dosydo's blog

Michael Lewis, who wrote one of the great Wall Street exposes of the 1980s, is now calling the END of Wall Street's reign.

Good read.

Bad news for the Masters of the Universe...

The End

The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong...

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of ­borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.

Rivals accused Whitney of being overrated; bloggers accused her of being lucky. What she was, mainly, was right. But it’s true that she was, in part, guessing. There was no way she could have known what was going to happen to these Wall Street firms. The C.E.O.’s themselves didn’t know.

Now, obviously, Meredith Whitney didn’t sink Wall Street. She just expressed most clearly and loudly a view that was, in retrospect, far more seditious to the financial order than, say, Eliot Spitzer’s campaign against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they’d have vanished long ago. This woman wasn’t saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didn’t even know how to manage their own...

Lot's more there... It's a good long read.

Full Printable version here:
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?print=true

Anyone considering getting out of Vietnamese stocks in favor of alternative investments should think carefully, especially when it comes to the art market.

As many have known for some time and as a recent case has exposed the art market in Vietnam is full of fakes...

Fee, Phai, faux…

The problem is that the market is inundated with fakes, or ‘faux Phai’ paintings, as they are now known. Nobody can be sure how much work Phai produced, but by the mid-nineties every gallery and art shop in Hanoi seemed to be selling Phai street paintings, most of which had not been painted by him. According to Phai’s son, Bui Danh Phuong, also an artist, Sotheby’s, the world’s second oldest auction house, in Hong Kong has been taken in after auctioning off faux Phais earlier this month and also last April.

Phuong has sent five letters to Sotheby’s but has yet to receive a reply. He is now making a stand and threatening legal action. “I have known about this for a long time, but I have to speak up now,” says Phuong. “I feel disappointed as Sotheby’s claims to have experienced painting appraisers, yet they have been deceived by forgeries.” Sotheby’s recently had five Bui Xuan Phai pictures listed on its website, four of which were fakes, says Phuong.

There were two pictures of Cheo (Vietnamese opera) and two streets scenes. The sole genuine picture was named Red Cat, which Phai drew on a post-card for his friends during Tet Nguyen Dan (Lunar New Year festival). In my amateurish opinion I imagine Phai’s simple and rugged style leaves his work susceptible to forgery but Phuong is dismissive of the fake Cheo paintings.

“The artists don’t understand anything about Phai’s paintings. They drew awkwardly,” he says. Yet these paintings were put up for sale at a Sotheby’s auction recently and sold for a combined fee of $40,255. After Phuong announced his intention to sue the auction house all information about the five pictures was suddenly removed from the firm’s website. In April Sotheby’s auctioned six paintings by Bui Xuan Phai, which Phuong also claims were fakes, for a total price of more than $232,500.

According to Phuong one lacquer painting, which sold for $106,571, is just a knock off version of an oil painting titled Before performing Cheo, which is sitting in Vietnam’s Fine Arts Museum in Hanoi. He says another picture Tran Thinh, which sold for $64,841, is a copy of a piece owned by Tham Don Thu, a Viet Kieu living in France. “The fake picture is dated 1971, but I saw the original drawn in 1974 with my own eyes,” says Phuong.

The son of the artist has promised to pursue his case against Sotheby's but this could be a messy and expensive proposition.

Meanwhile under a cloud of suspicion the works of Bui Xuan Phai and ALL Vietnamese artists are now declining in value due to significant "market risks."

Looks like the son has even launched a couple websites to support his crusade:

www.buithanhphuong.com

Official site of Bui Xuan Phai

Stay tuned...

They say nothing is certain but death and taxes.

In Vietnam the death part still holds, but taxes (of the personal income variety) have long remained a foreign concept to most of the population.

No longer! Vietnam has joined the WTO and the global economy and NOW is getting serious about collecting personal income taxes which until recently were only paid by foreigners and a few high income earners.

Starting January 1, 2009 Vietnam plans to issue local tax codes to millions and get serious about collecting PIT.

Income tax proviso irks citizens

Under the Personal Income Tax Law to take effect next January, taxpayers would be allowed deductions of VND1.6 million (US$100) for each dependent. The taxable income threshold is VND4 million ($238) monthly for both locals and foreigners working in Vietnam.

The definition of dependent includes children under 18 years of age, disabled children of all ages, unemployed spouses, and retired and unemployed parents.

But readers said there is a contradiction between the stipulated deduction of VND1.6 million for each dependent and the dependent’s monthly income limit of VND500,000: namely, the deduction figure is much higher than the limit to what a dependent can earn.

A tax official who wished to remain unnamed said the VND500,000 income limit for a dependent is too low, which could prompt taxpayers to avoid listing the incomes of their dependents.

At the same time as introducing PIT on salary income, the government will try to apply these new taxes to stocks and real estate income as well. (Although there may be more losses than gains in these markets right now... Tax credits for loss selling anyone?)

The Government hopes of course the new policy will help shore up its finances. But some believe the authorities may have bitten off more than they can chew and think these new policies may be overreaching a bit.

Some might also question the wisdom in launching all these new taxes as we enter a global recession and businesses everywhere look at downsizing.

Capital gains tax on stocks may be straw that breaks camel’s back

SSC proposes to delay securities income tax

Expats are also up in arms about the new taxes and some are voting with their feet. Already there are anecdotal reports for expats relocating to Hong Kong, Singapore or Bangkok in the face of a slowing economy, high tax burdens and other issues.

PWC has a guide here: New law on personal income tax

KPMG offers a brief publication on the new rules here:

Tax Alert – New PIT Decree – 8 September 2008

The effective date of 1 January
2009 for the new Personal
Income Tax (PIT) regime and the
Unemployment Insurance regime
is upon us:

• All taxpayers will need to obtain
individual tax codes (the tax
authorities estimate 15 million
tax codes will be required across
Vietnam with 12 million still to be
issued).

• Millions of private household
businesses will change to
paying PIT rather than the
comparatively simple, deemed
corporate income tax as they do
at present.

• Unified tax rates apply to both
Vietnamese and foreign resident
tax payers with the top marginal
rate reduced from 40 percent
to 35 percent. However, the
zero percent tax rate band will
be abolished and replaced by
personal and family member
dependent allowances.

• Business income and
employment income (if
relevant) will be combined for
the application of the same
progressive tax rates.

• Many income items previously
not taxable will become
taxable under the new law i.e.
investment income, capital gains
on securities/investment, capital
gains on real estate properties,
gifts and inheritances.

• Many resident expatriates
(or their employers) may be
seriously impacted when a
number of the current nontaxable
income items potentially
become fully taxable (e.g.
company provided housing,
children’s school fees, overseas
home trip airfares). Additionally,
typical non-Vietnam related
income items currently not
taxable (e.g. home country
property rental income, or
offshore non-employment
income items) may be subject to
Vietnam PIT.

Bottom line this WILL impact your bottom line if you live and work (or invest) in Vietnam.

Beware and Be Afraid.

This is sure to make a bad economic situation even worse...

So many contrary opinions in this market... What's a poor investor to do?

The wise move most probably is to keep your powder dry and sit on your cash for now, since cash is king during a market downturn and there are likely to be plenty of opportunities to buy.

Having said that, feel free to have a look at all the other opinions out there and make up your own mind...

PXP is apparently looking to pick up some bargains, while hedging its bets a bit.

PXP Vietnam to Start Hedge Fund , Bets on Stock Market Recovery

The Vietnam Value Fund will be PXP's first open-ended fund, allowing investors to withdraw their money after a one-year lock- in, with restrictions on what can be redeemed at once.

The fund will have the ``flexibility to use hedging when and where available, and if the manager feels it appropriate taking pricing and market conditions into account,'' Snowball said.

Meanwhile HSBC and others see continued foreign selling amid a general lack of compelling value...

HSBC explains foreigners’ net sales (Vietnam Net)

In September, the net sales by foreign investors reached US $21 million, while the figure rose to US $48 million in October.

However, according to HSBC, foreign investors still hold the listed stocks worth US $3.1 billion and some US $1.5 billion worth of unlisted stocks. Therefore, foreign investors may continue selling stocks in the time to come.

HSBC believes that one of the main reasons that led to the continued net sales is that Vietnam’s stocks are still more expensive than in other Asian markets

At the end of October, the P/E Index was calculated at 10.4, while it was 9.2 in other Asian markets, except Japan.

And then there are local companies liquidating to beef up their bottom line and raise cash....

Major firms dump share holdings

"Whether many companies can meet their profit targets for the year now depends not only on their own management but also on the situation on the stock market between now and the end of the year," Chi said.

In the third quarter, many companies had already sold shares in their investment portfolios in an attempt to maintain profitability, he added.

For instance, Tan Dai Hung Plastic Joint Stock Co chairman Pham Trung Cang announced at a shareholders meeting in mid-September that his company would liquidate all of its shares in Asia Commercial Bank (ACB), ALTA Co (ALT) and Eximbank – investments with a combined value of about VND128 billion ($7.6 million) – in order to free up capital to invest in new projects.

Cang predicted that, between now and the end of next year, there was little chance the stock market would recover the levels it reached at the end of last year...

In order for Tan Dai to maintain its financial investments, he said, the company might have to establish provisional funds for share price reduction and face high risks in a market continuously trending downward.

Among other firms rethinking their financial investments, Sacombank has sold more than 2.8 million certificates it held in the Viet Nam Investment Fund (VF1) and 165,000 shares of Viet Nam Tanker (VTO).

Sai Gon Securities Inc has dumped 1.6 million shares of Vinh Son Song Hinh Hydro Power (VSH), 200,000 shares of Vinashin Petroleum Investment and Transport (VSP) and 300,000 shares of PetroVietnam Drilling (PVD).

Refrigeration Electrical Engineering Corp has sold 3.6 million Sacombank (STB) shares, while Bao Viet Securities has sold 500,000 shares of Cavico Viet Nam Mining and Construction (MCV)...

"If companies have good capital projects for development, liquidating all or part of their investment portfolios to raise capital for these projects is better than letting capital lie idle, [particularly] in a context when loan costs are high," Huy Nam said.

Which brings us back where we started. Like I said CASH IS KING!

"Share liquidation also helps firms avoid continuously having to establish provisional funds to cover stock losses if the market continues to decline."

It was a big victory for Obama, a result that has been welcomed by most of the world.

Around the world , US vote sparks buzz for change

INSTANT VIEW: World leaders' quotes on Obama election win

Enjoy the celebration. But don't forget there is a lot of hard work ahead and it will take time and patience and pain to heal what ails the US and world economies.

Go ahead and party today, but things are still going to look bleak tomorrow.

Hope for the best, but prepare for the worst.

Don't believe the quick fix or the easy rally. We are in this for the long haul...

Global Markets, I Present to You President Obama; Now What?

Challenges Facing Obama

While no one knows exactly the level of NPL exposure at Vietnam's banks and the government continues to claim the problem is under control with NPL's in the single digits, bad debts are mounting as assets decline in value.

VietNamNet - Debt may reach VND 30 trillion in 2008

The debt of local credit institutions may reach VND 30 trillion (US $1.9 billion) this year, according to Le Xuan Nghia, Director of the Banking Development Strategy Department under the State Bank of Vietnam (SBV).

Nghia released the figure at a workshop held on October 28, discussing the global financial crisis and actions of Vietnam’s banks and enterprises.

He said that a large proportion of the debts come from real estate credit, while the remaining volume comes from business loans.

The forecast VND 30 trillion in debts was released after the consideration of reports made by credit institutions. The figure had reached VND 22 trillion (US $1.4 billion) by the end of September 2008.

The figures released by the SBV at the end of July about the percentage of businesses paying debts on schedule show that: 23% of businesses have been profitable, 73.2% of businesses have been operating at the average level, and 3.8% of businesses have been facing difficulties, of which 1.42% of businesses may lose capital.

The period between the end of 2007 and the beginning of 2008 witnessed a booming of the real estate market, with a large sum of capital that was flown into the sector at that time. As prices in real estate have decreased by 30-40% and the real estate market has become frozen, enterprises cannot recover money from investment projects to pay the banks...

Forbes summed up ths story this way:

Bad debt in Vietnam's banking sector is forecast to rise 36 percent to 30 trillion dong ($1.82 billion) at the end of this year from an estimated 22 trillion at the end of September, a central bank official was quoted as saying.

And we all know these estimates are probably very conservative...

Vietnam floods kill 30, Hanoi still under water

While the world is preoccupied with other matters including the financial meltdown and a little election you may have heard of, Hanoi is drowning under water.

These are serious floods causing loss of life and livelihood. Businesses are closed. Traffic has stopped and markets have closed. People cannot leave their homes or get to work. Hanoi has effectively come to a STOP...

The human and economic losses will be severe.

Northern floods wreak havoc

Hanoi rainfall reached 433.3 millimeters on Friday, the highest point since 1960.

Floods destroyed around 45,000 hectares of Hanoi’s winter crops worth VND450 billion ($27 million) while 9,000 hectares of fishing farms worth VND810 billion ($48 million) were also laid waste, according to the city People’s Committee.

Around Hanoi, some 10,000 residents’ houses were flooded and traffic chaos has ensued...

Halloween this year poses a very serious question: Trick or Treat?

October was a horrible, devastating month for the markets. But the last week brought a rally of over 10% in the Dow, S&P, Nasdaq...

So what to believe?

Have we seen the worst? Have we found the bottom? Is it time to jump in buy with both feet? The buying opportunity of a lifetime?

Or should we hunker down and play it safe in anticipation of darker days ahead. Are there more surprises lurking along this murky road to depression and deleveraging?

Is this a buyable bottom or a bear market rally we need to sell?

There are predictably several schools of thought here:

Things Could Be Worse...

Five Signs of a Market Bottom

Q109? Q2? When the Market Will Recover

Don't expect any consensus here so tread carefully.

There is a sound and sensible case for wading into the markets here, but there are also a lot of unknowns. Watch your step, pick wisely and don't count on a quick recovery, because it will be anything but...

And remember there are still major issues and questions about inflation, deflation, credit, deleveraging, not to mention all major currencies...

Mental wounds not healing
Lifes a bitter shame
I'm going off the rails on a crazy train

One of the great unexplained mysteries of our current crisis is the surprising performance of the USD.

You might think that with Helicopter Ben at the helm and the Fed hell bent for leather to print as many greenbacks as they possibly can that this would be ideal conditions for a rally in Gold (which we have seen a little, but not enough to please the gold bugs) and for a precipitous drop in the USD.

This would be logical, but it would also be dead WRONG. You would be surprised instead to find that the almighty dollar (which has been much mocked and abused of late) has been flexing its mighty muscles in a BIG way.

Put simply US Dollars have outperformed virtually every other asset class in this crisis. Cash is King and USD cash is the King of Kings. (Okay second maybe to the Yen JPY, but that's another story)

How can this be? The gold bugs (not to mention the rest of the world's currencies) would desperately like to know.

How is it that the US, which precipitated this crisis and deserves much of the blame for it, is seeing a strong boost to its currency at the rest of the world's expense?

There are 3 primary explanations for the Dollar's surprising strength:

1) The Japanese Yen Carry trade has finally crashed and burned, exposing huge distortions in many of the world's currencies

2) The hedge funds facing a cash crunch, margin calls and a spate of redemptions are repatriating US dollars as fast as they can (while selling off ALL other assets)

3) For better or for worse the USD remains the world's reserve currency and perceived safe haven in times of trouble. So despite negative real returns, the world's investors have piled into US treasuries in a flight to safety aimed at stemming loses if not capital preservation.

Why Are Investors Returning to the Dollar ? - Seeking Alpha

All Eyes on the U.S. Dollar - Seeking Alpha

Three Possible Explanations for the Dollar's Strength

We can argue about the causes and whether this makes sense at all, but you cannot argue with the results, which are that the USD has been kicking BUTT.

Dollar and Gold Rise Simultaneously? Bring On the Flying Pigs ...

Still, content as I might be that my US assets have received a welcome currency boost, even as the rest of the world has been taken to the cleaners, I have to admit that this situation is 1)unfair and 2) unsustainable.

The US by most accounts will need to raise (i.e. PRINT) a couple Trillion dollars to dig us out of this DEP/recession. So the future course of the US dollar is in little doubt, it is only a question of WHEN, not IF it will fall.

And WHEN the tides turn, it MAY BE WISE for those with USD assets to jump off this crazy train and onto more solid ground before it slides too far...

WHEN will this momentous shift occur?

My best guess is sometime between Q1 and Q2 of next year.

The carry trade may be mostly unwound at this point, but Hedge Fund redemptions are just picking up steam. Most hedge funds require their holders to give notice by mid November to make year-end withdrawals... of which you can safely assume there will be MANY...

So I see no relief in sight for most assets held by hedge funds (i.e. virtually everything, except it seems, USD) between now and early next year.

From then, the timing will depend on when or whether some measure of confidence (sanity?) returns to world markets and people start to invest in something other the US treasuries. And even then we can expect many investors will feel more comfortable initially bottom fishing in beaten down US bluechips (a la Warren Buffet), rather than venturing farther afield in emerging markets.

So the TOP in USD may roughly coincide with the BOTTOM in US and world equities.

Gold meanwhile is being weighed down by selling pressure from hedge funds and other investors that were long gold and now need to raise cash. It is also impacted by the general commodities sell off (which is driven both by the hedge fund implosion and the expectation of demand destruction due to the coming DEP/recession).

So like it or not, USD may be your best bet for the next few months until Gold finds its feet and the markets put in a bottom at which point we may see the USD start to give up some of its gains. Of course this will depend on whether inflation or deflation gets the upper hand, but longer term I have to bet on Helicopter Ben and the power of the (Printing) Press.

Sing it Ozzy:

Heirs of a cold war
That's what we've become
Inheriting troubles I'm mentally numb
Crazy, I just cannot bear
I'm living with something that just isn't fair

Mental wounds not healing
Who and whats to blame
I'm going off the rails on a crazy train

Interesting read here:

Two World Views: Buffett vs. Lahde

Also a caution on following buffett too closely or too soon...

Buffett Likes to Be Early; Don't Rush to Follow