Sunday, February 28, 2010

Hong Kong Marathon

There must be an easier way to atone for my dietary sins.

Inadequate training (longest training run was about 27K) combined with a warm (27 C) humid (95%) day to ensure that I had no chance of putting in a decent time (by my rather mediocre standards). I decided to treat it as a training exercise (although I'm not sure what I would be training for) and just enjoy the experience of running across three bridges, through three tunnels and the Causeway Bay shopping district.

The event was well organised and coped well with the increased number of entries. The extensive and well managed drink stations offering water and sports drink (although not one that either I nor anyone else I know actually likes) were the key to enjoying the event.

I'll be back next year and hopefully will be in shape to come in under 4 hours.

Saturday, February 27, 2010

Monthly Review - February 2010

February was another positive month for financial progress with small gains on my investments being supplemented by positive cash flow on my properties and a good savings rate to produce a solid if unspectacular gain in net worth.

Here are the details:

1. my Hong Kong equity portfolio appreciated. I completed one small day trade which was closed out for a small profit and a second trade which which is still open and showing a small loss (the amounts involved are trivial - these trades are done more for entertainment value than for any other reason)

2. most of my ETFs appreciated (Hong Kong, Russia and India) with the exception of Taiwan which went down

3. my commodities appreciated slightly

4. all of my properties are let and all tenants were paying on time producing a positive cash flow and contributing to the gain in net worth

5. currency movements produced a small loss

6. I did not do any ELDs

7. savings were positive with income at the mid range of expectations and expenses more or less in line. I also received the second part of my annual bonus this month (the other part was paid last month)

My cash position will take a major hit in March with the completion of the latest property purchase (a JV with mrs traineeinvestor). I will also be travelling on business for a week. As mrs traineeinvestor and I have not had a holiday without the children for two and a half years, she will come with me. The expenses (airticket, hotel etc) will hit the bank account next month.

We have also come to the conclusion that out apartment will need redecorating in the near future. Separate post to follow.

For the month, net worth increased by 2.6%. The year to date increase is 6.0%. A good start to the year.

Tuesday, February 23, 2010

Possible measures to cool the property market

Rising property prices have grabbed a reasonable amount of headline space in recent months. Yesterday's land auction where Sun Hung Kai bid HK$3.37 billion for a residential site suggest that developers expect prices to, at least, remain firm.

Property price levels have prompted calls from political parties to "do something" to curb speculation, to make housing more affordable and to spend more tax payer money providing even more heavily subsidised properties to lower ad middle income groups.

These calls are misguided. Tom Holland's Monitor collum in this morning's SCMP carried a very succinct rebuttal of the suggestion that there is a bubble in the property market. The key points:

1. the Centa-city property index is still below 80 (compared to a high of above 100 in 1997);

2. bank mortgage lending rose only 3% in the first nine months of last year;

3. confirmor transactions represent only just over 2% of total market transactions (which is below average by historical standards);

4. the housing affordability index remains at around 80 (compared to a 1997 market peak of around 170). The ultra low interest rates (less than 1%) are a significant contributor to the affordability numbers.

The one contrary indicator is the low rental yields - which has to be taken in the context of comparable yields on other investments and the cost of funds.

While there is certainly a high degree of froth at the top end of the market, the bulk of the market by volume of transactions/units shows few (if any) of the characteristics of a bubble. Even if there is a bubble, the 30% deposit requirement substantially reduces the risks created by a bubble - as was demonstrated the very low level of bad debt write offs during the Asian crisis. Calls to take steps to reign in prices are misplaced.

That said, some increase in the supply of land to the private to prevent a bubble forming would, in my view, be welcome - especially if the additional supply is designated for mass market/low income housing. It is much preferable for housing needs to be supplied by the private sector rather than being funded by the taxpayer.

The other proposal being looked at is to increase the stamp duty rate for properties over HK$20million to 4.5% (from 3.75%). I oppose this. The government does not need additional revenue and costs measures risk distorting the market. If measures to cool the market are required, they should be in the form of additional supply or increasing the deposit requirement for the more expensive properties.

Saturday, February 20, 2010

Book Review: The Sellout

The Sellout Charles Gasparino's account of the credit crisis.

Gasparino begins with the origins of the crisis and neatly chronicles the unfolding of events through to the collapse of Bear Sterns, Lehman Brothers, Fannie Mae, Freddie Mac and AIG and the near collapse of Merrill Lynch and others. Along the way he identifies the causes of the problem:

1. political policies designed to encourage home ownership with no real thought given as to the consequences of those policies

2. inept regulators who either didn't know what they were doing or who made some seriously bad judgement calls (or both)

3. bankers driven by short term profits, with no regard for either the risks being taken or even how to sensibly measure those risks

4. credit rating agencies who were essentially paid to certify that sub-prime mortgages where as good as Treasureies

5. mortgage originators who neither knew nor cared whether people could actually afford the debt they were taking on

6. borrowers who took on more debt than they could realistically afford

Very few of the main characters appearing in the story emerge with much credit. Of the institutional CEOs, Jamie Dimon and Leon Fink are possibly the only exceptions.

Perhaps the most damming indictment of the whole process was all the CEOs who thought that leveraging their equity 30 times using mostly short term financing to invest in long term illiquid instruments concentrated in one sector of the economy was anything other than moronic. Even without the recent example of LTCM (and other examples before that), it does not take a rocket scientist to figure out that it is only a matter of time before they get into serious trouble.

Very well written and well worth a read.

Tuesday, February 16, 2010

Why wait?

I've obviously been spending too much time hanging out at Early Retirement. Either that or the level of satisfaction my wife is getting from becoming a SAHM is rubbing off on me. Or it might be another mid-life crisis. Whatever the cause, I am really looking forward to retiring at the end of 2013 (TBC).

Having had a few days off to actually do some thinking over Chinese New Year, gave me some time to think about the reasons for wanting to retire. I was quite pleased to realise that it is mostly about the things I want to do. Escaping from the things I do not like about working seems much less of a driving factor (in spite of not being particularly happy at being treated as if on call 24x7).

But I still have about two years to go until the numbers work and an additional two years to give myself a safety margin that I am comfortable with. Three years, ten months and thirteen days is a long time to wait. It is a ridiculously long time in which to put my real life on hold while I go about the business of earning a living.

So, I have this list of things I want to do when I retire. I also have a shorter list of things I need to do before I make the transition. I have started on some of the latter items (life insurance, medical insurance) but there is a lot more to get done.

The question I have been asking myself is - why wait? Why can't I start doing the post-retirement things now? Time and energy are the obvious answers. Working hours and the tiredness than goes with working very long hours are limiting factors. But there is still room to start doing things - and the flexibility to drop some of the in-office activities will increase as I get nearer to retirement and have to worry less about preserving my position.

So, I am going to dust off my retirement list and make a start on some of the items, beginning with:

#1 - a holiday in New York. I have to go to New York for business next month. I'm adding a few days so I can spend some time in an unfamiliar city. Since we didn't have a holiday together last year, Mrs traineeinvestor will be coming with me;

#2 - writing the novel. I started writing a novel during the Asian crisis - more than ten years ago. I still have soft versions of what I wrote. Career advancement, marriage and children put that project on hold. While my chances of ever getting published are (like most wannabe authors) remote, writing a novel is something I very much want to do. I'm going to dust it off and have another go. Given the limits on time, it will probably take at least 2-3 years to finish but there is no reason not to get on with it.

What else? Lots. But one or two small action points at a time is better than a huge list.

Wednesday, February 10, 2010

Generation U

Generation U - meaning either "Generation Unretired" or "Generation Unable to Retire", depending on your finances represents something of an interesting development. The percentage of "older" people who remain in the workforce has risen noticeably over the last few years and is expected to rise further. Why?

The obvious reasons are:

1. numbers: the population in many developed economies is aging and will age further over the next few decades. There are simply more older people around. Consequently, seeing more older people in the workforce in absolute numbers is hardly surprising. However, this does not explain the relative proportions;

2. numbers (again): the changing mix of age groups within the workforce means, almost by definition, that there will be more employers willing to employ older workers. Discrimination laws certainly help here, but from an economic perspective there are simply more opportunities;

3. money: a combination of low savings rates, demographic and fiscal reality eroding the real value of taxpayer funded benefits, rising costs (in particular health care and, to a lesser extent, taxes in one form or another) and the impact of the financial crisis have made retirement a less certain financial proposition;

4. health: today's older generation is generally healthier than previous generations. Given the rise in obesity levels, I have to wonder if this trend will continue. A related point is that there are far more jobs available today that do not require intensive physical effort than at any time in history;

5. skill set: many of the current older generation have managed to acquire the skills needed to function effectively in today's work place. This in itself gives them more opportunities to keep working;

6. choice: yes, given the choice there are a lot of people who would prefer to keep working rather than retire. Personally, I think that most of these people need therapy.

The existence of Generation U is well documented. I can understand why people keep working when there is a financial need to do so. I can understand people wanting to keep working if they genuinely enjoy what they do more than anything else they could do if they stop working. Since I hope not to fall within the former category and, although I do not dislike my job, do not fall within the latter, I sincerely hope I never join the ranks of Generation U.

Saturday, February 06, 2010

The US spending problem in one screen

The US has a spending problem - as do a lot of other countries. Here is a snapshot of the position. Scary. Very scary.

I am glad that I will never have to explain to my children and grandchildren why they are going to start out life burdened by the debt racked up by today's voters, politicians and civil servants.

Friday, February 05, 2010

New property purchase

Against our expectations we managed to find a property which was available for less than bank valuation. Based on a combination of the bank's valuation and very recent sales in the same building, we negotiated a purchase price which (in our opinion) gives us the car parking space for free as well as a discount on the recent interior decoration. It may not be the bargain of the century but it represents reasonable value in the current market.

The property is located in the western Mid-Levels, is less than 20 years old, is well maintained, is within walking distance of Pacific Place and Wanchai and (as mentioned) comes with a car parking space.

The flat (but not the car parking space) is also leased to a corporate so we will not have the usual period of post-completion vacancy while we look for a tenant and redecorate.

Mrs traineeinvestor and I will buy this property as a joint venture. We are currently shopping around for mortgage financing.

Completion is scheduled for mid-March.

Tuesday, February 02, 2010

Book Review - The King of Oil

The King of Oil is Daniel Ammann's biography of Marc Rich. Between reading Metal Men and the considerable press coverage of the pardon given to Marc Rich and his former partner Pincus Green, I was expecting a book devoted to detailed run down of Rich's wrong doings as well as a portrait of the man and coverage of his personal life. Ammann delivered on the last two items, narrating Rich fleeing the Nazi occupation of Western Europe to arrive in Europe, his beginnings as a commodity trader, rise within Phillipp Brothers and establishment of his own trading company.

The more interesting part of the book concerned Rich's fall from grace and the handling of the criminal charges which were brought against him. Ammann does a good job in exposing the seriously flawed way in which his case was handled by the American law enforcement authorities. Specifically, the political motivation from elevating what was at the time treated as a civil tax dispute to criminal status, using the racketeering laws in a tax case (which the Justice Department no longer does) and the open willingness of the American law enforcement authorities to flout the laws and sovereignty of other countries.

While Rich does not emerge as a sympathetic character (save in respect of his work ethic and the death of his daughter) and, at the very least deserves a degree of moral criticism, Ammann manages to portray Rich as a more complex character than the media have generally done.

Well worth a read.