Seán Farrell

Credit crisis or shifting gear onto a new destination?

Seán Farrell — Sun, 21 Dec 2008 10:49:16 +0000

I do think there is a distinct link between what is happening in the markets, global warming, the change in politics (US, China etc) – and a change of mindset underpinning business and the financial system leading up to 2012 – and how it all works will change!

I think the credit crunch and resulting recession we are going through are cycles of ‘evolution’ of the human race in one sense. There is a shift in energy and what’s surprising is that we never seen it coming or happening to this extent, but as a banker I spoke to last week said – in a recession the dirty laundry comes out first.

http://en.wikipedia.org/wiki/Short_selling”>> “The first case of selling short dates back to 1609 and concerns Dutch trader Isaac Le Maire, a big share holder of the Vereenigde Oostindische Compagnie (VOC). In 1602 he invested about 85,000 guilders in the VOC. By 1609 the VOC still was not paying dividend, and Le Maire’s ships on the Baltic routes were under constant threats of attack by English ships due to trading conflicts between the British and the VOC. Le Maire decided to sell his shares and sold even more than he had. The notables speak of an outrageous act and this led to the first real stock exchange regulations: a ban on short selling. The ban was revoked a couple of years later. Short selling has been a target of ire since at least the eighteenth century when England banned it outright. It was perceived as a magnifying effect in the violent downturn in the Dutch tulip market in the seventeenth century. In another well-referenced example, George Soros became notorious for “breaking the Bank of England” on Black Wednesday of 1992, when he sold short more than $10 billion worth of pounds.”

Last night I had dinner with my girlfriend’s father who has now lived through 3 recessions, and commented how each one has been different – the causes and the fundamentals, and each as resulted in the world changing (evolving) in a different way as a result. So could a recession merely be ‘growing pains’?

In short I think there is a fundamental adjustment happening, and although it may be painful in the short term I think we (society) will come out the other end stronger and changed for it. I do however expect there will be some even bigger casualties to come (as the last 2 weeks virtual collapse of the hedge fund industry), but then again the businesses and business models that underpinned theses companies/institutions were not sustainable and should have collapsed long before! I think Darwinian principles in economics may be a valid application, as it leads to a stronger and fitter system.

The question then being how do we profit from it? I am an eternal optimist so maybe biased, but what will come out the other end will be very different (looking forward) – there are some great opportunities, but it does require thinking outside of the box or else the transition will be painful!

There are bargain assets to be buying into now, and these stocks have to recover, but choosing the ones that won’t go bust in the interim – but a varied portfolio will definitely produce above average returns in the longer term!

Like John Paul Getty once said – he only buys when the market is selling and sells when the market is buying. And cash is king; he who has it has more options.

Debt, short-selling or equity merely helps you get your dreams before you are ready for it, and it you can’t grow into managing those dreams, then you lose them, it’s that simple!

How the Financial Crisis Was Built Into the System ~ Robert Kiyosaki

Seán Farrell — Sun, 14 Dec 2008 15:00:28 +0000

How did we get into the current financial mess? Great question.

Turmoil in the Making

In 1910, seven men held a secret meeting on Jekyll Island off the coast of Georgia. It’s estimated that those seven men represented one-sixth of the world’s wealth. Six were Americans representing J.P. Morgan, John D. Rockefeller, and the U.S. government. One was a European representing the Rothschilds and Warburgs.

In 1913, the U.S. Federal Reserve Bank was created as a direct result of that secret meeting. Interestingly, the U.S. Federal Reserve Bank isn’t federal, there are no reserves, and it’s not a bank. Those seven men, some American and some European, created this new entity, commonly referred to as the Fed, to take control of the banking system and the money supply of the United States.

In 1944, a meeting in Bretton Woods, N.H., led to the creation of the International Monetary Fund and the World Bank. While the stated purposes for the two new organizations initially sounded admirable, the IMF and the World Bank were created to do to the world what the Federal Reserve Bank does to the United States.

In 1971, President Richard Nixon signed an executive order declaring that the United States no longer had to redeem its paper dollars for gold. With that, the first phase of the takeover of the world banking system and money supply was complete.

In 2008, the world is in economic turmoil. The rich are getting richer, but most people are becoming poorer. Much of this turmoil is directly related to those meetings that took place decades ago. In other words, much of this turmoil is by design.

Power and Domination

Some people say these events are part of a grand conspiracy, and that might well be. Some people say they represent the struggle between capitalists, communists and socialists, and that might be, too.

I personally don’t participate in the debate over a possible global conspiracy; it’s a waste of time. To me, the wider struggle is for power and domination. And while this struggle has done a lot of good — and a lot of bad — I just want to know how to avoid becoming its victim. I see no reason to be a mouse trying to stop a herd of elephants from fighting.

Currently, many people are suffering due to high oil price, the slowdown in the economy, loss of jobs, declines in home values, increased bankruptcies and businesses closings, savings being wiped out, the plummeting stock market, and rising inflation. These realities are all direct results of this financial power struggle, and millions of people are its victims today.

An Extreme Example

I was in South Africa in July of this year. During my television and radio interviews there, I was often asked my opinion on the world economy. Speaking bluntly, I said that South Africans had a better opportunity of comprehending the global turmoil because they’re neighbors to Zimbabwe, a country run by Robert Mugabe.

In my interviews, I said, “What Mugabe has done to Zimbabwe, the Federal Reserve Bank and the IMF are doing to the world.” Obviously, my statements disturbed many of the journalists. I did my best to comfort them and assure them I was not an anarchist. I explained, as best I could, that Zimbabwe was an extreme example of an out of control power struggle.

After they were assured I was only using Zimbabwe to illustrate my point, I said, “If you want to understand the world economy, take a refugee from Zimbabwe to lunch.” I advised them to ask the refugee these questions:

1. How fast did the economy turn?

2. When did you know that you were in financial trouble?

3. When did you finally decide to leave Zimbabwe?

4. If you could do things differently, what would you have done?

Three Approaches to a Crumbling Economy

I spoke to three young couples from Zimbabwe while I was in South Africa. Two couples were recent refugees now living in South Africa, and one couple still lives in Zimbabwe. All three couples had interesting stories to tell.

One couple said that they would have quit their jobs earlier. Instead, they hung on, hoping the economy would change. Then, virtually overnight, the value of the Zimbabwean dollar dropped and inflation went through the roof. Even though they received pay raises, the couple couldn’t survive and soon depleted their savings. They left Zimbabwe by car with almost nothing. If they could’ve done something differently, they told me, they would have started a business in Zimbabwe and began exporting products to South Africa, so that they would have had South African currency and a bank account there before they fled.

The second couple that fled the country said they saved money and paid off their house and other debts even as the Zimbabwean dollar fell in value. Looking back, they say they would’ve saved nothing and gotten deeply in debt in Zimbabwe, allowing them to pay off their debt with the cheaper dollars. Instead, they fled after they lost their jobs, leaving behind their house and owning $200,000 in nearly worthless Zimbabwean dollars.

The third couple still lives in Zimbabwe. When they saw the writing on the wall, they set up a business in South Africa and, with the profits, began acquiring tangible assets in Zimbabwe. Often, they’ll buy an asset in Zimbabwe and pay the seller in South African currency. They believe that once Mugabe is gone and order is restored, they’ll be in a strong financial position.

Many Problems, Few Solutions

There are three major problems with the events of 1913, 1944, and 1971. The first is that the Fed, the World Bank, and the IMF are allowed to create money out of nothing. This is the primary cause of global inflation. Global inflation devalues our work and our savings by raising the prices of necessities.

For example, when gas prices soared, many people said that the price of oil was going up. In reality, the main cause of the high price of oil is the decreasing value of the dollar. The Fed, the World Bank, and the IMF, like Zimbabwe, are mass-producing funny money, thereby increasing prices and devaluing our quality of life.

The second problem is that our economic crises are getting bigger. In the 1970s, the Fed faced and solved million-dollar crises. In the 1980s, it was billion-dollar crises. Today, we have trillion-dollar crises. Unfortunately, these bigger crises mean more funny money entering the system.

Apocalypse Soon

The third problem is that in 1913, the Fed only protected the large commercial banks such as Bank of America. After 1944, the Fed, the World Bank, and the IMF began bailing out Third World nations such as Tanzania and Mexico. Then, in 2008, the Fed began bailing out investment banks such as Bear Sterns, and its role in the Fannie Mae and Freddie Mac debacle is well known. By 2020, the biggest of bailout of all will probably occur: Social Security and Medicare, which will cost at least a $100 trillion.

Even if we find more oil and produce more food, prices will continue to rise because the value of the dollar will continue to decline. The dollar has lost over 90 percent of its value since the Fed was created. The U.S. dollar will continue to decline because of those seven men on Jekyll Island in 1910.

Granted, the funny-money system has done a lot of good — it has improved the world and made a lot of people rich. But it’s also done a lot of bad. I believe somewhere between today and 2020, the system will break. We’re on the eve of financial destruction, and that’s why it’s in gold I trust. I’d rather be a victor than a victim.

Original article available here: http://www.richdadwisdom.com/?p=467

Credit crunch hurts India’s wealthiest, too

Seán Farrell — Tue, 25 Nov 2008 21:18:53 +0000

MUMBAI (Reuters) – These are painful times for India’s tycoons, the Forbes Asia Rich List said recently.

A falling stock market, a weak rupee and slowing economic growth have shaved about 60 percent off the wealth of India’s 40 richest people, it said in its annual compilation, with their net worth plunging to $139 billion from $351 billion a year ago. No small change that, and it’s got to hurt.

“They’re definitely feeling the pain,” said Sonu Bhasin, president of retail finance at Axis Bank, and head of the bank’s private banking and wealth management divisions, which have nevertheless continued to add new clients in recent months. “Everyone’s hurting, everyone’s in a panic, but the wealthy get noticed more and their concerns get addressed,” she said.

An economy that grew at about 9 percent in the last three years and a six-year bull run on the stock market helped mint new millionaires in Asia’s third-largest economy, a rich class who splashed out on luxury cars, yachts and sprawling vacation homes.

India had 123,000 millionaires in 2007 and showed the fastest pace of expansion, a Merrill Lynch/Capgemini report said. But a stock market rout has meant local investors have “notionally lost almost a year’s GDP,” Credit Suisse said. Bhasin’s clients, who are high net-worth individuals, are seeking more professional advice now, and also favoring more traditional investment options such as bank deposits, she said. “They are seeking safety: fixed deposits are making a huge comeback, and there is also some interest in gold,” Bhasin said. “We’ve always told clients making money is a boring exercise. Now they’re being more realistic and willing to be bored.”

BILLIONAIRE NO MORE

The reality is harsh for steel baron Lakshmi Mittal, chief of Arcelor Mittal, the world’s top steelmaker, who gave up his No. 1 position on the Forbes list because of crashing prices. The new No. 1, Mukesh Ambani, chief of India’s top private company Reliance Industries, has a net worth of about $21 billion, Forbes estimates, down 58 percent from last year. That does not seem to have hit construction of his $1 billion home on Mumbai’s Altamount Road, among the most expensive stretches of residential real estate in the world, even though other luxury apartments in the city are finding few takers.

In the home segment of more than 100 million rupees ($2 million), demand is very weak because it is linked to big bonuses and stock market returns, which have taken a hit,” said Abhisheck Lodha, a director at developer Lodha Group in Mumbai. Real estate tycoons such as top realtor DLF’s KP Singh have seen the biggest wealth erosion this year, Forbes noted, while windmill maker Suzlon’s founders have lost their billionaire status and flamboyant liquor baron Vijay Mallya, head of the UB Group, has dropped off the Forbes list on losses to his airline.

“Business founders were the worst hit as the largest shareholders,” said the Credit Suisse report, which estimated the top 20 business groups in India have lost about 71 percent of the value of their listed investments, or $226 billion, this year.

ART, CARS, WINE

But while the notional value of their wealth has taken a hit, India’s billionaires still have plenty of loose change for luxury cars, art and wines. Sales of cars priced at more than 2 million rupees have remained strong, bucking the slump in overall car sales. Car sales fell nearly 7 percent from a year ago in October, but Mercedes-Benz has already met its full-year target with a 47 percent increase, while BMW’s sales have more than doubled. Perhaps the wealthy will drive their new cars to the upcoming Osian’s auction of modern and contemporary Indian art and craft.

Chairman Neville Tuli is confident there will be bidders for at least half the collection even “in a worst-case scenario,” compared to auctions in New York recently, where sales were less than half what they were a year ago and a majority of works were offered at prices far below their presale estimates.

“The Indian economy is stronger than the economies of Europe and the United States, so our art market’s stronger,” Tuli said, noting there were several new guests at the recent preview.

“The art market’s really dependent on collectors who, irrespective of what is happening in the rest of the world, will still allocate resources to art. That’s their first priority.”

As for premium spirits, demand is strong, said Vishal Kadakia at importer Wine Park and de facto head of the Bombay Wine Club. “The alcohol industry is probably the most recession-proof.”

“When times are bad, everyone wants a drink,” he said.

($1=50 rupees) Article from Reuters.com 25 November’08

Mind boggles – MasterCard to issue diamond-studded cards

Seán Farrell — Mon, 03 Nov 2008 07:02:25 +0000

Markets are plunging, banks are collapsing and talk of recession is all about, but the global gloom is not stopping the launch of a MasterCard credit card inlaid with a diamond and laced with gold.

Known as the “Diamond”, the card has a 0.02-carat gem embedded in its centre and a picture of a peacock for female cardholders and a winged horse for men.

The card, which has a $1,000 (£620) annual fee, is to be issued in two weeks’ time by MasterCard and Kazkommertsbank, the second largest bank in commodities-rich Kazakhstan, where the oil and minerals boom of recent years has created a fresh crop of billionaires.

Asked about the timing of the launch, the bank’s head of international payment systems, Alla Voyakina, said: “The [financial] crisis is also affecting us but we are talking about rich people, they can afford to have such cards. It’s a question of prestige to have such cards in your wallet.”

The diamond was “only a design element”, Ms Voyakina said. “It’s showing your status.”

MasterCard had done “all the testing” to make sure such a card would fit into automated teller machines and point of sale slots, she added.

The card comes as even the super-rich are feeling the pain of the credit crunch. Spending on items such as $1,000 mobile phones is expected to end a boom that more than doubled the size of the global luxury goods market in the past decade.

However, Ms Voyakina said the bank had a target audience of “the best of VIP customers” and only planned to issue 1,000 cards, at a rate of about 30 a month, starting on November 13.

Each would have a credit limit of $50,000, about $20,000 higher than the highest limit on some MasterCard platinum cards.

MasterCard, which launched a similar card in Dubai last year, said such cards were “leading examples of MasterCard’s ability to support our customers in meeting the lifestyle needs of these premium customers”.

The invitation-only “Royale” card issued by Dubai First, a consumer finance group owned by the emirate’s ruler, Sheik Mohammed bin Rashid Al Maktoum, offers a “lifestyle manager” and has no pre-set spending limits.

The Kazakh card comes with a personal card “manager”, available around the clock.

(Article as seen in the FT 1 Nov’08)

Time management

Seán Farrell — Sat, 01 Nov 2008 16:50:14 +0000

Again this week realised that the only way to progress is to get the lower priority things done – then able to do bigger and better things. Much easier said than done, but maybe the way to do that is through effective systems – systems for everything. These may start as TO DO lists or process maps, which if done often enough by following the TO DO or process map you dont need to think about anymore and are then free do more entertaining activities (of higher value). For example when we learn to drive a car we spend all the tme focusing on what we should and should not be doing, but eventually as we become better drivers (some of us anyway) we forget about the HOW’s and WHEN’s but instead concentrate on the great view, the pleasure of the car (assuming its a nice car to drive) i.e. we can enjoy the whole experience and the car is just part of what makes it possible instead of being the end point in itself. This all ofcourse again takes a new level when we get a new and better car, but again changes when we get used to it again…Anyway thats my rational behind the value of TO DO’ing and systemizing anything and everything, and plan to follow my own advice this week!