spikegifted.net - Archive Q3 2008
Home: I think we'd all agree that the summer of 2008 has been another wash-out, just like the previous year. However, September has turned out to be really, really nice. The days were still relatively long, which means that we could see our garden before we went to work and after we came back (if we get back early enough). The temperature was just perfect - warm enough to spend time outside without the need of a coat but cool enough that we didn't sweat much when we do things. To add to all that, it didn't rain much. Don't get me wrong, it rained during the month of September, it was just that it rained during the week when we were at work but the weekends were just nice. We could leave our washing outside to dry without any problems. We even had a couple of barbeques during the month. While it was not an ideal summer, an Indian summer in September was in a way a nice compensation.
Opinion: Question: How much is US$700bn? I have to be completely honest here, even though I deal with big numbers on a daily basis, I don't have any understanding of the concept of US$700bn, never mind a real-life meaning of such large amount of money. While it sounded like a lot of money to you and I, this amounted to just a mere drop in the ocean of banking assets that were causing the credit crunch / financial crisis. When it was first announced by Hank Paulson, the market breathed a sigh of relieve - the US Treasury was going to do something to help the market out. However, while the headline was there, the details were not; and in the absence of details, people went back to what they were doing before - panic. To add on top of that, there were all kinds of noises coming from the US about 'Main Street bailing out Wall Street' and about 'fat bankers sucking dry the rest of the US economy'. Hysterical hubris aside, people need to recognize that we are all in this together. We live in a a globalized economy. What happens in Wall Street affect everyone, unless you live in isolation in Papua New Guinea or in the depth of the Amazon basin. Then, when the rescue details finally came out for the legislators for approval, it was a disappointment for me - it lacked fire power. Using the money to buy bad assets from US banks would not solve any problems, boosting bank capital would help stabilize the situation and suppress the fear that was so prevalent in the market. Anyway, the US Congress, for whatever reason, rejected the proposal, evaporating what little optimism the markets had built up, sending global stock markets back on another nose dive. If things didn't look bad before, it did now.
Work: With the bankruptcy of Lehman, the financial markets went into a tail-spin. Confidence, something that has held up so well since the beginning of the credit crunch, has now completely gone. Investors simply just didn't know what value to place in their investments. The stock markets had been particularly hard hit as the "traditional" methods of valuation, typically by earning multiples, have been replaced by something else - fear! In the bond markets, all credits have been ditched in a massive flight to safety. The only bonds worth owning were US Treasuries, UK gilts, German Bunds, French govies and JGBs. All the other bonds were ditched, spreads widened to unprecedented levels. At the same time, the credit derivative market also went into an overdrive. The amount of CDS outstanding on Lehman Brothers were just staggering. Although a great deal of the protection would have off-set each other, some in the market feared that despite that, many players would be forced into bankruptcy themselves. Then there were the commodities, which have done so well on the back of massive expansion and demand in China. Now that there was talk of a global recession, demand for Chinese export naturally would be lower and all commodity prices have come off their peaks and started sliding. In the second half of September, there was not a single big of good news in the market. We were just lurching from one day to the next, hoping that any news would be less negative than what we've heard. Work has been a rather surreal experience as we went about trying to limit any damages the falling markets would have caused us. We effectively had to reduce our funding commitment, to insulate ourselves from liquidity problems that were spreading in the market. All-in-all, it was messy, but I thought we came out unscathed.
Opinion: While the problems at Lehman was being closely followed by the whole market, confidence in all financial firms was hit. Share prices were just falling in such a way that the only question that could be asked was: Is there a bottom to this thing? Merrill Lynch, another pillar of American investment banking, has ran into the arms of Bank of America. That was probably the only sensible thing to do. Merrill, like Lehman and a whole host of other firms, have been battered by the falling asset prices. It looked like no matter how much capital it managed to raise, it continued to hemorrhage more through losses and asset write downs. It was a case when, not if, the market would no longer listen to its story, the management better had another rabbit to pull out of the hat. That was exactly what happened. At first, it was a strange deal, seeing that it was only last year that Ken Lewis (chairman/CEO of Bank of America) famously said that he had all of the fun he can stand in investment banking, yet less than a year later, he bought one of the biggest names on Wall Street. How a change in price makes such a difference. So three out of the Big Five US broker/dealers have either been bought or has gone to the wall. How long can Goldman Sachs and Morgan Stanley remain independent?
Opinion: The end, as it usually happens, came as a shock. All week, Lehman Brothers has been under a great deal of pressure. The pressure came from the market - a complete loss of confidence in the firm's management to deal with its problem. At one point, there was talk that some Korean consortium was going to make a significant investment in the firm but, for one reason or another, no deal came. Then there were rumors that one of the British banks was going to make pay. Well, nothing happened there, either. The obvious question was a simple one: Why? Anyone who looks at Lehman's books would have seen a list of difficult-to-value assets which will make even the bravest acquirer thinking twice. It may have been a pot of gold (it would have taken a long time to find out if it was the case) or a pile of rubbish (which is what everyone in the market dare not call because they have piles of this stuff). In the end, the investors just didn't want to risk their money and Lehman had nowhere to run except to the wall. So it filed for creditor protection. The end was here and it was not pretty. Overnight, thousands of people lost their jobs and their investments (employees owned more than 40% of the firm). One of the best known franchise on Wall Street was gone. The sad thing was that there were deals that could be done earlier to save the firm, but they weren't done because of pricing - the buy's and seller's expectations didn't match. All that was left were for former rivals to pick over the carcass of a once-great firm. What a shining example of destruction of shareholders' value!
Work: The pressure was now really on!! Lehman Brothers, one of the oldest names on Wall Street, was having a tough time - its share price was dropping like a stone. The fundamentals of the company appeared to be sound - earnings was ok, franchise was good and the balance sheet, while strained by the difficult-to-value assets, was not a total loss. Additionally, the Fed has opened up a special liquidity facility to support Lehman and other broker/dealers, so funding should not be a problem. However, the confidence in the company appeared to have gone. The last time something like this happened to a broker/dealer, it was back in March this year. At the time I was pre-occupied by my mom's failing health. So while all the storms were breaking around Bear Stearns, I was pretty much oblivious to them. This time round, though, I was following events very closely. The whole deal was frightening - the stock market went crazy (fell like a stone), the credit market went mad (CDS spreads widened), the whole inter-bank lending and money markets seized up (rates were way over the benchmarks) and central banks pumped billions into the market to ease liquidity. All along, people who knew understood that Lehman was not another Bear Stearns - it appeared to have been in better shape and liquidity was available. However, clients and counterparties began to ask themselves questions and it seemed the game was up. We guessed that there were ways to get pass the problem, by selling whole or part of the business to get more capital from somewhere. Alternatively, a 'white knight' has to appear somewhere to pick the whole thing up. But the question is: who would make such an investment in this climate and with what conditions. Talks appeared to be in progress but how long can the firm last?
Opinion: The cornerstones of US housing finance have crumbled! Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) have been put into conservatorship. This effectively meant the US government would guarantee the debt issued by these 'government sponsored enterprises', replacing the existing management and gradually buying newly issued preferred stock (which also massively diluting existing shareholders). In effect, this was nationalization in all but name. Why would the US government make such drastic intervention? And this was drastic - in a country that shuns public ownership and its fundamental believe in market economy, effective nationalization of these two privately owned but government sponsored companies runs completely contrary to the country's economic philosophy and it will potentially cost the tax payers a lot of money. Moreover, the US government would now directly support the US housing market by buying these GSEs mortgage-backed securities. On the other hand, we need to take a cold hard look at what has been happening in the US housing market and the reason for such intervention was immediately evident - as house prices continued to fall, the confidence in Fannie Mae and Freddie Mac was eroding fast and not a moment too soon, these two GSEs would not be able to finance themselves in the market. If such a case happens, while the US government has previously announced liquidity arrangements to support these companies, clearly such action would just be curing the symptoms without addressing the causes of the problem in confidence. However, if these entities were allowed to get into such position (inability to finance themselves in the market), the loss in confidence would be even more severe. By acting now, I think the administration was trying to send a powerful signal to the market and hopefully rebuild confidence and bring some measure of stability.
Home: While weíre in the topic of mending things, I booked my car into the garage to have the bottom panel fixed. Needless to say, it has to be replaced, especially with the gaping hole in it after it was dragged for a kilometer. The folks over at the garage were very good - they put their hands up and offered to fix the problem for free. After the boiler was fixed, I got a call from the garage informing me theyíve done their work. When I went to pick the car up, they confirmed that the panel was probably not correctly re-installed after they fixed the leak. As a result, the wind generated while driving was gradually loosening the screws and forcing the panel away from the rest of the undercarriage of the car. When the force was large enough and the screws affixing the panel to the undercarriage were loosen enough, the panel was just ripped away by the wind. Anyway, that was quickly fixed and it was free of charge, so I had not more to complain about. Happy endings!
Home: While it was a heck of trip coming back from Portsmouth to our house and a heck of a shock finding out what's going on in Germany, surprises continued to come up. The boiler, which was only fixed back in June, was given us trouble again. It was a good job that I took out the insurance cover when it gave us trouble last time round back in June. I just made a phone call and a couple of days later a technician showed up to fix the boiler. He took a while to locate the fault in the boiler and it turned out it was the thermistor that was causing the problem - it was not giving the right reading. The thermistor was located in a trickily concealed part of the boiler and it took some rather fancy finger dancing to get the part installed. Nevertheless, it was a job well done, and we have a working boiler again.
Work: What a day to come back to work after a two-week vacation. Wow!! A couple of months back, there was a lot of talk about consolidation in the German banking sector. To be completely honest, at least from a retail banking angle, Germany is "over-banked" - to many institutions around chasing the same pot of retail business. The credit crunch that has started last year has clearly demonstrated how important a stable funding base is for banks and there is no source more stable than a large retail deposit client base. As such, German commercial banks had been hampered by this lack of a solid base to more forward and expand internationally, with the possible exception of Deutsche Bank. A couple of months back, there was a lot of talk about Commerzbank linking up with Dresdner Bank. Commerzbank has spent the past few years trimming down its investment banking activities and really tidied up its balance sheet. As a result, it has not exposed itself to the US sub-prime RMBS and CDOs that have hurt other banks so bad in the past three quarters. On the other hand, Dresdner Bank was under the umbrella of Allianz (an insurance company) which only saw the potential of Dresdner Bank as a way of distributing its insurance products via the banks retail channel. On the other hand, Allianz has never really figured out how and what to do the investment banking division, Dresdner Kleinwort. During the good times, Dresdner Kleinwort never made enough money for its parent to justify bigger investments. Now that the bad times have come, it has became a drag on Allianz's performance. There had been talk a couple of months back that Commerzbank and Allianz were talking about a tie-up with Dresdner, before going for the really big one - Deutsche Postbank. For whatever reason, Deutsche Postbank seemed to have left the picture, but the Commerzbank/Dresdner Bank deal was negotiated. I won't say this tie-up presented a seismic shift in German banking (Deutsche Bank was still twice the size of the newly combined bank), but the fact that the deal got done at all. Allianz paid 24 billion Euros for Dresdner Bank back in 2001 at the top of the market, but sold it for less than 10 billion Euro in 2008 in the middle of one of the biggest banking crisis in over half a century - that a loss of 59% in value in just seven years. That did not include all the losses accumulated over the years. No much of the a return of investment. Actually, I would call it a massive destruction of shareholders' value. Worst of all, that is not the end of the story for Allianz in terms of losses at Dresdner Bank - it will have a stake of around 30% in the new combined bank - future losses in the new entity will continue to affect Allianz's bottom line. Smart move folks.
Home: As it was a day crossing, we were effectively 'wasting' a half a day just sitting around, crossing the English Channel. The ferry arrived back at Portsmouth around 7PM. Typically, from the moment we leave the port to arriving home in Surrey, the journey would take around 90 minutes. However, as it is so typical of British roads, there were road works and delays, we were not exactly steaming along. The road works was nearly a place called Hindhead which was around two fifths of the way to our house. It was single lane in both directions. And as there was road works, there was no stopping. Also, it was still pretty much country side there, there were few side turns along these 'country roads'. Then suddenly there was this noise coming from beneath the car. It sounded like there was something got stuck on the underside of the car and we were dragging this thing along the road. We drove like that for around a kilometer before there was a left turn so that we could turn off and stop the car, inspect it and find out what was going on. When I looked under the car, I saw a big piece of plastic under it. I thought it was something we hit and got trapped there, so I tried pulling it out, but while it was loose, I could not dislodge it. I called the breakdown recovery people (technically, it was not a real breakdown, but I called them anyway). There was some liquid coming out from beneath the car and as I didn't know what it was, it was best to call the professional rather than taking any chances. The mechanic arrived and he quickly figured out that it was simply the undercarriage cover that had became loose and he pulled the piece of plastic out. It looked like something has ripped the piece out and as it had been dragged for over a kilometer, a large hole had appeared. He assured us that it was safe to drive the car and the liquid that came out was merely condensation from the air-conditioning system. We were mightily relieve that we could continue our journey home rather than being taken to a garage and to try to make our way home via other means. I drove gingerly for the rest of the trip and we finally arrived home three and half hours after leaving the port.
Home: Like I say, the vacation was over just too quickly. The weather wasnít exactly summer every day during our stay, but it was pleasant enough. More importantly, there wasnít much rain. Although the Euro has been substantially stronger against Sterling, we took advantage of the fact that most things were a lot cheaper in France than in the UK. We loaded up the car as much as we could. While we were not looking forward to coming back to the UK, at least we brought our provisions back with us to prolong our Ďvacationí. That made our journey back a little more bearable.
Home: Where did the tradition of taking two week vacations come from? Iím sure thereís a logical explanation for this, somewhere. But before I get an explanation (if it ever comes), Iíll say one thing straight - two weeks is not enough! In the hectic, high pressure environment that we live in these days, it takes literally takes days to unwind. You get to your destination; you settle down and begin to unwind. Thatís fair enough. But it would typically be three to five days of into the holiday (obviously depend on the person and the surrounding environment) before the person unwind sufficiently to become really relaxed. Thatís nearly half the vacation gone! You need to relax before you can recuperate and recharge. Before you know it, your mind is on the return trip and all the bullshit that awaits you on your return. So, in fact, the actual amount of time you, and your body and mind, are unwind enough to relax and recuperate is probably a little less than half of the two-week vacation. That is just inefficient. We should have three-week vacations. That way we actually have far better quality time (on average) during the vacation and get to appreciate life a little more.
Home: I just love spending my vacations in France. Ok, the Sterling-Euro rate wasnít great (Sterling has been steadily falling against the Euro for over a year now, which meant things were not as cheap as they were), but gosh, the pace was just completely different. One thing I donít understanding about the UK is that being an island, why arenít there more seafood available? There are hardly any fishmongers in London. What seafood that is available in supermarkets is either not fresh (been frozen) or just too expensive to justify! Worst of all, why canít we get seafood in their shells? Not in France, though. We were in a small town near Baden on its market day and we went into the fishmongers and we were just blown away (more and more) Now, thatís what I call seafood!! Variety, quality and affordability. Needless to day, we had many meals with only seafood on the menu during our vacation.
Home: At last, it was time for our annual summer holiday. I can stress how much getting away from London and from work meant to us. Owing to the poor weather this summer and the work environment hasnít been that great, we have been looking forward to having this break for a long time. We decided to take the ferry across to St. Malo long ago and booked our tickets way back in April. Even though it was an early booking, the price was expensive. We decided to take the Saturday evening crossing, which actually made the trip quite pleasant: we come home from work on Friday like we usually do and relax, then we pack our stuff into the car sometime during Saturday afternoon, finally we head down to Portsmouth in the early evening. No rush, no stress, just taking things easy. Ok, we blow a day of our two-week holiday chilling at home and traveling to Portsmouth, but, wow, it was so much better than rushing to the south coast on a Friday evening after work to try and make the ferry.
Home: Since March this year, I have noticed that there was a small oil stain under the front of my car on the driveway. It wasnít a large stain, but every once in a while, Iíd notice a few fresh drops of oil would appear on the old stain. It wasnít anything major, from the size of the stain and what little fresh drops appeared. However, as we would be traveling by car on our summer vacation, the Ruler_of_spike thought it would be a sensible thing to ask the folks in the garage to check out and fix whatever leak that has been making the stain. Well, I took the car to the garage and left it there in the morning. Throughout the day, I got phone calls from the garage that they've been doing everything and looking everywhere but they couldn't find the leak. So I went back there to pick up the car in the evening. For once I was glad that there was rain. Just as I was about to drive the car away, I saw the puddle under the front of car had an oil trace floating on it. I showed the mechanic that and he immediate agreed to make a more thorough investigation the next day. I got a call midway through the next morning and he informed me that they finally found the leak - it was the gearbox transmission coolant. My first reason was: What is that? I didn't even realize that there was coolant near the gearbox. Anyway, the parts were changed, the leak was fixed and I paid a princely sum for the whole exercise. Well, at least we could now drive to France without having to worry about a leak in the car.
Opinion: The Olympic Summer Games 2008 started in its hosting city, Beijing. As a Chinese, I should be enormously proud of the achievement of my ancestorsí homeland - hosting the Olympic Games is no easy task. It is a challenge in all aspects of a hosting countryís resources: financial commitment, imaginative architecture, engineering competence, infrastructure integration and political focus. Moreover, not only did the organizers of the Beijing Games have the stunning facilities constructed, they put on a great show during the Gamesí opening ceremony. That was not an easy task for a country that only began to industrialize back in the 1950s and did not open up to international relationships until 1970s. The Beijing Game truly was the shining milestone of Chinaís development as a country and an announcement of its statue as a potential global powerhouse. But what a price the Chinese nation has to pay for this achievement? When the Olympic Games were awarded to China, it was given on the condition that China should work towards improving its poor human right record. Well, as far as I (and many international monitors) can see, no concrete steps have been taken to improve human rights in China. All the malpractices that have been taking place before were still going on. What was worse was that thousands of families in Beijing have been forced to leave their homes to make way for the spectacular Olympic venues, often with little or no compensation. In my opinion, the Games may be successfully staged, but the human rights legacy that was a condition to awarding the Games would fall substantial short of the IOCís ideal.
Home: I know Iíve said this before, but I just have to say it again: The weather sucked! There may have been some nice weather in the UK this summer, but too many of these nice days had been weekdays so they donít really count. With the exception of couple of weekends since May, they have been washouts. When we watch weather forecasts on TV, all we see is low pressure systems coming from across the Atlantic, one after another. Normally, there would be some high pressure ridges in between the lows, but not in the past couple of years. Just depression! Coupling the bad weather with the work environment where things were looking quite grim (the credit crunch and related issues), this summer has been turning into one very long grind. We have been going to bed on Sunday nights complaining that the weekends were already over. Then the weeks have been just a series of long grinds. I donít mean to moan, but this weather was really getting to me!!
Home: More friends came to sample my cooking... Iím not trying to brag, but I think I can conjure up a few dishes that would pass as Chinese dishes and make a meal out of them. As always (and thanks to my limited experience), cooking three or four dishes was no simple task. There is typically a lot of chopping before hand. Iím no cook so chopping takes a long time. What I tend to do is getting all the starting ingredients in the wok or pans or even prepared on some small plates before our guests arrive so that when I do need to get the meal cooked, I would have all the necessary bits ready and I just get on with the cooking. Iíve done this a few times already so this time should be no sweat. When I got the dishes out and we started eating, we realized that one of the dishes was just incredibly salty and the flavor was just too powerful. It turned out that I put too much black bean source in the dish, a mistake I made when I was scaling up the ingredients and putting them into the wok before the guests arrived. What a massively stupid mistake to make. Lucky that I didnít make similar mistakes with other dishes!
Home: If we havenít notice that times were getting difficult, this was clearly a sign of things to come. One of our favorite stores (the place where we bought out dining table and chairs) was entering into administration. The darn place has just been in business for just less than two years and its UK operations were being wound down (although its Nordic operations continued to flourish). This was particularly sad as we think this company sell some very good quality products at a reasonable price, but owed to deteriorating economic circumstances in the UK (but also probably because people in the UK were simply not their ideal target customers), the company could not stand on its own legs. Anyway, we are thankful that we bought our dining table and chairs when we did as they definitely add to our home.
Home: We recently invested in some more bird feeding stations in our garden. We first got hooked on birds when we were living in Wimbledon prior to buying our house in Surrey. I spent nearly every morning looking out from our kitchen window in our apartment to the backyard and saw those wood pigeons, robins and magpies going about their businesses: feeding, drinking, resting and courting. It was a nice sight to have before starting my day. After moving to Surrey, we saw a lot less birds in our garden - probably owed to a large population of cats roaming around the neighborhood. But then, we gradually notice that where are birds around, itís just that we have to Ďbribeí them, in the shape of giving them food. We have had a station with peanuts and another with balls of fat and feeds, but they havenít really done good Ďbusinessí although some birds have been visiting the balls of fat. They were probably put off by the peanut station because it is quite tricky to get a good foothold. So we bought a couple more feeding stations, one for feeds which the birds just have to reach in to get to the food and new one for peanuts which has a ledge to stand on. The feeds station was very popular; they managed to go through an entire tube of feeds in one weekend. The new peanut station also proved to be more popular as the birds now porch on the rest built at the bottom of the feeding station. Moreover, thanks to the large number of birds waiting their turns on the feed and new peanut stations, some of them were giving the old peanut station and balls of fat a second look. All-in-all, our back garden was a happy place with lots of activities! Way to go, bird feeds!!
Home: After last year's rather horrible summer, we're really hoping that this year would prove to be a better one. Well, it hasn't been great. The main problem was that the weather has actually been ok during the weekdays. However, we kept noticing that be the time the weekends came along, the weather was horrible. Well, that's a little unfair as there had been a couple of good weekends. However, nice weekdays didn't actually make things easy for us - the trains were so hot it was just uncomfortable to even stand or sit in there for a couple of minutes (assuming we could actually get on the train, that is). On the occasion of actually encountering nice weather, we tried to make the most of it - getting the barbeque out!! Another thing was that we like washing our clothes and putting them out to dry in the sun. I don't know what's the real reason, but we find that drying our clothes in the sun just make them that little bit better - they felt cleaner, fresher.
Opinion: The hottest news topic in the UK is youth knife crime. It has been impossible to get away from it - it has been reported in the news almost on a daily basis. Either someone has been injured or killed by stabbing, or some politicians making some noise about curbing these crimes. What a load of hot air! In essence, the current problem with youth knife crime is the product of decades of liberal attitude towards education and a gradual but complete breakdown of family structure. These two prime contributors are interlinked. We have an organized academic education system which produces kids who are barely literate at the age of 16 and canít complete simple mental arithmetic. At the same time, informal education has largely disappeared in certain section of our society - the parents are not teaching their kids what is right and what is wrong because they are no more than kids themselves. Even if they want to teach their kids, they are in a position to do so because of the lack of the very basic skill set required to educate them. While schools can help in moral and behavial education, it is the family and parents who are responsible for such type of education. So the kids are not being taught at home - they donít know whatís the difference between right and wrong; they donít know what is or isnít considered socially acceptable; they donít know how to control their emotions and reactions; they donít know how to react to disappointment. Basically, they lack the very basic set of skills that will help them survive and thrive in our hostile and competitive society. Our overly protective, politically-correct education system is also contributing to that as well. Without these moral and behavial education as well as ability to adapt to changing situations and stress, these kids would do the only thing they know how to do - lashing out. Usually, this would lead to destruction of properties and vandalism. In case they need to deal with people, they resort to violence. As they all carry knives to gain Ďrespectí and Ďprotectioní, they first thing they do is to lash out with a knife. No brain, no thinking, just pure animal menace. The end result is yet another headline of some grieving family mourning the lost of another child's life. How sad and how unnecessary.