REGULARS
What Global Crisis?
This time last year the world was about to end with the collapse of Lehman Brothers and the freezing of credit for ordinary individuals. Retail banks around Europe and the US were rescued by their respective governments and even Wall Street giants Goldman Sachs had to beg Warren Buffett for cash. It all seems such a long time ago now that the recession seems to be a more conventional downturn rather than a great depression. Let’s hope I’m not speaking too soon, however the worst of things seems to be over with Asia avoiding recession altogether and the US already having turned the corner.
Sadly at my age I’ve been through many of these periods and I like to think that I will learn something from this one as I have from the earlier recessions. The most important lesson I think I learned very early on is that no one ever knows when precisely they will go into a period of contraction. In this case many people much smarter than I have asked the question “Why did no one see this coming?” This is a fair question and one that will continue to be asked of economists and academics in the coming years. Some people DID foresee problems although they were very much in the minority and consequently mostly ignored.
Another important lesson I learned after one or two recessions is that hindsight can seem to offer a degree of clarity that was not present during the run-up to a slump. Today, as I look at the property boom and the securitisation of poor quality mortgages I wonder how on earth anyone could have assumed that a ‘basket’ of junk mortgages lumped together could be any less risky than if they are rated individually.
Regular readers will remember the very basic rules of diversification and how mixing a variety of assets can reduce your portfolio risk. This is the theory that the investment bankers used to resell the portfolios of Alt-A or poor credit mortgages, and this type of diversification within an asset class can of course provide some diversification, but not the real risk management that is needed by cross-asset diversification.
If you think about this logically, the sort of event that would affect one Alt-A mortgage (increasing unemployment) is likely to affect many other similar mortgages. This is one phenomenon it took me a little while longer to recognise and is a bit technical. The mathematical process of calculating the relationship between assets is known as the ‘correlation coefficient’. That is how they move together over time. Students are often given the very simple example of ice cream and umbrellas. An ice cream salesman in the UK could diversify his earnings by selling umbrellas when the sun it rains.
Lesson three was that correlations in the good times count for nothing in a downturn. This happens for many reasons, such as liquidity – for example if you have more house sellers than house buyers then this will force the price of houses down. We have seen much of this in Thailand – in the development in which I live I have never seen so many homes for sale. The asking prices have gradually reduced over the last eighteen months and yet many remain on the market. Conventional finance theory does not embrace this type of outcome and perhaps is one of the reasons that many investors have experienced a ‘surprise’ when their portfolio has lost more than expected. We instead turn to ‘Behavioural Economics’ which seeks to describe how the world works when people are involved. Those of us who are a little longer in the tooth might describe this as common sense, although it seems increasingly less common these days.
Those of you who follow this column (and I know there are many from the letters and emails I receive) will know that I often say that no one has all of the answers and I think this recession demonstrates this more than ever. The experts have by and large got this wrong in a big way and all those regulatory bodies around the world (perhaps with the exception of Spain) have let us down. I’m only one person in one firm although I have a great deal of experience in the field of investment. As I read the blogs and comments around the world, it is evident many ordinary people are extremely angry that we are bailing out the financial institutions and individuals that benefited the most in the boom times.
For me lesson four was something that only becomes apparent when things are not going well and that is the ‘Asymmetry of Risk’ in investment products. If we look at the traders in investment banks as an example – these guys take a huge amount of the bank’s cash, (which actually belongs to you and me who deposit it with them) and they make short term bets in order to make a profit. In the good times these guys made massive profits and received multi-million pound bonuses. When they made losses, did they pay back the bonuses? Not on your life – the losses belonged to the banks shareholders!
Many hedge funds and other Structured Products are concocted in the same way, as they are designed to provide a payoff profile that mostly benefits the institution. The PONZI schemes that have been uncovered are a variety of this type of investment – if it seems too good to be true, then it probably is. Lesson five is something we all know, and that is that we always come through these episodes - hopefully in good shape. What I encourage my clients to do is learn from my mistakes in the past and benefit from what I have done wrong, rather than make the same mistakes. Hopefully you can look at this recession as something that can benefit you in the long run. Here endeth the lesson...
Comments to jerry@ariun.co.uk
Mag’s Page
One noticeable characteristic of Thai people is their instant ability to detect a bad smell at 500 paces, and their consequent fondness for all things perfumed. Even their slang word for a bad smell - 'men' - crops up in other languages. Many English people use the term 'minging' to describe something which is past it's sell by date, or a bit ‘high’ (which means pretty odorous; i.e. ‘smelly’).
Maybe as a consequence of their highly developed nasal ability, Thais have access to a host of little supermarket samplers which have yet to catch on in the UK, like samples of fabric conditioner in particular. It does after all make sense to want to have a sniff of that new comfort kumquat and artichoke flavour before contaminating a load of laundry with it.
It's even stranger considering the UK's obsession with air fresheners these days. New products hit the market on a regular basis, and there's a baffling array of smells in old fashioned sprays, plug-ins, variable plug-ins, programmable plug-ins, and programmable variable intermittent time-controlled plug-ins which deliver pre-timed puffs from your choice of two flavours. It is claimed that this prevents the nose from becoming too used to just one flavour of perfume.
Even choosing a toilet block now requires such careful consideration that, at least for heathens like me, the easy option is to sling one of those dissolvable blocks into the cistern to colour the water – to at least make it look as though an effort has been made to perfume the toilet bowl. Heaven forbid that our toilets are seen wearing an old fashioned freshener block in a little plastic cage hanging over the rim, thus rendering cleaning the loo an exercise fraught with bacterial dangers.
So last months' revelation that cats need air fresheners as well came as quite a shock. Can this really be true?
Apparently so, according to some vets. Cats are easily stressed creatures who display their anguish by scratching on table legs, and spaying the sofa. And all this time I misguidedly thought they just wanted to sharpen their claws and mark their territory.
But fear not, for help is at hand with a plug-in feline aromatherapy system called Feliway, which promises to induce a state of pussy euphoria - although maybe not in those exact words.
Never again will you return home to be greeted by a frenzied feline clawing at that cupboard door, behind which it knows very well the Kit-E-Kat (variously-flavoured cat food) is stored.
I do hope this revolutionary product will help our readers to enjoy a peaceful Christmas. But if you can't find it locally yet just let the cat out, head down to the beach with your turkey, and have a cracker of a day!
Don’t worry about Garfield - he can hunt down a mouse or two to eat come nightfall. Even domesticated felines are the most adept nocturnal hunters in the world. They have excellent night vision, and the ability to move quickly without making a sound. The rest is down to their sharp teeth and claws.
By the way, my feminist friends love the fact that Thai slang for a bad smell is a word pronounced ‘men’!
Useful Telephone Numbers for Hua Hin
Railway station
032-512 770, 032-511 073
Bus station of Hua Hin
032-511 654, 032-512 543
Bus station of Prachuabkirikhan
032-601 901
Bus station of Pranburi
032-621 443
Hua Hin Hospital
032-520 401
Dog Rescue Center
0-1981 4406
Wild life Rescue Center (Tayang)
032-458 135
Department of Land Cha-am office:
032- 430 846-7
Department of Land Hua Hin office:
032-536 164, 032-512 407
Department of Land Prachuabkirikhan:
032-611 211
Department of Land Pranburi
032-622 199
Local Government (Hua Hin)
032-521 340, 532 471
Local water supply
032-511 677
The Power Board of Hua Hin
032-512 215, 032 513 165
Observer office:
032-531 078
Red Cross.
032-512 567
San Paolo Hospital
032-532 576-85
Polyclinic International
032-516 424, 032-516 425
Shell Cooking Gas
032-511 144, 032- 515 620
The Communication Authority of Thailand
(Hua Hin)
032-511 351
Rotary Club of Hua Hin
0-1916 6637
Meeting every Thursday 8.pm
at Hua Hin Grand Hotel & Plaza
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