Saturday, November 01, 2008

The name is Bond, Lehman Brothers Bonds

I've been accused of being cynical before and probably will be again but I have very little sympathy for the people storming HK banks because they lost their life savings making bad investments. Don't misunderstand, I'm sorry for them but low risk does not equal no risk. They were either idiots or didn't research their investments well. Please note, the really pretty-looks 25 years younger than she is-really smart-hard working Chinese wife and I have seen our portfolio shrink significantly so this financial crisis hits home for me. But, and it is a big huge, in capital letters and flashing red font BUT we didn't have all our eggs in one basket and didn't consider a long term investment to be 18 months. These people did. They evidently didn't maintain any cash, or not near enough. They also apparently bought all their bonds from one bank, probably because they could get the fees waived that way (Penny wise & dollar foolish) and presumed that because their 26 year-old account manager had never lost money in his 4 years of investing they'd never lose either.

Some Question:
1. Did it really take this crisis to show the locals here that the banks are some combination of dishonest, corrupt and incompetent?
2. Did they ever READ the contract? If they couldn't read it did they have someone read it for them?
3. Did they ever think there may be a difference between speculation and investing?

I've been to a couple of investing seminars sponsored by banks here. What they told me was that a long term investment is one that doubles in value every 18 months. A short term investment was 6 months and a medium term investment 9-12 months. I've got news for these people. All of these are speculative investments. In fact, they are incredibly speculative. Most of the investors here, and up North are not really investors but speculators.

I find the lack of honesty by the banks here to be particularly galling because they charge fees that are something like 3 times the world average and then give bad advice to people who want to double their assets every two or three years. We've even had the banks tell us "Yes, our charges are more but you make more" Well hey Einstein, when the market goes South do we lose less if we've paid you more? To quote Bugs Bunny "What a Maroon!"

I'm sorry, and it bothers me to say that I agree with Mr. Potato Head (Joseph Yam the guy in charge of the Hong Kong Monetary Authority) Did it not ever occur to these people that the reason that they could get 6% or 8% or 9% on these investments when a pass-book savings account offers 1.5% was because there was substantial risk involved? Did it every occur to the banks that their customers might riot when they found out how badly they'd been screwed?

I guess not. Or maybe the people storming banks and assaulting security guards just think if they pitch a big enough fit someone will bail them out. Evidently the banks never thought this would happen or they wouldn't have had unarmed security guards.

It gets still worse because it is going to get worse. If the US and EU go into a deep recession which is what happens if John McCain wins the US election or experiences the second coming of the Great Depression which is what will happen if Barrack Obama wins then all those Chinese factories will go belly up. Either way the days of the Chinese economy shooting up like a rocket are probably coming to an end, at least for a while. So what happens when Constantine Tiberius Yuk-Ming Chan and his wife Hilarious Butterfly Ying-Ping Wong (I made up these names but there probably at least two or three people with similar names to these in Hong Kong) can't pay the mortgage on their 15 million dollar 750 square foot flat in the mid-levels because his import-reexport business can't sell Chinese shoes to Wal-Mart because nobody is buying them? They will have to do more than let one of their three Filipino maids go, move their spoiled brat Constantine II to a cheaper school and sell the second Mercedes, that's what! Expect the real estate market here to crash next year; and I mean crash like go down in flames. Expect lots of the returned Chinese to suddenly go back to Canada because they can't make enough to make it worth living in the air-pollution in Hong Kong if they can't make a several of million a year in Hong Kong dollars.

Looking on the bright side the wife and I would like to buy a new apartment so maybe we can get a deal.

Remember the stock market can, theoretically, go all the way down to zero but the stockbroker can go down only as far as the sidewalk, unless he falls through a skylight over the restaurant and then he can go to the basement. I think lots of speculators in Hong Kong are probably going to wish they'd been a little more careful before too long and some of the families of stock brokers are going to wish they worked on the ground floor.

To be a little fair; the banks here are fairly shady. To their credit (I know that's a really bad pun) that is why they probably won't go under. So maybe we do need to do a few things

How about requiring banks to provide contracts that say the same thing in English as in Chinese. If you think they already do, think again! Risk that is clearly stated in English is often times glossed over in Chinese; I know this because the really smart wife told me so.

How about putting a sentence in 12 point print that says "There is risk involved with all investments and you could lose all your principle. The risk of this investment is considered Very Low/Low/Average/High/Very High/Do do it if you can't afford to lose it" and making the bank customer sign it?

How about not letting fresh grads from HKU be financial councilors at banks?

How about people learning how to gage risk before they invest?

How about some anti-collusion laws so that bank charges would fall?

In other news, Krispy Cream closed but a new Burger King just opened in North Point. I feel like a Cheeseburger!

Until Next Time
Fai Mao
The Blogger who is only a financial expert when compared with investors in Hong Kong

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