Monday, May 31, 2010

No Soup For You!

They wait nervously in line curling behind them outside the shopfront. A straight and orderly queue. No pushing. No standing too close to the counter, or unnecessarily entering the kiosk before one's moment. Eyes wandering everywhere but the server. Whatever you do: Don't stare. No smelly perfumes or wisecracks. And no idle chat or loud laughter while in line. "What's on today?", the young Greek -looking girl discreetly whispers into her Italian-looking friend's ear, careful not to offend the Soup Nazi's sensibilities, the wrath of which has the most dire consequences for the soup-needy and soup-desperate alike. "Mediterranean Bean...I think...", comes the reply out of the corner of his mouth, making like a ventriloquist. The customer in front takes his bag, shuffles left to the cash-register as if mid-waltz, and politely hands the server his crisp ten-dollar bill. "NEXT!" She steps forward. His gaze focuses upon her, she hesitates, "One large soup, please..." she blurts out finally....and errrr ummm do you accept Travelers Cheques..?!?!" He stops ladling. Nostrils flare. Eyes narrow. "WHAT??? Travelers Checques...Where do you think you are....GREECE?!?! NO SOUP FOR YOU!!" "NEXT!". Her friend follows behind as they depart empty handed. Now, the American steps forward: "One extra-large soup please....."

Thursday, May 27, 2010

Japan Watch: An Important Emergent Trend

There is a most troubling trend afoot in Japan. No, it is not the further perplexing descent of JGB yields, the failure of a newly appointed Finance Ministers to survive longer than the time it takes to slow-roast a nice Gigot, the SFP Value Realization Fund's attempt to block Matsuya's takeover defense provisions despite their inexorable slide into the sunset, or the lack of a third-handle on the Yen. Rather, I refer to the peculiar practice of merged companies failing to find an appropriate moniker, resulting in tortured names for time-honoroured companies that resemble legal partnerships, or, even worse, the adoption of mneumonic abbreviations that could be mistaken for the chemical designation of food colouring, or a UN NGO.

I cannot say when it started, but bank mergers were perhaps first. Recall the 1990 merger of Mitsui and Taiyo Kobe Bank into, yes, Mitsui-Taiyo Kobe Bank which morphed, briefly into "Sakura"before  melting into Sumitomo. And of course Sanwa, Tokai and Toyo married to become UFJ, and like the Monty Python knight with "only a flesh wound", survived phagocytosis by Mitsubishi to yield "Mitsubishi-UFJ". The venerable Takugin, early banking casualty of the Bubble, partly dismembered and disemboweled lives as Sapporo-Hokuyo.  Chuo-Mitsui (Trust Banking), Sumitomo-Osaka (Cement), Hokuetsu-Kishu (Paper), GS-Yuasa (Batteries), Isetan-Mitsukoshi (Retail), Konica-Minolta (Precision), Kyowa-Kirin (Pharma), Sumitomo-Mitsui (Insurance), Maruha-Nichiro (Marine Prods), Daiichi-Sankyo, Dainippon-Sumitomo (both Pharma) are further examples of corporate diplomacy insuring that the preservation of tradition, organizational honor and management face trumped any meaningfully rational attempt at branding.

Some have rebranded when the "Wa" has been disturbed and reputations irreparably tarnished. Daiwa Bank, which not blew through its capital (and then some!) but was the residence of Toshihide Iguchi, one of the first to hide mammoth-amounts of [losing] trade tickets in desk, became "Resona" when the government merged it with Nara, Asahi, and Kinki-Osaka Banks. Ditto the merged near-bankrupts Nissho Iwai and Nichimen who agreed upon Sojitz, (meaning "Double" or "Twin") presumably to demonstrate it was a merger of financially pathetic equals.  However, the most notorious was the creation of Aozora (literally "Blue Sky")and Shinsei (meaning "New born") out of the rotting putrid carcasses of LTCB and NCB.

Cellular giant KDDI - the merger between the KDD and DDI - could be forgiven since both firms were themselves acronyms to begin with, and the merger resulted ostensibly in major savings by eliminating 2 upper-case "D's" (presumably one "D" from each for the sake of equality). Seven & I, the merger of retailing affiliates Ito Yokado and Seven-Eleven were ill-advised by their branding consultants (if they had one), for the result is an alphabetic number with an ampersand and a dangling consonant. Ummm, yeah.

J-Front raised my eyebrows, choosing unusually to ditch their legacy parents of Daimaru and Matsuzakaya (the joke of the price-weighted Nikkei 225 in 1990). The attempt was valiant, but there is something unsettling about the result, at least in English, for "Front" while possibly meaning store front, or two battle fronts, commonly has more nefarious connotations as in a fake or dupe. Clearly they didn't go out to any English focus groups on this one. Kawasaki & NKK Steel's merger into JFE was more successful in jettisoning the baggage of legacy for the future - whatever may be implied by JFE (Japan Ferrous Enterprise?). But somehow the acronym seems to fit the technical nature of the steel industry.

JX Holdings is entirely more mysterious, even sinister, with the association popping into my head being the evil Baron Silas von Greenback, the toad playing foil to Danger Mouse and Penfold. It was the result of Nippon Oil and Japan Energy which itself arose from Nippon Mining's earlier acquisitions. I suppose it IS economical in this age of the slimmed-down new normal. Heck, only two letters! Imagine the savings on stationary, business cards, and more importantly, signage.
But the coup d'grace goes to the insurance sector, where imagination and vision has always been in short supply. Where there were thirteen there are now four. Mitsui F&M and Sumitomo F&M, became yes Mitsui-Sumitomo, whereafter they joined with Aoi (itself the result of a merger between Dai-Tokyo & Chiyoda) and Nippon Life affiliate Nissay Dowa, to become, yes, you guessed it:  "MS & AD Holdings".  And since it is important not to rock the boat, "Nippon F&M who only a few years ago bedded Koa F&M, the progeny imaginatively known as "Nippon Koa", decided to merge with Yasuda ("Sompo" after gobbling minnows Taisei and Nissan F&M) to become none other than "NKSJ Holding".  

Sunday, May 16, 2010

Financial Mother Goose

Hello all. It is a lazy Sunday. And so I thought I'd share some amusement between finishing a great read "My Father's Island" (which only took six years to get around to finally reading from Galapagos trip), and the springtime yard work which awaits...

Huge diddle, diddle,
The CFO fiddles,
The 'counts to be released very soon;
The CEO laughed
To see the report,
Knowing his share price will be launched to the moon.


"Ha! Ha! quant man,
Have you any tools"?
"Yes sir, yes sir,
Three disk fullz";
"One for my trading",
"One to entertain",
"...And one which will be the cause
Of my firm's financial pain."


I saw a man a-trading,
Trading on the CME;
He thought he was so clever
When his winnings he could see !

He dreamed of comfits in his cabin,
And Red Ferrari's he might hold;
The clothes which would be made of silk,
And buckets filled of gold.

But short four lacks of silver
And a billion of the dollar
levered huge, Without a stop,
Felt like concrete upon his collar.

So the man-a-trading,
now empty was his sack;
Said to his investors,
"Just one more - I'll make it back!"


Old Warren Buffett
Sat on his tuffet,
Eating the turds that others threw away;
Along came a prosecutor,
Querying bogus finite deals and ummm errrr,
Frightened Mr Buffet ran away.

[ed.: leaving Ferguson to the wolves...]


Old King Coal
Was a very cheap fuel,
And a very cheap fuel was he;
He smoked from all pipes,
dug up from earth's bowels,
setting tons of CO2 free.
Each burner, he had a riddle,
And a very fine riddle had he;
"Is there nothing that's clean and as cheap??!?" ,
Oh, there's none so rare,
As can compare
With old King Coal and his cheapness thee!


A Trend is like an onion:
You taste it with delight;
But when it's gone you wonder,
Whatever made you bite


This little PIIGy was slammed by the market;
This little PIIGy sat tight at home;
This little PIIGy made some budget cuts;
And this little PIIGy made none;
But this little PIIGy cried, "ouch, ouch, ouch!
All the way to the IMF's home.


The SEC doesn't keep, the safety of peeps
in sight, in order to defend them;
They left their charges alone, so they could hone,
multitudinious ways to fleece 'em.

The SEC didn't peep, since they were asleep,
only dreaming of frauds committed;
But when they awoke, they found it not a joke,
For the customers were still being pilfered.

Then up they took, their little crook,
Determined for to find them;
They found them indeed, but it made their heart bleed,
For Goldman had deleted all their e-mails behind them.

Please feel free to contribute your own....

Tuesday, May 11, 2010

Awe and Wonderment (A Brief History of)

On October 19, 1987, I was driving home from work looking across the bleak industrial landscape beneath the Pulaski Skyway, with its flat-black stealth paint absorbing the last light of the day. Traffic moved normally, despite the momentous events of the day. No one was stopping to leap into the abyss below. I'd printed a Quotron sheet detailing the carnage for posterity. Jim Grant was being interviewed on NPR (rightwing rage-a-holics were as yet non-existent, and the Beeb unavailable on US mediumwave). I'd stopped by his office to see him only weeks before, admiring his the large taxidermified bear which was the centre-piece of the main room. He spoke with characteristic clarity, analyzing not the cause, but rather articulating upon the awe and wonderment that define markets. I hear his words in my head as if they were yesterday.

The failure of the UAL buyout but a few years later caused a similar albeit less-manic panic, but HAL's cables had been disconnected, and L.O.R. disgraced. It was mostly the risk-arbs and short-premium option market-makers who were skewered. Wondrous awe was perhaps the most apt description again in fall 1998 when the Yen moved fifteen big figures overnight as puked carry trades presumably pushed other short yen positions over the get-me-out precipice. "Shit happens", it must said. So "Leverage is poison!" became the watchword, (for a year or two). The tech-wreck was tame and in slow-motion by comparison. Reality bit slowly, and in any event, the bear market in most stocks began in 1998. The melt-up was the thing most noteworthy. The tail end in fall 2002 displayed some pyrotechnics, but these were at the individual stock level, and (perhaps rightfully) reflected the portfolio craters once Enron, WorldCom, and Adelphia (to name a few) once filled.

Despite various spikes, dips and swoons, it wasn't until the summer of 2007 that "awe and wonderment" were again applicable. Crowded trades, too much capital, too much leverage, and evolved (not necessarily for the better) market mechanisms conspired impale many naive and/or overconfident quants to impale upon the proverbial hot-poker - one that remain stubbornly lodged in its orifice causing the largest continue delevering and amplifying the cascade for quarters more until being overshadowed by Peak Credit its profound private deleveraging and transfer onto the public balance sheet. This need not recounting since the blogosphere was fully oiled suffice to say the authorities prevented further feedback-induced cascade selling of position to make position that would have led to even deeper systemic financial insolvency.

Again, last week, "awe and wonderment" were apt descriptors of the action (or lack of it) in the S&P and Euro-Yen cross. More than 10 handles on each in a seeming vacuum during but a precious-few minutes. Ouch!, indeed. Most leave school thinking markets (of major instruments) more or less infinitely broad and deep, with multitudes of participant types - each with different opinions, yielding liquidity functions that draw out size deepening bids or offers the more price moves, thereby dampening volatility. Except when it doesn't. When "shit happens" as it inevitably does. We live in a brave new world. A world where black is white and where white can be black at the flick of a switch (or the triggering of threshold panic response in an trading strategy or risk-management algorithm). Predatory sniffers intensify their efforts. Normal buyers are forced to puke and become sellers. Further stops are triggered. More systematic trend-following programs are triggered initiating new positions in the same direction. Normal liquidity providers suspend activities. It is the market equivalent of Alan Shepard's six-iron drive on the gravity-less moon, prices untethered by buyers and sellers knowledgeable of their transactions. And one watches with awe and wonderment, at the edifice which has evolved, quite certain that this is the shot across-the-bow exposing the inherent systemic instability of the machines, who are only as good their young masters.

Friday, May 07, 2010

Sovereign Shock and Awe

I have long argued that preemptive action - in the form of a good (read: conservative) policy mix - should be the preferred route of governments. The upside vs. downside of pursuing pedal-to-the-metal policy mixes is now being witnessed (in Anglo-Saxon land). The marginal upside (and its positive externalities), on a probability-adjusted basis never, in my opinion, outweighed the risks to systemic stability engendered in neglectful policy pandering to the present at the expense of the future. Europe too must accept its culpability, unable as it was to resist the Siren's call of me-too spend-now, worry-later goosing. But that was then, and this is now. Democracy in complex modernity (again, not solely in Anglo-Saxon land) has failed to deliver prudent management of the State's affairs (for different reasons). Libertarians may still argue markets were not free enough, but the reality of prolonged markets distortions by mercantilists that man-slaughtered bond market vigilantism, should have been enough to seek redress through tighter fiscal policy, tighter monetary policy (as implied by the Taylor rule), or both. Regulatory neglect, across financial centres, too played its part in the [hopefully] now-regretful feedback loop.

But pre-emptive action - the brave type witnessed in Germany's VAT rise several years ago - has been almost wholly absent for almost three decades. Since the days of Carter's malaise speech, and his subsequent electoral spanking, pulling "a Mondale", that is, even suggesting that taxes might need to rise to prudently satisfy the financing requirements of the State's expenditure has a been a political death-wish. The people have got what they asked for (more for less) year-in and year-out - and they should be both mindful and regretful in their culpability. A few developed countries have (politically) managed better, but this is likely a vestiges of collective memory or austere protestantism. I have recognized this, and thus argued, in particular, that the US will not, indeed cannot, fix the problem until the proverbial wagon has lost its wheels evidenced by an exemplary Team America Vomit-scene extraordinaire.

What should have been done has been evident to grown-ups (and some children) in the realms of fiscal, monetary, regulatory policy for the past decade-and-a-half. But again, that was then, and this is now. The present medicine is far more painful now, as any practitioner could forecast. And so despite knowing what is necessary, and the pain such obvious solutions will cause (no matter justly apportioned and implemented) discussions with a wise man yesterday raised an interesting question in regards to their acceptance and adoption by the polity. He posited that shock-therapy (not in the IMF sense), but in the sudden event occurance sense inherently is psychologically easier for humans to bear to bear than, how shall I call it, a prolonged gradual stoic voluntary austerity. The shock whether default, restructuring, etc. he argued, removes the oppositional barriers, and focuses peoples attention more clearly on the future and solutions, than on protection of parochial interests.

I have been somewhat idealistically prejudiced towards a northern-european rationalism, hence believed that neglect and financial demagoguery was more of a failure of political leadership and communication than of will. Regretfully, the political processes and media failures within our democracies coupled with general financial ignorance and the belief in The State Tooth Fairy cause me to relent, and seriously entertain the superiority of Shock-and-Awe as an motivator and aggregator or requisite political will, not just in the USA.