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N.E. Asia Going Down for the Demographic Count

All good things must come to an end, as the FT outlines in this article. And so too will the population growth of N.E. Asia. Japan is already in decline. The Japanese headcount is expected to shrink from 130mm to 100mm by 2050, with all the commensurate externalities - higher dependence ratio, so lower consumer spending, more spending on healthcare, etc.China and Hong Kong are set to "hit the wall" in 2017. Taiwan in Korea 2016, Singapore 2018. Fertility rates in Shanghai are already estimated to be 0.74. Taiwan's fertility rate is the lowest of any country measured now, at 1.1, and this in a country with no "one-child" policy. In addition, the preference for boys in these societies means that the actual fertility rates will decline at an even more drastic rate. From a street-level view in Taiwan, this phenomena is manifesting itself in a number of ways. Cram schools - traditionally a... Continue reading
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If the SEC Cannot Send Corzine to the Slammer, then "Securities Enforcement" Joins the Ranks of Phrases like "Military Intelligence"

  Seriously....What he has done is a crime. The shareholders lost everything, the bond holders will probably lose, the employees lost, and the customers may or may not escape unscathed. This guy is testifying that he has, "Done nothing wrong", and in the strictest sense, perhaps he has not. But they sent Kozlowski to jail for 20 years, and Tyco is still up and running.A risk manager is the equivalent of your mother, telling you to come in for dinner. They have a broad range of control, and their control of traders is central to the whole idea of "risk management". You can kick and scream and cry, but when they say, "cut", you have to close your position. When your boss is also the trader you are trying to control, and the one person in the firm who can over-ride you, then all the safeguards of risk management go right... Continue reading
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Foxconn and China Manfacturing

A great series of articles by TechCrunch about Foxconn and their +1mm manufacturing city in southern China. by Taiwan's Hon Hai Precision, Foxconn manufactures for major major hardware makers, most notably Apple. The maker of iPhones, iPads, and other apple objects of worship has built a strong manufacturing brand, and commands strong customer loyalty. The major under-pinning of Foxconn's success, however, is cheap labor. With prices and wages rising in China, demographics leading to a shrinking workforce by 2015, and demands of Chinese workers for, "more", Foxconn's future success is by no means assured. Even running at full tilt, their profit margins are 2-5%, little better than a grocery store. The author spent a considerable amount of time in Foxconn City in Shenzhen, a rare experience for a journalist. Worth the read if you take an interest in China manufacturing.... Continue reading
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Why Systems Investors are Glad David Einhorn Killed it with Green Mountain Coffee

  Often I hear people tell me, "Rules-based trading has no future. Eventually, the computers will compete with each other to the point of no profit". They usually go on to tell me about how smart people like Greenlight Captial founder David Einhorn (and he *is* a smart guy - make no mistake!) pick stocks like GMCR to short, and make a killing. This, they proclaim, is what investing is all about. Background - David Einhorn mentioned GMCR as a short candidate in mid October, when it was in the mid 80s. He had probably sold it from $100 down to $90. The day after he made his announcement, the stock lost $15. Yesterday is announced what amounts to an admission that the company will have to restate earnings. The stock tanked to $45 in after hours, and now is $41. Nice trade for David. Why does this matter to an investor...
Tagged in: group think trading
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What Would You Do to Earn $5 in Seven Days?

If you are like most people, you would not want to do too much heavy lifting if you were trying to earn those five crummy dollars.Would you risk your job?Would you risk your house?Would you risk your company?Most people would not. However if you are sitting on an overnight lending/repo desk, that is was you are being asked to do every single evening before the close of business. Because at current short term rates in the US, you earn roughly $5 for every $1mm at risk. This sounds like an innocuous trade - what could go wrong with US debt in one week? But 6 months ago, European repo traders were probably thinking the same thing. "I need to make my bonus. Greece is paying 10x the going LIBOR rate. F@#k it. I'm in for $500mm." This is a seemingly small bet for a large money center bank. However risk tends to cluster in homogeneous groups (e.g....
Tagged in: group think risk trading
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