markets
The Ultimate Guide to 2010 Investment Predicitons and Outlooks
I have recently come across this guide which I find to be very useful as TPC has compiled a comprehensive list. They have included reports from analysts, gurus, hedge fund managers, and investors. Enjoy at your own risk.
Wall Street Banks
Hedge Funds & Investment Gurus
Actionable Ideas, Alternative Assets & Potential Potholes
The Outlook Abroad
You can find more information about TPC here.
Hitler’s take on investing in Asia
I received a link to this video earlier today and I have to say it is a must watch for anybody thinking about investing in Asia. The short clip starts off with a discussion of the upcoming investor trip arranged for Hilter. Enjoy.
Court order halts Kuwait Stock Exchange trading
I received a phone call last Thursday morning around 10:40 am informing me that all trading on the Kuwait Stock Exchange [KSE] has been suspended. Here is what the press reported:
Lawyer Adel al-Abdul Hadi says the Administrative Court in Kuwait City ruled on Thursday that all trading be halted. The order takes effect immediately and is to last until next court hearing on November 17 [1]
At first I was not sure of the story and I kept getting different answers so I decided to focus on the event itself and not the details of what happened. What is confirmed is the parties involved are a lawyer[s], Kuwaiti Courts, and the KSE. This is what I imagine happened:
المحامي: افففف ! كل يوم حد أدنى! كل اللي أشوفه أحمر! ليش الحكومة الكويتية ما تسوي شي؟
يدخل الفراش كعادته الساعة الحادية عشرة صباحا وبيده استكانة الشاي مع الدرابيل
الفراش: سنو فيه بابا، ليش زعلان؟
المحامي: هذا السوق، تدري اشكثر خسران؟
الفراش: سنو يعني؟ كم فلوس يبي بابا؟ أنا يعطيك
!المحامي: لو تشتغل 100 سنة معاشك ما يغطي ربع الخساير
الفراش: أنا يقول حق انتا سنو يسوي.. هادا في كراتشي سوق كل يوم ينزل. ناس نفر روح سوي “بروتست” حق حكومة مال باكستان، حكومة وقف سوق
المحامي: ها؟ والله يطلع منك! انزين روح ييبلي بعد درابيل
Lawyer: Damn it! Its limit down every day! I see is red! Why isn’t the Kuwaiti government doing anything about this?
Tea Boy enters with red chai and darabeel [2] as he usual does at 11:00 every morning
Tea Boy: What’s wrong Baba. Why are you upset?
Lawyer: This market, you know how much I have lost?!
Tea Boy: What does that mean? How much money do you need, I’ll give you.
Lawyer: If you work for 100 years, your salary won’t cover a quarter of my losses!
Tea Boy: Let me tell you what to do. In Karachi, the market was down every day. People went to ‘protest’ and the government stopped the trading.
Lawyer: Huh? Well you do have some good ideas. Now go get me more darabeel.
The rest is history.
If anyone has a copy of the court ruling please email me a copy and I will post it
To be fair, stock markets do close when extraordinary situations prevail. An example would be 9/11 when the American stock markets were closed from September 11 - 14, 2001. However, it was a decision made by the government not for the government by a lawyer.
What actions should be taken
I believe that if there are people that are willing to spend the time and effort improving the public markets and investment community they should be addressing the following.
Issue: Liquidity
Objective: Liquidity is the lubricant the market needs in order for it’s internal gears to function smoothly. In addition, liquidity also provides forced sellers a means to exit their positions in order to fulfill their obligations.
Proposed Solution:
- Market makers: In a free market operation, a buyer will always seek a seller and vice-versa. At times, we find that there is a large gap between buyer and sellers in a market due to liquidity constraints. Market makers are in the business of ensuring liquidity is available to whomever needs in by always making a bid [buyer] and offer [seller]. Instead of the Kuwaiti government merely injecting cash into the market, I suggest they establish a KD 150-200 mm Market Maker fund. The government would appoint various investment companies, that meet the criteria, to become market makers using these funds. The company would benefit by being able to generate income on the spread and the government will address the issue of liquidity, a win-win situation.
Issue: Regulation
Objective: To ensure that a conflict of interest does not exist between the financial market regulator and an exchange operator.
Proposed Solution:
- FSA model: London’s Financial Services Authority is a good example to follow as an independent non-government body with a wide range of rule-making, investigatory and enforcement powers in order to meet their objective. The FSA has no relation to the exchanges which operate in England and are accountable to the Parliament. [3]
- Private Bourse: Kuwait should allow the establishment of private bourses or exchanges. Not only does this improve efficiency through competition, but it also enables greater access to market participants for companies that currently do not meet listing requirements. However, this is not limited to equity exchanges as we should also develop exchanges to trade credit [bonds & sukuks] , commodities, and other financial instruments.
Issue: Transparency
Objective: Stockholders should always have the right to access company information as they are owners in the businesses they invest in. Management should not try and deceive shareholders and are expected to provide accurate and non-misleading information.
Proposed Solution:
- Frequent investor communication: A simple way o ensure that stockholders are aware of the company’s activities is by holding events where the management discusses such issues. In addition to the annual report and general assembly, companies should have more frequent communication with investors and analysts covering the stock. This ensures that decision makers are equipped with the necessary information in order to make decisions as the whether to buy, sell, or hold. I suggest that companies have quarterly analyst and investor calls/meetings that discuss the financial statements produced.
Issue: Competence
Objective: Te ensure professionals managing and advising client assets are qualified to do so.
Proposed Solution:
- Regulation of investment professionals: Kuwait must develop licenses for investment professional who are managing or advising client assets. The General Securities Representative license [Series 7] is one example of the requirements needed in the US for a professional to communicate with retail investors, among other things. It is essential that we establish such guidelines and licenses in order to ensure that qualified and competent people are managing our money.
Obviously these suggestions are not the be-all and end-all of what needs to be done. However, I believe they tackle the most important issues we are faced with today. I am confident that if we focused our time and effort in trying to address these issues and implement the proposed solutions rather than having silly protests, we will be one step closer in establishing a more sophisticated financial community.
[1] The Associated Press. November 13, 2008.
[2] Darabeel: Arabic sweets
What the markets think of Donkeys & Elephants
It has been an interesting year so far and the punches keep coming. This is what it must feel like if you stepped in the ring with Mike Tyson. Soon enough you would find yourself with a broken jaw, black eye, chewed off left ear, half a nose, and possibly a missing pinky toe.
The most recent uppercut is the election of the first African-American President of the United Sates of America , Barack Obama, by the American people. November 4, 2008 will be etched into history books and millions of school children will be forced to memorize the date as the day America ‘Changed’. Enough on politics, lets take a closer look at what the markets think of all this.
For reasons that I don’t quite understand, and I am not sure I am interested enough to find out, Republicans are commonly referred to as Elephants and Democrats as Donkeys. What I am interested in however, is seeing how the markets reacted to these Donkeys and Elephants over time.
I used the following indexes to represent different segments of the market:
- S&P 500: Large corporates
- NASDAQ: Tech industry
[I wanted to include other indexes but it was getting too complicated. Plus, Office 2007 kept crashing on me]
The table below is a summary of each US President and the respective terms served. All data used is from Jan 20, 1977 - Nov 7, 2008.
Market reaction: S&P 500 Index [Bloomberg: SPX Index]
The chart below shows the S&P 500 shaded to represent the Donkey [blue] or Elephant [red] that was living in the White House at the time.
Source: Bloomberg. Daily closing price. 1977 - 2008. Al-Hamour
To be able to understand the market’s reaction to each President’s term I have included a ranking that takes the annualized return for each term served. So, because Bill Clinton served for two terms he will have two entries.
Source: Bloomberg. Al-Hamour
Source: Bloomberg. Al-Hamour
- During Bill Clinton’s single and overall terms the S&P 500 performed the best on an annualized basis @ 9.91%
- The Elephant [George W. Bush] has the worst record relative to his peers
Market reaction: NASDAQ COMPOSITE Index [Bloomberg: CCMP Index]
The chart below shows the NASDAQ daily price close, shaded to represent the Donkey [blue] or Elephant [red] that was living in the White House at the time.
Source: Bloomberg. Al-Hamour
To be able to understand the market’s reaction to each President’s term I have included a ranking that takes the annualized return for each term served. So, because Ronald Reagan served for two terms he will have two entries.
Source: Bloomberg. Al-Hamour
Source: Bloomberg. Al-Hamour
- During Jimmy Carter’s term the NASDAQ performed the best on an annualized basis
- The Elephant [George W. Bush] has the worst record relative to his peers
Lessons learned:
- Donkeys ranked number one for both the S&P 500 and NASDAQ
- George W. Bush is the worst Elephant and overall President
What to expect:
Despite the current banking and financial crisis we would expect that President-elect Barack Obama follow in the footsteps of the Donkeys before him. He has a tough road ahead of him and will have to address key issues such as rising unemployment, failing financial institutions, and the US dependency on oil exports. I suggest he attend Bill Clinton’s speech hosted by the National Bank of Kuwait [Bloomberg: NBK.KK Equity] next Sunday the 16th of November. Maybe he can pick up a few pointers. I know I will be there.