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Thursday, March 29, 2012

The #1 Reason to Watch a Sad Movie Tonight

by Madeline Haller
March 29, 2012, 08:19 pm EDT

You ask, why would anyone catch “Titanic” in 3D next month? The answer: Because it will make them happy.

That’s not James Cameron talking, or Roger Ebert, or even those reviewers you’ve never seen who love every movie. That’s science clearing its throat and telling you how it is.

Crying is manly too, right?

A recent study published in the journal Communication Research, to be exact, which said that viewing sad or tragic films can improve your mood. The researchers had 361 college students screen the movie “Atonement”—good choice, if you’re going for a real downer. The students were asked a series of questions before, during, and after the movie to gauge how they felt throughout the film.

The results: Exposure to the tragic film actually made the students happy.

Why? “It appears that individuals use tragedies as a way to reflect on the significant relationships in their own life,” says Silvia Knobloch-Westerwick, Ph.D., lead study author and associate professor of communication at Ohio State University. “It’s as if the film made them think about their own loved ones and sources of happiness, which in turn made them happy.”

But let’s say you’re not in the mood for a tearjerker, or don’t think you could survive the ribbing you’d get from friends if you go back to see what happens to Leo DiCaprio and Kate Winslet. How else can you score an instant pick-me-up? Check out the following tips, guaranteed to spread a bit of cheer.

Hit the Gym

As few as 15 minutes of exercise daily can increase an individual’s positive emotions (enthusiasm, happiness, pride, and excitement), says a study published in the Journal of Sport & Exercise Psychology. Researchers recruited nearly 200 college students in order to analyze the effect that physical activity had on their overall emotional state. Researchers found that those who were highly active reported greater levels of pleasant feelings. (So if you have some time, check out how you can get happy and fit in just 15 minutes.)

Turn On the Tunes

Having a bad day? Whip out your iPod and blast your favorite song. When you listen to music that moves you, your brain releases dopamine (a chemical that activates the reward circuits in your brain) and results in a positive emotional change, says a study published in the journal Nature Neuroscience.

Ignite Your Sense of Smell

According to research presented at a conference held by the Association for Psychological Science, floral scents can increase your happiness and evoke positive memories. To test this theory, researchers split the study participants in to three rooms—one of which had a floral scent—and gave written tests. When analyzing the tests, researchers found those in the floral-scented room used three times as many happiness-related words and indicated that their overall mood was better than those in the other two rooms. What if you’re not a flower guy? Try other aromas. A study published in Physiology & Behavior found that people sitting in a dentist’s office were less anxious and in better moods when the waiting room smelled like orange or lavender.

Plan a Vacation

Everyone knows that vacation will bring you bliss—but just planning the trip itself can make you happier, too. The research, published in the journal Applied Research in Quality of Life, measured the effects that vacations had on nearly 1,000 people. Although the researchers found the trip itself brought about pleasure, the bigger finding was that anticipating the trip boosted happiness for 8 weeks. Why? The researchers hypothesized that having something to look forward to served as a reminder of what lies ahead, and lifted subjects’ moods.

Saturday, March 24, 2012

There may still be bite in Apple

24 Mar 2012 12:02

By Teh Hooi Ling
Senior correspondent

The new iPad attests to Apple’s innovativeness. At 22x 2011 profits, it’s far from being priced for perfection

A GROUP of us decided to catch up in the new year for lunch. That was on Feb 22. To round off the lunch, the host decided to go round the table asking each one of us to pick what we think would be the best-performing market and the best-performing stock for the new year.

The winner will have to buy lunch the next time we meet. The assumption is that he or she would have acted on their conviction, and would have made money out of that trade.

There were four of us at the lunch, and each one of us listed our picks. I can’t really remember what each of us selected. But one prediction stood out because of its boldness, and the specific target given.

It’s the host’s prediction. He had stuck his neck out with the forecast that Apple, the maker of iPhones and iPads, would hit US$800 by year-end. On Feb 22, the stock was trading at US$513. Between mid-December 2011 and Feb 22, 2012, the stock had soared by 38 per cent.

As you could imagine, his target price wowed us. Well, what do you know, between then and now, Apple has put on another 17 per cent.

As of today, Apple is the biggest company in the world in terms of market capitalisation. It is worth US$559 billion. That’s more than the GDP of Switzerland in 2010, which according to the International Monetary Fund is the 19th richest country in the world.

Apple has overtaken Exxon Mobil as the most valuable company in the world. The oil and gas company is worth US$402 billion.

Billion-dollar question

At another lunch last week, another friend asked how high Apple shares can go.

Indeed, that has become a billion-dollar question. There are various views out there. On one side is the “No, Apple is not over-valued” camp. And on another is the “Short Apple” camp.

In the latest issue of The Economist, in an article entitled “An iPopping Phenomenon”, the magazine noted that when Cisco, a technology giant, was briefly worth more than US$500 billion in 2000, its price-earnings ratio was above 100; Apple trades at only 22 times its 2011 profits. Its new dividend yield will be almost as generous as that of the overall market. “Even if its shares turn out to be overvalued, this would be more like a pimple than a bubble,” it concluded.

There are other arguments for the bulls’ case. Apple has low penetration in the personal-computer and smartphone markets. Emerging markets like Brazil and China are fertile ground for its products.

While there are concerns over Apple’s innovativeness after the death of Steve Jobs, the launch of the latest iPad has calmed nerves somewhat. Meanwhile, Apple is also gearing up to enter new arenas like television and mobile payments.

US$100 billion cash-pile

Apple now has US$100 billion cash, which can be used to invest in new products and buy out competitors. Even after it starts distributing dividends in the fourth quarter of its financial year 2012 – its first in 17 years – and spending some amount on share buybacks, it would still end the year with more cash than it started. It generated free cash flow, ie, net cash flow after deducting capital expenditures, of US$16 billion in the quarter ended Dec 31, 2011. In the four quarters prior, the free cash flow was US$33 billion.

In terms of stockmarket dynamics, the company’s announcement this week that it would start distributing dividends, opens it up to investments by income-focused funds.

Despite the hyperbolic trajectory of its share price, the company is still trading at 22 times its 2011 earnings. Relative to its forecast earnings for next year, it is trading at 12 times, data from Bloomberg showed.

On the other hand, there is no lack of concern over the sustainability of Apple’s ascent.

Yes, Apple has been delivering spectacular growth quarter after quarter. The average annual growth of its revenue in the last nine quarters is a whopping 67 per cent. Net profit grew at an even higher 84 per cent.

The bigger its earnings base, the more difficult it will be for it to keep up that kind of growth rate. And if its stock is priced for perfection, then any earnings miss could have a big effect on its share price.

Other market commentators pointed out technical issues like Apple’s rapid rise from US$380 to US$600 hasn’t allowed it time to gain true investor support for that US$220 gain. The speed and distance has made both investor-sellers and traders slow to provide the natural support levels that can prevent a share fall-off from occurring.

Yet another reason: it has hit a nice big round number, and this could be a psychological resistance level that induces profit-taking. This coincides with quadruple-witch options expiration. Also, the stock is significantly overbought. Big money will likely be rebalancing in the next two weeks as quarter-end approaches, given that the stock has risen by almost 50 per cent this quarter.

No doubt, fund movements will affect Apple’s stock price. But there is also no denying the strong fundamentals of the company as of now. Its new iPad, which was released on March 16, is the most popular version of the tablet yet. The company sold three million of them in just four days.

The company will likely see continued strong growth in both top and bottom line, at least for this financial year. The world is not quite jaded with Apple yet. At 22 times historical PE, and 12 times next year’s PE, the stock is far from being priced for perfection.

Going by the momentum, it seems like the stock still has room to go upwards. And if Apple could maintain its earnings per share (EPS) of US$14.03 achieved in the last quarter for the next three quarters, then its full-year EPS would come to US$56.12. That’s a doubling from last year’s EPS.

At that kind of EPS, a stock price of US$800 would translate into an earnings multiple of 14.3 times. Not excessive at all, if Apple can continue to keep the cool quotient of its products high up there. For now, there is no indication of the world cooling towards i-Whatever. Hence it may not be a good idea to bet against it. - BT

The writer is a CFA charterholder

Wednesday, March 21, 2012

MDR a gem among the penny stocks

Published March 21, 2012


THE unfolding market recovery has stirred up significant interest in penny stocks, mainly because of their potential to deliver higher percentage returns.

The danger is that, in their chase for quick profits, punters often overlook the fundamentals. Many of these companies have fragile balance sheets and vulnerable businesses.

That said, there are some potential gems out there.

One which has caught the market's fancy lately is mobile telephony services player, MDR (short for Mobile Doctor).

MDR rose from the ashes of Accord Customer Care Solutions or ACCS, which became embroiled in a major accounting scandal that ultimately led to the prosecution of key company officials. That was more than six years ago.

What a difference those years have made.

Following a massive restructuring, the company's fortunes have been revived under the chairmanship of former Cycle & Carriage (C&C) managing director Philip Eng.

Mr Eng took over the stewardship of the company in late-2005 at the height of the ACCS crisis, and was joined by a capable management team led by CEO Ong Ghim Choon and chief financial officer Doris Wee in 2009. Together, they have rebuilt the business, strengthened its balance sheet and nursed it back to profitability.

Last month, MDR unveiled its ninth consecutive quarter of profits. The latest set of results boosted its full-year earnings to $7.6 million from $3.8 million in FY2010. MDR also declared its maiden dividend payout of $2.1 million, which works out to 0.033 cents a share.

Perhaps not surprisingly, the shares of the company have doubled in value this year, while its in-the-money warrants, which expire in September 2014, have quadrupled in price.

But the company's upward trajectory seems to have convinced some seasoned corporate players.

Keppel Land CEO Kevin Wong has steadily accumulated almost one billion shares, giving him a 15 per cent stake in the company. Mr Eng himself last week converted some 2.4 million share options and 45 million warrants.

By any account, MDR has chalked up a remarkable comeback for a company that was written off and left for dead in 2005.

A lot of the credit should go to Mr Eng.

Instead of continuing to focus only on after-market services, he broadened MDR's footprint into franchised distribution and retail services. Today, it is a platinum retailer for M1 and SingTel.

Last month, after unveiling the company's full-year results, Mr Eng declared that MDR would boost its business footprint and bottomline through acquisitions of more earnings-accretive businesses. He appears to be counting on its strong balance sheet and conversions of its in-the-money warrants to finance acquisitions.

Indeed, MDR has to look beyond a business which yields a paltry 2.5 per cent margin. It needs to acquire a business which can deliver a quantum leap to its topline and margins.

Fortunately, the company appears to have the financial wherewithal to do this.

Last year, it repaid all $55 million owed to its bankers and retired some $12 million of loan-stock overhang. It is now sitting on almost $16 million in cash and has no debt.

If anyone can execute an ambitious business re-engineering plan, it has to be Mr Eng.

After all, as MD of C&C in 2000, he engineered the purchase of a 31 per cent stake in Indonesia's Astra International for a princely sum of US$296 million. By 2005, Astra had become C&C's subsidiary after the Singapore company raised its stake to 50.5 per cent. Today, its Astra stake is worth about S$20.8 billion, and the Indonesian business contributes to 90 per cent of the restructured Jardine C&C's earnings and accounts for 95 per cent of its market value.

Mr Eng is not content overseeing a smallish telecommunications equipment player delivering thin margins. If he clinches an earnings-acquisitive business, it could double the company's topline from $360 million now. In such cases, economies of scale can deliver a four-fold boost to the bottomline.

Given how he helped boost the value of C&C's stake in Astra 27-fold, this is not beyond Mr Eng's capabilities.

There are about 30 so-called 'micro-penny' stocks floating around on the Singapore Exchange. But market insiders who follow the company say few can boast its growth trajectory and potential. They note that at 7.5 times earnings, it is trading at around half the market's valuation.

If anything, the recent surge in interest in this stock seems to be based on the reckoning that a slight earnings boost will translate into a 'multi-bagger' gain.

On paper at least, the odds seem good. - BT

Monday, March 19, 2012

Beware risks of corporate perpetual bonds

Published March 19, 2012

Focus on hybrids of stronger names with high credit ratings: Bank of Singapore


WITH the corporate perpetual bond market within the emerging-market (EM) bond space growing substantially, investors need to be aware of the risks associated with hybrid perpetual bonds, says Bank of Singapore.

Of the two types of corporate perpetual bonds in the market (senior unsecured perpetual bonds and hybrid perpetual bonds), the latter - which has both equity and credit-like features - is the only type issued by Asian corporates to date.

The key risk for hybrid perpetual bonds lies in its structure, which differs materially from one another, the bank said in a recent note.

Said Bank of Singapore head of credit research Todd Schubert: 'The structure of the bond partially determines the pricing of hybrid perpetual bonds, and investors need to determine the fair value of the bond in light of the strength of the bond structure.'

He said: 'Certain hybrid bonds have very weak structures (for example, Nobel perpetual) and such weaknesses could create significant price volatilities in the market, which tends to be exacerbated in times of market weakness. In addition, the investors may not receive certain coupons and/or principal back from the issuer for a prolonged period.'

A key risk associated with hybrid perpetual bonds is the ability of the issuer to not pay coupon since non-payment of coupon does not trigger an event of default; the deferred coupons are generally cumulative.

In addition, in case of liquidation or bankruptcy, the recovery for hybrid bondholders could be minimal since these bonds are ranked just above common equity holders.

In certain cases, hybrid bonds could contain no covenants or a very relaxed set of covenants, which gives lower-level protection to bondholders. In addition, given that such bonds have no maturity date, holders are heavily exposed to interest rate risks, said Mr Schubert.

Within the hybrid perpetual space, Bank of Singapore recommends that investors focus on stronger names with high credit ratings given that this limits investors' exposure to credit risks of the issuer (for example, Hutch and SingPost); add bonds with strong structures; and add issuers for whom hybrid perpetual bonds may be the only instrument available in the market since these bonds tend to perform well due to their scarcity.

'We think that a small allocation to hybrid perpetual bonds in an EM bond portfolio is justified to enhance yields or to gain exposure to rare issuers,' said Mr Schubert. 'We would recommend clients to allocate a maximum of 5 per cent of the aggregate portfolio to such instruments, depending on the risk profile of the client.

'High allocation to these types of hybrid corporate perpetuals could significantly increase the overall risk profile of a bond portfolio.'

Between the two perpetual bond types, Mr Schubert said the bank prefers senior unsecured perpetuals - typically issued by Brazilian companies, with the exception of Energisa - since investors are only exposed to credit and duration risk in these perpetuals.

Clients are recommended to allocate approximately 10 per cent of their EM bond portfolio in this asset class.

Commenting on the perpetual bond market, Mr Schubert said: 'During periods of market weakness, we believe that these securities will likely exhibit heightened volatility and performance could be correlated with the underlying reference equity.'

Anecdotal evidence suggests that private banking clients are the key investors of perpetual bonds, given that the perpetual nature of the bonds and the equity features in hybrid perpetual bonds typically deter institutional investors from participating in these deals, noted Mr Schubert.

In the case of the recent Genting deal, 78 per cent of the bonds were allocated to private banks. In the case of Mapletree and SingPost, the allocation for private banks was 67 per cent and 60 per cent of the total deal respectively.

Brazilian companies remain the key issuers of corporate perpetual bonds in the EM space. Since 2010, 14 Asian corporates have issued perpetual bonds, amounting to $9.4 billion. Bank of Singapore estimates that there is approximately $14.4 billion worth of EM corporate perpetual bonds outstanding in the market, excluding the bank perpetual bonds. - BT

Saturday, March 17, 2012

CapitaLand, F&N, Olam set for world stage

Published March 17, 2012

Boston Consulting Group identifies the three as among 11 S'pore companies which are South-east Asian 'challengers'


SINGAPORE-BASED CapitaLand, Fraser and Neave, and Olam are among the new South-east Asian 'challengers' set to shine on the international stage, according to the Boston Consulting Group (BCG).

The consultancy identified these 'challengers' as fast-growing, expanding twice as fast as their global peers in similar industries, and having generated far greater shareholder returns than global peers or indices of emerging market or South-east Asian stocks.

These companies are part of a total of 50 'challengers' identified in the region. They range from US$500 million to US$63 billion in size, are growing and profitable, and boast strong international ambitions.

Singapore has 11 companies on the list, including Changi Airport Group and PSA. Other fast-growing 'challengers' from Singapore are Hyflux, Keppel, Sembcorp, ST Engineering, Wilmar International and Petra Foods.

In terms of their global growth, they are no longer caterpillars but not yet butterflies, BCG said in a report titled, 'The Companies Piloting a Soaring Region'. Hence, companies that have been leaders in their respective industries for years - such as Singapore Airlines and Malaysian energy firm Petronas - can no longer be considered challengers. 'They are already champions from the region,' BCG said.

Other companies on the list include AirAsia and CIMB from Malaysia; Bayan Resources and Golden Agri-Resources from Indonesia; Siam Cement Group and Central Group from Thailand; Jollibee from the Philippines; and Vinamilk from Vietnam.

These companies are expanding twice as fast as their global counterparts - which consist of multinationals in similar industries - and are more profitable.

A US$100 investment in a basket of South-east Asian challengers at the start of 2000 would have been worth about US$590 by the end of last year, BCG noted.

Rising consumer spending, better regulation and bolder ambitions were cited as these firms' main drivers of growth.

Singapore-based cocoa supplier Petra Foods, for example, is riding on the back of a rise in middle-class consumers in emerging markets, many of whom view chocolate as an affordable luxury. It has a 50 per cent market share in Indonesia, where the market is expected to grow by 18 per cent annually through 2015.

Two Malaysian financial firms, Maybank and CIMB, are adopting the strategy of a 'regional rollout' by leveraging on local consumer insight and developing customised business models.

BCG said South-east Asia is fast becoming an economically integrated region, with Singapore as the hub of financial and logistics activity and an example to other nations of what they might also achieve.

Looking ahead, BCG predicted Banyan Tree Hotels and Resorts, BreadTalk and Charles & Keith - all of which are based in Singapore - as next to make the list. - BT

Friday, March 16, 2012

High-frequency trading in equities almost zero: SGX

Published March 16, 2012

One reason is that S'pore has just one execution venue; there are 50 in the US


CONTRARY to popular belief, high-frequency trading (HFT) is virtually non-existent in the equity segment of the local market, Singapore Exchange (SGX) president M Ramaswami told BT here on Tuesday.

'HFT makes up maybe 30 per cent of our derivatives volume but for equities, the percentage is almost zero. Most retail investors are therefore not exposed to any form of HFT.'

Although there is no universally accepted definition of HFT, among its characteristics are the fact that investments are held for very short periods of time and typically (though not necessarily) positions are not carried overnight.

HFT is a form of trading that uses high-speed computing, high-speed communications and technological advances to execute trades in as little as milliseconds.

A typical objective is to identify and capture small price discrepancies with no human intervention using computers to automatically capture and read market data in real-time and transmit thousands of order messages per second to an exchange. In the US, it is estimated that as much as 70 per cent of daily volume is generated by HFT.

Because of the speed involved, there have been concerns in the local market that retail investors and brokers are at a disadvantage when trading against such programmes. In addition, there have been worries that HFT could aggravate a market crash.

'There's a huge area of debate about HFT and the proper policy responses,' said Mr Ramaswami. 'But it's important to know that HFT serves two roles - that of market makers and that of arbitrage players. For the latter, in countries like the US where there are many execution venues or exchanges trading the same product, HFTs can indulge in arbitrage.

'However, because there is only one execution venue in Singapore, we don't have arbitrage-type HFTs, only market-making, which is quite benign.'

In a separate interview, SGX head of derivatives Michael Syn said that HFT proliferates in the US because there are 50 competing trading venues. 'The market is so fragmented there that you need fast computers to find the best price.'

On the concerns expressed by retail investors and brokers, he said that it was likely that this comes from confusing HFT with algorithmic execution trades.

'It could be that what the retail brokers are seeing and are worried about is institutional brokers executing their orders via algorithms. Sometimes, these algorithms don't work so well when markets are illiquid. Nevertheless, we have three levels of control or protection. First, you need market surveillance, which is not necessarily because of electronic trading but actually has been around for for years.

'In my view, our surveillance does a very good job detecting unusual patterns of trading. Second, pre-trade risk controls. Here, we will be introducing measures to enable brokers to limit their clients' positions. And third, circuit breakers, which are also on the way.' - BT

Wednesday, March 14, 2012

Why I resigned from Goldman Sachs

Goldman Sachs director Greg Smith has opted to quit after 12 years. He explains why he's leaving the 'morally bankrupt' firm

Greg Smith
Wednesday 14 March 2012 16.44 GMT

Today is my last day at Goldman Sachs. After almost 12 years at the firm, first as a summer intern while at Stanford, then in New York for 10 years and now in London, I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world's largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs's success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients' trust for 143 years. It wasn't just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C Blankfein, and the president, Gary D Cohn, lost hold of the firm's culture on their watch. I truly believe that this decline in the firm's moral fiber represents the single most serious threat to its long-run survival.

Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than $1tn. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

What are three quick ways to become a leader?

a) Execute on the firm's "axes," which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.

b) "Hunt Elephants." In English: Get your clients some of whom are sophisticated, and some of whom aren't to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don't like selling my clients a product that is wrong for them.

c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Today, many of these leaders display a Goldman Sachs culture quotient of exactly 0%. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It's purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client's success or progress was not part of the thought process at all.

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as "muppets," sometimes over internal email. Even after the SEC, Fabulous Fab, Abacus, God's work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don't know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client's goals? Absolutely. Every day, in fact.

It astounds me how little senior management gets a basic truth: if clients don't trust you they will eventually stop doing business with you. It doesn't matter how smart you are.

These days, the most common question I get from junior analysts about derivatives is: "How much money did we make off the client?" It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don't have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about "muppets," ''ripping eyeballs out" and "getting paid" doesn't exactly turn into a model citizen.

When I was a first-year analyst I didn't know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.

My proudest moments in life getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics, have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn't feel right to me any more.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm or the trust of its clients for very much longer.

• Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm's US equity derivatives business in Europe, the Middle East and Africa.

@ 2012 The New York Times

Saturday, March 3, 2012

It's not a long-term bull: Daryl Guppy

Published March 3, 2012

The technical analyst and trading coach notes that the Dow Jones Index does not appear to be able to get past a resistance level, and trading volume is low


MARKETS have been on a tear in recent weeks, and that is a relief to investors who have endured a sharply volatile ride last year.

But don't make the mistake of thinking that a long-term bull market has ensued, says technical analyst and trading coach Daryl Guppy.

This view is echoed in OCBC Investment Research's ETF research this week. Markets, the paper says, look overbought 'which could lead to a correction once the macro-environment re-surfaces and re-ignites another wave of adverse investor sentiment and behaviour'.

In the current year to end-February, the MSCI World Index has risen 9.8 per cent. The MSCI Asia ex Japan index has also appreciated by 15.4 per cent.

Based on fund flows data by EPFR Global, investors pulled money out of equity funds in the week ended Feb 22, but Asia ex Japan equity funds managed to attract inflows, as well as India, Indonesia and Taiwan equity funds.

We've endured two years of sideways market in the STI. In the last 12 months, the index has seen a 5 per cent upside and an 19 per cent downside ... You can't reasonably hold in that environment.

-- Mr Guppy

Mr Guppy says it is important to take on the stance of an 'old' bull, or an old hand in the market. 'Yes, the (US) market will rise, but where is the genuine sustainable long term trend? You can take advantage of the rising market, but you don't sit back and think this is a new bull market for the 21st century. The old bulls have seen it before and they are cautious. The young bulls are excited.'

He bases his expectation on a couple of factors - that the Dow Jones Index does not appear to be able to get past a resistance level. And, trading volume is low. 'What's driving the Dow? It's not broad retail participation. American deposits in cash in the last quarter of last year were the highest they have been for 2011. There's no fuel driving this rise which makes us a little suspicious.

'We know that 50 to 60 per cent of the activity is driven by ETFs. This suggests that investors are directing ETFs to buy and sell, which has an effect on the index as distinct from people buying the index components.'

He observes that in contrast to last year where market rallies were short, lasting three to four weeks, the rallies in recent weeks have been more extended, lasting six to 12 weeks.

This, however, warrants caution. 'This means that when the market sells off, it's likely to sell off in a very large way and you have a good chance of surrendering all the profits of the last three months over two to three days as the market retreats in hysteria. So, as you trade the market as an extended rally, use fairly tight stop losses, and be prepared to sell when the trend looks like it's changing because the change has a high probability of being very rapid and substantial.'

The China equity market, based on the Shanghai Composite Index (SCI), however, has broken its 12 to 18-month downtrend, and is moving towards the 3,000 level, he says. 'I think we can move from 2,300 to 3,000 within a few months or weeks.' The SCI is currently trading above 2,400.

Singapore's stock market tracked the US market in the past, but that relationship has broken down. It doesn't track the China market either. 'The STI is a little directionless in a sense. The lead depends on breaking news overnight rather than an underlying change in other markets.'

Oil, he says, may see a 'parabolic' or a very sharp rise.

'What we look for in oil is a fast breakout, a rapid move towards US$115 maybe towards US$120. There is a potential to develop a longer term parabolic structure which means a very fast acceleration but a rapid collapse.' Event risk could well cause oil price to spike, such as action by Iran which further dries up oil supply. Already there are Western trade sanctions against Iran which are crimping its oil exports.

Gold, he says, is trading within a band of US$1,650 per ounce at the lower end, to US$1,750. It could break out to US$1,890 but this raises the potential for a sudden correction.

Mr Guppy says volatility in the last couple of years is changing the way trend is defined in technical analysis.

Typically, technical analysts hold that the price of an asset defines the trend. But sharp intra-day volatility has rendered that inadequate.

Since the 2008 crisis, he has supplemented price analysis with the study of trend volatility as well, which allows a means to infer the behaviour of traders and investors.

Stop losses, for instances, are set based on indications from trend volatility.

While trading on technicals may be offputting to many, investors may have to brace themselves to become more active investors.

Mr Guppy believes buy-and-hold investing can be destructive to one's wealth.

The Straits Times Index's risk-reward ratio, for instance, argues against a buy-and-hold approach.

'We've endured two years of sideways market in the STI. In the last 12 months, the index has seen a 5 per cent upside and an 19 per cent downside (compared to the opening price for STI in January 2011).

'You can't reasonably hold in that environment ... Yes, you could buy at the bottom and sell at the top but people can't do that.'

He adds: 'We are consistently told we should invest with a 10 or 20-year time frame. That's unrealistic. In today's conditions, we can't reasonably look out for three or five or 10 years.

'We can be comforted by the fact that the market always goes up. But that itself is a lie because the components of the index change. Short term investing is still here.'

In its report, OCBC's ETF research says that the diversification benefits supposedly offered by broad-based equity indices 'are not as available as once thought', as correlations are expected to rise.

'In anticipation of a market correction, we advocate investors re-think their allocation strategies and consider moving into quality, defensive sectors or low-beta asset classes.'

It also points out that volatility, as measured by VIX, is at six-month lows. Even though near term VIX futures have inched up recently, it is still at 'relatively benign levels associated with periods of stable sentiment'.

This suggests demand for downside risk protection 'has not yet picked up, and investors should use this opportunity to hedge themselves against an eventual market correction'. - BT

Friday, March 2, 2012

Why texting might be bad for you

By Stephen L. Carter

March 2 (Bloomberg) -- If you’ve suspected lately that your family’s mobile-phone bill is driven entirely by your 15-year- old, you are probably right. A recent Nielsen report shows that children aged 13 to 17 average an astonishing 3,417 text messages a month -- some 45 percent of all text messages. This breaks down to seven texts “every waking hour,” or roughly one every 8 1/2 minutes.

But those who look at this data and worry that young people are over-texting may be asking the wrong question. The more pertinent concern may be not the amount, but the function. Many observers argue that the social world of teenagers and even young adults is nowadays largely constituted by text messaging.

Maybe so. Certainly a principal reason cited by many teens for their use of texting is that it is fun. In some surveys, young people reported that they prefer texting to conversation. And “prefer” may be too weak a word. Many young people, when not allowed to text, become anxious and jittery.

In recent years, there has been no shortage of reports on television about researchers who say they have found teens addicted to their mobile phones. Perhaps a better way to view the data is as an illustration of how mobile phones in general, and texting in particular, have taken over the experiential world of the young. An economist might expect that teens deprived of texting would simply substitute another method of communication - - talking, for instance. As it turns out, a significant minority will not. They will behave instead, researchers report, the way people do when deprived of human contact.

Texts Define Friendship

The phone, in other words, is not merely a tool through which teens keep in touch with friends. It is the technology that defines their social circle. If they cannot text someone, that person may as well not exist.

Still, I am not criticizing the technology itself. Like most people of all ages these days, I find texting far too convenient to ignore -- although, to be sure, my usual quota is two or three texts a day, not seven an hour.

The trouble is that texting arose suddenly, not gradually: Originally included in mobile phones as a tool to enable service providers to spam their customers, it actually came to the U.S. later than most of the industrialized world. David Mercer, in his 2006 book “The Telephone: The Life Story of a Technology,” suggests that the popularity of the practice rose sharply when viewers were urged to text their votes for the winner on such television programs as “American Idol.”

This break from past practice was so radical that adults had no opportunity to work out from their own experience reasonable bounds for the young. And so the young, unbounded, freely created their own world, from which the old are largely excluded.

Fears of what young people might be like if left free to design the world have long been with us: Think “Lord of the Flies,” “A Clockwork Orange” or “Children of the Corn.” That imponderable I leave for others to weigh. I don’t believe that over-texting will create dangerous psychopaths. But it might create something else.