Tuesday, 30 December 2008

Reading List

One of my many issues, is that I have too many hobbies, too much interest in a multitude of things, too little time and too short of an attention span. Although, reading, is one of my more enduring hobbies, that has yet to fall of the wagon - no reference to party related wagons ha ha ho ho.....

Anyway, I try to keep a list of the books i've read online (usually on my facebook) , because I just simply forget what I read and I am too lazy to actually keep the books themselves or a physical list of them. Seinfeld was kind of right when he wondered why George wanted his books back from his ex-girlfriend, when he has already read them!

True, although, it's nice to have a library- we have a huge one at my Dad's place, and I try to send him the books I read to store them, coz I tend to loose, or spill coffee on them - and one can always go back to them. Techie or no techie I am not into these e-books crap, I still enjoy flipping through pages , and having a room full of books and papers and scribbles - well, at least until I move again.

So here is my list: (I forgot some books, and some of the authors, so take this with a pinch of salt)

• Nasser, the Last Arab – Anne Alexandre (Biography)
• Seeds of Hate - Lawrence Pintack (Politics, Lebanon & USA)
• The Four Seasons - Faisal Ziadeh (Arabic, Biography of Lebanese Author)
• To Kill a Mocking Bird - Harper Lee (Story on Black Oppression in USA)
• The Republic - Plato (Classic)
• The Epic of Gilgamesh - (Classic)
• A Cage without Bars - Ibrahim Yared (Memoirs)
• The Odysse - Homer (Classic)
• Confessions - St. Augustine (Classic)
• 20,000 Leagues under the Sea - Jules Verne (French, Fiction - Classic)
• Fermat's Enigma - John Lynch (Mathematics, Science and History)
• E= mc2 - David Bodannis (Science and History)
• The Strategy of Games Theory (Mathematics)
• David Cooperfield - Charles Dickens (Classic)
• Les Miserables - (Classic)
• Out of Place - Edward Said ( Autobiography)
• War and Peace – Edward Said (Politics)
• The Secrets of World Espionage - **** (Research)
• The Muslim Christian-Tarif Khalidi (Arabic - Research)
• Islam - A. Guillaume (English, Research)
• Sunday, Friday - *** (Culture and Religion)
• Lebanon - A quintessential culture - *** (Culture)
• Above the Rim - Nelson George - (History of the USA)
• Selected Articles on the History of the United States - (Politics)
• Away from My Desk- Rif K. Haffar (Adventure, Personal Experience)
• Michelle Aoun, Dream or Fantasy - Sarkis Naoum (Politics, Lebanon)
• No More Leaning On Lamp posts - Managing Uncertainty the Nick Charles Way - By Ian O. Angell (Business)
• Free Software, Free Society - By Richard M. Stallman (Computer Science, Philosophy)
• Does IT Matter?: Information Technology and the Corrosion of Competitive Advantage - By: Nicholas G. Carr (Business and Information)
• The Oligarchs: Wealth and Power in the New Russia - By David Hoffman (Political Economics)
• In Search of Memory: The Emergence of a New Science of Mind - by Eric R. Kandel (Science)
• Listen Rida – Anis Freiha (Culture, Lebanon)
• Before I forget – Anis Freiha (Culture, Lebanon)
• Cross Roads to Civil War - Kamal Salibi (Politics,Lebanon)
• Global Political Economy - Robert Gilpin (Political Economy)
• The Road Ahead - Bill Gates (Technology)
• This Side of Peace - Hannan Ashrawi (Politics, Palestine and the Middle East)
• My Life - Ahmad Amin (Biography)
• Assad , The Struggle for the Middle East - Patrick Seal (Politics, Biography of Syrian President Hafez el-Assad)
• The World Is Flat: The Globalized World in the Twenty-first Century - Thomas L. Friedman (Politics, Economics )
• The Google Story - by David A. Vise (Business)
• The Man Who Knew Too Much: Alan Turing and the Invention of the Computer- by D. Leavitt (Biography)
• Democratizing Innovation - By Eric Von Hippel (Economics)
• From Beirut to Jerusalem - by Thomas L. Freidman (Politics)
• When Genius Failed: The Rise and Fall of Long Term Capital Management - By Roger E. Lowenstein (Finance)
• The New Barbarian Manifesto: How to Survive the Information Age - Ian O. Angell (Business and Information )
• Rafic Hariri and the Fate of Lebanon - Marwan Iskandar (politics)
• China Inc - David A. Friedman (Economics)
• 50 Years with the People - Youssef Salem
• Software as Capital
• Fooled By Randomness - Nicholas Nassim Taleb (Finance )
• The English : A portrait of a People - Jeremy Paxman
• The God Delusion - Richard Dawkins
• The Last Lecture - Randy Paush (Memoir)
• Bear-Trap: The Fall of Bear Stearns and the Panic of 2008 (Finance)
• Beiurt I Love You - Zena El-Khalil (Memoir)
• Lord of The Flies (G. Golding)

and I already have these books in my room, and yet to be read, hoping 2009 will see them covered!

• Catch 22 - Joseph Heller (Satire)
• The Black Swan - Nassim Taleb (Finance)
• The Wealth of Nations- Adam Smith (Classic)
• Killing Mr. Lebanon - Nicholas Blanford (Politics)
• Rafic El-Hariri - The Phenomenon - (Biography)
• Welcome to Everytown - Julian Baginni (Culture)
• Six Days - How the 1967 War Shapped the Middle East - Jeremy Bowen (Politics)

and a whole load of books I need to read! My Italian seriously needs to be attended to, and so does my C++ skills, so that calls for some readings, besides my already well blogged (blabbered) about tri-interests to which this infamous blog is entitled.

50+ books isn't much is it? I quote my good man Prof. Carsten Sorensen when he said "Some of you will read more books in a year that people would read in a lifetime" - well, I dread being the latter, and strive to be in the latter, every year. Although, on the flip side, I had a joke with another former professor of mine, Prof. Yahya Sadowski, when I walked into his office stacked with a wealth of books,

Me: "Doc, you read all these books right?"

Doc: "No, I just don't like empty shelves."

Yeah, I need three lifetimes and a time capsule to catch with his readings!

2008 Re-visited

It's 1:30 am , as the last 24 hours of 2008 start ticking away. I'll be stumbling off a boat at this time tomorrow, as I am taking a boat trip on the Thames for new year. Today, though, I was doing my last 2008 wander around London, and I ended up picking up a few books to add to my already big pile of unread books.

When it comes to books, I tend to buy more books than I can read, but considering the fact that everything I own fits in two suitcases, the one thing a man can never have too little of, is books, even though if he doesnt end up reading all of them, but at least he always motivated to read more and more, but the more you crave books, the more books you buy and the more books you read and so on and so forth, so its like a positive feedback loop.

The same can't be said about 2008. Rather, its the complete opposite. A vicious circle.

Where can we start? The Bear Stearns debacle, Jerome Kerviel, the housing market crash, Northern Rock, Bradford & Bingley-Loyds, the 500bn£ bailout, the 700bn$ bad asset plan, Lehman going bust, Merril being bought out, and Citigroup on the brink.

This is a funny video.

"This crisis is not comparable to 1982 banking crisis, the savings and loans crisis of 1986, the portfolio insurance debacle of 1987 , the failure of kidder peabody in 1997 or LTCM in 1998, or the technology bubble of 2000. The crisis is not confined to a particular section of the financial system but has brought the entire system to the brink of breakdown." (Soros 2008)

The stock markets worldwide have lost anything between 10% and 45% of their value, and they are still declinining, with no sign of solid recovery anywhere in site. But to say recovery, is, in my opinion, wrong. Each of the crisis mentioned above, were what you can call bubles, and bubles grow until they burst. The credit crisis, is somewhat of a super-bubble. It's size really was far larger than any other buble. That's really because of two things: deregulation, and greed. One must give the good and the bad sides of things, though. The good thing starts with the beginning of the maturity of the banking system, that in my opinion, we are just beginning to understand what it means "money is a commodity" , and that money is just like raw material, oil etc. Banking, is just like any other industry, a producer, and their product is money. Yet, because money is a lubricant for transactions, and having it is vital, its actual value was greatly inflated that with all this credit derivatives, credit swaps, leveraging, shorting, spreads and all these nitty gritty terms that any financier will throw in your face, was all based on perception. Perceived, or, to a lesser term, estimated value of this product called money, which was, in theory, backed by "real" assets. When spreads for lending reach 40$ against 1$, there must have been some problem with the "product" : money.

When bankers can come up with a financial product within an hour, sell it, break it up, re-package it, re-sell it, at some point, something was bound to go wrong.

And its usually humans that go wrong, not the system, not the markets, and definitely not any electronic trading system.

Economics is not a science, simply because economics has an element of human intervention, which is why it is a social science, when pure science is simply the explanation of natural phenomena. (Now the LSE being a social sciences institution makes a whole lot more sense). Nick Taleb mentioned that bankers have been fooled by randomness in thinking that there actual study of the markets behavior over a certain period, can help them estimate how the market will behave in the future, and bet on that.

This is a nice pic.

I dont say markets are completely unpredictable, but i am not saying they are predictable either. It's just like people, you can have a fairly good estimate about how people will behave, but there is always this X-factor, a black swan, that can negate everything, and as long as people are the ones driving the markets there will always be that element, and the more we give the people in charge this liberty, the higher risk we run on another crash. Crashes will continue to happen, but you dont want another one of this scale, which is why I agree with Mr. Brown on more regulation. Regulation will bring a better understanding of the "money product".

The Germans and the Italians have a fairly good idea on how to build a car, but with a monolith lik GM in trouble of collapse, even well understood legacy products, and how to deal with them, will always remain as an element of risk. Why? Simply because of people. Some people just don't like driving, if you catch my drift.

Anyway, I quote George Soros when I say "History does not repeat itself [at least in finance]. The collapse of the banking system in 1929 was the cause that lead to the Great Depression, and that is why governments will not allow the banking system to collapse."

So, as gloomy as 2008 was, we'll come back, stronger, better, faster. .....I hope!

Wednesday, 24 December 2008

Breaking the AdSense model?

I am a bit tipsy at the moment, but I was having this idea. With my techie mind and my position in the midst of the financial industry, worrying about the recession can become quite interesting of a conversation after a few pints....

Anyway, we were talking that innovation is the only way to get the economy moving. Innovation, is new ideas, which create new businesses, demand new skills, and move the investors and the entrepreneurs.

Well my brilliant - well brilliant if you were reverse brainstorming- idea was to start a social movement to urge people to start clicking on all these ads you see everywhere on the internet. In 2007, Google had almost 18 trillion clicks. That's alot of clicks, considering that companies that run ads online pay per-click, and the clicks themselves can become quite pricey, with up to 5$/click. The idea behind that, is that if so much users click on these ads, some of them will eventually become customers. i.e. the traffic on that website will be increased, and the more traffic you get to your website, the more you sell stuff. The click itself, is completely free from the user/surfer's end, as all they do is click. The idea is that if we start that social movement to urge people to start clicking more on these adds, Google, or people behind the Ads, will start making much more money if , for example, the clicks jump to like 30-40 trillion clicks, the size of the AdSense market will double or triple. Be it an already huge market, in the 100+ Billion dollars, then tripling it, from the user end, is a free contribution of throwing like 200 billion dollars into the markets. Well, that's bigger than alot of bailout packages governments are dishing out, combined!

Wait a minute, but wouldn't that break the Google business model, and collapse the AdSense? The idea that more clicks would bring more customers, and bring more business, based on the assumption that if one tenth of the people visiting there site will buy something, that's great! But, what if the users in this alleged social movement are just clicking at random without actually looking at what they are clicking? This means that more traffic isn't really getting more customers. At that point, the advertisers themselves will start complaining and would want the AdSense prices slashed by the same ratio of customer/visitor was reduced. The bad thing about that, is that the market will shrink back to its original size, and our social movement is rendered useless, and they revert to stupid suckers clicking without a cause. (Then they establish a charity and get government benefits). The loser in this game, is that the AdSense business mode will collapse to the extent that its become commodetized and it doesn't really derive serious revenue like it does now, and a new innovation will be needed.

The only upside of this, is that even if these members of the social movement are still to determine whether they are smart geeks or a bunch of suckers, pshychology is on the market's side is that no matter how indiffirent you will be to what you are clicking, you will eventually find yourself stopping at one of the random links you clicked, because something caught your eye. Probability is also on psychology's side- because girls will always stop at the word chocolate, as well as the guys will pause on a lingerie picture. (Did I just make a girl/guy psychoanalysis? Sorry!)

I started an internet movement, financed it, and completely broke down my business model. So I guess I still don't have my winner tech-business idea.......

Damn it!

The Oligarchs?

The thing about writing is that you often don't feel like it. When it comes to bloggin, well, writers block looks like a walk in the park, coz for me, it's often more ideas that I believe deserve a blog post than it is writing the post itself.

Yet one of those things that stopped me the other day, is that New York City is back on top of the list of the city with the most billionaires, regaining that position from Moscow. Especially that all these oligarchs really piss me off because it's just the result of an exploitation of a system that is not open enough, and if it wasn't for their political connections they wouldn't be dreaming of this kind of money. (Yeah ok, dating a Russian hottie who was also stupid as fuck and wanted the shinny things contributed to my dislike of the oligarchs, but anyway).

It all started with Anatoly Chubais (I think it was him), who introduced just a small clause into the Communist party manifesto (or the equivalent of whatever constitution they have), which allowed the establishment of small business desks for individuals. Of course this was done the communist way, with businesses being given one name, and numbered like "Communist Bank 1", "Communist Bank 2" etc... yeah, it looked like communism unchanged, but those who knew the system, like Khodrovsky, knew how to exploit it. Once, Gorbachev, who history will one day recall as a great leader, not one who failed in the communist realm, but someone who understood that the fall of the USSR was imminent and he just let it happen. He didn't care it happened on his watch (in 1989, there was more firepower and army troops in Moscow to smash the protesters, but Gorbachev didn't really see the point in that). Well come capitalism into Russia, when the government decided to sell of its state owned businesses, factories, resource etc, the oligarchs were already very well positioned, with the rubles (which they then miraculously switched to dollars) and the small "businesses" that Chubais allowed, as well as their political connections to buy out the state at a something that the word "bargain" is just too weak to describe. Think adding zeroes to your bank account with a scratch of a pen. It's like you have an auction, yet the only bidders are those making the sale, and want to get it for the cheapest possible.

It's really simple. The government under the communist state, had already footed the bill to build all the infrastructure, the pipelines, the roads, the factories and steel mills, etc, and then simply was too bankrupt to run it themselves. It just needed someone with a little cash, to lubricate the process and get the wheel turning again. Surprisingly (not really) those with the cash, where those oligarchs that took it from the state (when they played the devaluation game (chech this ) : take the money, buy dollars, devalue the currency and you are the only one left with any real money to do anything, then swoop in and buy out all the assets, and pocket pure profit.

This is particularly interesting, because something similar exists in Saudi Arabia, yet another oil rich country. For example, Saudi Telecom, the biggest telecom operator in the Middle East, and formerly the 13th largest telecom companies in the world, was one very profitable company (at least when I was in the region, and before global recession and the decline of oil prices), simply because the whole telecom infrastructure, the base stations, the transmission dishes, the relay stations, the switch boards, routers etc, was all paid for by the government. It wasn't subsidized, it was PAID for, by the government. And then what happens? They privatize Saudi Telecom into STC, and throw it on the stock market, as a purely profitable company. Of course it is, they don't have any running costs or debt service. Operations costs? pfffffffff that's nothing.

Yeah well think of the Oligarchs of the private owners of such government institutions. Now that's what I call big money.

The only twist in all this, and I don't know if this really is the way things work in Russia, but I know one thing: Don't piss off one certain ex-KGB agent, with a black belt in Judo.

Now, Boris Beresovsky knows this very well, so does Khodorvsky, and Abramovich sure does. I guess now, they are laughing- well, at least Abramovich is. Beresovsky, although equally a London billionaire, would probably do anything for some real Russian vodka, but I guess he isn't dropping into Moscow anytime soon. Khodrovsky, in a 4x3 , probably is enjoying the vodka, but probably not much more.

......there is really only one oligarch, and his name is Vladimir Puttin.

I recommend Hoffman's book "The Oligarchs: Wealth and Power in the New Russia", yet I'd like to read "Putin's Russia" but my shelves are stacked with enough unread books already.

Sunday, 21 December 2008

Finance for Engineers - The Basic Jargon

I hardly need to explain: trading desks, stock exchanges, papers flying, phones ringing, mice clicking. Its a crazy industry you have to be deranged to understand it. Well, not really. Except if you are Alistair Darling and you just issued the British Government annual budget, but had to review it after the credit mess. Being an engineer, a few "keywords" can help in debugging some terms:

The Basics

  • Buy Side: People that buy stocks (securities) in order to make a profit, either from dividends or returns. Ex: All kinds of funds: pension funds, holding companies, corporations.
  • Sell Side: People that advise the buy side on what to buy, by doing research, expert analysis and coming up with investment ideas. They effectively don't buy the stocks/securities, but rather advise the buy side on what to buy, charging a fee for service, and/or a percentage of the profit. (usually measured in basis points) Ex: Investment banks and brokerage firms.
  • Hedge Funds: An institution that holds a bulk of money for very wealthy individuals and/or companies, that allows them to create large scale investments that can yield higher return than individual investments. Hedge funds, unlike mutual funds, are exempt from a number of regulations that allow them to apply more aggressive (yet riskier) investment deals.
  • Mutual Funds: An institution that has shareholders, who invest money in that fund, which is run by an investment company. This money is then used to buy or sell shares, bonds or assets (businesses, equity, technology, etc..), according to a set objective, which is the reason the shareholders have invested. Mutual funds, unlike Hedge funds, are governed by rules and regulations against things like monopolies, unfair advantage, business disruption, etc., but on the flip side, are more liquid and shareholders can opt out at any time.<>
  • Commercial Banks: A bank in the usual sense where everyone can have an account deposit money and do transactions. Many of the commercial banks (UBS, Chase,Citi), due to immense wealth, create their own Investment banking arm, as well as their own internal funds (because they can!)
  • Investment Banks: An investment bank is everything a commercial bank is not. Fewer employees, different operations, and, in most cases, less money. (yep, amazingly so). Investment banks are underwriters, or agents for businesses and corporations issuing securities and stock. i.e. if a company wants to go public, it hires an investment bank to handle it's IPO. Investment banks employee loads of analysts that do alot of market research, to which then the associates and higher ranked employees, advise the investors (funds, corporations, businesses, and in some cases, rich individuals). The investment banks extend their functionality to so many other different areas, such as trading, with trading desks as big as football fields!
  • Traders : People who do the actual buying and selling of stocks on behalf of clients. Traders that work on the stock market are required to have a securities trading license (these are the people that throw papers and smoke outside the stock exchange and are constantly on the phone). Traders usually buy and sell in short periods of time to make profit on changing stock prices.
  • Brokers: Brokers are intermediaries between buyers and sellers. They also are sales people who would talk to clients and advise them (based on their own, or market research) on what securities to buy and sell, and charging comission.
  • Equity: Equity is the value of the securities in a given investor's account assuming that the account is liquidated at the current price. An account can have multiple stocks across industries.
  • M&A : Mergers and Acquisitions. Investment banks usually offer companies with advice on whether or not to acquire other companies and/or merge with them. Briefly, and acquisition is when a company buys-out another (usually smaller) company and incorporates its products into its own. The bottom line of an acquisition is that the bought-out company seizes to exist. Employees either become employees of the acquiring company, or are laid off. As for a merger, is when two (or more) companies merge to form a new company, with both businesses remaining servicing their primary business, but with new money, new management and refactoring. The main difference between a merger and acquisition is strategy, that mergers usually introduce strategy changes to the merging parties, while an acquisiton, is because the parent company thought that buying the acquired company fits into its strategy and growth! Merger example: Reuter-Thomson.
  • Public Companies: Companies traded on the stock exchange, in which any member of the public can buy shares in that company. The one important issue about public companies is that they are required to release financial and business details to the general public.
  • Private Companies: Privately held companies, that do not issue public stock. This frees them from the obligation to release details about the business, beyond what is general information. This makes them like a black box, and to some extent, a competitive advantage. Ex: Bloomberg
  • Portfolios: The combination of bonds, stocks , equities etc... held by a person and/or company. A portfolio usually is diversified over a number of industries, and combinations, to minimize risk. (i.e. don't put all your eggs in one basket).
  • Revenue: The total return the company made from its operations throughout a fiscal year. i.e. before deduction of tax, expenses, salaries etc...
  • Profit: What is left of the revenue after what needs to be paid is paid.
  • Dividends: The return of a given stock. The profits of a company are divided on the number of stocks, and paid out to the shareholders, either in cash, or otherwise (goes beyond my scope :))
  • Market Cap: The product of the value of an individual share by the total number of shares.
  • Income Statement: An income statement is a document that analyzes a company's revenue (not profit) and expenses over a given period of time. In the US, this is usually done on a quarterly basis (i.e. every 3 months).
  • Balance Sheet: An overview of a company's financial situation. i.e. what is in red and what is in green. What does the company has in assets (green) and what it has in liabilities (red). The gold equation of a company situation is : Assets = Liabilities + Equity
  • News: Anything released by companies to the press - this is directly related to what classifies as public information and private and confidential information- related to insider trading.
  • Price to Earnings: a measure of value of a stock. i.e. how much a stock costs compared to its return.
  • Estimates: An estimation of the potential earnings of a current investment.
  • Stocks - Outstanding/Common: Common stocks issued by the company held by the public and give holders the right to vote and claim to dividends (although the dividends are dependent on the performance of the company).
  • Stocks - Preferred : Stocks that do not give the holders voting right, and pay a fixed dividend (if any), regardless of the company performance. (not quite, but this is the general idea)
  • Bonds : A bond is basically an "I owe You" document that a government issues to raise money from the people. i.e. Someone can purchase a bond for a certain amount of money, and the government or bond issuer (not always, but usually) promises to pay back the money with interest, either at one specific date, or at set period (frequency) of time. These bonds are themselves tradeable, in which bond holders can sell these bonds before they are due. This is when a bond is sold at a premium. Government bonds are important, because, supposedly, it is zero risk and governments usually pay back the money. i.e. guaranteed money back - an alternative way of investing. (unless the government defaults on it bonds , which happens rarely, but can happen. ex: Russian government defaulted on its bonds in the 90s).
  • Analyst: The lower chain of the finance echelon. Analysts (ref. investment banks) are the people who do the grind work of research on companies and businesses.
  • Associate: Usually post-MBA employees who are the people that make the investment/brokerage decision based on research done by the analysts.
  • Rating Agency: Such as S&P that rate bonds' likelihood of default. (as in bond issuers not paying back the bond).

Oh yeah, and these are entirely my notes.....or my fault!

Friday, 19 December 2008

Tales from the Basement - Mergers and Acquisitons (2)

So in a previous post, I talked about M&A and how difficult it can be for someone to be M&A'd, because that requires a lengthy and tiresome process of integration and people shuffling and most importantly, resource allocation.

Well when it comes to technology, acquiring companies is a way of living, or to be more exact, a survival tool. Talking to someone at IBM, who's been there for 25 years, and is now on the Domino project, he said that today, on average IBM acquires a company every three months. that's in line with Domino, which is a meta software, I.e. a software that manages software. Well, wat is important in this point is the managing software bit. For a company like IBM, which is, according to my friend Kags (an IBM alum), is that the company is just too corporate, and that it takes a lot of effort and people to get the ball rolling on a project from scratch. So sometimes, its just easier to just buy a company with a working product.

But when they do that, there are 4 decision

1) business as usual: the small company has a good idea, its working and its staff are performing. With a little more push, resources and money, they can go to the next level,. The aquiring company can take them there, and everyone shares the profit. Example : Smith Barney

2) the idea: the aquiring company just wants the idea, with its patents and copyrights, when it can use its own staff to gut it and rebuild it. This is when it gets ugly, because that means people will be fired, job description will be rewritten and previous work may be chucked out.

3) client base : sometimes the company just want the clients and exposure to the market , throwing money at it, allocating engineers and staff, and providing with a wealth of resources. Example: YouTube. (Google just wanted the exposure and retaining as much users in its realm as possible)

4) Hostile Markets: Sometimes, small companies are like little thorns in a bigger company's side, and they are stealing clients from them, and well, that company is running the risk of loosing some clients, and if that company gains enough momentum, or enough small companies spring up and start merging, small fish may become bigger and evolve into serious threats. So, for the monolith company, its just easier to buy out the smaller company out of the market. Often, this is the whole point of the small fish anyway, is to be bought out, because they got the idea, and they really want to get more money for it, because it's not really there intention to make a long term business, but rather just cash in now on their idea. So, they come up with the idea, build something around, get a proof of concept going, and sell it to the highest bidder. (My style of companies) . Example of a killer whale: Microsoft. Example of small threats becoming a risk: Intel and AMD.

So basically that is the logic behind M&A, from a managerial side. I am not talking about M&As at banks, because these idiots are just out to make the cut on the sale and the aftermath is least of their concern. (Much like consulting, which I also hate).

Street Smarts

I was up to my old habit of wandering around the city, alone with my thoughts. Walking down one of the streets in East London, I notice an attractive young blonde kind of strolling around, except she wasn't exactly walking in a straight line. As I get closer, I relaize that she actually didn't look normal, turning around as if looking for something. Passing by, there was a car with two guys also looking at the blonde with a bit of a surprise. As we both become aware of each other looking at her, I make the gesture and the dude in the car goes "Oh right", as we both realize the woman is obviously on crack, as he almost climbed into the back seat to get a last glimpse of her curves as the car pulled away and I keept walking.....

I keep wondering what it takes to be an entrepreuneur, like the Richard Bransons, the Donald Trumps and the Alan Sugars. I am not talking about the Larry Pages and the Mark Zuckerbergs, or the John Paulsons, Vladimir Potanins, or the Rothschilds , because all those people started from something: The Stanfords and Harvards, or the Politics and the Connections. Am talking about those people who cam from mediocre, or just plain ordinary backgrounds, and made their way, all by themselves, to the top. The husslers, the streak entrepreuneurs, the capitalists. I guess it takes a lot of things, and a shit load of luck, but all these people have one thing in common:

Street smarts.

They say a great salesman can sell t0 water to a fish. These people know all about grass roots- and grass roots is where it all is, because that's where the real hunger starts. It's a jungle out there, and everyone is out to get theirs, and if that's what it takes, get you along the way. It's a competitive world, and in order to survive it, one should know his way around things and people. You can have all the degrees in the world, all the money and all the connections, but to be a player (Billy Harris RIP), you have to be street smart. A street smart person knows how to operate with very little, in a cut-throat environment.

When everyone was a kid, we went through high school. We were all bullied at some point, we got into trouble, we got ratted out, but people survive. Although that's where you start finding your route: some take the bullying and the crap, and stick to the books. Others bully and are on the opposite end, but in the middle you got a few who are a bit of both, the role players. This is when they learn what it means to be on each end, and to survive, they do the talking, the walking, and try to make the best out any situation. In high school, it's all in the open. You know who the nerds are, and you know who the bullies are. You have rules, and you have enforcers. Well identified.

In the real world, this, sadly isn't the case. It's all fair game, and you don't always know who you are playing with. Street smart people can operate in any environment, because, they know how to work the players. It's a business man or a car dealer, they do the sweet talking, they do the bullshiting, they know the math, and they understand the psychic (and if they are good, the women, too). They can lunch it in Hackney or the Bronx tonight, catch the subway to Chez Charles and catch the stretch ride to the Ritz. It's all people, you just have to know who and what the person you are dealing with.

The one thing that defines street smarts, is to be able to think on your feet, literally. Not in the comfort of the boardrom or on a noisy trading floor, but when your wallet was stolen and your phone battery is dead......in the Saudi desert. The street smart, is the dude who can catch a camel ride, dine with the nomads, and find a charger for his phone. What people like Richard Branson can do, is not only that get to that boardroom meeting, but make friends with the nomad, who in some crazy twist of event, can end up being the heir Prince of Arabia, and send some some serious bailout money to one of your credit-crunched companies.
That LSE degree sure is essential in that board meeting, but that means jack all in the desert! That's when street smarts comes into play. The degrees and the money work for alot of cases, but when that no longer does, the street smart man, knows that when they are gone, he still has something to work with, because he has....the grass roots savvy, and knows, that his biggest asset, are the people.

No refs, no rules.........no problem................

Monday, 15 December 2008

The Fed Secrets

The Federal Reserve bank of the United States is, in theory the biggest bank in the world, since it is the central bank of the biggest economy in the world. This bank, currently chaired by Ben Bernanke, monitors the economic activity of the USA, and is supposedly the regulating body of the markets. Although, this sometimes can be challenged, and the Fed is not exactly a good samaritan.

Before I dive into why that is, there is something important to mention, which was brought to my attention by my former professor, Ian Angell, in his book "The New Barbarian Manifesto".

Rating Agencies.

Rating agencies such as Moody's and S&P , are agencies that rate credit. This is important because it allows investors to assess whether a certain institution is likely to default on its debts. It is of particular importance in tough times, because its a good indicator for investors. The weird thing about these times, is that rating agencies seem to have acquired considerable power influence, because they also rate treasury bonds. You know the AA, AAA, B ratings etc... But the trick here is that when Moody's rate treasury bonds, its as if its rating a country, whether the country/government will default on its treasury bonds. Now that's like a private institution rating a country. Well, in retrospect, can't that pass as to be such a powerful institution that it can affect how governments are perceived by the internation community? That's quite a thing...

Anyway, the reason the Fed isn't exactly a good Samaritan, is for example, they do tend to keep secrets, like who they are giving aid to. Check this . The issue about this is that when a Central bank doesn't reveal who it is dishing out aid to, its affecting the transperancy of markets, as well as their operation, because when a company needs aid, its really an indicator that they are in trouble, and when someone is in trouble its usually reflected on the stock price, and investor confidence, and may dilude investors into investing in a dying company.

Which is unfair.

But a small story, is that the Fed often has favoritism, and we all know that the world is not really fair (haha that's a laugh), and people often favor people.

At least Bear Stearns know that. There is something called a discount window, which allows banks to take money from the Federal Reserve with a reduced interest rate, to service debts for a short period to avoid a liquidity problem. This is open for commercial banks, because commercial banks, although technically less active on the lending and investment scence for business, are crucial because they hold the people's money : savings, running accounts, etc., and if any of the commercial banks go into liquidity or financial troubles this can mean big trouble on an individual scale, because this doesn't mean that business will be affected, but directly the individuals, and not one or two, but thousands, if not millions. Imagine if Bank of America went bust, and all its customers lost their money, or part of it. That means riots, toppling of governments, demonstrations, big big trouble because that's going directly to the people. If an i-bank goes bust, the government can still somewhat handle the bankcruptcy without huge trouble, because hardly anyone will be instantly fucked. i.e. investors and business will probably go bust and employees fired, but imagine if 100,000 people no longer could afford to eat the next day, because their bank accounts were cleaned out. Lots of trouble.

Anyway, the discount window was , exceptionally open to investment banks, because the crisis was so grave, they just had to do it. Although, because of an old quarrel, and the reputation of Bear Stearns being the sharp elbowed rebels of Wall Street, the Fed only opened the discount window for the i-banks, after Bear Stearns (or stare burns like my friend now calls it), was already finished, and could not benefit from the discount window.....

Goldman Sachs and Morgan Stanley, were more lucky than that, and managed to benefit from this move, although, this came at a pretty high cost, because the Fed forced them to convert into retail banks. This move, brings them within a realm of more strict regulation and less freedom in investment and sell-side activities.

At least the Bear guys would never have to say "Hi, and thank you for calling Goldman Sachs. How can I help you today? Would you like to hear about our new mortgage deal?"

hehe. Live free or die fighting.....

MS retail bank

Tuesday, 25 November 2008

The Old Facebook Stupidity

You know what I dislike? It's people's abuse of the internet, and I am not talking about the hackers, crackers, spammers or scammers. Although, what I hate, is when people really think they can control the way the internet works, and that they can set the pace on how its used. (Sure users are the source of revenue but those who really understand users know that users are idiots and will keep coming back anyway. There is a sucker born every minute- I love this quote)

Back to the point.

I got two facebook accounts, more email accounts than fingers, and I don't know how many online accounts and logins on every website you can think of. It's just something that you have to come and accept that all this user activity we log, is simply unavoidable, and if you want to survive the informatin age, you just have to live with it.

An example of something I hate about user idiocy, is this "Bring back the old facebook" stupidity. Alot of people, actually most, people on the internet are completely ignorant of how the internet works, or how online communities work, or either of them. Sure, the thing about online communities is that they have no rules, and anyone can "start" a movement. I am not going to talk about online communities, that's actually an interesting thing to talk about. What really bugs me and spurred this post is how people don't understand how the internet evolves and will evolve, and that they think they can stop things if they get enough people behind it.

Go shout yourself.

For example, there is a group on facebook "4,000,000 to bring back the old facebook" and they are probably at like 3 million members so far. Utter stupidity. Facebook has changed its look and feel 3 times in the last 18 months, and none of these groups stopped them from doing that. And surprise surpise, out of the 3 million+ who joined these groups like idiots (sorry am using the word alot) did not leave facebook just because they didn't like the new look. Ha! that would be a laugh. They are simply too addicted and attached to it to leave, no matter how it looks. As long as it gets them to stupidly advertise themselves in a self-perceived-look-of-themselves-that-is-completely-different-than-reality, plaster their drunk pics, their lame social life, and their stupid ideas, then they will keep coming back. The only difference between facebook and other websites is that they do there changes in-your-face style, which I kind of like.

Take Amazon for example. If you take a look at the Amazon website 4 years ago, it would be much different. Yet, Amazon chose to introduce changes (recommendations, ratings, new products, etc etc...) gradually, and in a more subttle way, that users just evolved with it. Amazon probably has more users than facebook, but these users are a little more focused on the "in-out" idea (although this is changing also as more social networking features get added to amazon): find what you want, browse, buy, leave. But facebook is a passtime website, and users tend to spend longer time on it, and use the features, and hence notice them. And sometimes, don't like the way they change because its not the way they are used to..... but, they won't leave, because no else will !! There are 70 + million users, and growing, and as long as users think of self-advertising themselves on facebook, whatever Mr. Zuckerberg and co. at facebook decide to do, the users will accept.... well, as long as they don't start charging them for having an account. (Every wants free advertising )

Yet on the flipside, the crap thing about the changing online community is that business, like everything will set the pace on the evolution of the internet, is that it will go mainstream and become less fun. What facebook started off as something for fun and messing about making fun of each other and creating this virtual persona that had nothing to do with reality. Ribaldry (or manyake as we would say in Lebanon) was king, and I could up anyone by one, throw bad ass jokes on walls and portray myself as Chris Rock with a twist, it was fun. But when cats started using it to brag about how many friends they have, who they work for, what countries they travelled and how popular with girls they are, it all went wrong. And for people like me its now just another email concept of connecting with people- with less hassle on attachments. Check this post.

Bottom line, users are stupid, and smile, you are being exploited, because no one is leaving. As long as the girl thinks she can get back at her boyfriend by posting pics of her going out and having a blast, and as long as guys think they can get laid through facebook , everyone will keep coming back. I need to make a group called "all stupid facebookers"

It's shit that I now have to watch my mouth, even on facebook. Damn you majority.

Sunday, 9 November 2008

Where Internet Search Fails - Outsmart Google

You know, the thing about being a geek is that it is a charachter. Something inborn that you can't change. You can become a financier, you can become a businessman, an artist or a comedian, but its this thing that when you retire to your room, in your warm comfy bed, free of society and alone with your thoughts that is when who you truly are surfaces, when no one is looking.
I am a lot of things, but, end come to end, I am a geek, and a techie geek (geek by definition is someone passionate about something so much it defines him- it's not restricted to technology- u can be a photography geek, or a stamp geek....). I always wanted to be a techie, coz I always was a geek. I do it for the joy. It's a geek's world, and a techie heaven, and I always wanted to be the guy who makes people look silly when it came to computers. Now I am one, and I may be into a lot of things, like running the London Bridge Festival club, and being into finance and business, but, when someone slightly mentions anything remotely techie, I drift away on techie tangents and the internals of how it works yada yada yada... you can't run away from who you are.

This is by far, a geek post, with a capital G.

Anyway, we were talking the other day about search engine optimization, and I instantly broke it down in my mind, following my usual habit of coming up with an innovative idea, building a business around it and running it to the ground of its flaws within 30 minutes. (bad, bad habit , come on bright idea please come! am poor!) .

I am sure you all heard about this small company called Google. Well, they are big on internet search. Besides the fact that I believe that the main reason Google is so successful is that they have an empty, basic, homepage, with just the search bar. It's human psychology- simplicity - is the way to keep people coming back. Now, behind that search bar, is the famous PageRank algorithm, u know where Google does its calculations of how high the page should rank by computing all these different factors, such as inbound links, outbound links, keywords, meta tags, and the works. The idea behind this is to come up with a number, that is associated with each page, related to a given search querry, and these pages accordingly.

In addition, they have something called an index, which, is something like hashtable to which each and every page (and I mean each- well almost) page on the internet hashes to one value within that table. So, when you have that index, and you compute a page's hashvalue based on the PageRank algorithm, u'll get your search engine results, ranked by the closest match between your querry, and the hashvalue within that index. The complete equation is not completely released by Google, or any of the other search engines on the web, but the idea is that they try to "approximate" what the closest value in that index is related to your querry.

Trick: if you want to get a rough estimate of the size of Google's index, just enter a random large string of characters like "fdjadkmfjakjfdakjsangfkjgsafsa" in Google, and u will get like 1 or zero results in the search, but it will say "Results 1 - 10 of about 19,000,000,000 pages" which you can estimate the number of pages in Google's index. Lately it seems though that Google noticed that, and when u enter such a random string, it doesn't spit out this index size anymore but rather rejects the querry or whatever. This is probably because of the index debate, with Yahoo claiming to have 20billion pages in its index, Google claiming to have 3 times that, and the new company Cuil (pronounced cool- company which is going nowhere) claims to have twice the index of Google. (Funny that there website crashed the day it was launched).

This is all nitty gritty and nice, except there is an upper boundary for what internet search can do. Your search results are limited to the text the user enters. No matter which way you want to put it, and no matter how many web crawlers and algorithms engines apply, they just can't get into a user's mind. You will only find what you need/want on the internet is if you know what you are looking for. i.e., if you are cluless of what you are searching for, for example "that movie that the guy says 'bloody as hell' ", well if you enter "bloody as hell" , you'll probably won't get very far. Entering "bloody as hell movie script" will probably have Pulp Fiction in your first few hits and you are there. But, the point here, is that your brain did most of the narrowing down of the set you want to search for. It's not very difficult for search engine optimizers (SEO) to have algorithms that simply figure out that when you enter the word "movie" after some text, it will look first in areas related to movies. You made the job straight forward when adding the word "script". Piece of cake. In simplified ways the engine would do this -> movies subset of index -> scripts -> sentence -> bloody as hell. (Now play drums).

The great Alan Turing set the upper bound for what computers can do, with his Turing machine, and he proved, beyond a doubt, with his Turing test, that computers can't and will never think, and similarly its the same bound for for search engines: they can't get into your head.

These days, with the growth of the internet, and the immense computing power for a massive search engine like Google, they could maybe index each and every word, but a better way is that they can harness user data, by keeping logs of the search querries, and minning the data, to make a better educated guess. If most people who enter "sex for free" go to the same website, even if it's PageRank is shite, Google will notice that, and will "bump-up" its rank in the search results, using guesstimates based on visits. It's the same with social networks and getting users to create Google accounts and all that stuff. Google don't care about reading your emails, or knowing which pages you visited to spy on you or find out if you are a pervert- what they really want- is your data as a "user" to give them a better search engine. (At least I like to think so).

But these are just variations and optimizations of the same thing: trying to figure out what the user is thinking, by comparing it to what most people were thinking when they entered the same thing. But, that's just a speculation, and there is always the X variable, that can negate it. I may be a weird dude thinking "looking where everyone has looked before, but thought no one had thought before" ! (paraphrased from Albert Von Szent-Gyorgyi)

You want a trick to break Google? Trying to find out what "the" is in English grammar. Google removes any occurance of "the" because its way too common. Entering "definition: the" helps a bit, but not that much either- but, by using "definition: " u already proved my point, of humanly limiting the search universe :)

They will mine my website and guess my trick and stop it, and I will find another one, because...... I am a geek who drinks too much coffee.

Tuesday, 4 November 2008

Sharia Bonds

I have this habit of walking into phone booths. Maybe because I've never actually used one. With a geek phone that almost makes me coffee, why should I? Maybe it's just my burning urge to make station-to-station calls to Alistair Darling, "This is Colonel Lionel Mandrake..."

Anyway, while I was walking on Parliament street, I remembered that a while back, when I was still at the LSE (doesn't time fly?!), I read an article in the FT that the Exchequer were going to issue Sharia bonds, or, in other words, Islam compliant bonds.

First of all, a bit of a background. A bond, is an I-Owe-You paper issued by the government to which certifies that the government owes the holder of the bond a certain amount of money, and that it agrees to pay a given amount of interest once the bond is mature. Mature, as in, when a bond is issued, it's issued over a certain period of time, up to seven years, and when the time is up, the government will pay you back the money with interest. Unlike stocks, bonds, are technically "risk-free" as in, it's highly unlikely that the government will default on the loan. (This is how a spread is calculated: the risk difference between a bond (risk free) and a stock (price changes, may default - bankruptcy).

But, what is important to this post is the interest part, to which, in Islamic law , or Sharia , is not allowed.

Sharia, is the law that governs Islam and how Muslims handle money. According to Sharia, no man can charge a fee just for lending another man a certain amount of money. i.e. interest. Islam preaches that every man has equal rights to do business, as long as there is equal opportunity to everyone, where in a perfect system, every man can either make a profit or loose, or what is called the "Halal" way of doing business. Charging interest, is banned, because technically, when someone gives someone else a loan, that man has to pay him back. If he is also paying an interest for that money, that means the lender is a partner (shareek as ther term is in arabic) in the profits, but not the loss. i.e. It is not an equal opportunity because he always emerges as a profiteer. It is taken to a further level of severity , that charging very high interest (like 10%+ of the loan amount) becomes what is called Ribba in Arabic. i.e. Immoral exploitation of the loaner.

Now, that creates a problem for muslims who may decide to purchase bonds, because they will be making a profit in terms of interest, when the government, basically doesn't loose, and consequently they are making money from money, guarranteed.

Luckily, there is a loophole to this. A bond, is usually backed by an underlying asset. i.e. the cash amount of a bond, technically (but not exactly) can be converted into a certain solid asset, such as gold, land, oil, etc... and a government bond, is backed by the Central Bank, which, is in turn backed by solid assets. Gold the government has, land etcetera. Now, the loophole, is that if these Sharia bonds (called Sukuk in Arabic) are backed by an underlying asset, such as a running business that can, in theory, loose money, so that means there is a possibility of loss.

Although the UK has stalled in issuing these bonds, Indonesia, the largest Islamic country by population (surprised it's not Saudi Arabia or Egypt?) , is leading the way and it has categorized how the Sharia bonds will be structured:

1) “Ijarah” : where the bond is a lease to rent a certain underlying asset.
2) "Mudharabah" : Mudarabah in Arabic means the ability to lower prices to compete in the market, thus sharing the profit.
3) "Musyarakah" : profit and loss sharing.
4) "Istisna" which, in Arabic, means exception, and in the finance context means an exceptional funding to fund a given project.

Regulation Regulation regulation! The one thing probably stalling the issue of these bonds in the United Kingdom, is that our beloved Chancellor isn't too satisfied with the suggested way to regulate them, and the FSA has been summoned to work on that. The issuing of these bonds, will widen the pool of financial products available to Muslims. Although, I guess Mr. Darling, with the cockup the bankers did in the credit shit, isn't being too sloppy with too loose of a regulation.

I personally think that it's not only to capture the local Islamic financial market, but also the global market, estimated at around $500bn. Now the credit crunch has attracted Islamic money, but they do drive a hard bargain. Prince Sultan Bin Nahyan, ruler of the Emirat of Abu Dhabi and co-head of the United Arab Emirates , invested £10 Bn for 30% share of Barclays, in an attempt to bail them out.....

Anyway, I do believe that the Middle East and the Arabs are up an coming when it comes to finance, but as long as they haven't grassped the fact that money is just another commodity like food, oil, wood etc. and interest is just how you make profit from this product, then they still got a long way to go. (Oh shit, did I just implicitly wink at financial derivatives? Ignore please).

I need to go to into a phone booth and call Dr. Strangelove. Enough blabbering.

Thursday, 30 October 2008

Tales from the Basement - Mergers and Acquisitons (1)

There is something about bus stops. Maybe because I often find myself standing at them, alone in the wind, with dim lights, and the wind blowing through my in need-of-a-haircut hair, but they make me think. Usually when I get these thoughts, it's probably remenicing that I am no longer leaning on a lamppost.... (ignore the comment, I just think Ian Angell, my former tutor, 's book "No More Leaning on Lampposts" has a surreal title, and its content is even more interesting).

Anyway, I know a couple of friends of mine that work in M&A, or Mergers and Acquisitions divisions of some leading investment banks. It's like slavery, because these people work the longest hours there is, and call there excel sheet home. I do not really want to know what there actual jobe entails, but my friend, the exotics trader, claims its the most boring and tedious job in the field.

That's there choice, although, I'd like to find out if those M&Aers know what it is like to be on a receiving end of a merger or an acquisition from the client side. They broker and engineer the deal, but once it goes through, they make their cut, and skedadle off, with the clients left to deal with the mess of either merging, incorporating, or integrating the 2 companies that just got M&Ad (nice I should make a t-shirt that says "Smile! you've just been M&A-d).

Well, I am on an integration team for a company that was aquired by another, much larger, company. I'll focus on the tech side for now, rather than the acquisition process, which is buying out the partners, all the outstanding shares, assets etc etc...

The way acquistions usually work, at least in software, is that companies make a strategic build-vs-buy decision once they are looking at usually a 5-year growth/survival/competitivness plan. A company will decide that it needs to offer a certain product or solution, either to gain a competitive advantage, or maintain competitivness within the market it operates. Usually, the second reason is the main reason for an acquisition: the idea already exists in the market, is offered by the major competitors, or a small company offers it, and it is small enough to be acquired. (That small company is usually a spinoff or a venture by someone in the business, who isn't really shooting at becoming a competitor himself, and can sell the idea with a working product and a client base, making a nice bonus when the company is acquired). On the other hand, usually new ideas are built in-house by companies, and existing ideas are only built internally when buying an already existing company-product (interchangeable terms here), is less cost effective.

Which brings us to the main problem, or issues that the i-bankers don't have to deal with, which is integrating the businesses together now that they have been M&A-d, which is one of the situations I am in. We, the mother company, work mainly with C++, which is the cornerstone of our applications framework. Mainly financial databases, market data, stock exchanges - and that's the most I can tell you due to respecting confidentiality! Anyway, the acquisition company operate(d) with Java. I can't say much about the details, but, C++/Java interfacing, especially that these are serious products with a serious code base, that is at least a few years old, are not in the .NET/C#/JVM kind of integration realm, which creates some hoops to jump through to create a seamless experience for the end-user: Be it Java, C++, or Spaghetti Gorgonzola, for the user, it should all be the same speed, same look and feel, same results - everything.
If you work with software, you are probably familiar with the concept of meshing , and we all know how much that can be of a pain. That's why, we , just like many other companies in finance that worked with a wide scope of data formats and forms, have their own internal integration technologies, to create one main interface that all technologies need to integrate to, and that's the main interface that the user interacts with.

It's a tough spot.... Internal technologies are always clunky, clumsy, buggy, because, there are just that many people working on refining them- it's not like open source, with myriads of people working on the infinite use cases a programming language or system may have. But, in finance, two things are prevail:

1) There are too many data sources that you have to have a common platform - a suite that brings everything into one place.

2) Finance institutions have the money to build serious technology in house, and lack the trust to give it to anyone else!

At least that's the technology briefing on M&A, but there is the other managerial side as well: different structure of work, different hierarchies, different corporate culture, different business process, etc etc... that often when an acquisiton is made, there is alot of people shuffling, with people leaving and new people being brought in to join the new kids on the block. (I'll talk about this in another post).

All of that, is not the worry of the M&A dudes......

But, hey, justice comes to some eventually! With all the i-banks feeling the squeeze, some have merged or been bought out by others, and now they can see what it is like to be M&A-d!

Tuesday, 28 October 2008

The Amero

I was hanging with my friend AJ yesterday, and as we talked through the night, we came upon the discussion of world currencies and the Amero. He claims that through our lifetime, we shall see fewer and fewer currencies worldwide.

True, because that is starting to happen, and quite soon also. For example, if everything goes as planned, by 2010, the Arab Gulf countries will adopt a unified currency, the Khaleeji. It will be the main currency for Saudi Arabia (largest economy), United Arab Emirates (second largest economy), and Kuwait, Bahrain , Qatar , with Oman and Yemen to follow in later years. It's pretty likely that all the in the Gulf would follow suit.

The credit crisis today, has awakened currencies talk, especially with the plunge of the world's leading currencies, such as the US Dollar, the Euro, and sadly, the British Pound. Hot gossip around the financial world today, is about the Amero, or the North American Union suggested unified currency for the United States , Canada and Mexico. I am not a financier, and I barely know the terms definitions, but I do know some, and I kinda program the systems behind the number crunching. I also know, that the currency markets (aka Futures: exchange rates and interbank offering rates) have alot to do with the trade balances amongst world economies, and when you devalue, re-value, dollarize, or adopt a new currency, there will be some impact on the local economy, and, if it's a leading economy (i.e. an economy that is used as a benchmark or indicator to world economic market movements etc... ) adopting a currency such as the Amero, may have significant effects. I am not an advocate of conspiracy theories, but well, here is what Hal Turner thinks in this video.

As a resident of the United Kingdom earning in British Pounds, but a national of Lebanon, where USD is the main currency along with the Lebanese Pound, I am interested in the GBPUSD-FX1 exchange rate and because of the bluddy credit crunch, well, the pound has slumped in the past six months against the dollar.

This means I am forced to keep my money in the UK and in British pounds, until the GBP recovers against the dollar, and my purchasing power, in countries such as Lebanon that adopt the dollar as a second currency improves. At least I know this much about exchange rates. (So does everyone else ey...)

Anyway, the Amero isn't the only potential currencies to be introduced, there is a whole list of them: (Courtesy of Wikipedia)
Worth keeping an eye on this.

Sunday, 26 October 2008

The Anomaly of Lebanese Banking

Everyone seems to have an identity crisis these days. People seem obsessed about their ancestors and their origin and and...No one seems to come from anywhere anymore, but the more of a fruit salad you are, the more interesting of a person.

I am Lebanese.

Ok, I am a bit of a fruit salad,I speak with a slight American accent, grew up trilingual, at home we celebrate every religious occasion there is (we almost celebrated festivus, and we are not even religious!) , my mom is English, my dad spent most of his life in Germany, and my immediate family is scattered along 4 continents, and I don't even look Lebanese. But I am, and I am proud to be! Why would I want to be proud of a country that's historically known for its struggles and their inability to agree on a single thing?!

Well, our banking system for one.

Lebanon's banking system has been the rock of our country, and if we had an economy, it would be it's cornerstone. Lebanese people (like the Jews) are very good at math , and people networking. Now if that's not spelling out F-I-N-A-N-C-E, I don't know what is. Whether locally or abroad , Lebanese people have excelled in the financial industry, to amazing levels. For our small country, Lebanese people have achieved considerable heights, but when it comes to money, we are in a class of ourselves (at least if you measure against the relative population) that unlike other domains where alot of us Lebanese excel outside the country, when it comes to finance, we excel both at home and abroad. London and New York, stink with Lebanese financiers, and Dubai, is literally there playgroung, but I am not talking about that.

Lebanon, was one of the few, if not the only, country whose banking system was not hit by the credit crunch. In fact, Lebanese banks, have made better than average profits during this period.

BLOM Bank and Audi Saradar, with Byblos bank not too far behind, have actually made record profits. BLOM, the biggest bank by deposits, has seen a 34% rise in its profits in the first 3 quarters of 2008. These three banks, are publicly listed on the Beirut Stock Exchange and would be equivalent to a AAA class stocks in the West. They are leading stocks, i.e. stocks that set the pace for the stock exchange index (gaining or loosing) , alongside Solidere, which is the other leading stock. Now, Solidere, is the development company for downtown Beirut area, in terms of construction. And it's a leading stock, as the housing market, and especially, the real-estate market in Lebanon, is booming, and sky-scrappers and high rise buildings are springing up in Beirut like there is no tomorrow. (If you don't believe me, ask Donald Trump, he's invested in Lebanon - well his ex-wife at least).

The Lebanese state, is the only state besides Switzerland, that has a banking-secrecy law. In fact, it's even harder for public authorities to get access to financial information regarding a certain individual in Lebanon, than it is to get it from a Swiss bank (true story - go ahead and try). If this is not an enough reason for UHNW individuals to move money to Lebanese banks, with all the commossion in the West, Lebanon is a very elegant and attractive place for Gulf Oil money. So much, that back in 2006, there was more deposits in Lebanon ($80bn) than there was in Kuwait ($75bn) , an oil producing country. (That's running accounts that is- which is possibly the closest you can get to the real information) What is held by the private (such as Saradar Private bank, part of the Audi Saradar group), investment , and asset management divisions, of these banks, is almost like massive hedge funds, where the banks have no obligation of releasing information about their investors. I know for a fact, that alot of oil money, sits in Lebanon.

If you don't believe me, well, get a load of this. US Hedge funds, are moving money into Lebanon, and it was reported by the New York Times. It's not me blaberring. But maybe, that's because our central bank forbid banks from getting into derivatives 3 years ago.Seems like a smart move, from Riad Salameh, our CB Governor, who won the World's Best Central Bank Government award by Euromoney in 2006- Mervin King take notice! We are not short of economists in our government either, with former minister of Economy Fouad Siniora heading the government cabinet as PM after long serving as Economy and Finance minister in all of slain Prime Minster Rafik Hariri's cabinets, with his deputy, Jihad Azour , now serving as Finance and Economy minister. (Now the Gordon Brown-Alistair Darling similarity is ridiculous!)

There are more banks, (58 banks as of October 2008) than there are banks in half the western countries, and almost as many banks as in Germany, the world's third biggest economy. Ok , am not comparing us with Germany, (Lebanon being the 77th economy in the world in GDP) , but well, with 4.5 million people in one country, that's one bank for less than 100,000 people. I still don't get it, but it works. At least Robert Fisk thinks so!

But the way I really know, is that, well, my friend works in the IT department at BLOMInvest, the investment arm of BLOM bank, and well, he said, in all the software they develop, they use "long integers", and have to support 12 digit numbers, in all applications.

That's alot of zeros.............and that's excluding the two zeros to the right of the decimal point!

Friday, 24 October 2008

The Supply-Demand Principle - Oil (I told you so)

Here is a statistic I like. Almost 60% of the world's oil is produced by non-OPEC members. Yes,
seven of the world’s fifteen largest oil producers, Russia, the United States, China, Mexico, Canada, Norway, and Brazil, are outside of OPEC. Although, production means nothing. The real statistic, is the exports by each country. This is actually where OPEC comes into play, and gets it's political sway. Here is a list of the top 14 oil exporters

Exporters2 Net oil
1. Saudi Arabia (OPEC)
2. Russia 6.57
3. Norway 2.54
4. Iran(OPEC) 2.52
5. United Arab Emirates (OPEC)
6. Venezuela (OPEC)
7. Kuwait (OPEC)
8. Nigeria (OPEC)
9. Algeria (OPEC)
10. Mexico 1.68
11. Libya (OPEC)
12. Iraq (OPEC)
13. Angola (OPEC)
14. Kazakhstan

Source: Energy Information Administration (EIA). www.eia.doe.gov/emeu/cabs/ .

So, there you go. OPEC dominates the list of exporters, which is what really controls the price of oil world wide, because it simply is the supply and demand basic law. If they control the supply, they control the price: increase supply, price drops, decrease supply, price goes up. Of course, I am making the assumption that demand is relatively constant, which it is, apart from minor fluctuations. Some countries are trying to reduce their oil-dependence (like the Western countries - Britain moving to nuclear like France already has- I talk about it here) yet, other emerging countries, make up for that drop in demand by increasing theirs.

Anyway, there are three core factors worth focusing on, and why I believe Oil is more often an effect rather than a cause.

1) Saudi Arabia: Saudi Arabia, in it's Najd desert, has the biggest oil reserve in the world, estimated at single handily supplying the world with oil for a couple years (of course, this is just an estimation, but is roughly around 30bn barrels ). The importance of Saudi Arabia, and why it has such power , whether in OPEC or on the world stage, is a major player, because it is the only country in the world with the ability to affect the price of oil by increasing its production, not to mention, that the cost of oil extration per barrel is the lowest in the world. (Saudi Aramco, although government owned, would be the largest oil company in the world, with an estimated size of somewhere around $750 billion. (I've seen there oil rigs and sites- massive!) Unfortunately, they are treated as the elephant in the room....

2) Russia : Russia is the second largest exporter, and it, like the third largest exporter Norway, are non-OPEC members. (I'll exclude Norway from the debate, its third on the list but it is much smaller compared to the other two, and it's political placing isn't of much significance- apologies to Scandinavians...) Although, Russia, unlike Saudi Arabia, has two fundamental problems: Size and Weather. Russia is by far the largest country in the world, with around 17 Million Square Kilometers, and well, we all known what Siberia's weather is like. Those two issues are of significant importance because digging for oil can be a very risky business, and oil rig engineers are highly skilled people that don't come cheap. Operating at below zero temperature doesn't make it ideal conditions, neither does middle-of-nowhere sites that, due to extreme whether conditions sometimes maybe shut down or suspended, in addition to the transporting oil and pipelines that can freeze up isn't great. That's one advantage Saudi has over them- heat, although can be scorching and uncomfortable, but operating in 50'C is better than operating at -30'C temperatures. Cost of extracting a barrel thus runs higher.

3) The United States : Surprisingly the USA, when it comes to the oil game, contrary to popular belief, it has no real say. It is by far the largest oil consumer, at around 20 million barrels/day, which in itself is a mind boggling number. So, when you are consuming more than what the 3 biggest exporters can send you, then you're kinda under the mercy of the oil barons. Well, we all think the mighty USA doesn't bow to them- no, of course not, but, it has to use its political and military sway to pressure these countries, as it cannot play the oil game alone. So, basically, besides ma man Obama making phone calls to Opec and Mr. Medvedev (or Putin hehe), he can't really do anything. Well, sure, the US oil companies have huge investments in Saudi and around the world, but well, that doesn't necessary translate into patriotism in a capitalist economy, does it? Now, back to the supply-demand game, the USA can reverse the game and drop its consumption and thus cause a drop in the oil prices , because well, if no one wants something, the price falls, but we all know that's difficult to achieve, not with uncle Joe, John McCain's midwest cousin driven his truck all around up and down Cleveland.

Again, I say it, oil is an effect, not a cause. So, now the credit crunch has hit the world, and the whole world economy is slowing down, surprise surprise, the oil prices, which hit a record high a while back, have began falling, because, well, production by industry world wide has slowed, and so has uncle Joe in the midwest, decided that ordering take-out maybe a cheaper option than driving to McDonalds.

So, to keep a bit of the supply-demand balance, OPEC decided to cut its production. (Although, i think, the hell with it, lower the prices back more, maybe the world economy moves again!)

And that's what happening. I didn't say it, Bloomberg did. see!

p.s.: In line with what I said, Saudi Arabia cut its production most :)

Monday, 20 October 2008

Energy and Nuclear

I always tell my Dad that there will come a day when the far West and far East will tell the Middle East to drink their oil. Oil, is not a sustainable energy source, because well, although for the moment we have alot of it floating around many places, it will eventually run out. That's why it is called "fossil fuel" because well, you need fossils to make it. Although fossils, are sediments that take thousands of years to become oil. I'll spare the geology/physics/chemistry explanation. (I hate chemistry)

Anyway, the Greens think carbon emission is destroying the planet, cutting down trees for coal energy is worsening the problem, and all those SUVs people are driving are definitely not helping. That's where the Kyoto agreement comes into play. But, the largest fuel consumers, the USA (surprise surprise) still refuse to sign it, and the Chinese aren't very eager either.

So, oil is out, and coal is out, and Gas, also falls under the same carbon emission category. That leaves the world with a fundamental problem. Where are we going to get the energy we need to power our factories, generate our electricity, etcetera?

So far there have been a number of alternative energy sources, such as winds, such as generating electricity through large wind propellors that generate electricity through the rotation of the turbines, and, there is no accurate statistic, but a percentage, although small, of electricity in the world is generate through these windmills. Yet, there main problem is efficiency, and a large number of these windmills is needed to generate comparitavely a limited amount of electricity. Likewise, there are turbines that generate electricity, also through rotation, yet the wheels of these turbines are generated by the energy of flowing water, i.e. rivers, damns, etc. But again, efficiency is an issue.

There is a very nice solution to all of this! Hydrogen fuel!

Hydrogen fuel, is already used in spacecrafts. It has --- except it comes with a "handle with care" tag. ....and it burns into water (or H2O)

What is Cold Fusion? aha, good question. The chemical reaction behind the stars, or, more clearly, the Sun (the sun is just another star in the millions of galaxies) , is fusion. Now, fusion, is the "burning" of Hydrogen atoms. Well, this reaction creates an amazing amount of energy, an energy so great that it one Hydrogen bomb is equivalent to some 200 atomic bombs, and something like 2000 times the magnitude of Hiroshima and Nakazagi . The problem with that, is that it gets to be, well, quite hot, if I were to use my English sarcasm. If cold fusion can be achieved, that means that a similar fusion reaction can be replicated, except without all that heat. How, well, if I knew, I wouldn't tell you, because then I'd be a billionaire vacationing in the Caribbean to worry about a blog. (then again, maybe i'd be bored and blog anyway)

The UK government decided that by 2020, it is going to cut its carbon emission by 42%, in a big drive to reach 0% carbon emission by 2050. They are quite serious about this, and they have brought in one of the big guns, Lord Turner, to chair the commission on carbon emission. Lord Turner is a big gun, because, he also heads the Financial Services Authority (FSA) , and when the government brings in a finance and economics heavyweight to chair a committee, that means they are serious about it. We all know, in England, money men are the bread and butter.
Well, cutting carbon emission does require alot of steps, such as becoming energy wise, at the very least.

My father always used to follow me around telling me to switch the lights off when I wasn't in the room. I don't think he was worried about carbon emission, but more about our electricity bill, but, it does help the carbon emission too! (I learned to be energy wise before there was any wiseness to have! Thanks Dad).

Since I did mention economy by referring to Mr. Turner, well, one of the things that the UK is working towards, is gravitating more towards nuclear energy,which is really the fun part for the moment.

Electricite De France, or EDF, has acquired British Energy, the UK's biggest energy producers, for £12.4b
n. BE owns some eight nuclear reactors, and more importantently owns a number of sights around the UK that would be ideal for building new Energy plants. Today, 78% of France 's energy comes from nuclear, with EDF owning most of the nuclear plants. The government's plan is to clean up what is left of the nuclear weapons industry and re-model it into energy production, as well as give its current nuclear energy production (14% of the total energy production) a much needed facelift.

Although, when it comes to EDF, they are not just looking to the UK, but to become the premier energy company in the world. They know that energy is one of the bigger markets in the future. After all they are a f0r-profit company, and they are trying to also expand into the USA, which doesn't come as a surprise, as the USA is the biggest consumer of energy. Well, if it is the biggest consumer of oil, doesn't that computer to the biggest consumer of energy?

If you don't believe me, maybe you'd believe Warren Buffet, because he also is an advocate that the future of energy sector is bright (I don't work for Orange hehe), as he is in a bidding war against EDF.

But, we all know the problem of nuclear waste. In fact, in Lebanon, we know them well! Rumor has it , that during the civil war, we had a couple of nuclear wastes ships "visit" our harbors. What happened to their cargo, isn't exactly known, but well, maybe I got exposed to them? Could explain alot of things about my sense of humor.

But, there just may be a nice solution to all of this :)

Hydrogen fuel.

This is still under development, but it's extremely efficient, has a high yield of enery, and is carbon free. Why? Because, on combustion, Hydrogen turns into steam, or H2O, i.e. water vapor. That's quite cool, and well, Hydrogen is not only the lightest of gases , but its also one of the most abundant. It's not entirely fiction, because NASA already uses hydrogen fuel, to propel its spacecrafts into space, especially for exit and re-entry of the Earth's atmosphere. The problem with this, that the fuel is highly hazardous and unstable, and any mishap can cause unimaginable damage. You got any idea how high the temperature can get during a hydrogen combustion reaction? Think thousands of degrees celsius. Also, moving Hydrogen fuel around, is dangerous, that's why NASA uses something called solid fuel.

I know that BMW has an expiremntal Hydrogen powered car, but well.....I'd keep an eye on this. (right, which reminds me that I need VDU glasses....)


One of my good friends and colleagues at work is a brilliant engineer from Nigeria. He used to be a mechanical engineer, then had a career change and joined the software realm....
Anyway, I hang alot with him, and we talk alot about technology (and women when we are not geeking) and I also got to meet a number of his friends a co-patriots. There is a large number of Nigerian ex-pats here in London. In fact, the UK has the largest Nigerian community in the world, with an estimated 3 million immigrants.

One advice to the bankers: invest in Nigeria.

Nigeria is projected to become the third most populous nation on the planet by 2050, and it has some very interesting demographics. It is also very similar to the United States in many ways. It is a federal state, with 36 states in addition to the federal capital territory of Abuja, with Lagos, the former capital, being the most populated , with 11.5 million. They have 389 different ethnic groups, with many different languages and dialects. It is also a huge country, 1 million Square kilometers , and was projected by Goldman Sachs as on of the Next-11 economies of the world. It's also one of the biggest exporters to the United States, and an oil and natural resources rich country......

But this is all.....marginal.

If Adam Smith was still alive, he'd tell you that the real wealth of a nation, is its people, and the ability of the people to create wealth.

A bit of recap first, as I like to use an example put forward by Howard Baetjer Jr. in his book, Software As Capital . In the old days, a country's gross national product, relied on its labour force, and it's ability to produce. For example, in the mid 1800s, almost 45% of the United States worked in agriculture, in order to feed the nation. Today, with all the technology and advancement in science, it only takes 3% of the people to work in agriculture to feed the nation. So where did the other 42% go? They surely didn't move t Hawaii, but they had to seek employment in other places. Well, they simply "moved up a notch", and that technology, that is making the life of a farmer so easy became the biggest employer, and we had the industrial revolution. Cars , trucks, pipes, TVs, factories, big buildings, picked up the 42% and empoyed them. As we move towards a more "knowledge based economy" , manual labour is needed less, and mental ability is needed more. But, likewise, these sectors became over-teched, and fewer people were needed to operate the factories, and again, the United Kingdom, which was the first country to fully industrialize, is leading the way in "de-industrialization". It seems people have moved to banking, but well.... we all know how that is going.

Moving on, the point is, that all this poduction, needs consumption. Someone needs to buy the TVs and the cars and the hamburgers. So far, the Yankees are leading the way in mass consumerism, and well, that is why they have the biggest economy in the world? Why? Simple, because well, they are their biggest clients. The biggest client to all those US multinationals, are the Americans themselves, and it is a positive loop- the US firms don't need to worry about what is going on in the rest of the world, as long as there biggest market is in-house. (I work in a multinational, US-based company, and our biggest market is in the US of A).

And here is the biggest similarity for Nigeria.

I have observed closely, and so far from what I have seen, Nigerians enjoy life. (Why shouldn't they?!) . They like nice cars, nice things, and are even better than the yanks when it comes to knowing there taste in food. Ok I am biased because my friend is Nigerian, but, well, think of it this way, one Nigerian will be a bigger consumer than 2 indians, and 3 Chinese. Today, the wealth of a nation, is it's people, and Nigerians are up and coming.

Bigger, better, stronger, and, they are not short of brains either. One of them sits 3 feet away from me.

Invest now, coz sooner than later, they'll be up there. I am banking on it.