+01:00

A good explanation of money supply (a.k.a. M0, M1, M2, and M3):

Jesse's Café Américain: Money Supply: A Primer

Money and Value

2009-01-04T01:39:00.000+01:00

If you have a few spare hours (like five), here is a buddhist perspective on money by Ken McLeod:

MAV01: Money and Value (workshop)
MAV02: Money and Value (workshop)
MAV03: Money and Value (workshop)
MAV04: Money and Value (workshop)

Part 1 of 4
The problem: money drives the way we understand ourselves. Aim of financial model is to see experience through projection of money; aim of Buddhism is to experience what arises without projection; three bases of relationship: mutual benefit, shared aim, emotional connection; all forms of idealism involve avoidance of some form of suffering; when money is regarded as the problem, something else is being ignored; Questions: What are you asking for? What do you want? What does money symbolize to you?
Duration 00:43:53

Part 2 of 4
What generates the problem? Confusion about money points to confusion about what we value in our lives; when you see things in terms of money, you are inevitably in one of the six realms; guided meditations: survival, getting emotional needs met, and self-image; intention versus self-image; valuing what can be taken away places life in other people's hands.
Duration 01:27:31

Part 3 of 4
Possible directions towards a solution. The world of shared experience and the world we actually experience; money exists in the world of shared experience and of materialism; definition of materialism; comparison of the bases of life in world of materialism and world of well-being; comparison of spiritual ideal and being fully alive; Questions: What would you do with your life if you knew you would die in one year? If you were free from trying to get your emotional needs met? If you weren't concerned with being somebody?
Duration 01:21:17

Part 4 of 4
Theoretical and practical concepts of what might be done. Traditional Buddhist method of The Noble Eightfold Path; footnote on the word "right"; four bases of success – curiosity, persistence or enthusiasm, understanding of genesis and conditions, creativity in framing questions; seven steps of manifestation; Questions: What am I going to do next week? Next month? Next year?
Duration 01:14:17

Books recommend in these podcasts:

Buddhist Economics: A Middle Way for the market place by Ven. P. A. Payutto (follow the previous link and you get the online version)
Money and the Meaning of Life by Jacob Needleman
How to Cook Your Life: From the Zen Kitchen to Enlightenment by Kosho Uchiyama Roshi

Madoff: Skeptics Ask How

2008-12-15T21:58:00.003+01:00

2001: Madoff tops charts; skeptics ask how
by Michael Ocrant

Via The Big Picture.

His Highness

2008-11-25T18:21:00.005+01:00

Was this a comedy or some James Bond persiflage?

CNBC: Prince Alwaleed: 'Full Confidence' in Citi CEO Pandit

Money Talks

2008-11-10T22:00:00.011+01:00

CHF 12 million returned by Peter Wuffli, which says: "I fucked up hugely". Respect for such a statement. It doesn't have to be the Japanese solution (harakiri:). But at times it is nice to hear that someone made a mistake. Not like Mr. Meritocracy Ospel saying good by with the words "UBS is well setup for the future", before going silence. On the other hand, if Mr. Grübel would actually have the dignity to also shut up, that would be also something.

Jim Rogers With Swiss Gold

2008-11-02T11:17:00.010+01:00

Saw him in Zurich in the congress hall a day before he gave this video interview:
Jim Rogers on Bloomberg (10/24/08)
There he also proudly showed his gold coins purchased (for his daughters) that same day at the Zurich Bahnhofstrasse.

The video is only 10 minutes but well worth to watch. Other stuff he mentioned in Zurich was:
- He owns three Swiss bank accounts (his daughters own accounts as well, thought he pays his US taxes on them, again, so do his daughters:).
- He is long the CHF, as it has always been a currency of stability. Thought he is worried with the latest bank bailout of the Swiss National Bank. The other reason to be long is the unraveling of the CHF carry trades (similar to the JPY). Thought if the SNB keeps doing "mistakes", he will be out again. He is now worried for the first time in his life about the CHF.
- Commodities should bottom out and be rising again before the stock market. He had a nice chart depicting the 1930s comparing commodities and stock prices.
- Be long aggriculture (as mentioned in the video as no one likes being a farmer anymore).
- Taiwan is hot, as there is now "peace" for the first time (in his book) with China, and combining the Chinese labour market and production capabilities with the Taiwanese capital strength and technological knowhow will be a magical setup.
- Chinese stock market is down 70% and he started buying more (water, food, electricity). He didn't sell his holdings before but was long already for a couple of years.
- He owns a little ABB for years already.
- He is not good at timing, he needs advise there himself:).
- If you are a good stock picker, do it. Otherwise it is easier and saver to just own commodities/indices directly.
- Moved to Singapore instead of China, because of the terrible air in China. If Hong Kong cleans up its air, he would consider moving. Thought the problem with Singapore is, you get to hear both the worst English and Chinese. But again, he made sure to have the best teachers for his daughters.

Gold foil at the new museum Rietberg concrete entrance hall in Zurich (2007).

Buffett Bullish

2008-10-21T21:55:00.003+02:00

NY Times article by Warren Buffett: Buy American. I Am.

Violent Volatility

2008-10-14T20:48:00.009+02:00

Credit Suisse

Click on image for a larger version...

Edipresse

Illiquid instrument, eyh?!

1st CDS Tsunami Wave

2008-10-09T23:39:00.002+02:00

First have a look at this (source here):

NOTIONAL AMOUNT OF DERIVATIVE CONTRACTS
TOP 25 COMMERCIAL BANKS AND TRUST COMPANIES IN DERIVATIVESJUNE 30, 2008, $ MILLIONS

Now the first numbers are balance sheet assets. Quite big numbers. The second row however have numbers that, to be honest, exceed my imagination. Those numbers consist of all kind of stuff, not only CDSs. Yet, the total market of CDSs might be in the USD 50 to 60 trillion range at this moment.

Now tomorrow on Friday October 10th we will have the auction to settle the Lehman CDSs.

The Big Picture: $400 Billion Lehman CDS Unwind?

Early October, Citi (C) credit analyst Michael Hampden-Turner estimated there is $400bn of Lehman credit derivatives that will be settled on Friday

Hence, some recent fear can now be attributed in part to jumbo losses caused by Lehman's derivative unwind . . . with JPMorgan (JPM) being the biggest potential collateral damage . JPM has the biggest derivative exposure on the Street (I have no opinion on how this impacts them or on their derivative exposure).
...
While Fannie and Freddie CDS settled at between 91.5 and 99.9 cents on the dollar., expectations are for Lehman to settle at 10 cent on the dollar -- causing a few $100 billion in losses.

From The Naked Capitalism blog's comments section

October 9, 2008 10:17 AM
Singapore Don said...

LEH CDS auction is tomorrow, October 10. It goes throguh a two stage process, as explained here

http://www.creditfixings.com/information/affiliations/fixings/auctions/current.html

The Fanny/Frerddy settlment went quite smoothly, and the agreed bond values came somewhere betweeen 91 and 99. According to my calculations (no expert), net amount that had to be paid out i.e. loss to protection writers was $1.2 billion. Divide that by 13 active participants, per participant the Fannie/Freddy CDS loss was average under $ 100 million. The Lehman auction clearing price will come out some where between 15 to 20, hopefully higher between 20 and 30. So the loss will be 85% to 70& of NET notional. Although the gross notionals in these CDS contracts are huge, net is usually smaller ( no one knows for sure how much smaller for the market as a whole although each house knows its own position. If Mack knows he has a big exposure on LEH CDS, would he be putting out "we are ok" call to all his boys yesterday?). Freddie/ Fannie Net settlement was $1.2 billion, and the average price was say 96. so the net exposure was approx $30billion. Fannie and Fredddy were the biggest insured names in the CDDS market. So for the Lehnam name, the NET exposure may be much smaller, but the loss per contract would be higher. If we say the Lehman Net Exposure is 20% to 25% of Freddie/Fannie net exposure of $30 billion, it would be around $6 billion to $7.5 billion, and with recovery at say between $50 and $60 billion total systemwide loss. Spread over the 13 major deealers, average is $4 to $ 5 billion, but the spread may be wide I dont know the bank equity analysts and the market has already factored such numbers in, but if the expectation is for lower number, than this may surprise on the upside. If the not, market may take a sigh of relief that the LEH CDS damnage is not so bad,

The only risk is that in the case of Lehman, there is much less netting i.e. the protection writers have huge one sides positions, and my estimates start blowing out.

Not an expert, just trying to decipher the numbers with some commonsense reasoning.

And from The Big Picture blog's comments section:

Posted by: The Financial Philosopher | Oct 9, 2008 1:26:31 PM

Looking at the table of derivatives exposure that Boom2Bust offered up a ways back in this thread, it strikes me as passin' strange that the CDS exposure for the top 3 banks (JPM, BoA, Citi) is so outsized in comparison to their other derivatives exposure.

Almost as if they knew that a big chunk of the CDS they had purchased were vaporous, and had over-committed to compensate for it -- if so, imagine their surprise when so much (all?) of the swaps turned out to be toxic! -- it would have been interesting to also see the CDO exposure for each of these fellas, as I really doubt that they had purchased/sold over a hundred trillion dollars worth of CDOs between the three of them.

It would be nice to see a competent panel of inquisitors (time to bring back the Spanish Inquisition?) grill the managements about this, and if it turned out that yes, they did over-commit because they were suspicious of the quality, then maybe we can find a better use for Gitmo than whatever we are currently using it for.

Or perhaps I am clueless here (there seems to be a lot of that going around recently), and there is a perfectly reasonable explanation for such outsized allocations of CDS that would fall within the envelope of legitimate business practices. If so, would some tolerant and knowledgeable soul please 'splain it to me?

Yes, can someone please explain to me wht economical sense there is in buying and selling derivatives over USD 90 trillion e.g. in the case of JP Morgan? If people said, yes, have known it all along, e.g. the UBS balance sheet was growing too big... then what please has been going on here?

Outlaw CDSs. Now!

2008-10-09T22:10:00.004+02:00

From The Big Picture blog comments section:

Posted by: Alan Wilensky | Oct 9, 2008 12:06:14 PM

Declare all CDS instruments void and non-negotiable. The Fed and SEC can do this with a little know financial administrative called, "Tough Titty."

The Tough Titty invocation was jsut recently used to spew out the 700 (nee 880) billion dollar bailout, where the Treasury and Fed basically said, "Tough Titty", to the taxpayers.

So, for the CDS unwind, I advocate that the Tough Titty rule be invoked.

I wholeheartedly agree with this proposal! Take the funny money out of the system with a snap and let's keep going on with our real business. Not possible? Well, everything is possible.

CDS Systemic Risk

2008-10-09T22:04:00.007+02:00

CDS Systemic risk: a primer about chain settlement risk.

An easy explanation of some theoretical problems with CDSs (and I am not sure this is the real and biggest problem with CDSs). But when you have CDS coverage of USD 60 trillion floating around, this also might be a real practical problem all too soon.

A grossly simplified example will explain it. Party A wishes to place a bet on Frannie default risk by purchasing CDS protection on Frannie. Party A buys protection from B. B is now exposed to the risk of a Frannie default and decides to hedge this risk by buying Frannie CDS protection from party C. C holds the position with net exposure for awhile, gets nervous and then offsets by purchasing protection from Party D, who then offsets the exposure with Party E.

For the sake of simplicity we will assume the default event of Frannie requires $10m in cash or securities to be delivered within 5 business days of the acknowledged default event. Now all of the parties involved have done their risk assessments of their downstream counterparty using various estimates of the counterparties credit quality and liquidity. They have each come to the conclusion, that their next counterparty has a .001% chance of failure at any point in time. They could thus assess the counterparty risk exposure in crude nominal terms as being $10mx 0.01% = $1,000. This feels safe.

Looking individually each party assumes they have $1,000 in risk. In reality A faces $4,000 in probable risk. The chain is only as strong as it weakest link. The end settlement party A has $4,000 exposure (1-(1-.0001)^4)*$1,000. Party B has a $3,000 exposure etc. The longer the chain the greater the systemic risk for the initiator and the potential for a failure to deliver on time etc.

Sad Guys On Trading Floors

2008-10-08T20:24:00.005+02:00

C'mon guys, it's just money...

Sad Guys On Trading Floors

Someone made a blog of this. Lot's of interesting face expressions.

Via The Big Picture.

Buffett Video On Financial Crisis

2008-10-02T21:58:00.002+02:00

A must see:

Charlie Rose: An exclusive conversation with Warren Buffett

Via The Big Picture.

Fear Index

2008-10-01T19:16:00.000+02:00

MarketPsych Fear Index

The MarketPsych Fear Index shows a 10-day exponential moving average of the percentage of "Fear" words in the U.S. financial news displayed over a candlestick chart of the Nasdaq 100 (QQQQ).
...
The relative percentage of Fear-related words is on the left y-axis, and the QQQQ value is on the right y-axis. ... We have proprietary technology that detects the predictive values of different types of financial language and concepts, and which underlies our asset management.

Casino Suisse

2008-09-23T20:37:00.007+02:00

An article with Credit Suisse clients complaining in the comments section about their worthless capital protection products issued by Lehman Brothers, but actively sold from Credit Suisse, got me boiling as well.

Of course these clients were naive and not informed. But what for do you need a client adviser, if you have to read the small print yourself and if you have to be well versed with the financial markets yourself!!! Do I need to study medicine in order to go to a doctor?! And many of these products are very complicated, complex, and setup to be confusing. In fact to understand them very well, not a master in finance might be in place but some mathematical background instead (just a hint, these people call themselves Quants and they study this stuff not because it helps directly to make money yourself but because it helps to get high paying jobs - well, at least so far).

Credit Suisse claims to have weathered the storm fairly well, in addition they hire away people from UBS as if they had a growing business and even look to pick up some leftover of Lehman Brothers (like the cheap backoffice operation in India) or some other easy bait that will come along.

But just like the rest of the bunch, they don't understand how lightning fast they throw away the most precious thing any bank can possibly have, that (little rest of) trust they might still have with the people (and I am not talking of UBS here, that gambled the existance of the world's biggest wealth manager with sums no client or investor would have thought possible).

If they think the purpose of a bank is to be greedy, they will learn better the hard way. The whole concept that "the purpose of a company is to make profits" alone is simply bullshit. The purpose of a bank is that people can store their money somewhere safely. The profits then are a necessary side effect. Otherwise, just hand over the money and then?!

The big scam becomes obvious.

What made Swiss banking stand out, was the absolute trust you could put in your banker. He would travel everywhere to hand you some cash (of course, only if you played in the right league). Even the big scandals with the Jewish accounts, you can also see in the light that, even after almost 100 years, the accounts and their money were still there!!! Think that about any other countries bank accounts! My bet is in other places they would get treated more like hotmail accounts, after not too much time without any "user" activity, zip zilch ninada (thanks Bill for this point).

(In Gold We Trust - Swiss Philosophy)

Sorry, but this product is sold out...

Credit Default Swaps

2008-09-15T21:59:00.002+02:00

Why are credit default swaps potentially (well, we will soon find out their real life impact) so devastating and pose a huge risk to the financial system?

Here I will think not about the actual amounts floating around the world. They are mind bogling, incomprehensible.
And they do not appear in the balance sheets directly, except as fair value, which might be close to zero at the moment, as long as all goes well (well, now that we have the first real casualty, we will soon learn a bit more). Instead I want to think why CDSs are inherently dangerous, just as a mind experiment.

It is not only, that they allow to distribute the risk to other parties who might have much less knowledge about the risk of depth. It is that CDSs can magnify the impact of a credit default.

Credit default swaps insure bonds. BTW, a bond is nothing else than a loan.
Let's see how the world is different if a CDS gets utilised or not.

Let's say company A issues a bond B. Party C buys some of the bond B.

Company A -> issues -> Bond B

Party C -> buys Bond B

If party C changes its mind about the quality of the bond B or the company C, and thinks there might be an increased chance that company A will default on the bond B, what can it do?

A world without CDSs:

Party C -> sells bond B -> to party D.

Maybe with a loss, if the market also thinks the same. But that is not important at this point, because company A has not defaulted on the bond B at this time, and no one knows the true probability of this event yet.

A world with CDSs:

Now company C can also buy a credit default swap.

Party C -> buys from party D -> a credit default swap E.

Now party C has to pay regular interest to party D. In exchange party D holds the risk if company A defaults on bond B.

Now party D holds the risk of bond B. Just as in the first case, when party C sold the bond B to party D.

So far all is nice and beautiful.

But, what, if party D buys the bond B, there is no other party being able to buy the same bond. Only if party D wants to sell it as well. Party C can only sell the bond once!

With CDSs, now party C could kind of sell it twice, three times, as many times as it could effort to pay the interest payments. In fact, many different parties where able to kind of "sell" the bond B many times over to many different parties (all in the form of "buying" a CDS).

Party C -> buys from Party D -> credit default swap E
Party C -> buys from Party F -> credit default swap G
Party C -> buys from Party H -> credit default swap I
Party C -> buys from Party J -> credit default swap K
Party C -> buys from Party L -> credit default swap M
Party C -> buys from Party N -> credit default swap M
etc.

All of them covering for the default of Company A on Bond B.

Now if company A really defaults on bond B, now there is not only one single party that has to pay the difference of what company C can pay back and the original value of the bond, but potentially a big number of other parties will have to do the same payments! This is pure gambling in a big scale without any grounding in any productive activity!

Now the economic impact of company A has a huge impact on many different parties, not just a one to one as with the sale of a bond.

(BTW, ironically, now Party C might actually have an incredible interest of seeing Company A to fail! They are super super short now on company A.)

Getting a loan with the promise to do something productive has the risk that this party than just goes on an extended spending fee for personal gain with the corresponding impact for its creditor.

But CDSs can magnify the impact of any loan gone sour and create a massive chain reaction of insolvencies.

What is wrong with just selling Bond B if anyone doesn't like it and in the end, well, someone will have to pay up for their mistake.

The total amount insured with CDSs goes in the trillions of USD. It seems more in value than the bonds that our outstanding.

This all reminds my of an impressive experience I had years ago in the early days of internet chatting, then the common network was called internet relay chat, short IRC.

There anyone can login, take a free pseudonym, open a chat room with a chat room name that was not yet taken, and invite other people.

The person opening the room had all the power to kick people out and ban them from the room, so they could not enter again.

He was the administrator of this room. Of course, with lot's of people hanging out in a particular room, it became a sign of prestige to hold this admin right, which BTW is transferable. So normally 80 to 100% of the people in a chat room have this admin status after a while (which was visible buy adding a "@" in front of the pseudonym name, or nick name, to be precise).

With normal chat client software, mirc the standard one, there were sophisticated macro languages and other features available. E.g. you could create a list of your friends. If a friend joined your room where you had admin rights, immediately and automatically you would give them admin rights too. And there were standard macros that would help and protect your friends. E.g. someone would kick one of your friends out of the chat room, your client would automatically kick out and ban that person out of the room as well.

Now think for a moment, what this will result in, if almost everyone in this room has admin rights?

And then... one person kicks out, for fun, only one other person?!

Of course, the person kicked out will have friends, kicking out the person who just kicked someone. Now that person has friends as well, kicking out the person helping the first person being kicked out. WHAMMMMMMMMMMMMMMBOOOM!

Almost everyone get's kicked out in a chain reaction.

That is, what you call on a chat server, a Kick Fest. A festival indeed.

It is fun the first two time. Then it get's old real fast!

An example of a negative feedback loop, that happens if all do the same, fully automated, without thinking, and than one person lights a match.

Selling a CDS without having the money to be good for is like selling a naked call when you have neither the underlying stock nor money to cover it. It is not that it makes our system more stable, it makes it much more prone to a huge shake out. IMHO:).

And like a Kick Fest, it might be a good show to tell your grand children about, but it might just as quickly get pretty old restoring your "normal" life once your bank account and job has just evaporated, because a few trillion of funny/fiat money have just vanished in a man made financial mini black hole.

Gigantic Bank Run?

2008-09-06T21:00:00.003+02:00

A comment from the comments page at The Big Picture post regarding the Funny and Freaky bailout:
Here Comes the Half Trillion Dollar Fannie/Freddie Bailout!

Cold Facts re US Banks & FDIC

A. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

B. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

Now this GSEs bailout?! Printing the American pesos is the last desperate measure. Next - CRISIS OF CONFIDENCE

Posted by: Sunny 129 | Sep 6, 2008 11:55:47 AM

How To Steal A Company (In Russia)

2008-09-01T23:04:00.000+02:00

... and if that doesn't work, manufacture a USD 230 million tax refund. RUSSIAN ROULETTE

Via Trader Daily.

Market Bottoms

2008-08-31T11:04:00.003+02:00

A very common sense article about what differenciates market bottoms from market tops:

The Aleph Blog: The Fundamentals of Market Bottoms

The Investor Base Becomes Fundamentally-Driven

1) Now, by fundamentally-driven, I don’t mean that you are just going to read lots of articles telling how cheap certain companies are. There will be a lot of articles telling you to stay away from all stocks because of the negative macroeconomic environment, and, they will be shrill.

2) Fundamental investors are quiet, and valuation-oriented. They start quietly buying shares when prices fall beneath their threshold levels, coming up to full positions at prices that they think are bargains for any environment.

3) But at the bottom, even long-term fundamental investors are questioning their sanity. Investors with short time horizons have long since left the scene, and investor with intermediate time horizons are selling. In one sense investors with short time horizons tend to predominate at tops, and investors with long time horizons dominate at bottoms.

4) The market pays a lot of attention to shorts, attributing to them powers far beyond the capital that they control.

5) Managers that ignored credit quality have gotten killed, or at least, their asset under management are much reduced.

6) At bottoms, you can take a lot of well financed companies private, and make a lot of money in the process, but no one will offer financing then. M&A volumes are small.

7) Long-term fundamental investors who have the freedom to go to cash begin deploying cash into equities, at least, those few that haven’t morphed into permabears.

8 ) Value managers tend to outperform growth managers at bottoms, though in today’s context, where financials are doing so badly, I would expect growth managers to do better than value managers.

9) On CNBC, and other media outlets, you tend to hear from the “adults” more often. By adults, I mean those who say “You should have seen this coming. Our nation has been irresponsible, yada, yada, yada.” When you get used to seeing the faces of David Tice and James Grant, we are likely near a bottom. The “chrome dome count” shows more older investors on the tube is another sign of a bottom.

10) Defined benefit plans are net buyers of stock, as they rebalance to their target weights for equities.

11) Value investors find no lack of promising ideas, only a lack of capital.

12) Well-capitalized investors that rarely borrow, do so to take advantage of bargains. They also buy sectors that rarely attractive to them, but figure that if they buy and hold for ten years, they will end up with something better.

13) Neophyte investors leave the game, alleging the the stock market is rigged, and put their money in something that they understand that is presently hot — e.g. money market funds, collectibles, gold, real estate — they chase the next trend in search of easy money.

14) Short interest reaches high levels; interest in hedged strategies reaches manic levels.

...

No Bottom Yet

There are some reasons for optimism in the present environment. Shorts are feared. Value investors are seeing more and more ideas that are intriguing. Credit-sensitive names have been hurt. The yield curve has a positive slope. Short interest is pretty high. But a bottom is not with us yet, for the following reasons:

* Implied volatility is low.
* Corporate defaults are not at crisis levels yet.
* Housing prices still have further to fall.
* Bear markets have duration, and this one has been pretty short so far.
* Leverage hasn’t decreased much. In particular, the investment banks need to de-lever, including the synthetic leverage in their swap books.
* The Fed is not adding liquidity to the system.
* I don’t sense true panic among investors yet. Not enough neophytes have left the game.

Not all of the indicators that I put forth have to appear for there to be a market bottom. A preponderance of them appearing would make me consider the possibility, and that is not the case now.

Some of my indicators are vague and require subjective judgment. But they’re better than nothing, and kept me in the game in 2001-2002. I hope that I — and you — can achieve the same with them as we near the next bottom.

Via The Big Picture.

Risk Manager

2008-08-08T05:20:00.004+02:00

Very good article how a risk manager sees the current debacle:

The Economist: Confessions of a risk manager
An insider explains why it is so hard to stop traders behaving recklessly

But we did not believe that prices on AAA assets could fall by more than about 1% in price. A 20% drop on assets with virtually no default risk seemed inconceivable—though this did eventually occur.
...
The focus of our risk management was on the loan portfolio and classic market risk. Loans were illiquid and accounted for on an accrual basis in the “banking book” rather than on a mark-to-market basis in the “trading book”. Rigorous credit analysis to ensure minimum loan-loss provisions was important. Loan risks and classic market risks were generally well understood and regularly reviewed.
...
The gap in our risk management only opened up gradually over the years with the growth of traded credit products such as CDO tranches and other asset-backed securities. These sat uncomfortably between market and credit risk. The market-risk department never really took ownership of them, believing them to be primarily credit-risk instruments, and the credit-risk department thought of them as market risk as they sat in the trading book.

The explosive growth and profitability of the structured-credit market made this an ever greater problem. Our risk-management response was half-hearted.
...
Gradually the structures became more complicated. Since they were held in the trading book, many avoided the rigorous credit process applied to the banking-book assets which might have identified some of the weaknesses.
...
Collective common sense suffered as a result. Often in meetings, our gut reactions as risk managers were negative. But it was difficult to come up with hard-and-fast arguments for why you should decline a transaction, especially when you were sitting opposite a team that had worked for weeks on a proposal, which you had received an hour before the meeting started. In the end, with pressure for earnings and a calm market environment, we reluctantly agreed to marginal transactions.

Over time we accumulated a balance-sheet of traded assets which allowed for very little margin of error. We owned a large portfolio of “very low-risk” assets which turned out to be high-risk. A small price movement on billions of dollars’ worth of securities would translate into large mark-to-market losses.
...
We had not fully appreciated that 20% of a very large number can inflict far greater losses than 80% of a small number.

John Paulson

2008-08-05T14:43:00.003+02:00

Wow, this is ironic.

Die Zeit: Die Global Zocker

Hinter ihm liegt ein langes Wochenende – eines, an dem das amerikanische Finanzsystem bedrohlich wackelte, weil die Investmentbank Bear Stearns Bankrott angemeldet hat. Auch Paulson hat seine Gelder dort, über Bear Stearns wickelte er die Käufe und Verkäufe für seinen Fonds ab. Das ganze Wochenende hat er in Meetings verbracht, Besprechungen am Telefon geführt. Bis klar war, sein Geld ist sicher: JP Morgan übernimmt Bear Stearns, und die amerikanische Notenbank hilft beim Kauf.

Dass Paulson den ehemaligen amerikanischen Notenbankchef Alan Greenspan vor Kurzem als Berater eingestellt hat, hat an jenem Wochenende wahrscheinlich nicht geschadet.

As you may recall, John Paulson made USD 15 billion in 2007 betting on a melting sub prime market. So if you ask, where did the money go that UBS etc. lost, well, he has a chunk of it now. Nice play money. But maybe he has a better idea what to do with it, so I thought.

Just funny that he kept it at Bear Stearns. Imagine it would have all vanished again in a Bear Stearns meltdown, haha, easy come, easy go. But apparently Greenspan not only helped him to make the money... I wonder how much help Phil Gramm is for UBS today?!

Via WEISSGARNIX.

Fortis

2008-08-02T13:19:00.002+02:00

Fortis bows to pressure and ousts CFO

the ambitious ABN Amro deal, which saw Fortis take over its Dutch rival’s retail banking, private banking and asset management arms for €24bn last autumn.

The move, undertaken in concert with Royal Bank of Scotland and Santander of Spain, landed Fortis in a precarious position even after it undertook Europe’s second-largest rights issue ever, worth €13.4bn, to finance it.

The bank then startled investors in June when it scrapped its interim dividend and raised a further €1.5bn of equity as part of a plan to boost its capital reserves by €8.3bn in spite of assurances that no such move was necessary.

Shares in Fortis, which yesterday rose 8 cents to €9.16, are worth a third of their €29 peak before the crunch, leaving the bank with a market capitalisation worth less than what it paid to enter the ABN Amro deal.

Not long ago Fortis used to pay a dividend of EUR 1.40 per share annually. Obviously the market didn't believe this was sustainable and was right (would be a dividend yield of over 15 % otherwise).

Merrill Lynch

2008-07-30T11:52:00.002+02:00

Bloomberg: Merrill to Sell $8.5 Billion of Stock, Unload CDOs

In yesterday's statement, Merrill said it agreed to sell $30.6 billion of collateralized debt obligations -- the mortgage- related bonds that have caused most of the firm's losses -- for $6.7 billion. The buyer is an affiliate of Lone Star Funds, a Dallas-based investment manager.

``Our consistent focus has been to opportunistically reduce risk, and in order to take advantage of this sizeable sale on an accelerated basis, we have decided to further enhance our capital position,'' Thain, 53, said in the statement.

`Little Disheartening'

Merrill will provide financing for about 75 percent of the purchase price, according to the statement. The financing is secured only by the assets being sold, meaning Merrill would absorb any losses on the CDOs beyond $1.68 billion.

In other words: ML gets a USD 1.68 billion cash infusion (hopefully), but otherwise keeps the remaining risk on the USD 5 billion CDO crap without having any upside potential. If it wasn't so obvious anyway (selling Bloomberg stake and on and on), this looks pretty desperate.

WEISSGARNIX has more comments (in German) on the shareholder dilution etc.

WEISSGARNIX

2008-07-28T13:20:00.002+02:00

Good analysises, funny comments. I could say unfortunately in German, but actually it is this blog's strength.

WEISSGARNIX
Wirtschaft & Politik aus allerletzter Hand …

Here two example posts, a good look at the recent Credit Suisse quarterly result...

Credit Suisse, Version für Erwachsene

... and here some Barrack-Berlin impressions (hehe:):

Aus Obamas JFK-Karaoke

Housing Crisis

2008-07-28T12:45:00.003+02:00

Brett Steenbarger took a first hand look at the housing market around his area. Very well worth the read!

Beneath the Housing Crisis: Variation in Housing Inventory

It was clear from our drive that there is no single housing crisis. Much of Naperville real estate is in slow-down mode: prices are holding reasonably well, but taking longer, on average, to sell. In the formerly hot areas of development, however, the overexpansion is mind-boggling. Not even free cars and large rebates can move the inventory--particularly with the tightening of mortgage loan criteria for would-be buyers.

This is not an intensification of the slowdown in the general market; it is many standard deviations from the mean. I have significant doubts that many of these subdivisions are viable at any price. From the pricing of the regional bank stocks that have loaned to these developers, I don't seem to be alone in this opinion. C'mon: are you going to jump in and buy a home in a half-filled, half-built development, when it's not clear that the builder will ever be able to finish the work? Are you going to buy a condo in a partially filled building and hope that the remainder of the units will sell, so that you won't have to cover the shortfall in maintenance assessments?
...
this is like tech stocks in early 2000. While many sectors back then were overpriced and experienced a significant but normal bear market, a host of internet-related companies were brought to market with no underlying demand or value whatsoever. The bust wasn't over until many of these roundtripped to zero.

The difference, of course, with housing is that, when developments fail, contractors don't get paid; their suppliers aren't paid; bank loans go into default; mortgage-backed securities are threatened; homeowners lose value in their homes; municipalities lose property tax income; and on and on. Just as surviving the 2000-2003 period meant staying out of the formerly hot areas, I suspect that those who get through the current crisis will insulate their funds from the many areas touched by the collapse of developments that are forced to resort to increasingly desperate discounts and come-ons.
...
When I looked at the homes that were selling for $1 million and over, however, there was six years or more of inventory on the market. Is anyone likely to pony up that kind of money for what looks to be a depreciating asset? With tightening loan conditions, where are these buyers going to come from?

Short Selling

2008-07-21T17:02:00.002+02:00

Bloomberg: Never Have So Many Short Sellers Made So Much Money

More than $1.4 trillion of equities worldwide are now on loan, about a third higher than at the start of 2007, data compiled by Spitalfields Advisors, the London-based firm specializing in securities lending, show. Almost all of that is being used to speculate that shares will fall, according to James Angel, a finance professor at Georgetown University who studies short selling. The global economic slowdown, $447 billion in bank losses and an explosion of funds that can profit from stock declines spurred the increase in short selling, helping send 22 of 23 countries in the MSCI World Index into bear markets.
...
Assets at so-called 130/30 and 120/20 funds, or those that are allowed to both hold stocks and short them, may climb to $2 trillion by 2010 from $140 billion in 2007, according to a study last year by Westborough, Massachusetts-based Tabb Group. Spitalfields estimates these funds may borrow an additional $600 billion by 2010.

Via Trader Daily.

Funny & Fried

2008-07-21T10:06:00.003+02:00

The basic accounting equation goes like:

Assets = Liabilities + Shareholder's Equity

Now for Fanny and Freddie the news paper have it that Liabilities equals USD 5000 billion. So how much will be the assets worth? 10% less than liabilities would result in a loss of USD 500 billion etc.

The NY Times has a detailed list of foreign countries that hold USD 1200 billion of these liabilities. F&F do not only threaten the US financial system, but directly the international ones as well.

Trouble at Fannie Mae and Freddie Mac Stirs Concern Abroad

Asian institutions and investors hold some $800 billion in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376 billion and Japan $228 billion as of June 2007, the most recent country-specific Treasury figures.

In Europe, roughly $39 billion in Fannie and Freddie debt is held in Luxembourg and $33 billion more in Belgium, countries that are home to large investment management firms. Investors in Britain hold $28 billion, and Russian buyers hold $75 billion. Sovereign wealth funds in the Middle East are also believed to be big investors in Fannie and Freddie debt.

So this is also very much about bailing out the US's international creditors.

E.g. Swiss Re has 10 billion in their books. There could be a beautiful chain reaction all over the planet if the US goverment doesn't cover any fallout.

Buffett Buffet

2008-07-19T10:07:00.002+02:00

Lessons from Lunch with Warren Buffett

Do the Right Thing Even if it’s Hard
Buffet has become one of the richest men in the world while never sacrificing the highest ethical standards. “People will always try to stop you doing the right thing if it is unconventional,” said Buffet.

Listen to Yourself, Not the Crowd
Buffet learned at an early age from his father that it is important to listen to yourself rather than seek the affirmation of others. Although he was heavily criticized for not investing with the crowd in technology and Internet stocks in the late '90s, he stuck to what he believed and turned out to be right. During the lunch he asked his guests, “Would you rather be considered the best lover in the world and know privately that you're the worst — or would you prefer to know privately that you're the best lover in the world, but be considered the worst?"

The Numbers Don’t Lie
Buffet said that he limits contact with the managers of businesses that he invests in, choosing rather to examine the company’s financial records. By relying on the numbers he is able to focus on neutral information and prevent outside noise from affecting his decisions.

1987

2008-06-29T09:45:00.008+02:00

We all heard that 1987 had a decent drop in the shock market.

But look at the Hong Kong Hang Seng Index, a terrible 40% drop in two days.

Wow, index investor be warned.

Here is the detailed view on the HSI for October:

Jimmy Cayne

2008-06-24T15:01:00.002+02:00

Hilarious!

How to Think About How a Pot-Smoking, Card-Shark College Dropout Brought Down an 85-Year-Old Firm

-- October 2007: Cayne reassures investors: "Most of our businesses are beginning to rebound." Audible snickers are distinct in the background. Later that month, state-owned Chinese lender Citic pays $1bn for a 6% stake in Bear, giving the firm an approximately $20 billion valuation. You heard me. $20 billion. With a b.

-- December 2007: Bear Stearns posts fourth quarter loss of $854 million on massive mortgage-related writedowns, the first quarterly loss in its 85-year history, prompting Cayne to remark, "Mayhaps those Chinamen aren't so smart after all."

...

Posted by guest, Mar 22, 2008 7:41PM

I worked at Bear Stearns for a couple of years, earlier in the decade. Me and the head of fixed income sales were going to give a presentation to the sales force. But before we went we had to show the new Bear Stearns recruiting video. In it Jimmy said, "I love Bear Stearns...most of my personal wealth is in Bear Stearns....We will never sell Bear Stearns!" It ends and it's silent. Then the boss says, "What the fuck is he talking about...who'se gonna buy all my fucking stock?!" And then everyone went nuts throwing shit at the screen where Jimmy's smiling face was still there. That was 5 years ago. Poor bastards!

Buffett Bets Against Hedge Funds

2008-06-23T08:52:00.004+02:00

Buffett bets a million S&P 500 will beat hedge fund

Buffett, as usual, is clear in his argument, which ends: “A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralising, and their IQ will not overcome the costs they impose on investors.

“Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.”

...

The details of the bet, which was taken on January 1 this year, were released by Carol Loomis, a friend of Buffett and senior editor at Fortune, in Monday’s issue of the magazine.

It is between Buffett (not Berkshire) and Protégé (the firm, not its funds). Each side has put up roughly $320000. The total funds were used to buy a zero-coupon t reasury bond that will be worth $1m at the bet’s conclusion.

That million will then go to charity. Protégé has put its money on five funds of hedge funds — specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses. Buffett has wagered that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds Protégé picked.

Both sides have agreed to disclose where the wager stands at Berkshire’s annual meeting every spring.

According to Loomis, “Buffett assesses his chances of winning at only 60%, which he grants is less of an edge than he usually likes to have. Protégé figures its own probabilities of winning at a heady 85%.

UBS Capital Increase Without Top Management

2008-06-09T11:25:00.005+02:00

Very interesting (but German) article about who of the top management participates in the UBS capital increase and who doesnt (short answer, the CEO and Chairman do - nice case of signalling, and nobody else does):
SonntagsBZ: Die Kapitalerhöhung der UBS ist unbeliebt

BTW, I did not double check this, but I think to remember that if not all shares will be sold for CHF 21, then the consortium banks will take over the remaing shares for a minimum price that is much much lower (something like CHF 12 or 15?)!

via pvi.ch

On Top Of The Situation

2008-06-06T17:25:00.001+02:00

The Card Shark : Special Situations
By Johnny Chan

If I'm out of town and get a call informing me that a particularly big net loser is willing to play super-high, I'll usually hop on the next plane to Vegas, ready to play within an hour of landing. If I'm in town, I'll either be in the game or milling around the casino ready to get in the game when that guy is likely to be playing. And I'll almost always stay in the game as long as he's playing, putting most everything else on hold until he leaves town. I do this for a very simple reason: One week can often end up being worth more to me than the subsequent month or two.
...
For those who were on top of the situation, following the events over the weekend and ready to take advantage at market open Monday, there was much profit to be had.

In both poker and trading, doing your homework and consistently staying on top of prevailing conditions will do wonders for your bottom line. Train yourself to be ready and willing to take advantage of those special situations that come around infrequently. They can often be worth many months of regular work.

Chart Pattern Satire

2008-06-04T09:39:00.002+02:00

Have a look at this black swan formation.

via WEISSGARNIX/The Big Picture

Banks, Liabilities, Profits

2008-06-02T14:28:00.010+02:00

This Bloomberg article explains very well, how banks book paper profits through their own outstanding bonds falling in value.

Merrill Lynch & Co., Citigroup Inc. and four other U.S. financial companies have used an accounting rule adopted last year to book almost $12 billion of revenue after a decline in prices of their own bonds.
...
The debate over what is known as Statement 159 adds to the number of accounting techniques called into question as the U.S. debt market unravels. Investors have criticized banks for booking some writedowns in an accounting category called ``other comprehensive income'' that bypasses their income statements.
...
Here's how it works, according to Richard Bove, an analyst at New York-based Ladenburg Thalmann & Co. A company decides to designate $100 million of its subordinated bonds as subject to mark-to-market accounting. The price of the bonds drops to 80 cents on the dollar from 100 cents. So the firm books $20 million on the ``presumed savings that you have on your liabilities,'' Bove said.

``In the real world you didn't save a dime,'' he said. ``You still owe the $100 million. It's another one of these accounting rules that basically takes you further and further away from reality.''

The Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Office of Thrift Supervision objected to the rule before its passage, saying in a joint 2006 letter to the FASB that it would ``have the contrary effect'' of increasing a bank's net worth at the same time its ``financial condition is deteriorating.'
...
Merrill designated about $166 billion of liabilities, or 17 percent of its total, as fair-value instruments subject to mark- to-market accounting at the end of 2007, according to its annual report. Included in the amount were $76.3 billion of long-term borrowings and $89.7 billion of payables under securities- financing transactions.

Prices for the firm's bonds tumbled over the past year: Its floating-rate notes due in January 2015 are trading at about 87 cents on the dollar, compared with about 100 cents last June.

Merrill has said its gains from the liabilities don't add to true earnings power. In a spreadsheet posted on its Web site, Merrill says that investors who want a ``more meaningful period- to-period comparison'' should exclude the $2.1 billion of revenue recorded in the first quarter.

Merrill spokeswoman Jessica Oppenheim declined to comment. The company owns a passive 20 percent stake in Bloomberg LP, the parent of Bloomberg News.

Lehman to Goldman

Lehman, the fourth-biggest securities firm, has reported $1.9 billion of gains related to a widening of its own bond spreads. Citigroup, the largest U.S. bank by assets, has booked $1.7 billion; Morgan Stanley $1.7 billion; JPMorgan Chase & Co., the third-biggest bank, $1.7 billion; and Goldman Sachs $550 million.
...
So far, most banks' writedowns are ``unrealized,'' meaning they've been unwilling or unable to liquidate distressed assets. If prices reversed, the banks would record mark-to-market profits.

The same is true for the liabilities. Companies can't ``realize'' the mark-to-market gains on their debt unless they buy it back at the discounted price. They're unlikely to do so, because the deterioration in creditworthiness means they'd have to replace the debt with higher-cost borrowings, Willens said.

``No one's going out in the market and actually retiring this debt,'' Willens said. ``It's a shell game.''

David Moser, Merrill's managing director for accounting policy, acknowledged that concern in an April 10, 2006, letter to the FASB.

``It seems counterintuitive that when a company's credit spreads are widening, it would recognize a gain in earnings,'' Moser wrote. ``The amounts are typically not realizable and therefore less relevant.'
...
Worthington estimates that similar tightening of bond spreads at Merrill, Morgan Stanley, Lehman and Goldman Sachs may cause them to reverse $5.96 billion of revenue by the end of the year.
...
``Equity may be overstated as a result of these illusory gains that may never be realized, hindering the analysis of the equity cushion to absorb losses,'' S&P Chief Accountant Neri Bukspan wrote in a letter to the FASB.

If and when the ``illusory'' revenue is reversed as losses, the banks and brokers may have to work harder to convince investors to ignore them, Willens said.

Last Days of Bear Stearns

2008-05-28T14:18:00.004+02:00

WSJ

1. Lost Opportunities Haunt Final Days of Bear Stearns
2. Fear, Rumors Touched Off Fatal Run on Bear Stearns
3. SEC Will Scour Bear Trading Data

By KATE KELLY

interviews with more than two dozen current and former Bear Stearns executives, directors, traders and others involved in the action paint the first detailed picture of the fractious last weeks before the Fed helped underwrite J.P. Morgan's purchase of the trading powerhouse.
...
Months before regulators pressured the firm to sell itself, nervous traders futilely begged Mr. Schwartz and his predecessor, James Cayne, to raise more cash and slash Bear Stearns's huge inventory of mortgages and the bonds that backed them.
...
At 5 a.m., Mr. Geithner convened a conference call with top government officials, including Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson Jr., to discuss the fallout from allowing the brokerage to collapse. They saw ripples spreading to thousands of firms world-wide that would involve trillions of dollars and take days to sort out. As the meeting wore on past the hour mark, Mr. Geithner warned that time was running out. Certain important credit markets were about to open. "What's it going to be?" he demanded.

Financials Capital Increases

2008-05-25T22:13:00.000+02:00

Well, in regular intervals we get to hear the latest update of how much USD the banks had to write down so far. According to Bloomberg this has been USD 383 billion so far. You wonder how the banks were able to survived these massive writedowns. To my knowledge there has been only a single real casualty (not considering hedge funds), namely New Century. IKB, Northern Rock, West LB, Countrywide, Bear Stearns have all been knocked out but still got saved by someone (except for Countrywide in all cases by the tax payer).

Well, the reason all the other banks survived so far is, also according to Bloomberg, they increased capital buy a whopping USD 270 billion. Also, still counting.

E.g. the latest UBS capital increase will create 760 million new shares. Before the crisis UBS payed lots of money to buy back shares for up to over CHF 70 per share to bring the number of shares outstanding down to some 2'054 million shares. After this capital increase (for an expected CHF 21 per share - just compare this to the brilliant previous share buy back program!) and including the previous sale to Singapore etc. the new number of shares outstanding will be exactly 2,932,567,127 shares. Almost 43% more. A nice dilution for the existing shareholders :).

BTW, with almost 3 billion shares outstanding and Friday's share price of CHF 29.94 this will amount to a market cap of CHF 87 billion. To justify this with a meager P/E ratio of 10, UBS will have to earn after tax net income of CHF 8.7 billion. Well, wealth management might be able to earn 10 billion pre tax alone, but with still a lot of uncertainty about the existing risky positions and big question marks about the future earnings power of the investment bank, I fail to see the current upside potential. But then, I could buy some now for twenty one a share...

Buffett On Bear Stearns

2008-05-24T18:26:00.000+02:00

From Bloomberg:

``The worry was that there would be contagion; it was a very real worry,'' Buffett said. ``If Bear Stearns had gone, the next day, somebody else would have gone. It could've been a very, very, very chaotic situation.''

Buffett, 77, said he was contacted in March before JPMorgan, the third-biggest U.S. bank by assets, agreed to buy Bear Stearns. The person calling him, whom he wouldn't identify, was ``someone responsible'' and wasn't from the Federal Reserve or the Treasury. The call lasted about half an hour, Buffett said.

Too Big for Buffett

``As I understand it, Bear Stearns had $65 billion due on Monday and I didn't have $65 billion,'' Buffett said. ``I couldn't get my mind around that situation in the required time.'' New York-based JPMorgan was the right buyer for Bear Stearns, he added.

And from MarketWatch:

Some investment banks and commercial banks are too large and complex to run, Berkshire Hathaway Chairman Warren Buffett said Saturday.

"There are firms in terms of risk that are conducting themselves in a way that makes them too big to manage," he said.

Such financial institutions are designed to survive only until there's a shock to the system that may only occur once in 50 years, Buffett said.

"That may not be in the interest of a 62-year-old executive, who will be around for the next three years to worry about that," he said.
...
If Bear had failed, one or two other investment banks would probably have collapsed within a few days, he said.

Bear had roughly $14.5 trillion of derivative contracts outstanding the day after it was bailed out, he said.
"The parties that had those contracts would have had to establish the damages that they could claim against that estate very quickly," he said.

"Imagine the damage of everyone trying to unwind those contracts," Buffett said. "That would have been a spectacle of unprecedented proportions. It would have resulted in another one or two more investment banks going down in a few days."

Another Buffett Interview

2008-05-24T18:23:00.000+02:00

Another Warren Buffett Interview at the Wharton School.

Personally I have a hard time to understand why returns and risks should be correlated. So I found this funny:

Well, we don't think about cost of capital or risk-adjusted. I mean, we don't want to take any risk, and we don't.

And about deciding for projects:

If I say the internal rate of return we demand is 15.83, it'll be 15.84. I mean, you just can bet on it. I've never seen a project that doesn't meet your hurdle rate, you know, if they really want to do it. We don't go through those charades. And it saves my time, saves their time.

Attitude towards drawdown:

Berkshire Hathaway (BRKA, Fortune 500) stock itself has gone down 50% three times since I bought the first stock in at 7 3/8. In 1974 it got cut in half. In 1987 it got cut in half. In 1998, 2000 or so it got cut in half. So that doesn't make any difference. I mean, I just don't worry about it. I worry about permanent loss of capital. I worry about making the right businesses. I worry about keeping the managers happy. Everything else pretty much takes care of itself.

T. Boone Pickens

2008-05-20T14:14:00.002+02:00

Video interview at Bloomberg with T. Boone Pickens. It is 1 1/2 hours long but very well worth the time.

00:00:00 Introduction; Pickens's career 00:17:11 Oil supply, demand, prices; natural gas 00:28:40 U.S. reliance on overseas oil; coal 00:39:50 Alternative energy; wind, solar power 00:46:45 Nuclear energy; U.S. energy policy 00:55:58 Pickens responds to questions.

Pointer is from The Big Picture.

		2008
Ständige Wohnbevölkerung am Jahresende (in 1000)		7701.9
	65 Jahre und älter	16.6
Ausländische Staatsangehörige (in %)		21.7
Bevölkerungswachstum (in %)		1.4
Anzahl Kinder je Frau		1.48
Lebenserwartung bei der Geburt (Jahre)
	Männer	79.7
	Frauen	84.4
Scheidungen je 100 Heiraten		47
Haushalte
	Einpersonenhaushalte (in 1000)	1246.7
	Familienhaushalte mit Kindern (in 1000)	1086.3
	Durchschnittliche Anzahl Personen je Privathaushalt	2.20