I firmly believe that we may be approaching a turning point in the volume of waste that is produced around the world. To illustrate, lets just say that we are moving from a 3 Michelin Star world to a family restaurant world! Let me explain.
A 3 Michelin starred restaurant has to have everything perfect. As such, if something isn't crispy enough, is a little overcooked or isn't perfectly round, it goes in the trash and the chef starts again. A family restaurant is different. The chef knows that he has to maximise his ingredients. As such, today's roast beef is tomorrow's cottage pie. Today's fresh fruit salad is tomorrow's trifle.
Over recent years, it has been easy in many quarters to behave like a 3 star restaurant. A good example is palm oil. As the price has risen, it has been standard to focus on selling the vegetable oil alone, leaving the crushed kernals and residual oils as waste. However, these 'waste' products have value. Residual oils can be converted to biodiesel, crushed kernals can be fertilisers, animal food or biomass.
Companies such as Lanza Tech are converting all sorts of waste into biogas or similar fossil fuel replacements. The use of many types of waste is increasing within building materials. I could go on.
I firmly believe that the world is about to enter (or has already entered) far more difficult times than we have seen for many years. This will cause us all to tighten our belts. However, this is not necessarily a bad thing. Perhaps we should have not wasted the energies of politicians by travelling to Durban to discuss environmental policies, and just left it to the basic human instinct that comes from necessity in difficult times.
Tuesday, December 13, 2011
Winners in a Recession
It is easy to analyse the losers from the upcoming (or more appropriately, prevailing) recession, but who will be the winners. Sure the equity analysts will trot out the usual suspects (buy McDonalds and the like) but lets me more imaginative.
1. Anyone who cuts costs. Somewhat obvious but worth analysing nonetheless. Over the past 10-15 years, the big winner from this category has been China (and to a lesser extent, India). Their contribution to the world has been to cut the cost of everything from stuffed animals to electronics. (though in turn increasing the cost of energy and commodities!). In the future, I believe that China will continue to benefit from this, but there may be others. Dwolla is a clear example of an initiative that will cut a few percentage points off of transaction costs. It may not sound as dramatic as a remote control toy car having fallen in price by 70-90% over recent years, but it is far more important to the world economy and financial structures.
2. Cleantech. Perhaps more controversial is my sense that the the recession will cause a change in people's priorities (or at least accelerate the growth of a nascent trend). This involves a greater sense of the environment and our treatment of the world. I dont think that we will all become tree huggers, but I do believe that when we can not afford to closet ourselves in luxury cars as we drive from luxury mall to luxury mall, and have more time on our hands, we will become more aware of environmental issues. The big question is whether this trend will offset the undoubted reduction in funding that will inevitably happen.
3. Waste Services. We need to maximise our use of resources and eek out every last penny. Mothers and housewives understand this. When money is easy, they throw out any dinner that is not eaten. When money is easy, it becomes leftovers and the next night's dinner is built around it. It is the same in industry. Even in agriculture, where only a percentage of the plant may be used. For example, grapes may be pressed for wine, but what happens to the rest of the grape after pressing? The same goes for palm oil with over 40% of the crop being discarded. The reality is that this 'waste' can be used and has value. People who do this will make a lot of money.
Am sure that there are many more examples.....need to put my thinking cap on!
1. Anyone who cuts costs. Somewhat obvious but worth analysing nonetheless. Over the past 10-15 years, the big winner from this category has been China (and to a lesser extent, India). Their contribution to the world has been to cut the cost of everything from stuffed animals to electronics. (though in turn increasing the cost of energy and commodities!). In the future, I believe that China will continue to benefit from this, but there may be others. Dwolla is a clear example of an initiative that will cut a few percentage points off of transaction costs. It may not sound as dramatic as a remote control toy car having fallen in price by 70-90% over recent years, but it is far more important to the world economy and financial structures.
2. Cleantech. Perhaps more controversial is my sense that the the recession will cause a change in people's priorities (or at least accelerate the growth of a nascent trend). This involves a greater sense of the environment and our treatment of the world. I dont think that we will all become tree huggers, but I do believe that when we can not afford to closet ourselves in luxury cars as we drive from luxury mall to luxury mall, and have more time on our hands, we will become more aware of environmental issues. The big question is whether this trend will offset the undoubted reduction in funding that will inevitably happen.
3. Waste Services. We need to maximise our use of resources and eek out every last penny. Mothers and housewives understand this. When money is easy, they throw out any dinner that is not eaten. When money is easy, it becomes leftovers and the next night's dinner is built around it. It is the same in industry. Even in agriculture, where only a percentage of the plant may be used. For example, grapes may be pressed for wine, but what happens to the rest of the grape after pressing? The same goes for palm oil with over 40% of the crop being discarded. The reality is that this 'waste' can be used and has value. People who do this will make a lot of money.
Am sure that there are many more examples.....need to put my thinking cap on!
Monday, December 12, 2011
A New Crisis for Banks?
Whilst the banking industry is currently focused on its asset problems, it may have another, arguably more dangerous threat ahead. www.dwolla.com
This is a start-up which is challenging the ridiculous prices that banks charge for payments. Essentially, it has built a model which permits payments to be made for a maximum of $0.25 per transaction. This compares with the 3%-5% that might be charged by credit card companies and similar fees for telegraphic transfers etc.
If their model is scalable and able to be launched in the international market, this will crucify the retail banking industry's business model. My take is that there will be enormous pressure to resist it, but that it will succeed on the basis of consumer demand.
Over the past 10-15 years we have become used to China lead deflation in manufactured goods and Indian lead deflation of service costs. However, this could be a massive factor in future economic development far greater than the 3-5% savings made from not paying bank transaction fees.
For some time, the analysis has been on the evolution of mobile phone companies becoming 'banks' or the use of the 'square' to replace credit card machines, but the basic business model of charging a few percent hasn't been challenged. Now it may be.
Tuesday, December 6, 2011
Blue Green Algae
To those involved in renewable energy, algae represents the hopes of a new biofuel feedstock. However, for many, algae is a toxic blight on our waterscapes.
As Summer approaches Australia, Blue Green Algae (cyanobacteria) has raised its head in reservoirs and marinas around the country. The ABC have warned that it could be the worst outcome for over a decade. However, the authorities appear to believe that the only solution is to wait for colder weather and hope that no people or animals suffer (or has happened in many other countries) die.
The traditional problem to this has been the lack of an appropriate treatment. Chemicals may be able to kill algae, but they are toxic themselves and the impact on the water can be worse than the original treatment, killing fish and other marine plant and animal life.
However, a new Canadian group I am advising, has the answer. ECOblue is a formulation made according to Green Chemistry principles from ingredients normally associated with a vegetarian curry! However, they ferment, heat, cool and blend them in a highly sophisticated (and secret!) fashion and prepare a formulation which attacks the algae, literally breaking it apart. However, unlike traditional chemicals, ECOblue does not endanger marine life and it naturally biodegrades extremely quickly. This means that there is no lasting evidence of the algae nor the treatment.
Australia take note!!
As Summer approaches Australia, Blue Green Algae (cyanobacteria) has raised its head in reservoirs and marinas around the country. The ABC have warned that it could be the worst outcome for over a decade. However, the authorities appear to believe that the only solution is to wait for colder weather and hope that no people or animals suffer (or has happened in many other countries) die.
The traditional problem to this has been the lack of an appropriate treatment. Chemicals may be able to kill algae, but they are toxic themselves and the impact on the water can be worse than the original treatment, killing fish and other marine plant and animal life.
However, a new Canadian group I am advising, has the answer. ECOblue is a formulation made according to Green Chemistry principles from ingredients normally associated with a vegetarian curry! However, they ferment, heat, cool and blend them in a highly sophisticated (and secret!) fashion and prepare a formulation which attacks the algae, literally breaking it apart. However, unlike traditional chemicals, ECOblue does not endanger marine life and it naturally biodegrades extremely quickly. This means that there is no lasting evidence of the algae nor the treatment.
Australia take note!!
Monday, December 5, 2011
African Portfolio Investment - Moving East
Given the collapse of international portfolio investment into Africa in 2008 and 2009, borrowers and issuers in the continent must be looking at the likelihood of an equal (or greater) financial crisis in the West with trepidation. In 2009, 44% of all external portfolio investment in Africa was held by the US and only slightly less from Europe. As Europe collapses and the US stagnates, the prospects for significant new issuance to investors in these regions appears remote.
Given the positive economic trends that are evidence in many African countries, this may appear to be a potential disaster, but perhaps not. Perhaps we will simply see a continuation and expansion of the trends recently apparent towards inward investment being made from Eastern Asia.
Over recent years, Chinese FDI in the continent has been well documented. This has taken place on the back of the country's insatiable appetite for resources and has supported the necessary infrastructure for such resources to be exported. Today, I believe that we are about to see an expansion of this trend into portfolio investment into bonds and equities.
Look, for example, at the debt issue by Senegal earlier this year. Only 4% of the issue was placed in Asia, but the issue soared in price. Was this a result of a lack of interest by Asia or simply that the issue wasn't marketed in Asia? My guess is that it is the latter.
As infrastructure continues to be built and exports from Africa continue to expand, I'd expect continued expansion of portfolio investment from Asia. Pension Funds and other investors are seeking to internationalise their portfolio and are generally seeking the holy grail of diversification. Dont get me wrong, Africa wont be immune to the economic travails of the West, but the impact will be cushioned by continuing demand from Asia. Asian investors will also be comforted by the relationship with Asian importers and the ability to structure securities where cash flows emanating from Asia will pay off principal and debt of bonds, or finance dividends for equities.
Expect to see the HKSE and SGX becoming the more dominant home for African equity listings rather than AIM and expect to see the Dim Sum market and Asian syndicated loan markets launching more debt issues.
Does London see this coming?
Thursday, October 27, 2011
European Debt Agreement
Europe became a mess partly because of the Moral Hazard that resulted from the inefficient construction of the EU and the Euro. In simple terms, by being associated with Germany and France, countries such as Greece and Portugal had access to lower interest rates, compressed credit spreads and a sense that they could live their lives like the Germans.
This was sadly mistaken. As I read this week, Germany produces things that the Chinese buy.....Greece produces things that the Chinese sell! In short, the only area of competitive advantage was tourism, and since they no longer had the flexibility of cheapening their currency, they were constrained in promoting this.
So we ended up in a mess that has been well documented, but yesterday, the political leaders of the EU announced a breakthrough. The Euro rose and stock markets rallied. I think that this can readily be seen as being a relief rally.
Lets break this down in simple terms. Firstly, private sector banks will have to write off $100 billion or so in Greek loans and raise many billions in new capital....
Secondly, the EFSF will be extended to $1.4 trillion via an injection of equity and debt.
Onc this is done, everything will be rosy..........'ONCE' this is done......Of course, they have to raise the capital first......where is this going to come from??
Lets put it in context. $1.4 trillion is equivalent to over 30% of China's official reserves.
Now lets see who is going to be asked to contribute. The Japanese.....their economy is in a mess and they are faced with an earlier investment in the EFSF being devalued.....The Chinese.......What kind of influence are they going to demand......The Indians......How flattering to hand out the begging bowl to a country that can barely feed its own citizens.......
However, politics aside, on purely commercial terms, why would anyone invest (particularly debt) in the EFSF. Surely only because of confidence that France and Germany will stand behind it....It cant be an absolute guarantee....the electorate wont stand for that.....so it will have to be implied.......
Moral Hazard anyone??
Here we go again!! Will they get away with it??
Sadly, if they do it will be because they sell out to the Chinese and Indians. What a sad day for Europe...Our Grandchildren and their children and their children will all read about this in their history lessons.
This was sadly mistaken. As I read this week, Germany produces things that the Chinese buy.....Greece produces things that the Chinese sell! In short, the only area of competitive advantage was tourism, and since they no longer had the flexibility of cheapening their currency, they were constrained in promoting this.
So we ended up in a mess that has been well documented, but yesterday, the political leaders of the EU announced a breakthrough. The Euro rose and stock markets rallied. I think that this can readily be seen as being a relief rally.
Lets break this down in simple terms. Firstly, private sector banks will have to write off $100 billion or so in Greek loans and raise many billions in new capital....
Secondly, the EFSF will be extended to $1.4 trillion via an injection of equity and debt.
Onc this is done, everything will be rosy..........'ONCE' this is done......Of course, they have to raise the capital first......where is this going to come from??
Lets put it in context. $1.4 trillion is equivalent to over 30% of China's official reserves.
Now lets see who is going to be asked to contribute. The Japanese.....their economy is in a mess and they are faced with an earlier investment in the EFSF being devalued.....The Chinese.......What kind of influence are they going to demand......The Indians......How flattering to hand out the begging bowl to a country that can barely feed its own citizens.......
However, politics aside, on purely commercial terms, why would anyone invest (particularly debt) in the EFSF. Surely only because of confidence that France and Germany will stand behind it....It cant be an absolute guarantee....the electorate wont stand for that.....so it will have to be implied.......
Moral Hazard anyone??
Here we go again!! Will they get away with it??
Sadly, if they do it will be because they sell out to the Chinese and Indians. What a sad day for Europe...Our Grandchildren and their children and their children will all read about this in their history lessons.
Sunday, June 12, 2011
Neverware
Continuing on my theme of the cloud helping developing countries gain more and better access to computer systems, I am interested to read of Neverware. This is a New York based start-up that has developed a way of taking an old PC and making it run as efficiently as a new PC as it accesses upgrades etc to its core systems via the cloud.
Specific details are sketchy, but it seems to be generating a lot of discussion amongst the tech community in the East Coast. Currently, the major application appears to be to permit schools to gain longer service from their PCs. However, it strikes me that there could also be an important developing country application for this.
Millions of PCs are thrown away every year. Some (but my guess is only a small minority) are sent to the developing world, but they are still old models with outdated solftware. If we could take the hardware and install the most recent software (via a Neverware connection to the Cloud), then we could really bring top level PC access to developing countries.
This may never happen through Neverware, but the principal is sound and I am sure has a future. More evidence of how developing countries are going to be offered a real chance to catch up!
Specific details are sketchy, but it seems to be generating a lot of discussion amongst the tech community in the East Coast. Currently, the major application appears to be to permit schools to gain longer service from their PCs. However, it strikes me that there could also be an important developing country application for this.
Millions of PCs are thrown away every year. Some (but my guess is only a small minority) are sent to the developing world, but they are still old models with outdated solftware. If we could take the hardware and install the most recent software (via a Neverware connection to the Cloud), then we could really bring top level PC access to developing countries.
This may never happen through Neverware, but the principal is sound and I am sure has a future. More evidence of how developing countries are going to be offered a real chance to catch up!
Wednesday, June 8, 2011
Food and Agriculture
I am unsure when I started reading about the future of agriculture seriously, but it was a number of years ago. Since then, there have been regular episodes of excitement in the media. Daewoo being forced to cancel its land grab in Madagascar, China cancelling similar in Philippines, a new study on the dangers of biofuels and the continuing rising price of food.
However, I sense that coverage of the subject has recently moved to the next level. It seems that the mainstream media, not just economic, business or political journals are picking up the story and the more serious media is analysing this in a depth not seen before. I dont have statistics to prove this, but as an avid reader, I do believe that my instinct on this is pretty good.
I do believe that the world is facing an agricultural crisis, but the answer is very complex. It isn't just a case of ploughing money into biotechnology so that new seeds can be developed. It isn't just about land grabs, or water shortages or biofuels.
The problem is that it is about all of this and more. As such, it requires policy and application devised by individuals who have the capacity to cut across technical, process and political boundaries. It requires true 'big picture' thinking with detailed answers. Where are the people that have this capacity and the influence to make things happen?
I wish I knew?
However, I sense that coverage of the subject has recently moved to the next level. It seems that the mainstream media, not just economic, business or political journals are picking up the story and the more serious media is analysing this in a depth not seen before. I dont have statistics to prove this, but as an avid reader, I do believe that my instinct on this is pretty good.
I do believe that the world is facing an agricultural crisis, but the answer is very complex. It isn't just a case of ploughing money into biotechnology so that new seeds can be developed. It isn't just about land grabs, or water shortages or biofuels.
The problem is that it is about all of this and more. As such, it requires policy and application devised by individuals who have the capacity to cut across technical, process and political boundaries. It requires true 'big picture' thinking with detailed answers. Where are the people that have this capacity and the influence to make things happen?
I wish I knew?
Tuesday, June 7, 2011
Will the 'Cloud' help developing countries economic expansion
Apple's embrace of cloud computing and Steve Jobs comment about how this will change the nature of the PC brings up some interesting questions about the impact this may have on emerging countries.
Much has been written about the impact that access to the internet can have in helping developing countries' economic growth so there is no need to repeat it here other than to confirm that I believe this to be true. This is part of my enthusiasm for low cost smartphones and my continued support for a Chinese company, www.maxitech.cn which has exploited the opportunity of turning a very low cost phone powered by a low cost processor into the ultimate 'thin-client' from which functions not dissimilar to those found in a more expensive smartphone.
Unlike energy where I am an advocate for distributed power systems, it appears that there are genuine benefits to have computing power centralised and accessed via a thin client. This brings down the cost of the client which in turn makes computing accessible to more people. It may well render the sub-$100 computer, which received so much attention only a year or so ago, seem easy.
Of course, it is unlikely that the poor of Mali or Sierra Leone will be linking up to Apple Computer's servers anytime soon, but this technology is emerging very rapidly and I believe holds massive potential for continued acceleration in economic growth for developing and low income countries
Much has been written about the impact that access to the internet can have in helping developing countries' economic growth so there is no need to repeat it here other than to confirm that I believe this to be true. This is part of my enthusiasm for low cost smartphones and my continued support for a Chinese company, www.maxitech.cn which has exploited the opportunity of turning a very low cost phone powered by a low cost processor into the ultimate 'thin-client' from which functions not dissimilar to those found in a more expensive smartphone.
Unlike energy where I am an advocate for distributed power systems, it appears that there are genuine benefits to have computing power centralised and accessed via a thin client. This brings down the cost of the client which in turn makes computing accessible to more people. It may well render the sub-$100 computer, which received so much attention only a year or so ago, seem easy.
Of course, it is unlikely that the poor of Mali or Sierra Leone will be linking up to Apple Computer's servers anytime soon, but this technology is emerging very rapidly and I believe holds massive potential for continued acceleration in economic growth for developing and low income countries
Wednesday, May 25, 2011
A lesson in marketing
This morning I attended a tour of my childrens' school by an admissions officer. Whilst we are happy with the school, we learned that should we wish to change to another school for their secondary education, we had to decide soon. (pretty alarming given that they are 5 and 6 years old!). So my wife and I decided to check out both their current school and arguably its biggest competitor.
In both cases we were shown around by an admissions officer. Our first visit was to the competitor school. We left distinctly unimpressed. Sure it has plenty of facilities and the education sounded excellent, but there was no soul. It all felt very mechanical and process driven. Today we went to the secondary section of their current school.
The difference was alarming, but not because of fabric nor because of difference in approach to education. It really came down to the person taking us on the tour and explaining their approach. This lady was clearly passionate about the school. Her own children had been educated there but the key was the enthusiasm with which she presented the school and its approach.
If I could have recorded both experiences, I would be using them when counseling entrepreneurs or business people. This has to be the holy grail. Having employees who genuinely believe in the product (or service) they are selling and are proud to be carrying the business card and doing their job. I saw this in my father and I saw this today.
I am frankly rather jealous of people in this position. It has been sometime since I've had such belief but it is something I am seeking and something that I want to encourage. There are certainly some organisations that succeed in this. I have read articles about people who have the Nike swoosh tatoo'd on their ankle. However, my fear is that this is rare and becoming rarer.
Ever since I left the world of banking, I've striven to understand how to motivate people in ways other than money. Dont get me wrong, money is important as it should be, but as this lady showed this morning, it is possible to become an evangelist for one's employer without having to be motivated by money or position but simply because you genuinely believe in the quality of the product.
In both cases we were shown around by an admissions officer. Our first visit was to the competitor school. We left distinctly unimpressed. Sure it has plenty of facilities and the education sounded excellent, but there was no soul. It all felt very mechanical and process driven. Today we went to the secondary section of their current school.
The difference was alarming, but not because of fabric nor because of difference in approach to education. It really came down to the person taking us on the tour and explaining their approach. This lady was clearly passionate about the school. Her own children had been educated there but the key was the enthusiasm with which she presented the school and its approach.
If I could have recorded both experiences, I would be using them when counseling entrepreneurs or business people. This has to be the holy grail. Having employees who genuinely believe in the product (or service) they are selling and are proud to be carrying the business card and doing their job. I saw this in my father and I saw this today.
I am frankly rather jealous of people in this position. It has been sometime since I've had such belief but it is something I am seeking and something that I want to encourage. There are certainly some organisations that succeed in this. I have read articles about people who have the Nike swoosh tatoo'd on their ankle. However, my fear is that this is rare and becoming rarer.
Ever since I left the world of banking, I've striven to understand how to motivate people in ways other than money. Dont get me wrong, money is important as it should be, but as this lady showed this morning, it is possible to become an evangelist for one's employer without having to be motivated by money or position but simply because you genuinely believe in the quality of the product.
Tuesday, May 24, 2011
Trust
As I am finding to my cost, identifying who you can trust, is the most important aspect of business.
I wonder if business schools teach this? I will ask next month when I am assessing MBA students at INSEAD.
I wonder if business schools teach this? I will ask next month when I am assessing MBA students at INSEAD.
Monday, May 23, 2011
IPO Valuations
Whilst the world continues to look in fascination at the LinkedIn valuation and anticipates what wealth will be created for the founders of Facebook, Twitter, Groupon and their ilk, another company has announced a deal which may well outstrip them all.
Ceres is a seed manufacturer focusing on plants which are used for energy. Essentially, the plants grown from their seeds can either be burned as a fuel or generate oils which can be refined and used as fuel. Last year the company generated revenues of a few thousand bucks and losses of many millions.
The company has now announced an IPO on NASDAQ to raise $100 million. It is as yet unclear what market capitalisation this will generate, but it is easy to assume that the result will be a price to sales ratio in the stratosphere. Additionally, unlike Facebook or Twitter, whilst the company has spent plenty of private equity capital and Government grants, it clearly doesn't have many users of its products yet.
I haven't gone into the company in detail, but neither will many of the investors to whom this stock is promoted. I can hear the sales pitches about the multi-billion dollar opportunity. However, how many investors in this stock are really qualified to assess the risk of such an investment?
It strikes me that this is a capital raising that would be better done in the world of private equity until such time as the company has generated real commercial validation. However, I am equally sure that no PE firm would offer the valuation that they can secure courtesy of Goldmans and Barclays.
Clearly, it isn't just social media that is attracting excess at the moment.
Ceres is a seed manufacturer focusing on plants which are used for energy. Essentially, the plants grown from their seeds can either be burned as a fuel or generate oils which can be refined and used as fuel. Last year the company generated revenues of a few thousand bucks and losses of many millions.
The company has now announced an IPO on NASDAQ to raise $100 million. It is as yet unclear what market capitalisation this will generate, but it is easy to assume that the result will be a price to sales ratio in the stratosphere. Additionally, unlike Facebook or Twitter, whilst the company has spent plenty of private equity capital and Government grants, it clearly doesn't have many users of its products yet.
I haven't gone into the company in detail, but neither will many of the investors to whom this stock is promoted. I can hear the sales pitches about the multi-billion dollar opportunity. However, how many investors in this stock are really qualified to assess the risk of such an investment?
It strikes me that this is a capital raising that would be better done in the world of private equity until such time as the company has generated real commercial validation. However, I am equally sure that no PE firm would offer the valuation that they can secure courtesy of Goldmans and Barclays.
Clearly, it isn't just social media that is attracting excess at the moment.
Sunday, May 22, 2011
The deterioration and waste of Starbucks (and their ilk)
I spend a lot of time (and money) in Starbucks. Between meetings, I am often found there drinking coffee and working on my laptop. Indeed, that is where I am writing this from. However, I have enormous frustration with these companies owing to poor execution and waste from what is hardly a cheap option.
This morning, I clearly asked for a 'tall black coffee for here'. The cashier rang up my bill and another assistant poured my coffee in a take away cup. I pointed out the error, but instead of pouring the coffee into a mug, she poured it away and poured another. A complete waste and hardly encouraging when I ask for a refill and am asked to pay an extra couple of bucks. The waste in pouring of expressos is equally annoying.
The expansion of these coffee shops around Singapore and Asia is indeed impressive, but I cant help feel that a backlash is coming soon. Slowly, some independents (that offer better coffee, better service and a better environment) are opening multiple branches. I certainly wouldn't be buying Starbucks stock here.
This morning, I clearly asked for a 'tall black coffee for here'. The cashier rang up my bill and another assistant poured my coffee in a take away cup. I pointed out the error, but instead of pouring the coffee into a mug, she poured it away and poured another. A complete waste and hardly encouraging when I ask for a refill and am asked to pay an extra couple of bucks. The waste in pouring of expressos is equally annoying.
The expansion of these coffee shops around Singapore and Asia is indeed impressive, but I cant help feel that a backlash is coming soon. Slowly, some independents (that offer better coffee, better service and a better environment) are opening multiple branches. I certainly wouldn't be buying Starbucks stock here.
Thursday, May 19, 2011
The Wonders of Asian Small Caps
Yesterday we saw the launch of 2 IPOs which generated significant attention.
Glencore is justifiably interesting as it marks the culmination of a transformation from a an outfit with a somewhat 'questionable' reputation run by Marc Rich to one of the worlds more active commodity traders. This has happened as commodities have become of increasing importance to the world. After a short period (in historical terms) when hard physical assets were derided as being old fashioned (atlas no long contained maps of resources held but of satellite coverage and broadband connections). Today, the importance of oil, iron ore, coal and the like has never been greater. Portfolio investors have created a new asset class, commodity traders are the new financial whiz kids and wars are being fought over access. The ascendency of Glencore has been timed meticulously.
Ironically, the stock fighting for equal billing upon its IPO is Linked In, a company that belongs to the family of companies that resulted in commodities being ignored as of little importance in the 90's. I dont profess to understanding 'LinkedIn'. I am a member, have a few hundred connections, but dont really know how to use it properly, how to trust it and, most importantly, how the company is going to make any money out of me. However, this probably summarises my doubts about Social Media in general. The reality is that the company has first mover advantage to the stock market and the people responsible for buying and selling the stock, are probably more familiar with it than they are with Glencore.
However, whilst these two important IPOs have met with considerable attention, the quality of journalism (and I include sell-side stock analysts here) has, not untypically, been fairly poor and demonstrated a lack of understanding of the stock markets and how they work. I may have an answer.
Before anyone is allowed to be published, have them take a test with the following question:
Explain the stock price performance between December 2010 and May 2011 in a HK listed stock called Pacific Plywood (0767:HK). This is a stock I owned in the early 90's as a punt. It has really never been about plywood, but more about it being a shell that could be used for something exciting. I sold out years ago, but always have kept an eye on it for fun. At the end of December it was trading around HK$0.05. Then in January, something started happening. In March it had reached HK$4.53. During this period, the stock was suspended for short period, announcements of a rights issue were made, but in the end, nothing particularly exciting happened. Today, the stock is trading at HK$0.096. Not a bad trading range for a few months.
I wont, at least in this post, answer my own question about what has happened here other than to point out that these moves still happen in Asia (and may well do so elsewhere). Is it market manipulation, is it insider trading, is it fraud........it isn't for me to say, but in my opinion, understanding such moves is an important dynamic in understanding the behaviour of markets. Pacific Plywood may be a world of difference from LinkedIn or Glencore, but today's financial commentators would do well to understand how and why such moves happen before they start writing about the reasons for an IPO's pricing and its first day performance.
Glencore is justifiably interesting as it marks the culmination of a transformation from a an outfit with a somewhat 'questionable' reputation run by Marc Rich to one of the worlds more active commodity traders. This has happened as commodities have become of increasing importance to the world. After a short period (in historical terms) when hard physical assets were derided as being old fashioned (atlas no long contained maps of resources held but of satellite coverage and broadband connections). Today, the importance of oil, iron ore, coal and the like has never been greater. Portfolio investors have created a new asset class, commodity traders are the new financial whiz kids and wars are being fought over access. The ascendency of Glencore has been timed meticulously.
Ironically, the stock fighting for equal billing upon its IPO is Linked In, a company that belongs to the family of companies that resulted in commodities being ignored as of little importance in the 90's. I dont profess to understanding 'LinkedIn'. I am a member, have a few hundred connections, but dont really know how to use it properly, how to trust it and, most importantly, how the company is going to make any money out of me. However, this probably summarises my doubts about Social Media in general. The reality is that the company has first mover advantage to the stock market and the people responsible for buying and selling the stock, are probably more familiar with it than they are with Glencore.
However, whilst these two important IPOs have met with considerable attention, the quality of journalism (and I include sell-side stock analysts here) has, not untypically, been fairly poor and demonstrated a lack of understanding of the stock markets and how they work. I may have an answer.
Before anyone is allowed to be published, have them take a test with the following question:
Explain the stock price performance between December 2010 and May 2011 in a HK listed stock called Pacific Plywood (0767:HK). This is a stock I owned in the early 90's as a punt. It has really never been about plywood, but more about it being a shell that could be used for something exciting. I sold out years ago, but always have kept an eye on it for fun. At the end of December it was trading around HK$0.05. Then in January, something started happening. In March it had reached HK$4.53. During this period, the stock was suspended for short period, announcements of a rights issue were made, but in the end, nothing particularly exciting happened. Today, the stock is trading at HK$0.096. Not a bad trading range for a few months.
I wont, at least in this post, answer my own question about what has happened here other than to point out that these moves still happen in Asia (and may well do so elsewhere). Is it market manipulation, is it insider trading, is it fraud........it isn't for me to say, but in my opinion, understanding such moves is an important dynamic in understanding the behaviour of markets. Pacific Plywood may be a world of difference from LinkedIn or Glencore, but today's financial commentators would do well to understand how and why such moves happen before they start writing about the reasons for an IPO's pricing and its first day performance.
Monday, May 16, 2011
Arrogance of Power - Guilt by Association
If I knew that someone had robbed a bank, and kept it to myself, I'd be opening myself up to arrest. So why is it that the folks who say that DSK's behaviour was well known, are not themselves worried about the police coming knocking?
I dont believe it is a French issue. Sure the French have a history of accepting affairs in politics (M. Mitterrand is a prime example), but they dont accept sexual assaults. I tend to believe that it is another case of the arrogance of power that provides the sense that DSK was allowed to get away with this.
I dont believe it is a French issue. Sure the French have a history of accepting affairs in politics (M. Mitterrand is a prime example), but they dont accept sexual assaults. I tend to believe that it is another case of the arrogance of power that provides the sense that DSK was allowed to get away with this.
Has Microsoft become a SPAC?
A few days ago, a friend forwarded a research article about the importance of individual behaviour on stock prices. I strongly agree with this so read the article, but was disappointed that it treated the subject in a very superficial fashion. It then went on to discuss and recommend Microsoft as a roaring buy! It argued that Microsoft has an outstanding product list, great innovation and didnt spend money on big ticket acquisitions.
Following the skype acquisition, the analyst is probably feeling a little silly (but actually I suspect that so long as he continues to be paid, he isn't too worried!). However, it does highlight the question as to whether Microsoft is little more these days than a SPAC (Special Purpose Acquisition Company).
SPACs were popular a few years ago as listed companies that were basically cash shells looking for an acquisition candidate (or candidates) in a specific industry. Not surprisingly, few worked but many made good money for their sponsors! However, my point here is that there is surely a justification for questioning whether Microsoft has a future on its own and actually needs to spend its huge cash pile on an acquisition. If I am correct, then, as with a SPAC, it has a limited amount of time to do so.
The problem for Microsoft is that its genuine innovation has taken place in product areas that are niche. Kinect is a great product, but it is unlikely to secure Microsoft's long term future. Their office suite remains a stellar product, but equally is coming under enormous attack from cheaper rivals.Whilst unlikely to kill 'Office' in the near term, my guess is that their margins will collapse. Windows is also under attack. Frankly, who knows whether in 5 years time we will be using 'Chrome' type OS, or iOS or 'Android' based computing devices or other OS that we haven't heard of before. My guess is that it will be none of the above, but will be something that arises out of the knowledge and confidence that there is an alternative to the desktop and that consumers and businesses will consider something other than Windows.
I remain to be convinced that Microsoft has a specific plan for Skype, and fear that it acquired it more out of fear of it falling into Google's hands. If this is the case, then Microsoft could well be split into two. The first, a declining operating business which remains profitable for a number of years,but whose valuation is a fraction of its previous multiples. The second is a SPAC in search of the next big thing. Keeping these apart may be far more sensible than looking for the new business or technology that will support the Windows/Office franchise.
Following the skype acquisition, the analyst is probably feeling a little silly (but actually I suspect that so long as he continues to be paid, he isn't too worried!). However, it does highlight the question as to whether Microsoft is little more these days than a SPAC (Special Purpose Acquisition Company).
SPACs were popular a few years ago as listed companies that were basically cash shells looking for an acquisition candidate (or candidates) in a specific industry. Not surprisingly, few worked but many made good money for their sponsors! However, my point here is that there is surely a justification for questioning whether Microsoft has a future on its own and actually needs to spend its huge cash pile on an acquisition. If I am correct, then, as with a SPAC, it has a limited amount of time to do so.
The problem for Microsoft is that its genuine innovation has taken place in product areas that are niche. Kinect is a great product, but it is unlikely to secure Microsoft's long term future. Their office suite remains a stellar product, but equally is coming under enormous attack from cheaper rivals.Whilst unlikely to kill 'Office' in the near term, my guess is that their margins will collapse. Windows is also under attack. Frankly, who knows whether in 5 years time we will be using 'Chrome' type OS, or iOS or 'Android' based computing devices or other OS that we haven't heard of before. My guess is that it will be none of the above, but will be something that arises out of the knowledge and confidence that there is an alternative to the desktop and that consumers and businesses will consider something other than Windows.
I remain to be convinced that Microsoft has a specific plan for Skype, and fear that it acquired it more out of fear of it falling into Google's hands. If this is the case, then Microsoft could well be split into two. The first, a declining operating business which remains profitable for a number of years,but whose valuation is a fraction of its previous multiples. The second is a SPAC in search of the next big thing. Keeping these apart may be far more sensible than looking for the new business or technology that will support the Windows/Office franchise.
Sunday, May 15, 2011
The Arrogance of Power
I am sure that this isn't anywhere near the first time that this title has been used, but it is wholly appropriate for my thoughts this morning. Over the last couple of years, I have had the misfortune to come across individuals whose perspective on life, business and the relationships that result have been influenced by their sense of their own power. Such perception may have been built by wealth, access to wealth, previous successes or other factor which they used to convince themselves that they have power and influence (or at least deserve to have). These are not good people to associate with and generally results in monetary or (more importantly) time loss.
This morning, we are reminded about the arrogance of power with the news of Dominique Strauss-Kahn and Chris Huhn. Of the two, DSK is by far the worst. Assuming that he is guilty of his actions (and the evidence appears to be building), he has not only let himself and his family down, but his position within the European debt crisis means that many millions of people could be affected. Upon hearing the news, I was quite taken aback that someone in his position could have been quite so stupid. However, on reflection, my sense was that this was most likely an arrogance that he had that he was untouchable.
Chris Huhn came to my attention in a TV interview during the UK's AV referendum where he appeared an angry individual and someone making demands rather above his station. Now we hear that he covered up a speeding offence by asking his ex-wife to carry the can. This did not surprise me as he had been on my radar screen since that TV interview. My sense is that David Cameron will not be unhappy to see his back, but once again, it leaves the Lib Dems in some difficulty. More people are affected.
I used to think myself as being a good judge of character. Even today, I believe that I can judge people reasonably well, but I also know that some folks can slip within the cracks. However, with experience, I believe that personal judgement is the most critical aspect of building a business and frankly, building your life. I once read an interview with a senior HR officer at Microsoft who said that they spend so much time in their hiring process not identifying future stars, but ensuring that they dont hire anyone that could bring down the company. That is sensible.
Could DSK's frailties have been identified before he reached such a prominent position? Could Chris Huhn have been identified as someone who could be tempted in this way? I believe so, but I also know that there are many reasons why there is not the incentive to weed them out.
The same arrogance exists in the finance industry. Goldman Sachs have the arrogance that lets them rip off clients for their own gains because time and time again, they have got away with it. So much so that individuals within the finance industry have started believing that this behaviour is not only acceptable, but demanded.
I dont have a magic formula here other than trying to remember myself that no matter what position I am in, I have to trust my instincts and complete appropriate due diligence on anyone that I enter into a business or social relationship with. I also have to remember that the 'Human Factor' can never be underestimated. How many folks today will lose money or over the next few months will lose their jobs, because of DSK and the delays that will result in the European debt work-out.
This morning, we are reminded about the arrogance of power with the news of Dominique Strauss-Kahn and Chris Huhn. Of the two, DSK is by far the worst. Assuming that he is guilty of his actions (and the evidence appears to be building), he has not only let himself and his family down, but his position within the European debt crisis means that many millions of people could be affected. Upon hearing the news, I was quite taken aback that someone in his position could have been quite so stupid. However, on reflection, my sense was that this was most likely an arrogance that he had that he was untouchable.
Chris Huhn came to my attention in a TV interview during the UK's AV referendum where he appeared an angry individual and someone making demands rather above his station. Now we hear that he covered up a speeding offence by asking his ex-wife to carry the can. This did not surprise me as he had been on my radar screen since that TV interview. My sense is that David Cameron will not be unhappy to see his back, but once again, it leaves the Lib Dems in some difficulty. More people are affected.
I used to think myself as being a good judge of character. Even today, I believe that I can judge people reasonably well, but I also know that some folks can slip within the cracks. However, with experience, I believe that personal judgement is the most critical aspect of building a business and frankly, building your life. I once read an interview with a senior HR officer at Microsoft who said that they spend so much time in their hiring process not identifying future stars, but ensuring that they dont hire anyone that could bring down the company. That is sensible.
Could DSK's frailties have been identified before he reached such a prominent position? Could Chris Huhn have been identified as someone who could be tempted in this way? I believe so, but I also know that there are many reasons why there is not the incentive to weed them out.
The same arrogance exists in the finance industry. Goldman Sachs have the arrogance that lets them rip off clients for their own gains because time and time again, they have got away with it. So much so that individuals within the finance industry have started believing that this behaviour is not only acceptable, but demanded.
I dont have a magic formula here other than trying to remember myself that no matter what position I am in, I have to trust my instincts and complete appropriate due diligence on anyone that I enter into a business or social relationship with. I also have to remember that the 'Human Factor' can never be underestimated. How many folks today will lose money or over the next few months will lose their jobs, because of DSK and the delays that will result in the European debt work-out.
"This post confirms my ownership of the site and that this site adheres to Google AdSense program policies and Terms and Conditions: ca-pub-4042707112325681"
I was just turned down by Google for membership of their ad-sense programme. The reason given was that they couldn't confirm the domain ownership.
How odd is this? The domain is owned by Google themselves (www.blogger.com). My ability to publish on this domain was granted by Google who also permit me to use other domains (e.g. gmail.com) for other day to day activities such as email.
On top of the blogger failure at the end of last week, should I be starting to question how reliable the cloud is (or at least Google's approach). I must admit that I had felt that since Google's future depended so critically on the cloud that they could be trusted that their approach was reliable. ??
How odd is this? The domain is owned by Google themselves (www.blogger.com). My ability to publish on this domain was granted by Google who also permit me to use other domains (e.g. gmail.com) for other day to day activities such as email.
On top of the blogger failure at the end of last week, should I be starting to question how reliable the cloud is (or at least Google's approach). I must admit that I had felt that since Google's future depended so critically on the cloud that they could be trusted that their approach was reliable. ??
Thursday, May 12, 2011
International Interest in Singapore
Almost on a weekly basis, I receive an email from someone, often outside of Singapore, which contains criticisms of Singapore and its Government. Regularly, it comes from someone who has either never visited Singapore or only briefly.
There are many things to criticise the PAP (the ruling party) for in its attitude to governing. Indeed, the recent election was a warning for them not to be too comfortable with the lowest vote (just over 60%) in the history of Singapore and as I have written before, this could turn out to be a watershed in the island's political history.
However, whilst I reserve the right to criticise and believe that I have some right to make observations now that I have lived here for around 10 years, it really bugs me when I receive groundless comments from people who have little knowledge of the country. At the end of the day, Singapore is a far wealthier and more successful place than anyone could have anticipated in 1965. The standard of living of its residents is far higher than most countries and the city has continued to reinvent itself in a miraculous way. The changes over the past 10 years in particular have been stunning as the city has embraced popular culture and has become truly cosmopolitan and sophisticated.
Countries such as Sri Lanka are looking towards Singapore to learn. The cynics will say that Rajapaksa would love to replicate the dominance of the Lee family. They may well be correct. However, if Sri Lanka was to replicate even 50% of the economic and social success of Singapore, its citizens will be well rewarded.
There are many things to criticise the PAP (the ruling party) for in its attitude to governing. Indeed, the recent election was a warning for them not to be too comfortable with the lowest vote (just over 60%) in the history of Singapore and as I have written before, this could turn out to be a watershed in the island's political history.
However, whilst I reserve the right to criticise and believe that I have some right to make observations now that I have lived here for around 10 years, it really bugs me when I receive groundless comments from people who have little knowledge of the country. At the end of the day, Singapore is a far wealthier and more successful place than anyone could have anticipated in 1965. The standard of living of its residents is far higher than most countries and the city has continued to reinvent itself in a miraculous way. The changes over the past 10 years in particular have been stunning as the city has embraced popular culture and has become truly cosmopolitan and sophisticated.
Countries such as Sri Lanka are looking towards Singapore to learn. The cynics will say that Rajapaksa would love to replicate the dominance of the Lee family. They may well be correct. However, if Sri Lanka was to replicate even 50% of the economic and social success of Singapore, its citizens will be well rewarded.
Wednesday, May 11, 2011
Managing Expectations
If there is one issue that really annoys me in business, it is poor management of expectations. Given the thousands of business books that seem to be written each year, maybe this is a subject I should write about?
Trust is critical in any business relationship. Unfortunately, I do believe that trust is diminishing, perhaps deservedly so. Whilst the internet has been tremendous for so many activities, the ability to present yourself as something you are not is not reserved for adult chat rooms. There are no shortage of expert oil traders, people with preferential access to coal or iron ore, people who have amazing links to millions (or billions) of dollars seeking a home in real estate, venture capital, power projects etc etc......I could go on.
Whilst I would dearly love to trust someone by default and then be disappointed when that trust is broken, I fear that the appropriate approach is to assume that they are going to screw with you and then be disappointed when they prove to be honest and genuine.
In my opinion, the best way of demonstrating that you are trustworthy is to manage my expectations. If you promise an email today, I am suspicious if it doesn't arrive. If you tell me that your client will provide something by next week and it is going to be late, drop me a note to tell me it will be late. If you think that the client will pay $10 but I am asking $12, be straight with me upfront. Dont waste my time and dont put me into an awkward position with my own contacts and clients.
Managing expectations is, in my opinion, the most important element in developing a trusting business relationship. It shows concern and respect and avoids wasting time (the most precious and scarce resource we have). However, it is also the most poorly executed.
So next time you are in a bookshop thinking about buying another tome on the soft skills of business, save your money and just start ensuring that you have properly managed the expectations of everyone you are doing business with. It will pay off!
Trust is critical in any business relationship. Unfortunately, I do believe that trust is diminishing, perhaps deservedly so. Whilst the internet has been tremendous for so many activities, the ability to present yourself as something you are not is not reserved for adult chat rooms. There are no shortage of expert oil traders, people with preferential access to coal or iron ore, people who have amazing links to millions (or billions) of dollars seeking a home in real estate, venture capital, power projects etc etc......I could go on.
Whilst I would dearly love to trust someone by default and then be disappointed when that trust is broken, I fear that the appropriate approach is to assume that they are going to screw with you and then be disappointed when they prove to be honest and genuine.
In my opinion, the best way of demonstrating that you are trustworthy is to manage my expectations. If you promise an email today, I am suspicious if it doesn't arrive. If you tell me that your client will provide something by next week and it is going to be late, drop me a note to tell me it will be late. If you think that the client will pay $10 but I am asking $12, be straight with me upfront. Dont waste my time and dont put me into an awkward position with my own contacts and clients.
Managing expectations is, in my opinion, the most important element in developing a trusting business relationship. It shows concern and respect and avoids wasting time (the most precious and scarce resource we have). However, it is also the most poorly executed.
So next time you are in a bookshop thinking about buying another tome on the soft skills of business, save your money and just start ensuring that you have properly managed the expectations of everyone you are doing business with. It will pay off!
I want my 'iTunes' etc etc etc
One frustration from living in Singapore is the lack of access to iTunes and similar services. I'm not exactly sure why we are prohibited. I have heard that there are problems in payment systems (unlikely I believe), that the music industry have stopped it happening and that the Govt puts up restrictions.
Sure the local telcos have launched services, but they are extremely limited in their scope.
With the news of Google's new cloud based music service being launched without the music industry's co-operation, it seems as if the second reason is removed (unfortunately, it is only being released in the US for the time being). So is the Govt stopping digital downloads?
I hope that this isn't the case. Staying ahead in the digital economy demands access to what has become a semantic shift in behaviour in any country in which it has been launched.
For Singapore to stay in the game as a global player in digital media, we need such access. I should be able to download the same music, books and videos as I could in the US or UK even if I am carrying a Singapore credit card. Why cant I?
Sure the local telcos have launched services, but they are extremely limited in their scope.
With the news of Google's new cloud based music service being launched without the music industry's co-operation, it seems as if the second reason is removed (unfortunately, it is only being released in the US for the time being). So is the Govt stopping digital downloads?
I hope that this isn't the case. Staying ahead in the digital economy demands access to what has become a semantic shift in behaviour in any country in which it has been launched.
For Singapore to stay in the game as a global player in digital media, we need such access. I should be able to download the same music, books and videos as I could in the US or UK even if I am carrying a Singapore credit card. Why cant I?
Tuesday, May 10, 2011
China Forestry - Incompetence in Banking
In 1987 when I arrived at Citibank, I was impressed. In their day to day work, the people were capable and competent. Phones were answered quickly and care taken to provide excellent service. Deals were analysed with precision and new initiatives came under the most comprehensive scrutiny. It was a place where clever people worked and made money from hard work and intelligence.
Over recent years, the banking industry has deservedly taken a knock. Overpaid bankers have hit the front pages and banking losses which threw whole economies into turmoil have rocked the foundation of our capitalist system. However, a recent article about China Forestry sums up what has gone wrong in banking as well as anything.
This article is not about fraud in Chinese business. This is about the incompetence and greed of Western bankers in letting it happen. In short, a company is permitted to raise hundreds of millions of dollars of equity and debt from banks, private equity funds and retail investors (following a listing) with little or no due diligence taking place. Even the ratings agencies were outsmarted (more of which later).
In my current activities, I lecture entrepreneurs and businesspeople about bankers being lazy. They want to receive the necessary information in a format that can be simply 'fed upstairs' for approval with limited work having to be done. Clearly, China Forestry took advantage of this. No-one thought about 'kicking the tyres'. It was more important that the excel spreadsheet looked sensible than it was to actually see the trees. I am sure that the info memo looked very professional. Had the requisite photographs, financial summaries and all the legal mumbo-jumbo that no-one reads and only rewards printers who are paid to produce tens of wasteful pages.
This is also a story about finance guys losing their way. Back in Citibank days, I underwent an intensive credit course, everyone did whether you were earmarked to be a credit manager or a forex trader. It made good sense for everyone to understand the basics of who you wanted to do business with. Its clear that many of the middle management that are running branches of banks and funds these days didnt undergo the same training. It is not surprising that this can happen at UBS. They lost their conservative Swiss mentality a long time ago. It is not surprising that the credit agencies were duped. No organisation is lazier nor less aware of operational management than them. However, that Carlyle and Standard Chartered screwed up is scary.
Carlyle is a private equity fund of some repute and controversy. However, it has also made impressive investments in difficult companies and whilst I always felt it had built a questionable 'unfair advantage' through its political connections, I would have credited them with a far more effective controls process.
Standard Chartered has never been a place where the greediest of bankers worked. It was a cautious emerging markets bank. A place where an old school banker such as Mervyn Davies could extract enormous value by avoiding the temptation to join the rush to be the next 'Goldmans' or pursue businesses that they didnt understand. It was a place where bankers were taught basic credit analysis and where due diligence was understood as being important and not an impediment to making money. What has happened?
I am a 45 year old ex-banker who has lived in Asia for 20 years. During my time in banking and afterwards, I've been cheated, laughed at, ignored. Since leaving banking, I have witnessed the type of behaviour that is clearly exhibited in the China Forestry story, but on a smaller level. This is not a new game. Friends of mine were cheated in the 1990's by similar games in Thailand and Burma when teak plantations were promoted. China companies have taken advantage of poor due diligence to list on the SGX without the most basic of investor relations provision. I could probably write a book about it (hence the length of this posting!).
So why didnt the banks and PE companies miss it here? The reality is a combination of laziness, incompetence and a lack of oversight. Not regulatory oversight, that would be a waste of time (regulators are easy to cheat) but oversight by senior managers who care more about their reputation than the next bonus, and who have lived in the real world.
Over recent years, the banking industry has deservedly taken a knock. Overpaid bankers have hit the front pages and banking losses which threw whole economies into turmoil have rocked the foundation of our capitalist system. However, a recent article about China Forestry sums up what has gone wrong in banking as well as anything.
This article is not about fraud in Chinese business. This is about the incompetence and greed of Western bankers in letting it happen. In short, a company is permitted to raise hundreds of millions of dollars of equity and debt from banks, private equity funds and retail investors (following a listing) with little or no due diligence taking place. Even the ratings agencies were outsmarted (more of which later).
In my current activities, I lecture entrepreneurs and businesspeople about bankers being lazy. They want to receive the necessary information in a format that can be simply 'fed upstairs' for approval with limited work having to be done. Clearly, China Forestry took advantage of this. No-one thought about 'kicking the tyres'. It was more important that the excel spreadsheet looked sensible than it was to actually see the trees. I am sure that the info memo looked very professional. Had the requisite photographs, financial summaries and all the legal mumbo-jumbo that no-one reads and only rewards printers who are paid to produce tens of wasteful pages.
This is also a story about finance guys losing their way. Back in Citibank days, I underwent an intensive credit course, everyone did whether you were earmarked to be a credit manager or a forex trader. It made good sense for everyone to understand the basics of who you wanted to do business with. Its clear that many of the middle management that are running branches of banks and funds these days didnt undergo the same training. It is not surprising that this can happen at UBS. They lost their conservative Swiss mentality a long time ago. It is not surprising that the credit agencies were duped. No organisation is lazier nor less aware of operational management than them. However, that Carlyle and Standard Chartered screwed up is scary.
Carlyle is a private equity fund of some repute and controversy. However, it has also made impressive investments in difficult companies and whilst I always felt it had built a questionable 'unfair advantage' through its political connections, I would have credited them with a far more effective controls process.
Standard Chartered has never been a place where the greediest of bankers worked. It was a cautious emerging markets bank. A place where an old school banker such as Mervyn Davies could extract enormous value by avoiding the temptation to join the rush to be the next 'Goldmans' or pursue businesses that they didnt understand. It was a place where bankers were taught basic credit analysis and where due diligence was understood as being important and not an impediment to making money. What has happened?
I am a 45 year old ex-banker who has lived in Asia for 20 years. During my time in banking and afterwards, I've been cheated, laughed at, ignored. Since leaving banking, I have witnessed the type of behaviour that is clearly exhibited in the China Forestry story, but on a smaller level. This is not a new game. Friends of mine were cheated in the 1990's by similar games in Thailand and Burma when teak plantations were promoted. China companies have taken advantage of poor due diligence to list on the SGX without the most basic of investor relations provision. I could probably write a book about it (hence the length of this posting!).
So why didnt the banks and PE companies miss it here? The reality is a combination of laziness, incompetence and a lack of oversight. Not regulatory oversight, that would be a waste of time (regulators are easy to cheat) but oversight by senior managers who care more about their reputation than the next bonus, and who have lived in the real world.
Monday, May 9, 2011
Sri Lanka and Russia
Anyone visiting Thailand recently will have noticed that Russian has become a standard language to be displayed on menu's, brochures and other tourist collateral. Whilst in East Asia, we have become focused upon the evolution of outbound Chinese tourism, it is clearly an error to omit the importance of the Russian Rouble.
This means that the recent announcement that Aeroflot was going to begin flights from Moscow to Colombo and then that Sri Lankan Airlines were also going to operate on that route, can mark another important step in the evolution of Sri Lankan tourism. With the opening of the second international airport next year and the announcement of a second runway in Colombo, it appears that international connectivity is well on track to provide the necessary access to the country. Now the focus has to be on the domestic infrastructure. This means roads, hotels and other attractions.
The opening of the Southern Highway will be an important step for the country. Reducing travel time to Galle from Colombo to 1 hour will bring the country closer together and dramatically increase the attractiveness of Sri Lanka as a tourist destination. Indications are that following a slow start, its construction is proceeding well.
The focus now needs to be on the private sector and its ability to establish hotels, restaurants and other tourist sites that will capitalise on Sri Lanka's natural potential. Those of us that are involved in this mission know that life could be made easier by changes in laws, rules and regulations. However, I tend to believe that such impediments are not a bad way to sort out the serious folks from the pretenders. However, for those of us with drive and commitment, access to capital will be critical. It will be interesting to see whether Russian capital will follow Aeroflot?
This means that the recent announcement that Aeroflot was going to begin flights from Moscow to Colombo and then that Sri Lankan Airlines were also going to operate on that route, can mark another important step in the evolution of Sri Lankan tourism. With the opening of the second international airport next year and the announcement of a second runway in Colombo, it appears that international connectivity is well on track to provide the necessary access to the country. Now the focus has to be on the domestic infrastructure. This means roads, hotels and other attractions.
The opening of the Southern Highway will be an important step for the country. Reducing travel time to Galle from Colombo to 1 hour will bring the country closer together and dramatically increase the attractiveness of Sri Lanka as a tourist destination. Indications are that following a slow start, its construction is proceeding well.
The focus now needs to be on the private sector and its ability to establish hotels, restaurants and other tourist sites that will capitalise on Sri Lanka's natural potential. Those of us that are involved in this mission know that life could be made easier by changes in laws, rules and regulations. However, I tend to believe that such impediments are not a bad way to sort out the serious folks from the pretenders. However, for those of us with drive and commitment, access to capital will be critical. It will be interesting to see whether Russian capital will follow Aeroflot?
Low Cost Smartphones
In the midst of all the excitement about the latest iPhone or Android powered model, it seems that commentators are ignoring the dramatic opportunity that exists in the developing world, and amongst lower income individuals elsewhere, for handsets that can offer 'smartphone' style features but at a lower price.
Even though those of us lucky enough to be able to afford an iPhone have been taught that such phones need to cost hundreds of dollars, this is not the case. The combination of innovative software with a low powered Mediatek platform (the platform that powers all the so called Chinese Bandit phones) can deliver such a solution. Such software has been developed by a HK company called Maxitech and their first phones have recently been launched in Indonesia and Thailand.
Whilst the functionality that Maxitech (with their partners CSL and Justco) are offering today tends towards the social and entertaining (eg facebook and twitter connections and chatting), the educational and productivity benefits of such a platform in lesser developed countries could be massive. In these countries, the mobile phone is the principal access point for the internet and the principal data communication channel. However, the handsets that are available there are either second hand or second rate phones supplied by hardware focused brands such as Nokia.
The ability to be able to customise a low cost phone (potentially as cheap as $10) to be able to offer a broad range of applications that enhance data communication should be picked up by multinational bodies such as the African Development Bank and national telcos and promoted aggressively. There is no reason to settle for 10 year old Nokia candy bars with limited functionality when phones that not only look similar to blackberry's but also have many similar features, can be acquired at the same cost!
Even though those of us lucky enough to be able to afford an iPhone have been taught that such phones need to cost hundreds of dollars, this is not the case. The combination of innovative software with a low powered Mediatek platform (the platform that powers all the so called Chinese Bandit phones) can deliver such a solution. Such software has been developed by a HK company called Maxitech and their first phones have recently been launched in Indonesia and Thailand.
Whilst the functionality that Maxitech (with their partners CSL and Justco) are offering today tends towards the social and entertaining (eg facebook and twitter connections and chatting), the educational and productivity benefits of such a platform in lesser developed countries could be massive. In these countries, the mobile phone is the principal access point for the internet and the principal data communication channel. However, the handsets that are available there are either second hand or second rate phones supplied by hardware focused brands such as Nokia.
The ability to be able to customise a low cost phone (potentially as cheap as $10) to be able to offer a broad range of applications that enhance data communication should be picked up by multinational bodies such as the African Development Bank and national telcos and promoted aggressively. There is no reason to settle for 10 year old Nokia candy bars with limited functionality when phones that not only look similar to blackberry's but also have many similar features, can be acquired at the same cost!
Sunday, May 8, 2011
Groupon Copies
I have lost count of how many digital discount businesses there are in Singapore. Certainly many of them have discovered my email address, but I occasionally read of others. My guess is that in this country of 5 million, there must be at least 10.
Conceptually, Singapore is a great place for such businesses. Singaporeans love a bargain. I regularly have seen long queues of people chasing a deal or a discount, 'Groupon' is so much easier. However, are there room for so many? I think not.
In my inbox today, are yet more discounts for second (third) rate restaurants and cheap hotels in Malaysia. YAWN!! However, we shouldn't be surprised. With so many sites chasing 'content' it is unlikely that good products or services will find value in promoting themselves through this medium. An alternative is found at www.sold.sg However, how many people can afford the time to spend on this site? An interesting, but flawed business model in my opinion.
It strikes me that the promise of personalisation in marketing and advertising that so excited me in the late 90's remains to be exploited. Groupon style sites seem to have no targeting or personalisation whatsoever. I think that their legacy will be that other sites will copy the concept in a more targeted way. If magazines such as 'Finder' or 'Expat Living' had a more developed digital strategy, they could exploit the concept more efficiently than Groupon. The same goes for almost any focused content generator.
One day, I'll receive a personalised email/SMS or other message inviting me to try something in which I have genuine interest at a price which is genuinely attractive in a format which is genuinely polite. Groupon and its clones, simply dont do it!
Conceptually, Singapore is a great place for such businesses. Singaporeans love a bargain. I regularly have seen long queues of people chasing a deal or a discount, 'Groupon' is so much easier. However, are there room for so many? I think not.
In my inbox today, are yet more discounts for second (third) rate restaurants and cheap hotels in Malaysia. YAWN!! However, we shouldn't be surprised. With so many sites chasing 'content' it is unlikely that good products or services will find value in promoting themselves through this medium. An alternative is found at www.sold.sg However, how many people can afford the time to spend on this site? An interesting, but flawed business model in my opinion.
It strikes me that the promise of personalisation in marketing and advertising that so excited me in the late 90's remains to be exploited. Groupon style sites seem to have no targeting or personalisation whatsoever. I think that their legacy will be that other sites will copy the concept in a more targeted way. If magazines such as 'Finder' or 'Expat Living' had a more developed digital strategy, they could exploit the concept more efficiently than Groupon. The same goes for almost any focused content generator.
One day, I'll receive a personalised email/SMS or other message inviting me to try something in which I have genuine interest at a price which is genuinely attractive in a format which is genuinely polite. Groupon and its clones, simply dont do it!
Singapore Election
So the PAP''s share of the vote has fallen and they lost a GRC for the first time (for those of you that are unfamiliar, a GRC is a multiple member constituency). What are the implications (or are there any?)
Whilst the PAP retained over 80% of members in the Parliament, I think that they will have been a little shocked. It is a shame that George Yeo (one of the better ministers) lost his seat, but my sense is that he will be given a role of 'Ambassador at Large' or something similar. Of greater interest is what will happen in 5 years.
One only has to look at the news to see how many countries are experiencing political upheaval after years of accepting one party rule. Singapore is certainly a different case to Libya or Egypt, but the principal that populations are demanding to be heard is intact; look at Scotland.
So can the PAP demonstrate that they can continue to do what they regard as being 'the right thing' for Singapore whilst being more aware of public opinion? That isn't easy. The key will be that folks like George Yeo, Vivian Balakrishnan and Inderjit Singh are able to influence the more senior members.
It will take 5 years for us to discover how important this past weekend's election has been. It will be interesting. During that time, the influence of MM Lee will doubtless continue to reduce, East Asian economic growth (ie China) could have slipped and non-PAP political personalities with credibility may evolve.
Using a stock market analogy, this is not a time to 'sell' Singapore. It remains strongly attractive amidst the disruption (current and potential) around the world. However, my guess would be that in 5 years time, asset allocation to Singapore will be lower than it is today caused by greater political uncertainty.
Sri Lanka Tourism
I note today that both Aeroflot and Sri Lankan Airlines will start non-stop flights between Colombo and Moscow in the Autumn.
Russia has become an important provider of tourists to many 'traditional' vacation destinations around the world so this is a welcome development which will aid achievement of Sri Lanka's ambitious growth targets of tourist arrivals.
Increasingly, I believe that the impetus is on entrepreneurs in Sri Lanka to responsibly develop hotels and tourist attractions. This may be a challenge. I used the term 'responsibly' as I strongly hope that Sri Lanka does not fall into the trap of rapidly building large concrete blocks which may initially and superficially appear to be '5 star resorts' but in a relatively short period of time, will deteriorate and blot the landscape. There is a tremendous opportunity to expand Sri Lanka's tourism industry in a way that few countries have achieved. This is not just about building 5 star resorts, but rather it is building hotels and resorts in a way that is culturally and environmentally sympathetic. This can be done for 3 star or 5 star qualities.
I take this view not just from a 'friends of the earth' perspective, but also from a commercial perspective.
Friday, May 6, 2011
Scottish Independence.....
It feels almost inevitable that Scotland will vote Yes in any independence referendum. Whilst I'd like to think that the Scottish population agree with me that the economic implications are hugely negative and the social implications are negligable, I fear that this wont be the case.
I think that the signs are already there that the Tories in Westminster would be delighted to see Scotland split off. Conviction politics is dead for at least a few more years and survival in power is the key. Cameron knows that had Scotland not voted in the last general election, he would have had a majority. Isn't it ironic that a United Kingdom is more threatened by having the 'Conservative and UNIONIST Party' in power than Labour or the Lib Dems?
Of the other parties, Labour have the most to lose from independence. However, I have a strong sense that Ed Miliband is never going to be a popular figure North of the Border and as such will have little influence. My sense of him is of a figure that feels most comfortable amongst fellow 'socialists' in a 1970's English university debating the finer points of socialism versus social democracy. If the pseudo intellectuals of the Labour movement during the Blair period were the arty group from Islington, I fear that the pseudo intellectuals of the movement today are far more mundane and frankly offputting.
The Lib Dems seem to be destined for continuous turmoil so lets not worry about them for the time being.
I actually agree with Michael Forsyth in that it would be better for Westminster to take the initiative, and set the terms and timing of the referendum. However, the opportunity for this has passed. Salmond has played a canny political campaign. I am actually shocked how accommodative the UK Govt has been since Thursday with him, which reinforces my sense that Cameron is privately happy with a split. .
Time will tell and much could happen, but as of today, the SNP must be feeling pretty confident. In many ways, this confidence may be the only thing to trip them up!
Monday, May 2, 2011
Bored of Bin Laaden
I am a news junkie and normally read every square inch of coverage of an important news story such has broken over the past 24 hours on the death of Bin Laaden. However, I cant bring myself to analyse this story. There are simply too many important questions that arise and depressing conclusions.
No question that we are all better off without him. However, the fact that it took over 10 years (yes this didnt all start with 9/11) to catch up despite the billions of dollars that were sunk in by the world's superpowers makes one realise how limited our understanding of Al Queda is.
How can we be certain that he remained in charge of this group. Indeed, is it possible that having a 'leader' could have been a good thing and that there is a danger of splinter groups forming around the world that could be even madder that Bin Laaden? He seemed to like the 'big elephants' such as 9/11 and 7/7, but life could become pretty uncomfortable should individuals or small groups decide to set off suicide bombs in Macys or Harrods on a regular basis. Of course, that is not a reason for not pursuing Bin Laaden, but my point here is whether this kind of analysis has been completed.
This is an embarassing moment for many. For the US, those celebrating on the streets should consider why it has taken so many years, so much money and so many lives to secure him. Had a murder been committed in their local community, they wouldn't have stood for this. For Pakistan, this is awkward, but the response is also dangers should the country use this as a reason to fracture. God help us if a Pakistani leader decided to unite the country around a renewed hardline approach to India.
As for the rest of the Middle East, I hope that thought has gone into how best to follow this up with an appeal to moderates in the region. Egypt needs to be watched as there still sympathetic elements in the country who could see opportunities now that the country is fractured. With the rapprochement between Fatah and Hamas, and the other rivalries at play, the Middle East is not just Sunni vs Shia anymore. Deep thinking is needed to manage this. Is Washington capable of such deep thinking at the moment?
The world needs leadership desperately. For many years, the US provided this leadership in a form that was imperfect but much better than the alternatives. I continue to believe in the basic economic and social framework of the US and Western Europe. However, a leader has to lead by example. This demands a demonstration of intelligence, hard work and practising what they preach. The US needs to look hard at these three factors and show the world that they are capable of leading. Not only will this help world peace, but it is also critical for the US in their working out of their current economic position. However, that is for another post.
Thursday, April 28, 2011
Travel Industry
A company you can find at www.inspirato.com just raised US$11 million in venture capital. As it supposedly had an innovative business model, I took a look. The result is one of puzzlement at the value proposition, but also some lessons and ideas.
The business model is actually not dissimilar to a timeshare as offered by the likes of Marriot. Basically, you pay $15,000 up front then $2,500 per annum for the right to get access to their lists of luxury properties at a reasonable price and with personalised service.(you still have to pay for the vacation, these sums are just subscriptions for the service).
Their value proposition revolves around what I would regard as straightforward common sense when offering high end holidays and is little more than personal service at high quality destinations. They make a big deal of being given a 'Personal Vacation Advisor' who seems to be offering little more than the type of personalised service my wife used to give as a travel agent (ie knowledge of a destination and a resort), and a concierge at the resort.
However, it does give me some pointers and ideas. I continue to believe (perhaps naively) that $11 million in funding means something. One interpretation would be that as vacation bookings have moved on to the internet, personalised service has disappeared before booking. Moreover, perhaps, there are few destinations that offer the type of personalised service that I feel is desired. I guess that the people that have sunk this investment into Inspirato agree!?
The conclusion therefore may not be to create a clone of Inspirato, but to highlight the opportunities available to existing companies in the travel space.
Tuesday, January 4, 2011
Goldman and Facebook
There are two questions in this transaction. Firstly, does Facebook offer good value at $50 billion and secondly, has Goldman found a new way to generate income. A subsidiary question is whether the deal is 'fair'.
With regard to the first question, I certainly wouldn't be investing at this level. Given the challenges of liquidity and the uncertainty as to whether Facebook can convert its admittedly amazingly successful business model into something truly sustainable, it seems to me that the risk/reward balance is not in the investors' favour. If I were an early employee and had the opportunity to take some cash off of the table, I'd certainly do so.
With regard to the second question, I dont believe that it is exactly 'new' in the way the mainstream media is reporting. The use of a balance sheet to 'buy a deal' is well established in both the debt and equity markets. Indeed, in Singapore a pre-IPO round (admittedly for smaller companies) is generally accompanied by placing a portion of the funds raised in an escrow account ready to be paid to the underwriter (who raised the pre-IPO round) when taking them through the listing process. As for it being fair, I believe that the real question is whether Facebook would have considered a more standard publicly offered IPO today had the regulations been different. There are certainly hurdles for companies to be listed today that didnt exist a decade ago. Some of them are well placed, others less so. However, my sense is that Facebook is following a similar track to Google (though short memories seem to forget the anticipation of an IPO that preceded that companies actual listing).
The main story here is that Goldman has secured what will be the most important IPO of this decade to date and has done so in a way that reinforces their prominence in the industry. It is often said by institutional investors that they dont like doing business with Goldman, but they need to. The Facebook deal confirms this. Equally, the deal will generate multiple fee generators for Goldman whilst mostly using other peoples' money rather than their own balance sheet.
There may be much complaining from other banks and commentators on this deal, but it will mostly be down to jealousy. Once again, the clever guys at Goldman are taking advantage of their market position and power in a way that reinforces their dominance.
Subscribe to:
Posts (Atom)