February marked yet another down month for my investments. The positive was that the losses were relatively trivial.
I started my new job. However, my income is more erratic than my previous job and, as expected, this month's income was low. I continued to enjoy full rental income from my properties - a state of affairs that will come to an end this month with one property becoming vacant.
Here are the details:
1.my actively managed funds were mixed with a net decrease during the month. I am holding losses on many of them. I currently have investments in actively managed funds investing in Thailand, Taiwan, Eastern Small Companies, European Small Companies and Vietnam;
2. my index tracking funds were down slightly. I currently have exposure to Hong Kong, India and Taiwan;
3. my residual equity portfolio appreciated slightly;
4. my commodity investments went sideways. I have small positions in the Lyxor Commodities ETF, nickel and lean hogs;
5. all my properties are all fully rented and the tenants are paying the rent on time. I have both a positive cash flow and a surplus of income over expenses (which represents an increase in net worth). One has moved out and will cease paying rental at the end of February;
6. currency movements were marginally unfavourable as the USD gained against a number of currencies.
I made no portfolio investments this month but did enter into three OTC option contracts:
(i) long HKD/GBP - the option was exercised against me at levels which produced a net profit for me (i.e. the option premium was higher than the FX conversion loss);
(ii) short HK Tracker Fund - the option expires on 5 March and, with the strike price still out of the money, it looks like I will make the premium on this contract as well;
(iii) long NZD/USD - this is a more aggressive trade.
I intend to continue experimenting with option trades (much like I did with warrants last year), but only with relatively trivial amounts of money and against underlying assets which I am prepared to hold on a longer term basis.
Income was low (it will be erratic under the new job) but sufficient to tip a small loss into a small gain for the month. My spending was also low. I already make accruals against my net worth for holidays, luxuries and tax. This month I have decided to start making a general accrual for long term expenses (such as refurbishment of our flat).
For the month, my net worth increased by 0.09%. The year to date increase is 10.54%.
Saturday, February 28, 2009
Thursday, February 19, 2009
The anecdotal recession (3)
Dress casual is definitely on the decline. Just wandering around the central business district in Hong Kong it is obvious that the proportion of (assumed) office workers who are wearing formal attire compared to those dressing more casually has risen steeply.
It's not too hard to understand the cause. People who are worried about their jobs, want to look more professional and serious. Those whose jobs involve dealing with clients on a face to face basis tend to need to dress to a similar standard as those clients - if the clients start wearing suits then those wanting to do business with the clients will also wear suits.
Sadly, I am in that position - the number of my clients wearing suits instead of business casual has risen and even before changing jobs, I was having to change my dress habits to match. At my new employer, wearing a suit is more or less compulsory.
I miss dress casual.
It's not too hard to understand the cause. People who are worried about their jobs, want to look more professional and serious. Those whose jobs involve dealing with clients on a face to face basis tend to need to dress to a similar standard as those clients - if the clients start wearing suits then those wanting to do business with the clients will also wear suits.
Sadly, I am in that position - the number of my clients wearing suits instead of business casual has risen and even before changing jobs, I was having to change my dress habits to match. At my new employer, wearing a suit is more or less compulsory.
I miss dress casual.
Wednesday, February 18, 2009
Who will bail out the taxpayers?
Everybody from large banks and insurance companies, auto makers to Larry Flint is asking for a bailout. Huge numbers of over committed borrowers are all seeking (and often getting) a bailout in the form of debt relief. The bail out may be provided through capital injections or the acquisition of assets of questionable value, but all of that money has to come from somewhere. Likewise, debt relief for borrowers comes at the expense of either the lenders or the taxpayer.
There is no such thing as a free lunch and not even governments can freely print money without consequences. So where is the money coming from?
Ultimately, it can only come from four sources:
1. higher tax revenues: in a recessionary economy raising taxes is obviously a good way to make a bad situation worse because higher taxes (i) divert money from private sector consumption and/or (ii) inefficiently divert money from private sector capital formation. Higher taxes typically hit mid-higher income earners the most - and this is the same group of taxpayers who include small business owners. In most developed economies small businesses generate a very high percentage of new jobs. Cutting taxes (or similar) is a better move;
2. borrowing: the government can borrow the money. As a short term fix this is a better alternative than options 1 and 3, but someone (future taxpayers) will have to repay the loan with interest. Low interest rates make this a more attractive option but is comes with a price beyond the obligation to repay - because government debt is perceived as being lower risk, it has the effect of crowding out or increasing the borrowing costs of private sector borrowers. There is also the question of who the money is being borrowed from? If the lenders are domestic, then it can be argued that it is simply a case of redirecting money from one group of participants in the economy to another group of participants;
3. printing the money: many governments/central banks have been running the printing presses pretty hard in recent years. Conspiracy theorists would argue that the decision to stop publishing M3 data is evidence of just how much money is being printed. The trouble with simply printing money is that every new dollar printed has the effect of devaluing all the existing dollars. In effect, when new money is printed, the holders of old money become poorer. This is inflation in its most simple form. While there is plenty of evidence and conventional wisdom that says that mild inflation is better than deflation, even mild inflation has adverse consequences (see what happens to a person on a fixed income over 30 years experiencing "only" 2% or 3% annual inflation);
4. spending surpluses: Keynesian economic theory holds that governments can smooth the economic cycles by accumulating surpluses in good times and spending those surpluses in bad times. This is what some countries are going now (e.g. China and Hong Kong). Unfortunately, many countries seem to have forgotten the part about accumulating surpluses and were already heavily in debt when the current crisis began.
Whatever the source(s) of the bailout money, someone has to pay for it. In the end it will either be future taxpayers or the holders of money and other assets which get devalued with inflation. Put differently, all a bailout does is transfer the pain from one group of societal stakeholders by imposing a burden on another group.
This is not say a bailout is a bad thing, but ignoring the costs and future pain associated with the bailout would be a very bad thing. The point can be illustrated with the contrasting examples of Japan and Zimbabwe. Japan spent massive sums of borrowed money attempting to stave off the consequences of its financial markets collapsing in the early 1990s. Over a decade later, the economy has continued to contract and remains burdened by high public sector debt levels. Zimbabwe simply ran the printing presses too much and rendered the local currency close to worthless.
So, who will end up paying the price for the current round of bailouts?
There is no such thing as a free lunch and not even governments can freely print money without consequences. So where is the money coming from?
Ultimately, it can only come from four sources:
1. higher tax revenues: in a recessionary economy raising taxes is obviously a good way to make a bad situation worse because higher taxes (i) divert money from private sector consumption and/or (ii) inefficiently divert money from private sector capital formation. Higher taxes typically hit mid-higher income earners the most - and this is the same group of taxpayers who include small business owners. In most developed economies small businesses generate a very high percentage of new jobs. Cutting taxes (or similar) is a better move;
2. borrowing: the government can borrow the money. As a short term fix this is a better alternative than options 1 and 3, but someone (future taxpayers) will have to repay the loan with interest. Low interest rates make this a more attractive option but is comes with a price beyond the obligation to repay - because government debt is perceived as being lower risk, it has the effect of crowding out or increasing the borrowing costs of private sector borrowers. There is also the question of who the money is being borrowed from? If the lenders are domestic, then it can be argued that it is simply a case of redirecting money from one group of participants in the economy to another group of participants;
3. printing the money: many governments/central banks have been running the printing presses pretty hard in recent years. Conspiracy theorists would argue that the decision to stop publishing M3 data is evidence of just how much money is being printed. The trouble with simply printing money is that every new dollar printed has the effect of devaluing all the existing dollars. In effect, when new money is printed, the holders of old money become poorer. This is inflation in its most simple form. While there is plenty of evidence and conventional wisdom that says that mild inflation is better than deflation, even mild inflation has adverse consequences (see what happens to a person on a fixed income over 30 years experiencing "only" 2% or 3% annual inflation);
4. spending surpluses: Keynesian economic theory holds that governments can smooth the economic cycles by accumulating surpluses in good times and spending those surpluses in bad times. This is what some countries are going now (e.g. China and Hong Kong). Unfortunately, many countries seem to have forgotten the part about accumulating surpluses and were already heavily in debt when the current crisis began.
Whatever the source(s) of the bailout money, someone has to pay for it. In the end it will either be future taxpayers or the holders of money and other assets which get devalued with inflation. Put differently, all a bailout does is transfer the pain from one group of societal stakeholders by imposing a burden on another group.
This is not say a bailout is a bad thing, but ignoring the costs and future pain associated with the bailout would be a very bad thing. The point can be illustrated with the contrasting examples of Japan and Zimbabwe. Japan spent massive sums of borrowed money attempting to stave off the consequences of its financial markets collapsing in the early 1990s. Over a decade later, the economy has continued to contract and remains burdened by high public sector debt levels. Zimbabwe simply ran the printing presses too much and rendered the local currency close to worthless.
So, who will end up paying the price for the current round of bailouts?
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