Wednesday, November 30, 2011

Net worth update(November 2011)

Europe's Bailout Fund -- Seriously, WTF Is This Thing?

I tried to figure out the EFSF again (the European Financial Stability Facility) and, once again, my brain exploded.

I can't figure out if this Rube Goldbergian mother of all securitization schemes is:

(a) a way to secretly print a whole bunch of euros behind door #24 while everyone is distracted by the elephant and monkey show in Exhibition Room C.

(b) a clever new way of shunting tail-risk into a vehicle that, when it fails, will send fireworks high into the night sky as the eurozone spectacularly implodes.

(c) a way of handing out 1,000 gold-plated pigs when there are only 10 gold-plated pigs in the warehouse, vague promises of 990 more gold-plated pigs, and a whole lot of securitization in between.

(d) a full-employment act for structured finance professionals on the continent.

(e) some combination of the above.

Or add your own speculation below. Because, in this Brave New World of Structured Finance, we're obviously beyond the point where an entity (say the IMF) simply extends a loan to some country (or countries) in fiscal straits.

Here's some more commentary on this bewildering high-finance thingamabobby:

More European Financial Chicanery

Monday, November 28, 2011

Fed Funnels Money to Banks on the Sly

Excellent Bloomberg story showing what was largely an open secret (even if the details weren't known), well before the Fed was forced to cough up the paperwork on its bailout of the U.S. financial system:

Secret Fed Loans Gave Banks Undisclosed $13 Billion

This should be required reading for every American.

The hard-hitting article also reinforces the image of Geithner as a complete tool.

The ground left uncovered: that, for this enormous bailout, we the taxpayer got very little. Our financial regulators, our political leaders, failed to effectively reform a banking system that has metastasized out of control.

Wednesday, November 23, 2011

5 lots of Singpost @ $0.99

Purchased 5 lots of Singpost at $0.99 today.

Reasons for purchasing Singpost are:

1) Trading at 52 week low (major support at $0.99)
2) Strong support at $1 which has been tested 3 times since August
3) Dividend yield of 6.3% at this price
4) Limited upside potential offset by limited downside risk($0.70 during 2008 crisis)
5) Singpost-DBS tie-up from 3 Jan 2012?
6) Stable operating cash flows (well in excess of its dividend commitment)
7) Consistent dividend payout

Dividend distribution over the past 10 years

Source: http://singpost.com/singpost_03investor_dividend.htm

Sunday, November 20, 2011

New Song Charting on YouTube: "Eat a Banker"

I found this song on YouTube with its timely message for the 99%:

"Eat a Banker"

It has a rather mellow, swaying beat -- not a violent-sounding song at all. I can even imagine it playing softly in the restaurant as some downtrodden poor person is dining on one of those overfed Wall Street bankers. ;)

In Case Anyone Forgets Why "Occupy Wall Street" Exists

1. Our Congress -- ahem, the best Congress money can buy -- decided that pizza is a vegetable. This decision makes absolutely zero sense from a health and nutritional standpoint (I love pizza -- I had three slices yesterday -- but if what I ate qualifies as a vegetable, I'm a living, breathing zucchini). However, it makes perfect sense from a food industry lobbying standpoint.

2. AIG won't help struggling homeowners. From Bloomberg: "American International Group Inc. (AIG) is holding out as rival mortgage insurers accept policy changes that support the U.S. government push to stoke refinancing among borrowers with little or no home equity."

Reminder: Not only did the U.S. bail out AIG, the U.S. is currently the MAJORITY OWNER OF AIG. If the U.S. government is too weak-spined to compel AIG to get on board with refis (which almost everyone agrees need to take place to right the listing housing market), then it's clear who's really running the show.

3. Corporations are increasingly paying a smaller percentage of their profits as income tax. At the same time, childhood poverty has been on the rise. Those trends aren't likely to change anytime soon as corporations are the kind of "people" who can write big campaign checks, but a child in poverty isn't similarly flush with excess funds to fertilize Senator Gasbag's re-election efforts.

Tuesday, November 15, 2011

$500,000 by 33 years old

I mentioned that one of my goals is to achieve a net worth of $200,000 by the age of 28. However, during this period major expenses such as marriage and buying a house will devour a huge chunk of my cash. Renovation and furnishing of the house alone could easily cost about $40,000, not to mention wedding expenses. To make things worse, my next target net worth is $500,000 by age 33.

To achieve $500k in investable assets by age 33, I have made several assumptions:

(1) My wife and I will save at least $2500 monthly combined($30,000 yearly) from age 28 to 30 and $3500 monthly($42,000 yearly) after I turn 30

(2) At least 2 major bear markets in the next 10years: Invest lump sum periodically during downturn to achieve an average return of 8% per year.

(3) The money in my CPF OA combined with my spouse's is enough to pay for the down payment and other miscellaneous fees - cash will only be used for renovation

(4) Spend no more than $50,000 at age 28 for renovation of house and wedding($150,000 left) : Ang Pow money can cover at least 70% of wedding dinner.

Here is how i calculate my net worth to be $500,000 based on the information given in point (1) to (4) above:

Based on the information that I will save $30,000 yearly from age 28 to 30 and $42,000 yearly after 30, I use a return of 8% to calculate future value of cash flows and initial principal of $150,000 at age 28:

Principal: $150,000
28: $30,000
29: $30,000
30: $42,000
31: $42,000
32: $42,000
33:  [FV of principal and cash flows from age 28 to 32] + $48,000(amt saved at age 33) = $470182 + $48,000 = $518182

Note: Cashflows in arrears

Some of the assumptions might sound unrealistic but for point (2) to (4), I realized that it is quite feasible after some thorough research and calculations. Only point (1) has the most uncertainty because I did not take kids into account and saving $3500 a month might be quite an arduous task after setting up a family. Also, I did not consider that my wife or I might be retrenched during this period. Once again, a goal should be slightly unattainable and I look forward to overcoming these challenges and uncertainties.

SUKUK DEFAULT

SUKUK DEFAULT: IS IT TRULY A DEFAULT?
As indicated in a previous posting, sukuk if properly understood means certificates proving ownership of underlying assets that back up the issuance of such certificates which are for all intent and purpose issued to testify that a certain sum of money has been invested and handed over to the issuer/manager. Sukuk as per the generally accepted global definition means investment certificates of equal value issued to investors as documentary proofs of their investment. They are not debt certificates as wrongfully described by some uninformed writers unless they talk about certificates as issued in Malaysia as part of what is known as IPDS (Islamic Private Debt Securities) backed by BBA debts in which case such certificates are truly debt certificates. This IPDS cannot be considered as sukuk according to the global definition especially in the context of a relevant resolution on Sukuk Muqaradah (Mudarabah) passed by the OIC Fiqh Academy in 1988 .

True sukuks must confer true right of ownership to sukuk holders in the manner recognized by the Shariah, the same to be made available to them as true owners of the underlying assets that back up the sukuk which initially means the money capital handed over to the issuer as part of the investment. The issuer then is expected to utilize the fund to purchase productive or trade assets to be dealt with accordingly in the ensuing business to be carried out to garner profit for the investment. In this context the issuer cum manager is to act as an agent for the sukuk holders or investors in conducting the trading business or in managing the project for which purpose the sukuk have been issued.

Provided the agent/issuer/manager has conducted himself as expected ( on best effort basis) and without negligence or be in breach of the terms of the investment contract/sukuk deeds, if loss should occur then as a general rule he is not to be held liable precisely because he has been acting as an agent whose liability is fault-based. If ever he is to be held liable for the loss, the sukuk holders must come with acceptable evidence to prove it. Juristic opinion however differ in terms of how the manager’s statement as to the cause of the loss is to be relied upon: whether it is to be taken at its face value or he needs to be asked to take an oath of assertion that such loss is not due to his negligence or wrong doing.

Given this Shariah position, hardly that one can compare this position with that of a default in the context of debt securitization (bond) as understood in the conventional sense where default there would means inability of the issuer to pay coupon as agreed or to be unable to redeem the principle at its face value upon maturity. In the case of the sukuks however, there will be no default if non-payment of profit is not caused by any negligence or wrongful act on the part of the issuer/manager as profit is only payable if there has been actual profit realized by the investment. Even if the issuer is unable to redeem the sukuk at the end of the period as agreed, if such inability/loss is occasioned by no fault on his part, such loss is to be borne by the investors or sukuk holders who are in fact entitled to get back the remaining portion of any assets that belong to the fund at the material time meaning; that they must have a right of recourse to the remaining asset of the sukuk. This is only possible if the sukuk are aseet-backed sukuk and not the asset-based ones. In order for sukuk to be valid from Shariah perspective, the issuance must be in the form of asset-backed that should confer true right of ownership to the sukuk holders of all the underlying assets that backed up the issuance.

Sunday, November 13, 2011

Slow progress















Progress this month has been very slow as I have been cancelling tuition due to the hectic work schedule at school. Maintained expenses at $10/day but income from tuition only amounts to $80 so far.  I will ramp up my tuition frequency next week since there are no classes due to the study week.

Having $15,000 in cash, I intend to invest in Singpost or Ascendas REIT and reduce my cash holdings to just $10,000. If my second bursary application is successful, cash holdings will increase by $3000 at the beginning of 2012.

Sunday, November 6, 2011

Working on Wall Street Means Never Having to Say You're Sorry

Felix Salmon waxed indignant about Jon Corzine's peculiar resignation statement, and laugh-out-loud lines such as, "This was a difficult decision, but one that I believe is best for the firm and its stakeholders."

This is as absurd as someone driving a bus off a cliff, killing everyone aboard but himself, then holding a press conference during which he says in a conflicted voice, "It is with a heavy heart that I wish to announce that I have decided to part ways with the company."

Felix comments, "... would it be too much to ask for just a tiny hint of remorse here? A short apology, perhaps, to the thousands of employees and customers who have lost their jobs or their money?"

Remorse? How do you spell that again?

Wall Street doesn't DO remorse, Felix. C'mon, man. You're smarter than that. Throughout the financial crisis and its aftermath, the lack of remorse was painfully striking.

Almost two years ago to the day, I commented on this phenomenon. We taxpayers weren't thanked by the big banks that received bailout funds (as I recall, Citigroup was a notable exception that came rather late). No apology for their securitization meltdown either. But Blankfein did see fit to note that they were all doing God's work.

And AIG's Robert Benmosche memorably threw a hissy fit about not being able to pay his executives more than $500,000 a year.

Is there really any mystery any longer why "Occupy Wall Street" exists?