Saturday, October 29, 2011

Saturday Morning Housecleaning

I went back and cleaned up a bunch of comment spam. Comment spam, I'm finding out, grows geometrically once it takes root. For instance, my most-popular post ever:

Debunking Gary Gorton's Fire Sale Thesis

Was completely lousy with comment spam, with more than 50 comments, and all but six just crap. The spam had overrun the comment section like some kind of kudzu-inspired mold life form.

In cleaning up the spam, I found myself in the ironic position of deleting comments that offered high (but phony, non-specific) praise of my intellectual insights, while leaving a few comments that basically suggested I was a blowhard (but that were real).

Vive l'open society.

So anyway, be forewarned if you're hawking UK dissertation papers, low auto insurance quotes, shutters for sale in Clearwater, Florida -- I'm onto you. Go foul someone else's watering hole.

Friday, October 28, 2011

Well, I Got This One Right at Least

Every so often, as a blogger, you look back on previous posts to answer the question, "Was I just being shrill and pessimistic or was I onto something?"

A year ago, I wrote "The Foreclosure Mess: 7 Reasons Why It's Much Worse Than You Think."

And I'd say, though the post wasn't wholly original content, that I got this one right as the MERS mess drags on (random observation: MERS and MESS are practically the same word, as the "r" in MERS is only one letter space -- i.e., p-q-r-s -- away from being MESS. Keep those ironies coming, mortgage industry!)

Wednesday, October 19, 2011

$50,000 by end of June 2012

A few days ago, I applied for another bursary valued at $2900. If I am awarded this bursary, my net worth will be at least $50,000 by the end of June 2012. This is also partly due to my internship starting on Jan 2012 which pays $1100 per month. I previously mentioned that my parents will still be giving me my $500 allowance when internship starts and I will be able to save around $1000 cash each month. However, I overlooked the CPF ordinary account, which is part of my net worth. To calculate how much money will be credited into my CPF OA, we have to first look at the CPF contribution and allocation rates.

Currently, for an employee at age 35 and below, the employer contribution is 16% and employee contribution is at 20% of wage. Therefore, the total contribution will be 36% of wage. Out of the 36% contributed to CPF, 23% of it will be credited into CPF OA, 6% into special account and 7% into medisave account.

My monthly remuneration for my 6 months internship is $1,100. Total wages earned is $6,600. Contribution to CPF OA during this period will be:  $6600 x 0.23 = $1,518

Total amount earned during internship = $1518 + 6($1000) = $7,518

Given that the $2900 bursary I just applied is awarded to me,

Guaranteed net worth by end of June 2012 will be :

$35000(current net worth) +$3000(bursary awarded this month) + $2900(bursary that I just applied) + $7518(cash and CPF OA earned during internship next year) + $1215(9 mths of RSP into ILP) + $1080(girlfriend contribution into savings account 3) + $840(tuition until internship starts) + $400(Ang Pow for 2012) = $51953(assuming no investments returns)

Tuesday, October 18, 2011

DVA: Accounting Gimmickry That Makes No Sense

Once again, the banks are booking big profits based on DVA -- debt valuation adjustment -- because their creditworthiness has deteriorated. Once again, this accounting gimmickry makes absolutely no sense.

The rationale for booking DVA gains: the debt you have issued becomes cheaper as your credit risk rises, so theoretically you can buy it back at a lower price, saving money.

This is ridiculous because it ignores the fact, as I explain in this post from two and a half years ago, that it costs more to raise the money to buy back the debt.

The gains don't exist. They're completely illusionary.

The DVA accounting convention is a sham. It shouldn't be allowed. Isn't there an accountant out there bright enough to see the inherent absurdity in it?

Tuesday, October 11, 2011

Is Occupy Wall Street the Beginning of the Revolution?

When I returned to my homeland a few years ago, after the financial crisis and a brief period abroad, I was quite dismayed.

It's not that America suddenly had changed. We had been changing for a while. Money had been growing into a monster force in politics. Our Washington politicians were far too quiet on social issues, like poverty and the distribution of wealth, where armies of lobbyists didn't represent entrenched interests.

Our politics were getting uglier in other ways. There was less ability to work together for the common good. It was as if, in an age of drama-seeking reality TV shows, politicians thought they had to vie for airspace by pumping out increasingly ludicrous and confrontational soundbites.

But what angered me the most was how we blew the opportunity to have a soul-searching moment about our financial system and effect real change after the 2008 crisis.

Steve Waldman has a brilliant paragraph over at his interfluidity blog about the unfairness of TARP:
Once you understand that the problem is a fairness issue rather than a dollars-and-cents issue, the policy space grows wider. Holding constant the level of expenditure, one can make bail-outs more or less fair by the degree to which you demand sacrifice from the people you are bailing out. TARP was deeply stupid not because it meant socializing risks and costs created by bankers. TARP was terrible public policy because it socialized risks and costs while demanding almost no sacrifice at all from the people most responsible for those risks. The alternative to TARP was never “let the banks fail, and see how the bankruptcy system deals with it.” The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior. It was not the money that made TARP unpopular. It was the unfairness. And the unfairness was not at all necessary to resolve the financial problem.
Make no mistake: Something like TARP was necessary after credit markets seized up. Letting giant, highly interconnected banks collapse right and left was not an option. But, out of the ashes of the crisis, who was the leader of power and conviction who emerged and swore, Never again!, and who acted boldly and with courage to reform a financial sector that had metastasized out of control?


Everyone pretended what we had gone through was just a bad dream. What we got instead was watered-down legislation that the banks are already skillfully plotting how to evade.

I would say to friends at work, "It's amazing to me that there isn't someone agitating for a revolution. This is awful, with so many people unemployed, and the rich getting richer, and Wall Street's most powerful getting bailed out without punishment or consequence -- why isn't there a populist uprising?"

Finally, along came Occupy Wall Street. The movement has spread. Winter will probably kill the mass protests, or at least put them on hiatus until spring.

But at least the disenfranchised and angry are speaking, maybe not with enough coherence for the media, who are fussing over their nut graphs and story structure, but their frustration is 100 percent genuine and runs wide and deep.

They're speaking, and I find that quite heartening.

Tuesday, October 4, 2011

Strategy for the current bear market

Target Price
Keppel corp : $5
STI ETF : $2.30 (buy for every 15% drop)
Ezion Holdings : $0.35

A drop of 20% is the usual threshold for declaring a new bear market. My strategy for a bear market is to enter when stocks barely crossed the 20% threshold and buying one lot of STI ETF for every 15% drop. For example, STI ETF's one year high was $3.39. When i bought 2 lots of it at $2.72, it has already plunged 19.7% which was the borderline of a bear market. At this point, 2 things might happen. The first will see prices rebounding, indicating that the plunge was just a correction. If not, the bear market will start and prices will continue falling. Buying at this point and averaging it out for every 10 to 15% it drops will remove all guesswork and capture the whole bear market. If it is indeed a correction, I would have captured the bottom(or near bottom) of it. This will be the best of both worlds. Therefore, the next buying point for STI ETF will be $2.30, which is a 15% drop from $2.72.

Monday, October 3, 2011

Internship Offer

I was notified today that I got offered a 6 months internship. The internship will commence on Jan 2012 and the remuneration will be $1100 per month. As my parents will still be giving me my $500 allowance during my internship, I will be able to save approximately $1000 per month. Given that I maintain my expenses of $10/day, I will be able to save at least $6000 during the 6 months internship. According to my excel spreadsheet i created for budgeting, my target net worth of $70,000 will soon be achievable. By then, I will be setting a higher goal since a goal should be challenging and slightly unattainable.