Tuesday, October 30, 2012

Tropical Storm Sandy: The Financial World’s October Surprise?

Even though this unprecedented meteorological phenomenon managed to shut down the New York Stock Exchange for two days now, is Tropical Storm Sandy the “October Surprise” the financial world is still ill-prepared to face?

  By: Ringo Bones

Who knew that it would too a tragic natural disaster – like Tropical Storm Sandy – to throw in an October Surprise that insurance companies, career politicians and the financial world is probably ill-prepared to face. With the austere fiscal environment of our post subprime mortgage crisis world still concerned about the economic slowdown and economic turmoil in the Eurozone countries, many economists are now wondering on what will be the lasting effect of a “Frankenstorm” like Tropical Storm Sandy. Will it be the NYSE shutdown, the “bipartisan” last minute 2012 Presidential Campaign suspensions, the financial and actuarial costs of those cancelled scheduled commercial flights in the US East Coast, or something far worse?

 Sandy managed to close down the New York Stock Exchange for two days now given that the last time the NYSE was closed for this length of time was back in 1888. The NY electric grid shutdown – make that the US West Coast Electrical Grid shutdown – will probably be Tropical Storm Sandy’s lasting legacy in the financial world as the NYSE top brasses are contemplating on opening for Wednesday, October 31, 2012 for the all-important end-of-the-month dealings – weather permitting of course.

As company earnings had been delayed due to the NYSE shutdown by Tropical Storm Sandy, it would be the insurance providers that will be hardest hit – business wise. With payouts projected to reach well over 20 billion US dollars in flood and storm damage claims alone, the up to 4 feet of seawater flooding the NYC subway system will probably paralyze New York City’s ability to go back to its normal business activity for a few days more. Not to mention that fire in Queens, New York that destroyed at least 50 homes will probably make a “mere” Category I Hurricane like Tropical Storm Sandy do as much financial devastation as Hurricane Katrina did – and the scores of deaths which are one death too many in its wake.

Friday, October 19, 2012

Black Monday’s 25th Anniversary: No Financial Precedents Learned?

Given that the financial regulators seem to have never learnt anything from the Black Monday incident 25 years ago, are the global financial markets setting themselves up for a disastrous financial precedent?

 By: Ringo Bones

For those old enough to remember the Black Monday stock-market crash back in October 19, 1987 – which is exactly 25 years ago today – it seems like the hectic financial adventurism of the go-go 1980s seems like a lifetime ago where the “Greed is Good” stock-market traders’ mantra seems to be the only preexisting moral law of the land. But why is it that most tenured economists see it as way less disastrous when compared to Black Tuesday – the October 29, 1929 crash that started the Great Depression?

Unlike the Black Tuesday crash of 1929 – where there was a picture of a bloke that was all over in the newspapers at the time who lost all of his money speculating on the stock-market and had to sell his luxury car in a hurry for a mere 100US dollars – the aftermath of the October 19, 1987 Black Monday crash didn’t spark traders and hedge fund managers to sell their Lamborghini Countaches and Ferrari Testarossas for a mere 1,000 US dollars to cover up their losses. As a high-school student at the time, I was so preoccupied with the surfeit of cool tunes – as diverse as Jazzy R&B pop to Heavy Metal – populating the Billboard 
Chart circa 1987. But what are the factors that triggered the 1987 Black Monday crash in the first place?

Before Reaganomics / Voodoo Economics became news buzzwords, the then US President Ronald Reagan initiated his self-styled economic reforms – with the help of his economics team of course – to supposedly undo the “stagflation” initiated by the Carter administration. Between the years 1982 to 1987, Wall Street traders blissfully rode on for what was for all intents and purposes an uncorrected 5-year long Bull Market. Other financial analysts point the blame at the newfangled computers that made for what passes at the time – high-frequency trading that stockbrokers and hedge fund managers had still a much steep learning curve to acclimatize. But most of them put the blame squarely on currency speculators since 1987’s Black Monday crash was eventually traced to currency trading in Hong Kong that spread to the London trading floor before triggering a crash at Wall Street on October 19, 1987.

It took the global markets two years to eventually recover to levels before the Black Monday crash. And surprisingly, the 1987 crash didn’t produce a Charles Merrill like figure who made a killing by selling off his or her stocks months before the 1987 Black Monday crash. To the uninitiated, Charles Merrill was the financial whiz who made a killing by selling his stocks months before the Black Tuesday stock-market crash of October 29, 1929. Stockbrokers and traders who heeded Charles Merrill’s “musings” on his worries about rampant market speculation in the New York Stock Exchange around February 1929 also made a killing prior to The Great Depression.

Google’s Prematurely Released Earnings Figures: Disastrous Financial Precedent?

Though the famed search engine company had been struggling to make a profit for much of 2012, does the premature publication of its third-quarter earnings figures for 2012 setting the company up for a disastrous financial precedent?

By: Ringo Bones

2012 seems to be an off-year for Google – profits wise mainly due to the falling advertising rated as users use their mobile devices to use the famed search engine. But the greatest gaffe so far is when Google prematurely released their third-quarter earnings figures for 2012 that showed 20% profit fall. Sadly, it was released three and a half hours earlier than expected, way before the trading bell ay the NYSE was sounded to close the trading day for Thursday, October 18, 2012 – thus causing Google’s share prices to tumble by as much as 10%, their greatest single-day loss so far. Not only that, trading in Google stocks had to be suspended for two and a half hours to wait for stock-market correction in order to reevaluate the current true valuation of Google’s stocks. But are there any hard lessons to be learned in this premature release of earnings figures debacle?

As Google’s top brass blamed a financial printing firm for the blunder, they too had scrambled to a conference call to “massage” the mistake to avoid sparking a panic among their stockholders. The pandemonium the premature release of Google’s third quarter earnings caused in the New York Stock Exchange must have reminded everyone old enough to comprehend the Black Monday stock-market crash of October 19, 1987 – twenty five years ago today. Releasing your quarterly earnings figures too early is akin to releasing the day’s winning lottery numbers two hours before the draw day’s cut-off time. In sympathy to those whose lifesavings are currently invested in Google stocks, let’s just hope that the market’s correction mechanism will make the stock price freefall less disastrous than it seems.

Thursday, October 11, 2012

BAE Systems – EADS Merger: Not Economically Viable?

As the merger is slated to create the biggest non-American aerospace and defense firm, will the BAE Systems – EADS merger be deemed no longer economically viable in our current post-9/11 world?

By: Ringo Bones

As of Wednesday, October 10, 2012 came and went - the proposed merger of BAE Systems and EADS merger got cancelled due to an insurmountable political deadlock due to competing national interests between France, Germany and the UK. Given that colossal aerospace / defense firms had been no longer economically viable since the austere fiscal environment of the post-Cold War early 1990s, never mind in our current post 9/11 world where the West is currently engaging a “War on Terror” on groups with a nonexistent military-industrial-complex. Will the BAE Systems – EADS merger to form a Eurozone-based super aerospace/defense firm to rival that of the United States’ Boeing and Lockheed-Martin be not only no longer economically viable but seem like an anachronism as well?

Prior to the Wednesday, October 10, 2012 deadline came and went, extensions may be necessary as talks over the 30-billion US dollar BAE-EADS merger got stuck over government ownership and control as the stakes of the powers-that-be – namely France, Germany and the UK – is simply too lucrative to have smoothly resulted in a power-sharing (profit-sharing?) compromise that talks are currently “close to collapse”. Given the difficulty of the regulatory hurdles that need to be addressed, is such a merger even necessary from a commercial sense?

The European defense market is no longer the future, says the top brass of both BAE and EADS involved in the merger. And it seems that the current buzzwords of “declining defense markets” seem like a euphemism for the Afghan Taliban and Al Qaeda doesn’t have a preexisting aerospace industry that needed to be destroyed for a profit, never mind a preexisting military-industrial-complex. Even as far back during the 2010 Farnborough Air Show, Louis Gallois – chief executive of EADS – already reached the realization that the Eurozone defense market is no longer the future as he prepares to make plans to sell the then recently rolled-out Airbus A400M Military Transport to the American defense market after the A400M’s European funders decided that they have no interest anymore to procure the Airbus A400M Military Transport.  So if ever a BAE-EADS merger ever comes to pass, it may have to woo whoever’s in charge of the US Department of Defense’s procurement in new military hardware  - namely high capacity long-range military transport planes and unmanned drones - in order to stay economically viable in the austere fiscal environment of the post-9/11 world.

Friday, October 5, 2012

M-Pesa: Kenya’s Largest Bank?

With 28,000 branches across Kenya, does M-Pesa truly qualify as Kenya’s largest bank?

By: Ringo Bones

Believe it or not, only a few Kenyans have a permanent bank account because most of them probably can’t set aside the minimum amount of cash needed to open and maintain one and that said amount of cash is better spent in starting up a small business. But why is it that almost every Kenyan who owns a mobile phone had at least once availed the services of M-Pesa?

To the uninitiated, M-Pesa is an online service system that allows Kenyans with a mobile phone or a PC connected to the internet and an M-Pesa account to be able to send and receive money and be able to pay their utility bills online. As a money transfer scheme, it looks like M-Pesa is running unopposed in Kenya. And despite having 28,000 branches across Kenya, M-Pesa can’t be considered a bank in the strictest sense unlike its traditional bricks and mortar counterpart.

Started back in 2007 as a brainchild of Safaricom to test whether the fledgling high-speed internet infrastructure of Kenya is viable for e-commerce use, M-Pesa has since then became a runaway success in a country where most people with regular source of income don’t have bank accounts but possess their own mobile phones or can access the internet. And despite the perennial problems of cable theft which could disrupt local internet traffic for days on end, Kenyan’s seem to pledge allegiance to M-Pesa as their online bank of choice.

And by October 2012, M-Pesa could be made more secure because the Kenyan communications commission will ban counterfeit mobile phones to avoid e-commerce fraud that could potentially ruin every Kenyan’s trust of the M-Pesa system. This move by the Kenyan government not only safeguards long-term M-Pesa users, but also could attract tourists visiting Kenya to potentially avail the online payment conveniences of M-Pesa. 

Monday, October 1, 2012

Glencore - Xstrata: 2012’s Biggest Corporate Merger?

Though still in the negotiation stage, will the Glencore – Xstrata corporate merger be the biggest one for 2012?

By: Ringo Bones

At the moment after their latest meeting, the board of the mining group Xstrata is recommending their shareholders to back the Glencore merger. But shareholders will have to wait later this October to vote in their decisions. Currently estimated at 80 billion US dollars the slated corporate merger could be the biggest one yet for 2012 – it is even worth more money than the recent Facebook IPO. And given the scale of such merger, does it signal that the global economy is already passed the worst effects of the recent global economic slowdown?

Given the global mining sector is currently – more or less – in the doldrums – due to the recent economic slowdown of Mainland China, the merger of the mining giant Xstrata with the natural resource and commodities trading house Glencore seems to mirror that of the bullish economic climate of the go-go 1980s. There’s a distinct possibility that such merger could really happen because accountants from both Glencore and Xstrata are already examining each other’s books to check the extent of how much the figures are “fudged”. One of the principal underwriter’s of the Glencore – Xstrata merger is the Qatari Hedge Fund group. And if both parties manage to tackle existing regulatory hurdles, this could indeed be 2012’s biggest corporate merger.