Ray on Cashflow today

Fri. Apr. 20 2012 | 11:41 AM[04:56]

Charles Leyland, Managing Director, Leyland Private Asset Management says he’s still avoiding the Australian resources sector and that there..


My impressions of the Legal & Investment Summit @ Conrad

My deep impressions of the Asia Latin American Legal Summit @ Conrad Centennial on April 11 2012

-Presented by Duane Morris & Selvam LLP in association with Mexico, Peru, Brazil, Colombia and Argentina

Video clip of Introduction


This Summit is the initiative of my old friend, HE Eduardo Ramos-Gomez,  formerly Mexican Ambassador to Singapore, also Brunei, now Managing Partner of Duane Morris & Selvam LLP, Singapore & Asia.

A true blue diplomat, it is no wonder my good friend Eduardo  did a wonderful orchestration  of a team of diplomats and august speakers for the Summit which is also a Latin American Investment Summit, as it traverses the legal landscape of investment potentials in Latin America with the outside world, with  Asia in particular.  It is impossible to cover all the Latin countries but the  Latin nations  represented in this Summit  can offer their investments to the outside world.

It is a two-day event with seminar on the first day (11 April 2012) and individual meetings on the second day at the Conrad Centennial.  The list of speakers is like a Roll of Honours comprising our Guest-of-Honour,  HE Mr K Shanmugam, Minister for Foreign Affairs and Law, Republic of Singapore, Latin Ambassadors as well as non- resident Ambassadors of Singapore to the Latin nations,  legal practitioners, The Tecma Group LP and international accounting firm Ernst & Young.

Registration started at 8am with light breakfast served as it was a long day with morning and afternoon tea breaks.  Even the lunch break was subjected to a keynote  address by HE Ambassador Burhan Gafoor, Ministry of Foreign Affairs, Singapore, who ‘swore’ to  protest to our organizer Eduardo for depriving him of a lingering Latin lunch.  A typical Latin lunch takes 5 hours for a 5-course lunch, normally!

Owing to the long list of speakers,  it is hard for them to share  all they  wish to, as each speaker has less than 10 minutes  of presentation for some, about 20 minutes for the major speakers.  It was amusing to see the  time-keeper trying so hard to remind some speakers that ‘it is time’.  I had to remark in jocular style at my table : he does not want to know (alluding to one august speaker).

Now to each Latin country:

1.Brazil.  We are aware Brazil belongs to the BRIC countries. The investment climate was covered by HE Mr Luis Fernando Serra, Ambassador of Brazil to Singapore, then HE Mr Choo Chiau Beng, Ambassador of Singapore to Brazil.   Ms Isabel Franco and Ms Ludmila Braga, partners of KLA-Koury Lopes Advogados, gave some interesting insights into the legal system of Brazil with its  slant for investments by foreigners.

2. Peru. HE  Mr Armando Raul Patino Alvistur, Ambassador of Peru to  Singapore and Mr Ramiro Rodriguez, Director of Duane Morris & Selvam LLP, covered investing opportunities in Peru, and the integration of the Stock Markets of Colombia, Peru and Chile.

3.Colombia. Mr Isaac Tcachman, Honorary Consul of Colombia to Singapore together with Mr Ernesto Cavalier, Partner of Posse, Herrera & Ruiz and Mr Ramiro Rodriguez, Director of Duane Morris & Selvam LLP, covered investment opportunities in Colombia.

4.Mexico. HE Mr Antonio Villigas, Ambassador of Mexico to Singapore , HE Mr Leong Horn Kee, Ambassdor of Singapore to Mexico, and Ms Cristina Sanchez  Urtiz, partner of Miranda & Estavillo, SC,  gave very interesting pointers about investing in Mexico.  Mr Miguel de Leon Perez gave further legal aspects of the Mexican Immex Program.  Mr K Alan Russell, CEO of The Tecma Group, LP covered manufacturing in Mexico and the Immex Program.

Mr Luis Coronado and Mr Andy Baik, partners of Ernst & Young covered common tax issues in Latin America.

At the  end of the seminar was a panel of  law firms and trade agencies to cover case studies on the following:


2.Oil and Gas and Mining


4.Real Estate and the Stock Market.

The moderator was the  ‘maestro’  Mr Eduardo Ramos-Gomez and the Panelists were from Mexico, Colombia, Brazil , Argentina and Mr G Jayakrishnan, Group Director, International Operations (Americas) Group IE Singapore,  with closing of Summit by Mr Ho Meng Kit, CEO of Singapore Business Federation.


I am very  impressed by the coming together of this summit  to showcase the legal  climate  and investment opportunities in Latin America which are rising throughout the world.  One  factor which is also conducive to global trade or investment is the common understanding and usage of the English language, which has been accepted as the language of doing business globally.

One vital piece of information that strikes me hard is the advantages  for the States  to  do manufacturing in Mexico  over China, due to the proximity of Mexico with the States.  Other vital factors are strict protection of copyrights laws,  lower transportation costs   and lower labour costs in Mexico as compared with say, China.

The  representatives of these Latin countries are open to any association to forge trade or investment ties in their countries  and the best way is to contact their respective embassies.


Mexico steps out of Brazil’s shadow

4-13-2012 12-59-13 PM


Exchange-Traded Notes Warning Signs
April 2, 2012

This commentary was written by Bill Witherell, Cumberland’s Chief Global Economist. He joined Cumberland after years of experience at the OECD in Paris. His bio is found on Cumberland’s home page, http://www.cumber.com. He can be reached at Bill.Witherell@cumber.com.

Investors have been pouring money into exchange-traded notes, ETNs, with the inflows in the first two months of this year being 71% more than in all of last year. Recent developments, however, have underlined some of the risks that investors may face when using these instruments. In several March 29 Wall Street Journal articles, including “Chaos Over a Plunging Note” and “Rise of ETNs Comes with Tempered Enthusiasm,” the tale of a 60% plunge in value in just three days of Credit Suisse’s VelocityShares Daily 2X VIX Short-Term ETN, traded as TVIX, is told. The tale is a complex one, involving a complex instrument meant to track the stock market volatility index, VIX, and that is leveraged to provide investors twice as much as the daily move in the VIX. The SEC and the Commonwealth of Massachusetts are looking into the way this note was managed. We will not go into the details of this case here. Rather we will use it to illustrate why investors should use particular care in considering the addition of ETNs to their investments.

It is important, first and foremost, to understand that ETNs are a form of unsecured structured promissory obligation, backed by the credit of their issuing financial institutions. In other words, the investor is making an uncollateralized loan to the issuing institution. Unlike an exchange-traded fund (ETF), there is no underlying portfolio of securities to which a shareholder can lay claim, should the financial institution declare bankruptcy. This credit risk issue alone has led us at Cumberland Advisors to be very hesitant to use ETNs in our portfolios. We would need to determine first that there was no ETF available that would give us access to the target asset class and, second, that the credit risk involved was minimal.

Furthermore, the case mentioned above illustrates that credit risk is not the only danger. Much of the increased interest in ETNs involves complex instruments for use in hedging strategies. They are designed by sophisticated investment banks and are heavily used by sophisticated hedge funds. Less-sophisticated investors should be very wary of venturing into such waters. As pointed out by Samuel Lee in “Exchange-Traded Notes Are Worse Than You Think” on Morningstar.com, “Unlike mutual funds and most ETFs, ETNs are not registered under the Investment Company Act of 1940, or the ’40 Act, which obliges funds to have a board of directors with fiduciary responsibility and to standardize their disclosures.”

Investors need to read very carefully the ETN contracts, which can include significant unexpected costs. Samuel Lee, points out, for example, the use by some issuers of path-dependent fees that “create tracking error to the index depending on the index’s path.” The result is fees that spike upward most when the index being tracked drops the hardest. This certainly undermines the claim that ETNs are supposed to provide near perfect index tracking. (It should be added here that the VelocityShares ETN, TVIX, cited at the beginning of this Commentary, does not have path-dependent fees.) Other costs that may be encountered in addition to the advertised “investor fee” include “index calculations,” “event risk hedge costs,” “futures execution costs,” and “holding costs.” While touted as a low-cost instrument, an ETN can end up with fees in a range common to mutual funds.

Bill Witherell, Chief Global Economist

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On a Bostonian

An interesting recall by my friend David Kotok:

Joe B., Oliver Wendell Holmes, Sr. & Mike Dooley
April 1, 2012

Dear reader: My friend Joe B. has experienced some of the world’s exigencies. He thinks about them in the context of being a former Bostonian, and he said a few things at our last lunch together. His words caused me to reflect on the teaching of an earlier Bostonian. I originally sought a quote from the famous son, but as readers will see, I ended up with the father. We will dedicate this commentary to Joe B., who set me on the course for today’s comments.

“The mind, once expanded to the dimensions of larger ideas, never returns to its original size.” Oliver Wendell Holmes, Sr.

Holmes, Sr. lived in the century before World War I. He preceded central banks like the Federal Reserve and European Central Bank. He didn’t know there would be an International Monetary Fund. In his time, he was a thinker, author, physician, poet. His son was the famous Supreme Court Justice.

Fast forward. The new idea is to take the government-institutional official sector coalition and empower it when there is a financial crisis. This approach is at work in the Eurozone, the UK, the US, and a growing number of other venues. The new idea is to crush the private sector and to keep the official sector in the game for a prolonged period.

This “idea shift” is a distinguishing feature of the recent crisis period that started in 2007-2008. The old idea was that the official sector would intervene, rebalance the system, and then exit. The old idea was to get the private sector back in the game quickly. The old idea was to recover the official money and then let the market resume its functions of pricing and clearing and providing capital.

The old idea is dead.

At our GIC conference in Paris, during the second-day roundtable, Mike Dooley brilliantly demonstrated the difference between the new idea and the old idea. He dissected the transaction in the Greece restructuring. His slides are available on the GIC website, http://www.interdependence.org .

We pause for slide viewing.

Please note: The rest of this commentary will assume that the reader spent ten minutes on those slides and has now returned to our reflections. If you haven’t done so, you will have missed one great learning opportunity.

We resume.

“The official sector seems to be the clear winner,” says Mike Dooley. In our view, that is the triumph of the new idea over the old idea. The lesson from Oliver Wendell Holmes, Sr. is that the minds of officialdom have now been expanded and cannot return to their original boundaries.

Investors who look at the post-Lehman world through the lenses of the private sector-oriented old idea are puzzled. They expect outcomes that do not occur. They measure risk by the size of the official response. They anticipate that the huge sums mentioned by officialdom will yield the results of higher interest rates and more inflation and weakening currency values. In fact, that may eventually come to pass, but it will take a while. The new idea has to run its course before those things will happen. Inflation, weak currency, spiking interest rates are the outcomes of the old-idea framework.

In the new-idea realm, officialdom is in the game for a long time. This is true for Greece. It will need more subsidies. It will be offered that assistance through negotiations under strenuous terms. Such is the power of officialdom. Greece will have little choice, since the alternative of leaving the Eurozone will always appear to be worse. That process will continue for years unless a new Greek government repudiates the decisions of the previous ones and a new political crisis undermines the official European coalition.

Notice how there is no room in this process for a rapid return to the private sector. The private sector is limited and will remain so until the new idea has completed its development phase. Then and only then can a newer version of the old idea commence. Private-sector expansion in Greece requires officialdom to permit it. To do that the political forces must change from the present ones.

We expect the same new-idea process to unfold in Portugal and Spain. The sequence that leads to it is already underway. There is ongoing debate about Italy, since it is in the “too big to fail” category. So far the Monti-led technocrats have maintained power while implementing a changeover to the new idea.

In the US we have experience with the new idea in housing finance. GSE-based mortgages have been the result. It is nearly five years since the first ripple appeared in the Fannie-Freddie mortgage pond. Where are we with officialdom? You take the inventory and be the judge.

In the US, the new-idea framework is now focused on our national healthcare policy. The successors to Justice Oliver Wendell Holmes, Jr. are deliberating. For a perspective, consider that housing is a large part of the United States in economic terms. Now consider that healthcare is bigger. It is about 18% of our GDP. This Supreme Court decision is monumental. It comes down to the debate over officialdom vs. private domain.

“The great thing in the world is not so much where we stand, as in what direction we are moving,” said Holmes, Sr.

In the mature economies of the world, movement is away from the private sector. Movement is toward global and regional officialdom. The players are known by their acronyms, like ESM, EFSF. IMF, or GSE. We live with a consortium of acronyms, funded by central banks and governments. They represent the power of the new idea as it becomes institutionalized.

What does this bode for investors?

We think there is a good period and then a bad period. We are currently in the good period, which is defined by massive liquidity injection from officialdom. $4 trillion of global (G-4 countries) excess reserves in the banking system is a marvelous tonic.

The bad period will evolve as officialdom begins to confront resistance from the citizenry and when the old idea outcomes start to appear. That lies ahead. Signs of it are visible in the civil strife in countries where the new idea is being deployed.

Holmes Sr. warned us: “Beware how you take away hope from another human being.” Investors must carefully observe when officialdom suppresses hope with power. Investors’ capital spent on hope in this uphill fight to preserve hope will be lost. Ask the private holders of Greek debt if you need proof. Ask the holders of Fannie preferred.

The new idea of officialdom is operation and control by a central group of people. They are quite different from the old-idea folks, who are dispersed and whose time is ending. Holmes Sr. warned of the risks implied by this tension. He said, “Between two groups of people who want to make inconsistent kinds of worlds, I see no remedy but force.”

We discussed this when I visited with the Tuesday lunch group. The debate was friendly and intense. Varied viewpoints let to no conclusion other than to continue the debate.

Then my Tuesday lunch-group friend and client, Joe B., reminded me that I must always end with an investment policy statement. “What does this mean for my portfolio?” he asks. So, Joe, we will dedicate these closing thoughts to you.

Joe, we are still fully invested in the US stock market ETF accounts. And we have positions in the energy sector and believe they must be maintained for all the strategic reasons we know. Believe it or not, we are overweight healthcare. And regional banks. And homebuilders. Our new book, Bear to Bull with ETFs, is soon to be released. It will describe some of these sector decisions and how we made them.

We expect a mild, single-digit percent correction and then a higher level of stock prices by the end of the year. The bull market started on October 3, 2011. It is probably only half over.

We are gradually reducing durations in the bond arena, and we are tactically hedging spreads where we can do it. We expect officialdom’s commitment to very low interest rates to persist for a while. That is part of new-idea application.

Joe, enjoy the tonic of liquidity as long as it lasts. And enjoy the libation that accompanied lunch. We are monitoring the punchbowl. We are prepared to change this strategic direction at any time.

David R. Kotok, Chairman and Chief Investment Officer

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