| Investment Outlook |
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| Posted by Bryan Goh at | | | |
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| The potential growth rate of an economy depends on a number of factors. It depends on land, manpower, capital and knowhow. Growth in land can be achieved by more efficient use of the available stock. Singapore has a very defined constraint on land. Growth in capital is achieved by investment. Growth in manpower can be achieved internally or through immigration. Internal growth is something that is accelerated or decelerated very slowly, as we learnt in the 1970's then in the 1980's. Immigration is a quicker way of speeding up or slowing down growth in manpower. Growth in knowhow comes from ... |
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| Posted by Bryan Goh at | | | |
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| Two step economy:Its quite clear anecdotally at least that the bifurcation of the world economy into rich and poor has accelerated in recent years. Wealth creation has accelerated among the rich while the rest of the population has failed to catch up. This has occurred both between countries as well as within countries. Globalisation has played an interesting role. Whereas before, labor prices were a function of local productivity, they are today a function of global productivity. As a result we see wage deflation in manufacturing where capacity has been exported to countries like China and India, while wages accelerate ... |
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| Posted by Bryan Goh at | | | |
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| You play Solitaire. The card game. Its not important what game is being played. This is just an example and Solitaire is convenient. It has an element of skill and luck. The luck bit is how the pack has been shuffled and the initial set of cards dealt. Let's say that you have a strategy that seems to work pretty well and the strategy involves playing from right to left, dealing with the longest piles of cards first. You start playing. You win 7 times in a row. You lose once. You win ... |
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| Posted by Bryan Goh at | | | |
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| Yesterday we looked at how hedge funds resembled banks. In fact they look pretty much like the result of the dismemberment of banks. Now lets look in a bit closer, at the capital structure of a hedge fund. To a corporate treasurer, a hedge fund would look like a very strange animal. The hedge fund manager looks at NAV (net asset value) of his portfolio on the one hand, and investors providing capital on the other. If you don’t believe me, ask any hedge fund manager about his assets and liabilities. We rule out credit managers since this would be ... |
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| Posted by Bryan Goh at | | | |
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| Are hedge funds banks? Some people seem to think so. In particular a research report, excerpts of which are available at http://ftalphaville.ft.com/blog/2007/02/07/2365/the-great-unwind-is-coming-warn-dresdner-pair/ , draw comparisons between Citadel and Deutsche Bank’s investment banking division. The similarities are remarkable. For a long time there has been a preference for hedge funds set up by proprietary traders as opposed to asset managers. Historically asset managers tend to be seen as long only index benchmark huggers and prop traders as swashbuckling long short risk takers. Its pretty clear that one could take a bank, cut it up into little bits and end up with ... |
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| Posted by Bryan Goh at | | | |
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| We are no better off letting the weatherman predict the economy and the economist predict the weather... having said that, let us press on.Stock selection:Stock selection strategies and strategies that profit from an increase in specific risk will find more opportunities this year. The withdrawal of liquidity by central banks of US, UK, the Eurozone and the Japan over the past three years is beginning to take effect. Liquidity will diminish as a driver of financial market returns relative to fundamentals, increasing the share of idiosyncratic risk as a proportion of total risk in asset prices. This favours equity long ... |
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| Posted by Bryan Goh at | | | |
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| Hedge funds are secretive, or private businesses who shun the limelight. Their success and sometimes spectacular implosions make them excellent news material and often a target for sensationalists. They are also excellent scapegoats. Here is an example of how this can be done:Assume now that you are the ruler of a small emerging market economy. In South East Asia, say. The year is 1997 and things are getting a bit rough in the financial markets in the region. Your currency is trading at 3.20 to the USD. You see weakness in the currency of your neighbours to the north and ... |
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| Posted by Bryan Goh at | | | |
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| Reflecting the strength of global economic growth has been rising equity markets where the MSCI World index has risen 13.60% in the last 12 months. The main disappointment has been Japan where the broad market had risen but 5.84%, a number masking devastation among small and micro caps. Where investors were cautious and somewhat negative there has been a measured advance, the S&P500 rising 10.79%. European markets where there had also been some caution rose 13.77% on average. The healthier UK market managed to lag rising only 7.62%.The highlight of the year was Asia ex Japan. Philippine and Indonesian markets ... |
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| Posted by Bryan Goh at | | | |
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| There is considerable uncertainty regarding the state of the US economy. For the better part of 2006 the US economy was thought to be under inflation risk. The Fed Funds rate has, however, been left unchanged in 4 of the last FOMC meetings, this since a sharp correction in energy prices has taken pressure of CPI which peaked at 4.3% in June 2006 and is currently running a comfortable 2.5%. Indeed sentiment has shifted in favour of easing. This is predicated on current growth staying below the unobserved long term equilibrium growth rate. There is a risk that this rate ... |
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| Posted by Bryan Goh at | | | |
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