Can Abenomics Save Japan’s Economy?

After the landslide victory that elected the LDP party into the Japanese parliament, will reelected LDP head Shinzo Abe be able to revive Japan’s two-decade long stagnant economy? 

By: Ringo Bones

Former Japanese P.M. Shinzo Abe’s sweeping return to power during the recent Japanese elections has been deemed a breath of fresh air to the Japanese economy stagnant for two decades now. Abe’s proposals for reviving the Japanese economy had already been dubbed as “Abenomics” and many tenured Japanese economists already have high hopes that it could end the two decade long Japanese economic stagnation. 

For all intents and purposes, Abenomics is just Keynesian Economics tailored in a way to end Japan’s two-decade long economic stagflation. Newly reelected Shinzo Abe already promises to print more money and spend it too boost the lagging infrastructure sector. Abe’s proposal for the Bank of Japan to print more money despite of the projected 2 percent resulting inflation could benefit Japanese exporters who had been hurt by the super-strong yen.

Even though Abe inherited a split parliament, a stagnant economy, the world’s biggest debt of any industrialized country which stands at twice the country’s own annual GDP, the Japanese economy recently slipping back into technical recession back in November and the country still reeling in from the earthquake and tsunami that caused the Fukushima nuclear power plant meltdown back in March, 2011, Tokyo stocks soared 1.6 % during Monday’s (December 17, 2012) opening over the news of Shinzo Abe’s reelection. Can Abenomics be the key in tackling all of this?

Shinzo Abe’s promise to fix the now third largest economy (sadly, Japan was overtaken by The People’s Republic of China as the world’s second largest economy this year) by allowing the Bank of Japan to print more stimulus money has its critics too. During the past few years, flushing newly printed money to the Japanese economy did manage to devalue the yen long enough for the benefit of the Japanese export industry seems to work only for a few days or so before the weakened yen became super-strong again.  

Weather Derivatives: Cashing In On Climate Change?

Even though almost all corporate entities and government institutions now recognize the “financial risk” posed by climate change, are weather derivatives just a way of cashing in on the said risks?

By: Ringo Bones

Back in November 20, 2012, Philippine President Benigno Aquino has just signed into law a one billion peso (24 million US dollar) “Survival Fund” to counteract the effects of climate change. The law often referred to as the “Philippine Climate Change Insurance” by the local press is meant to fund climate change adaptation projects since the Philippines is battered, on average, about 20 typhoons a year that cause large-scale deaths and damage to the nation’s agricultural sector says Climate Change Commission deputy head Mary Anne Lucille Sering. It would also be used to guarantee a kind of climate risk insurance for farmers in case of crop damage, she added.

While underwriters of the bill say it is pegged or indexed with the ebb and flow of the Makati Stock Exchange – at least from an actuarial perspective as a kind of “weather derivatives”. With corporate entities and government institutions now recognize the financial risk posed by climate change – are weather derivates, or related climate change risk insurance policies, a sound fiscal decision to mitigate the risks of climate change – or is this just a way for corporate entities and insurance companies to “cash in” on the risks posed by climate change?

Contrary to popular belief, weather derivates differ from a true-blue climate change risk insurance policy because a typical climate change risk insurance policy generally provide protection against low probability, big catastrophic events like hurricanes and tornadoes while weather derivatives are more often than not used to cover more mundane weather events like a heating oil company hedging against having a warmer-than-expected weather. By definition, a weather derivative is a financial instrument that seems like an insurance policy but is more like an option. Most existing weather derivatives are based on how much the temperature goes above or below 65 degrees Fahrenheit, but also, weather derivatives can be based on anything measurable, like rainfall and snowfall levels.

Given that weather derivatives and its corresponding options had been traded on the Chicago Mercantile Exchange since 1999, many see it as a way for big companies to “cash in” on the weather related vagaries posed by climate change – especially given that one of the early corporate pioneers in trading weather derivatives was the “iffy” Enron Corporation through its Enron Online unit. Whether it is a truly long-term economically viable way to insure one’s assets against the vagaries of climate change risks is often highly debatable at best.

Unlike your “garden-variety derivatives”, weather derivatives don’t have a standard model in valuing it – like the Black-Scholes formula for pricing European-style equity options and similar derivatives. This is primarily due to the fact that the underlying asset of weather derivatives is non-tradable which violates a number of key assumptions frequently associated with the Black-Scholes Model. Typically, weather derivatives are priced in a number of ways: via business pricing, historical pricing or burn analysis, index modeling, physical models of the weather and a more superior approach through a mixture of statistical and physical models.   

Will The Looming Fiscal Cliff Send America Back Into An Economic Recession?

With 600 billion US dollars worth of taxes and spending cuts at steak, can newly reelected President Obama reach across the partisan divide to avoid a looming economic disaster?

By: Ringo Bones

With reelection results revealing a now highly politically polarized America, solving the looming Fiscal Cliff by reaching across the partisan divide between Democrats and Republicans could well be newly reelected U.S. President Barack Obama’s greatest challenge for his second term. After all, he only has less than two months to reach a “bipartisan” consensus with the Republican controlled Capitol Hill before the January 1, 2013 deadline. Given that executive powers seep very quickly away during the first year of every reelected US president, can President Obama act in time to avoid the U.S. economy from careening into the deep chasm of the looming Fiscal Cliff?

Even just after a few days of President Obama’s reelection, Wall Street already got spooked that he may not be able to reach a bipartisan compromise with the Republican controlled congress before the January 2013 deadline. The DOW retreated back to levels unseen since July 2012 – losing gains made since then. The U.S. government budget’s 2013 Fiscal Cliff – also known as The U.S. Fiscal Cliff – refers to the effect of a series of enacted legislation, which if left unchanged, will result in automatic tax increases, spending cuts and a corresponding reduction in the budget deficit. These laws include tax increases due to the expiration of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 – not to mention the spending reductions / sequestrations under the Budget Control Act of 2011.

Given that leading credit rating agencies already threaten to reduce America’s Triple-A credit rating if President Obama can’t reach a compromise with Republicans controlling Capitol Hill to avert the looming Fiscal Cliff, it could well be the greatest challenge of the president’s second term in office – both economically and politically. President Obama and the rest of the Democrats will only reach a compromise with the Republicans only if there are corresponding tax increases to the top 1 percent who control over 90 percent of America’s wealth. Sadly, Republican’s are always abhorrent about taxing the richest 1 percent given that it could ruin the private sector’s job creation potential for 2013. But if both parties can’t agree to formulate a solution to solve the looming Fiscal Cliff, the U.S. unemployment rate could rose back to 9 percent or higher and America would be plunged back to an economic recession that could be deeper that the one back in 2008.     

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.

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.

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.

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. 

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. 

The Occupy Wall Street Protests One Year On

Billed as the stance of the 99% against the richest 1% out to financially ruin everyone’s lives, does the Occupy Wall Street Movement and similar ones like it elsewhere across the world established a lasting legacy?

By: Ringo Bones

A year or so ago, a line was drawn in the sand where 99% of the world’s poverty stricken working class finally had enough with their lives being financially manipulated by the richest 1% with impunity. The moral hazard of this “business arrangement” is bound to explode thus began the Occupy Movement – which the most famous of which is the Occupy Wall Street out to make the richest 1% of the world’s financial center to be more accountable to the welfare of the poverty stricken 99% that was enslaved by their scheming and dealing; But is there a lasting legacy being established of the global Occupy Movement as it celebrates its first anniversary?

Well, it took the Anti Nuclear Movement 30 years to finally get unsafe nuclear power plants to be shut down so each and every member of the occupy movement has a lot to be hopeful about. Although sometimes I wonder if any of them had something to do with the recent outing of HSBC and Standard Chartered as prime money laundering go to banks for rogue states like Iran or criminal organizations like the various Mexican Drug Cartels. Nonetheless, everyone at the Occupy Movement still sticks by their core mission of ending the global financial status quo that is increasing the disparity between the financially enslaved 99% and the richest 1% who seem to operate their businesses outside of the rule of law. The more the financial world goes on operating the way it has done before, the more reason will Occupy Wall Street and similar movements have to go out and protest.

QE-3: A 21st Century “New Deal”?

Recently given the green light by FED Chairman Ben Bernanke, will QE-3 – or Quantitative Easing part 3 finally trigger a healthy American economic recovery?

By: Ringo Bones

With a slated budget of 40 billion US dollars a month, the latest QE-3 or Quantitative Easing part 3 recently given the green light by US Federal Reserve Chairman Ben Bernanke is now seen as the 21^st Century equivalent of the Great Depression era New Deal that could finally trigger a healthy American economic recovery and create much needed jobs. Unfortunately, the US Republican Party, who are still obsessed with their obstructionist policies who collectively voted to kill-off President Obama’s latest job stimulus bill, sees such “unconventional” or Keynesian style economic bailout as nothing more than a mere “ploy” to get President Obama reelected. But is there really a “dark side” to large-scale “money from nothing” quantitative easing?

Even though the previous two quantitative easing programs are not as ambitious as the new one, one of the Obama administration’s success stories is now the renewed economic health of the insurance firm AIG – which a few years ago was seen as an “economic black hole” insatiably devouring stimulus money. Proof that Keynesian Economics still works – as opposed to fiscal austerity? The 40 billion US dollar a month QE-3 is primarily aimed at purchasing “bad mortgages” that triggered America’s economic crisis in the first place during the tenure of George W. Bush. Unfortunately, prolonged quantitative easing for the purpose of economic stimulus could further trigger inflationary pressures and could further devalue the US dollar and it is still uncertain whether the latest round of this “money from nothing” quantitative easing could finally lower the unemployment rate in the United States from the 8% mark.   

Will Mainland China’s Economic Hard Landing Trigger A Deeper Global Recession?

As the Chinese Premier reassured us in his keynote speech in the World Economic Forum in Tianjin that Mainland China can still maintain a stable economic growth for years to come, but will an economic hard landing deepen the current global recession?

By: Ringo Bones

As the Chinese Premier Wen Jiabao reassures every globalization savvy entrepreneur that his country – currently the second largest economy in the world – can still maintain stable economic growth for years to come in a keynote speech at the World Economic Forum in Tianjin, many top tenured economists are somewhat worried that a Mainland Chinese “economic hard landing”, that is a sudden downturn in domestic demand and production, could trigger a deeper global economic recession. But are fears of the global consequences of a Mainland Chinese economic hard landing exacerbating the Eurozone crisis and the still fragile American economic recovery truly justified?

Well, the numbers don’t lie. Back in September 10, 2012, Mainland Chinese economic data shows weaker than expected trade where the Mainland’s imports dropped 2.6% - fuelling the fears that the projected 7.5% economic growth for 2012 might not be met. Despite of the pessimistic economic data, the Chinese Premier in his keynote speech at the Tianjin World Economic Forum calls for fresh economic stimulus via tax cuts and boosting domestic consumption to hit the projected 7.5% economic growth for 2012. The said measures could also prevent a dreaded economic hard landing for the Mainland Chinese economy, although neither the Chinese Premier Wen Jiabao nor the top economists around the world assume that such measures could return Mainland China’s double-digit annual economic growth back before the global credit crunch. In the very least, this rather “stopgap” measure only maintains the preexisting foreign investor confidence levels for Mainland China.

The Apple-Samsung Lawsuit Saga: Titanic Corporate Battle?

Given that all the money recently spent by these two tech giant goes to high-priced copyright lawyers, will the Apple v Samsung case eventually stifle consumer tech product innovation? 

By: Ringo Bones 

Back in August 25, 2012, a US jury in a California court decided that South Korea based tech giant Samsung should pay Apple 1.05 billion US dollars for copyright infringement – i.e. the jury found Samsung guilty of copying critical features of rival Apple products for use in manufacturing their mobile smartphone and tablet computer line – for profit. Sadly, it is we – the consumer – who are bound to loose in titanic corporate battles such as these that involve copyright infringement and arcane patent laws, because the expense of such courtroom dramas are directly passed on to us. 

Money that should have been spent on innovation – as in research and development or R N’ D - by the two tech giants are now destined to be spent on high-priced copyright lawyers. And in the complex world of patent law legalese, money merely paid to a high-priced copyright lawyer doesn’t have any return of investment. For all intents and purposes, it is a dead end investment. Thus consumers could be facing higher-priced mobile smartphones and tablet computers during their holiday shopping sprees right up to Christmas.

But here in the Far East, Samsung holds the lion’s share of the market in mobile smartphones and tablet computers because on average, their products only cost one third that of equivalent Apple i-Phones and i-Pads - especially here in Singapore and Hong Kong. Sadly, by the close of the Monday August 27, 2012 trading day, Samsung’s stocks took on a nosedive that resulted in 12 billion US dollars being wiped off the South Korea based tech giant’s value. 

Was There An Economic Trickle-Down Effect of the London 2012 Olympics?

Economists say it may yet be too soon to tell, but will there ever be a real economic trickle-down effect of the London 2012 Olympic Games to the host city’s economically disadvantaged residents? 

By: Ringo Bones 

Ever since the modern Summer Olympic Games went commercial back in 1984, many a host city has been relieved of the insurmountable burden of debt after hosting the event. But have economists ever wondered – or even in their wildest dreams contemplated of doing a study - if there ever was a real economic trickle-down effect of hosting the Olympic Games to the host city’s most economically disadvantaged residents? 

As the London 2012 Olympics came and went, many of the world’s top economists have wondered whether Stratford East London had truly been economically reinvigorated by the recent event. The area has been recognized not only as London’s most ethnically diverse neighborhood but also the most economically least well-off. Yet, almost all of the under-35 population remains hopeful that the recent Olympic Games will eventually reinvigorate the small businesses of Stratford East London. 

But older residents who have witnessed first hand the Hugh Grant / Julia Roberts Notting Hill debacle fears that Stratford East London, and other economically least well-off parts of London, will experience the brunt of gentrification during the next few years. Almost all Brazilian immigrants who are former Notting Hill residents can no longer live there because they have been “gentrified out” by high property prices. Looks like the gentrification issue will make the unhealthy product sponsors McDonald’s, Heiniken and Coca Cola the more lasting economic issue of the London 2012 Olympics.  

Post Lock-Up Facebook Stocks: Still Economically Viable?

With its stock price now about 50% of what it was during its initial May 18, 2012 IPO, does Facebook still represent an economically viable part of one’s stock portfolio? 

By: Ringo Bones 

As the post lock-up period trading of Facebook stocks now values it at a bit above 50% of its May 18, 2012 initial IPO flotation period, it seems that the famed social media network has been “unfriended” by corporate bigwigs, directors and seasoned stock market investors as the 90-day lock-up period expired back in August 16, 2012. But will everyone taken by the irrational exuberance of Facebook’s May 18, 2012 IPO be dumping their stocks like its going out of fashion? 

To the uninitiated in stock-market investing, lock-up period is the length of time that prevents shareholders unloading their stocks to the market so close to the IPO floatation period. Lock-up period laws are primarily designed to prevent the stock market from being swamped with pre-owned shares whose value may or may not rise by the end of the lock-up period. 

At present, Facebook still really has a lot going for it because over 7% of the world’s population are using / accessing their Facebook accounts via mobile devices and/or mobile smart-phones. Despite share prices on the decline, the lucrative mobile adverts on Facebook are still economically viable for the famed social media network. But seasoned investors’ concerns over the earning potential of Facebook justifying its 38 US dollar a share IPO will probably occupy their minds. After all, it is not that long ago that everyone was taken for a ride of the irrational exuberance of the dot com boom of the late 1990s. 

Standard Chartered: Standard For Money Laundering?

Though the investigation is still on-going, does the recent New York State Department revelation on the extent of Standard Chartered’s secret money laundering scheme with Iran undermine everyone’s already shaky trust on banks and other financial institutions? 

By: Ringo Bones 

Despite denying the allegations, shares of standard chartered drop as much as 15% in London trading due to the recently revealed reports by the New York State Department that Standard Chartered – their New York branch - did more than 60,000 secret transactions worth over 250 billion US dollars over the last 10 years. Even more damning is the evidence showing that Standard Chartered also actively hid proof of dealings with Iran in clear violation of the established economic sanctions by the US government. Given the evidence uncovered so far, will Standard Chartered’s dubious code of conduct undermine our (as in we, the 99% with a large chunk of our pension funds probably tied-up in this financial scheme) trust in banks and other financial institutions? 

Sometimes I wonder if this financial institution already got reputational risk insurance since Standard Chartered’s apparent lack of due diligence in doing their financial transactions had created conditions in which fraudulent dealings occurred during the last 10 years in clear violation of the federal government’s established economic sanctions against a designated rogue state like Iran. Truly - an unprecedented example of a moral hazard that could stain the reputation of banks and other financial institutions in the austere fiscal environment of our post global credit crunch world. 

And Standard Charterd’s clear breach of economic sanctions against Iran could have far reaching financial consequences because even though the bank is UK based – it does 2/3 of its business here in South-East Asia which could cause a trading turmoil not seen since the Asian financial crisis of 1997. And given the already revealed evidence by the New York State Department, this financial cloak and dagger doesn’t have a semblance of a happy ending whatsoever. 

HSBC: The World’s Money Laundering Bank?

As the current US Senate investigation continues to uncover HSBC’s been laundering money of dubious clients, will Europe’s largest bank be now known as the: “World’s money laundering bank”? 

By: Ringo Bones 

Well, I was really surprised when the BBC aired a news item in July 17, 2012 that uncovered that HSBC – the: “World’s local bank” – according to their adverts are engaging in money laundering for over ten years according to a recently released report by a US Senate investigation. A US senator who led the investigation even said that the corporate culture at HSBC is “pervasively polluted”. The bulk of the money laundering investigation primarily focused on HSBC American arm laundering the drug / narco profits of Mexican drug cartels – which was recently uncovered to be as much as 7-billion US dollars between 2007 and 2008. Will this recent money laundering investigation be the ruin of the “world’s local bank”? 

Given that HSBC primarily deals with private clients, the recent US Senate investigation could be quite damning to the reputation of Europe’s largest bank due to the fact that the investigation also uncovered that HSBC’s regulators failed to take action. Other “suspicious funds” are also under investigation – including suspected Al Qaeda sourced funds that date back 10-years ago and scores of “secret financial dealings” with states currently under UN sanctions like Iran and Syria. 

Facebook Adverts: A Waste of Money?

Are companies wasting their money buying Facebook adverts given that the majority who chose to click the “like button” are either fake Facebook profiles or users who have no interest in the company’s products or services whatsoever? 

By: Ringo Bones 

A recent investigation recently uncovered by the BBC had recently uncovered a somewhat sobering fact about companies paying good money to buy advertising on Facebook and other leading social media. Majority of users who chose to click the “like button” are either fake Facebook profiles or users who have zero interest whatsoever on the company’s products and services being advertised – i.e. just clicking the like button at random. But does this mean that companies buying advertisement time on Facebook and other leading social network sites are just really wasting their money? 

A recent investigation done by the BBC shows that a typical company buying a Facebook advertisement space has on average gets 3,000 like clicks during the first 24 hours of their ads being uploaded. Companies based on the United States and Europe - some that don’t even have brick and mortar shops in the more “austere” parts of South-East Asia and Africa – usually still get a lot of like button clicks from these places. Is this really a tad suspicious from an I.T. standpoint? 

Sadly, the powers-that-be running Facebook still doesn’t give a rat’s ass about fake profiles and users because these fake Facebook users still fatten the famed social network’s bottom line. Unless these fake Facebook users violate the social network’s established community standards – they will more likely continue to opt to choose to click the like button at random. Like are there really high-end audio enthusiasts in the Sudan who also share my passion on single-ended triode amplifiers?

Barclays LIBOR Rate Manipulation: In Banks We Trust?

Though this somewhat riveting financial news story is still developing, will the 453-million US dollar fine and subsequent civil lawsuit against Barclays for interbank lending rate manipulation herald a more transparent banking system? 

By: Ringo Bones 

The recent LIBOR Rate manipulation scandal first came to light to us in the general public when the major news providers did an investigative news reporting on Barclays being fined 453-million US dollars back in June 28, 2012 for manipulating the interbank lending or LIBOR Rate. Whether this will lead to increased transparency to the world’s banks and other financial institutions is still open to debate since this recent “financial scandal” could yet become another long-winded economic / financial epic akin to the recent Greek Debt Crisis. 

Leading tenured economists now cite that the very way the LIBOR Rate is regulated is very much outdated – compared to back in 1984 - in our somewhat austere economic climate of our post 2008 Global Credit Crunch world. But Barclays admitting of the “financial master stroke” of LIBOR Rate manipulation looks suspiciously criminal from the FSA’s point-of-view. 

By July 2, 2012, Barclays chairman Markus Agius – who held the position since 2006 – resigns as the rate fixing scandal ripples throughout the financial world. The next day, Barclays CEO Bob Diamond resigns after accusations of using Markus Agius as a “fall guy” on the LIBOR Rate fixing scandal became headline news in the financial world. And by the way, Markus Agius is also the head of the UK Banking Association. As the Barclays’ “top brass” reshuffles, the FSA cited that Barclays conduct was so serous and widespread that the agency also placed the RBS and HSBC under their watch list for complicity with Barclays on the LIBOR Rate fixing scandal. So what is this “LIBOR Rate” anyway? 

LIBOR Rate is defined as the rate at which an individual Contributor Panel bank could borrow funds, where it is to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to the 11:00 AM London time deadline. The rate at which each bank submits must be formed from the banker’s perception of cost of funds in the interbank market. The London Interbank Offered Rate is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. It is usually abbreviated to LIBOR or Libor, or more officially to BBA Libor for British Bankers’ Association Libor or the trademark bba libor. It is a benchmark – along with the Euribor – for interest rates all around the world. 

LIBOR Rates are calculated for different lending periods – overnight, one week, one month, two months, six months, etc. – and published daily at 11 AM London time by the British Bankers’ Association. Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to – and typically higher than – the Libor. The current procedure of determining the LIBOR Rate was introduced back in 1984 when it became apparent that an increasing number of banks were trading actively in a variety of relatively new market instruments – namely: interest rate swaps, foreign currency options and forward rate agreements. 

Back in July 4, 2012, then Barclays CEO Bob Diamond declared that he is not resigning without a fight and that he may divulge evidence that UK financial regulators – including the Bank of England’s deputy governor Paul Tucker of giving Barclays the carte blanche – i.e. full discretionary powers – to reduce the somewhat high LIBOR Rate that was strangling the UK economy during their “wink-and-nod” laden phone call. Bob Diamond is due to be “grilled” by the MPs whether the Bank of England and Whitehall officials will be implicated in the recent LIBOR Rate manipulation scandal is yet to be determined. While the UK’s Serious Fraud Office (SFO) launches its own LIBOR Rate manipulation investigation.  

At present, the LIBOR interbank lending key rate plays a major role in global financial markets. But many tenured economists cite LIBOR as an anachronism and it doesn’t really work in practice. And the oft-cited proof of this was the global market events that lead to the 2008 Global Credit Crunch. Does the LIBOR Rate need to be reformed or to be replaced entirely by something more suitable to our increasingly globalized financial markets?