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Money matters: The Investment Regulations (Part 1)
Graham Macdonald
MBMG International Ltd.
As we’ve
discussed many times before, many of the investment regulations around the world
are anachronisms. Vestiges of former times that have somehow survived. In the
USA, many of the rules dictating what investors can and can’t invest in date
back to arch poacher turned gamekeeper Joseph P Kennedy who was the first
regulator of the markets in the 1920s and haven’t been updated since. If the
car industry were governed by the same rules, then we’d all have to drive
black Ford Model Ts today.
Admittedly we shouldn’t complain - from our offshore
vantage point it doesn’t affect us and arguably if Alpha is a zero-sum game
then having the world’s regulators forcing the majority of people to make
inefficient investments simply serves to create opportunities that our offshore
clients can exploit.
However, being the caring, sharing, democratic, socialistic
types that we are, it does bother us. The fact that South Carolina and Indiana
were prohibited by law from investing in equities until 1998, because they
literally followed conventions going back 70 years, to an era when the bulk of a
pension plan’s capital was deployed in government, steel, and railroad bonds,
cost their pensioners 97.4% of their potential return (according to Ibbotson
Associates, for the period 1925-1998, corporate bonds returned 61 times their
original value, while large-capitalization stocks returned 2,351 times their
original value).
Ron Sandler and his regulators reviewed the UK investment
industry at the end of the 20th century and came out with regulations for the
new millennium that would have looked outmoded in the previous one. Deciding
that fees were the easiest part to regulate they chose a certain level of flat,
non-performance-based fee as being acceptable, and created CAT standards. The
problem that we see with this is that the better fund managers choose not to
comply with CAT standards and they promote themselves on the basis of their
performance - quite understandably the better that they do their job, the better
they get paid for doing it. The ones who choose to comply therefore tend to be
the mediocre who suddenly have a license to charge a particular amount for their
mediocrity whether that is fair in relation to their abilities or whether it’s
actually too much. The practical effect of regulations like this is to encourage
overcharging by the worse performers - clearly not what was in mind.
Going back to the zero-sum argument, we have some issues with
this. Arguably all trade is zero-sum (i.e., if someone sells you a product or
service at a profit, then you, the consumer, are paying extra for that so that
the manufacturer, service provider and/or distributor can make a profit). The
extent of this generally gets mitigated by competition - although history is
replete with examples of price-fixing, like Standard Oil - so that profit levels
tend to be fair and reasonable. As long as someone is selling something that
someone wants, as opposed to providing a basic essential service, and all
parties are happy with the deal then a regulator’s place should be on the
sidelines. Split-strike conversion provides a perfect opportunity of how this
can work. Arbitrageurs seek option pricing opportunities that allow them to
exploit typical situations like the following:
buy a particular stock,
buy an option for a price of 1% to sell that stock for 100%
of the purchase price if the stock falls below that
sell an option for a price of 1% to sell the stock for 101%
of the purchase price if the stock increases above that level
All parties are happy - if the stock increases our
arbitrageur makes up to 1% on the trade and if it falls he makes no loss and no
gain.
The party that sells the option to the arbitrageur would
usually be in the market to buy the stock but at a price marginally lower than
today’s price - if the price falls they can exercise that, and they’ve made
1% for doing nothing other than entering into a contract to do something that
they’re seeking to do anyway.
Admittedly, if the stock falls 10% they still have to buy for
99% of the price but with limit order purchasing set at 99% of the current price
they would have done just that anyway. If the stock doesn’t fall they
wouldn’t have bought but at least this way they have the 1% option premium for
their inaction.
The party that buys the option gets the chance to buy a stock whose value may
have increased to say 103% for a total cost of 102% (the 1% option cost and the
101% exercise price) hence a 1% gain without the risk of owning the stock. With
the different motivations of different institutions and investors the odds of
finding counterparties whose aims match these scenarios is high. In this
situation no party needs protecting from themselves - they’re doing what they
would have done anyway but in a more efficient way.
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The above data and research was compiled from sources believed to be
reliable. However, neither MBMG International Ltd nor its officers can accept
any liability for any errors or omissions in the above article nor bear any
responsibility for any losses achieved as a result of any actions taken or not
taken as a consequence of reading the above article. For more information please
contact Graham Macdonald on [email protected]
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Snap Shots: Auto-Focus does not guarantee sharpness
by Harry Flashman
For many senior citizens, the advent of Auto-Focus (AF)
was heralded as being the ideal compromise for them. No longer would they
have to rely on their own eyes to get sharp photographs, the magic brain
in the camera would do it for them. Well, that was the theory.
 For
these people, they were quite sure that all their shots would be pin-sharp
from then on. It came as a great shock however, when they found they could
have even more out of focus shots than they ever had before!
There are unfortunately many situations where the magic
brain just cannot work properly. For example, if there is no contrast in
the scene, then the AF will not work. If you are trying to focus in a
“low light” situation then the AF will “hunt” constantly looking
for a bright area. When trying to shoot through glass or wire mesh in the
zoo, the AFcan become totally confused, and give you a sharp photograph of
the mesh, instead of the animal in the cage. No, while AF may be a great
relatively new development, it still is not 100 percent foolproof.
One of the reasons for this is quite simple. The
camera’s magic eye doesn’t know exactly what subject(s) you want to be
in focus and picked the wrong one in the viewfinder! You see, the
focussing area for the AF system is a small circle in the middle of the
viewfinder, so if you are taking a picture of two people 2 meters away,
the camera may just focus on the trees it can see between your two
subjects. Those trees are 2 kilometres away, so you get back a print with
the background sharp and the two people in the foreground as soft fuzzy
blobs.
What you have to do is use the “hold-focus”
(sometimes called “focus lock”) facility in your camera (and 99
percent of all AF cameras have it!) To use this facility, compose the
people the way you want them, but then turn the camera so that one person
is now directly in the middle of the viewfinder. Gently push the shutter
release half way down and the AF will “fix” on the person. Generally
you will get a “beep” or a green light in the viewfinder to let you
know that the camera has fixed its focus. It will now hold that focus
until you either fully depress the shutter release, or you take your
finger off the button. So, keeping your finger on the button, now
recompose the picture in the viewfinder and shoot. The people are now in
focus, and the background soft and fuzzy, instead of the other way round.
So what should you do in the other situations when the
AF is in trouble? Simple answer is to turn it off, and focus manually!
Sometimes, in the poor light it is possible to shine a torch on the
subject, get the AF fixed on the subject and then turn off your torch and
go from there. But this is only when you cannot turn the AF off! It is
amazing, here we have all these new “automatic” developments, and I am
suggesting you turn them off!
Another focussing problem is when photographing a
moving subject. When say, for example, you are attempting to shoot a
subject coming rapidly towards you, the AF is unable to “keep up” with
the constantly moving target. The answer here is to manually focus at the
point where you want to get the photograph and then wait for the subject
to reach that point. As it gets level with the predetermined point, trip
the shutter and you have it. A sharply focussed action photograph.
Another super tip from the photographic studios of the
glamour photographers - when making a portrait shot, focus on the eyes,
nowhere else. I know it is easier to focus on the collar for example, but
you run the risk of the shot going “soft” around the eyes. Very, very
carefully focus on the eyelid margins and you will have a super shot, no
matter how shallow your depth of field may be. Try it one day.
Modern Medicine: Anaesthesia, or Bite on this bullet!
by Dr. Iain Corness, ConsultantWe
marvel at the surgical advances in the past century, but while I take my hat
off to the surgeons, the real praise goes to the anaesthetists. Without the
advances in anaesthetics, brawny assistants would still be holding patients
down while surgeons attacked with scalpels and saws and the patient lay
there screaming.
Yes, that was the way it was up to around the Crimean War
150 years ago. The best surgeons were the quickest surgeons. The incredible
searing pain only had to be endured for a shorter time. The famous surgeon,
Dr. Pott, was able to disarticulate an ankle and dip the soggy end of the
lower leg into boiling pitch in 15 seconds. Bite on the bullet for quarter
of a minute! Yes, we have improved a little since then.
The first anaesthetic agent was ether, dribbled on to a
mask to knock the patient out and allow the surgeon to take his time and
become meticulous in his approach. The first public demonstration of ether
anaesthesia took place on 16 October 1846, at Massachusetts General Hospital
in Boston. The anaesthetist was William Morton and the surgeon was John
Warren; and the operation was the removal of a lump under the jaw of a
Gilbert Abbott. Those three have left their mark in medical history.
While there have been enormous advances since then, I can
remember being a medical student and assisting at an operation in outback
Australia in 1964. The anaesthetic was ether, dribbled on to the patient’s
gauze mask by the matron of the public hospital, and it was a Caesarian
section for twins. There was no air-conditioning and it was 43 degrees in
the theatre, where the fumes were making us all woozy. Amazingly everyone
survived the ordeal, mother, twin sons, the local doctor, the matron and me.
Despite outback Australia, anaesthesia progressed in the
rest of the world. Chloroform was introduced by James Simpson, the Professor
of Obstetrics in Edinburgh, in November 1847. This was a more potent agent
but it had more severe side effects, including sudden death. However, it
worked well and was easier to use than ether and so, despite its drawbacks,
became very popular.
The next major advance was the introduction of local
anaesthesia - cocaine - in 1877. Things definitely did go better with
‘coke’! Then came local infiltration, nerve blocks and then spinal and
epidural anaesthesia, which in the 1900s allowed surgery in a relaxed
abdomen, and is still used today, especially in obstetric anaesthesia, where
the mother can be anaesthetized, without the baby being affected as well.
The next important innovation was the control of the
airways with the use of tubes placed into the trachea. This permitted
control of breathing and techniques introduced in the 1910s were perfected
in the late 1920s and early 1930s. Then came the introduction of intravenous
induction agents. These were barbiturates which enabled the patient to go
off to sleep quickly, smoothly and pleasantly and therefore avoided any
unpleasant inhalational agents. Then in the 1940s and early 1950s, there
came the introduction of muscle relaxants, firstly with curare (the South
American Indian poison, but not administered by native blowpipe) and then
agents less dangerous.
In the mid 1950s came halothane, a revolutionary
inhalation agent, which was much easier to use, but now superseded by even
more potent, but less dangerous anaesthetic agents.
According to Dr David Wilkinson of the Association of
Anaesthetists of Great Britain and Ireland, “Anaesthesia is now very safe,
with mortality of less than 1 in 250,000 directly related to anaesthesia.
Nevertheless, with today’s sophisticated monitoring systems and a greater
understanding of bodily functions, the anaesthetic profession will continue
to strive for improvement over the next 150 years.”
On behalf of all patients requiring surgery in the
future, may I thank Dr. Wilkinson and his colleagues all over the world. No
longer do they have to bite on this bullet!
Learn to Live to Learn: Knowledge and the Curriculum
with Andrew Watson
Have you ever wondered why you learned certain
subjects at school, or why some subjects seemed to be regarded as
“more important” than others? Have you ever considered why your
school building looked like it did, or why your child’s looks like it
does? Did you ever think there may be a correlation between the physical
environment in which your children spends so much of their time, and
their academic and personal well-being and their possible future paths?
It seems to me that as parents, we take an awful lot for granted about
the relevance of what is being taught, not to mention how
and where “learning happens”. There is after all, a
significant amount of research which indicates that the human brain
receives and responds to certain kinds of information more readily at
certain ages and in certain environments. Yet for a variety of reasons,
many of us seem determined to equate intelligence with a certain kind of
behaviour, or academic performance. For example, a child who can read
and write at a particularly early age is lauded as being precocious,
even held up as a paragon of excellence. I remember with absolute
clarity, what it was like bringing up our first child in London, where
there was an enormous amount of pressure heaped on teachers, children
and parents alike, to force the issue of literacy and numeracy in
particular, at increasingly early ages. I remember distinctly also, the
peer pressure, the competitiveness of new parents, (great friends of
course), who would critically and uselessly compare relative rates of
progress amongst the children of our social group. Who walked first, who
talked first, and who was nappy trained first. Who cares? The
competition was like a hangover from being single. I hope I resisted
what I regarded as erroneous pressures, but I did consciously try to do
one thing in particular for my first (and also for my subsequent) child.
I wanted, above all else, to imbue them with a love of reading. This
involved a great deal of time which was filled with a lot of love,
encouragement and patience, and discipline in not succumbing to the easy
option of television. I pity children in some cultures, where social
pressure is so intense, that little people are expected to learn to read
by the age of three and are taught seriously and severely, with
seemingly little room to do what little people like doing most and what
comes most naturally; Playing.
In what is surely (please offer alternatives) the
longest incubation period of any animal on earth, we sentence our
children to at least sixteen to eighteen years at school, in order for
them to learn how to survive in an increasingly complex world. We have
invented, developed and propagated “labour saving devices” which
require an epoch to understand and longer to “improve”. We condition
ourselves to react to numbers. When the number 06.30 comes up, I
unwillingly disengage from a most favourable condition (sleep) and look
busy. When other numbers come up I can rest for a while and so it goes
on. Time is an invention of man. Instead of adapting to the natural
environment of the world, we have adapted the environment to suit
ourselves (Jamie Uys, 1980). Perhaps then, it is not surprising, that
what we do in schools generally reflects the economical, political,
physical and social reality in which we exist. There are reasons for
curricula being shaped as they are, and it’s not all pretty. At the
ideologically extreme end of the spectrum, the apartheid South African
government infamously attempted to enforce the language of Afrikaans on
a resistant people. The government wrongly believed that by attacking
language – the voice of culture – in a quite deliberate and
dehumanising way, they might break the resistance. The Sharpeville
massacre was the progeny of this imposition. A second unpleasant
example, which it gives me no pleasure whatsoever to relate, is of the
immediate decision of Limor Livnat, Minister of Education in Israel,
upon coming to power in 2001, to remove internationally celebrated Arab
poets from the Israeli National curriculum. Twenty percent of Israeli
citizens are Arab. Thirdly, I heard a comedian recently who proclaimed
that “Thatcher kept everyone stupid so they would vote for her”. In
the world of satire, I suppose you could readily exchange Thatcher for a
political leader of your choosing.
Until relatively recently, schools in England, where
built on an industrial scale and style. With good reason. The majority
of the incumbents were heading for a workforce in a similar kind of
environment – factories and industries. Governments envisaged a
logical continuum from “cradle to grave” and it made enormous
economic and social sense to operate in this manner. It still happens
today and we need not be surprised by it. Global political leaders (at
least in G8 countries) talk of the need to create a “multi-skilled
workforce” with “transferable skills” and national education
curricula are constantly reviewed and modified to reflect the perceived
future needs of the nation (usually about twenty years behind the
times). Realistically, is there any other way? The IBO’s
unapologetically idealistic mission, envisages a better world, but for
whom? Some regard IB students as the privileged minority of the global
population. Then there’s the IBO curricula. I’ve seen students
genuinely suffer when forced to study subjects in which they have little
interest and less aptitude and for what reason? To satisfy a remote
philosopher’s self-indulgent musings on the “meaning” of
education? Hargreaves (1994) talks about the principles of social
equity, justice, excellence, partnership, care for others and global
awareness. If these can be regarded as the essential elements of
education then the question must be asked, “By what method do we
deliver these principles? Which in turn, might provoke another question
regarding the content of the delivery, “Whose knowledge is it
anyway?”
[email protected]
Next week: Whose knowledge is it anyway?
 Heart to Heart with Hillary
Dear Hillary,
Having been a lifetime gallivant and exponent of the human female form I
feel I have been truly blessed in my latter years, to have landed on the
shores of this wonderful country and dumped in a city over piling with
specimens of such female perfection. Pattaya is heaven on earth.
I do however have one gripe, tattoos. I am shocked at the wanton
disfigurement of such perfection that I have witnessed. Such graffiti on
a building or work of art would be considered a shame; to adorn these
beautiful brown heavenly forms with such pockmarks is sinful and should
be publicly discouraged. One does not wish to encounter sleeping snakes,
fork tongued demons, etc., whilst manoeuvring around the soft silky
brown slopes and curves on the path to enlightenment.
Perhaps, Hillary, in your capacity with the local press, you may be of
assistance in the quest to outlaw this obscene practice.
DOT (Denouncer of Tattooing)
Dear DOT,
I really do have to agree with you. Birthmarks are bad enough to carry
all your life, why add to them with designs in ink. Especially the ones
with a heart and “I love Jim”, which is fine until she takes up with
John and her friend tries to alter Jim to John, using a biro and ink
from a squid. Of course, later she meets up with David, and has to spend
her entire time with one hand covering the tattoo on the shoulder,
leaving no alternative other than some disfiguring plastic surgery
(which David will pay for, no doubt, one way or another). However, I
don’t know that I should push to “outlaw this obscene practice” as
you suggest. They might just outlaw some of the other obscene practices
that you are already indulging in. Live and let live, DOT my Petal, but
if you’re looking for a lady without a blemish, I could be tempted to
show you my shoulders, over a nice cold bottle of sparkling wine,
preferable French vintage champagne.
Dear Hillary,
How do you know if your girl is being faithful to you when you are out
of the country for 11 months at a time, like I am? I met this girl last
year and I am helping her look after her baby (her husband ran away).
Lek says that she only goes to the bar to see what her friends are doing
and gossip, but I am not so sure of this. Many times when I ring she
doesn’t answer the phone, but then tells me she left it in the flat,
and rings me back the next day. I am suspicious, but don’t want to
spend money using a private detective to follow her. Do you think I am
worrying too much, or should I ask her straight out?
Robbie
Dear Robbie,
When you are out of the country for 11 months out of 12, it is a bit of
a presumption to call Lek “my girl” isn’t it? What do you want her
to do for the 11 months? Sit in the flat looking at the wall? Even if
you are sending money (and it sounds as if you are, even though you did
not mention it), you do not “buy” a Thai girl for 11 months.
Especially those who work in bars. That you are asking me means that you
are very suspicious, and you cannot build a strong relationship on
distrust. If you do not want to spend the money on a P.I. then you are
stuck with it, I’m afraid. Asking Lek straight out is very unlikely to
produce a straight answer, is it? There used to be a wonderful website
called Bangkok Rules, and Rule Number 2 stated, “You never lose your
girl, you only lose your turn”. I would be reviewing your long
distance relationship, Robbie, before you get robbed.
Dear Hillary,
I have a steady Thai girlfriend and probably the only problem we have is
in communication. Simple stuff is OK, but anything beyond that can end
up a bit chaotic. I suggested that I should go to school and learn Thai
but she was not enthusiastic at all and said it would be better if she
went to school and learned English. I am sure I can pick up Thai anyway,
so I said OK and I am sending her to a language school. Why do you think
she was so much against me learning her language? I’m baffled.
Baffled Bill
Dear Baffled Bill,
Don’t be baffled any more. Look at it this way. If she learns English,
at your expense, she has acquired a portable skill that will stand her
in good stead, no matter what happens to her and you in the future. If
on the other hand, you learned Thai it does not help her advance herself
and has the disadvantage in that you can hear and understand just what
she and her friends are talking about. My advice is to take lessons
yourself as well as paying for hers. It will either make your
relationship very secure, or show up fatal flaws. Best of luck, Petal.
Psychological Perspectives: Understanding deviance and anarchy
by Michael Catalanello,
Ph.D.
The social chaos and anarchy that erupted
in New Orleans in the aftermath of Hurricane Katrina caught many people by
surprise. It is interesting to consider how and why such a dramatic
deterioration of society could occur so rapidly in a contemporary American
city.
The majority of city residents apparently obeyed the
official order to evacuate ahead of the storm. But after Katrina moved
inland, marauding bands of people could be seen looting stores and
businesses in some areas. Even some police and fire officials, who were
supposed to be providing assistance or restoring order, were joining in the
mayhem, according to local reports.
Reactions to this event have been varied. Some fault
federal and local public officials for failing to rapidly mobilize
sufficient manpower to protect property, maintain order, and supply relief
in response to this natural disaster.
Many in the international community seemed surprised
that so many desperately poor minorities were to be found within a
seemingly prosperous American city. Some expressed sympathy for those who
were without the financial wherewithal to evacuate ahead of the storm.
Stranded, and without essential resources, who could
blame some for taking advantage of the vacuum of authority to help
themselves to goods and supplies they needed to survive? In cases where
items like guns and ammunition were taken, however, a sympathetic
perspective on the activity seemed strangely inappropriate.
Some commentators have assumed that the people who
engaged in the looting, including local cops, were basically criminals to
begin with. According to this view, good, law abiding citizens would never
engage in such illegal acts. There is, however, reason to be skeptical of
such claims. Evidence from the social sciences suggests other possible
conclusions.
First, it is helpful to understand that we humans have a
bias towards attributing a person’s actions to characteristics of the
person, rather than characteristics of the situation in which the actions
occur. If we see a person displaying deviant behavior, looting, for
example, we tend to attribute the behavior to a deviant personality within
the looter. Deviance in this context refers to a violation of the norms of
a community or society.
Likewise, if we see a person praying in a temple, we are
inclined to think of the person as possessing spiritual qualities, or other
favorable personality traits. Social psychologists refer to this bias as
the fundamental attribution error.
Interestingly, when it comes to judgments about our own
behavior, we seem to prefer situational explanations. Why was my coworker
late for work? “He is a slacker.” Why was I late for work?
“Slow moving traffic on the inbound highway.”
Experiments have demonstrated the existence of this bias
quite convincingly. Evidence of the fundamental attribution error has been
found among people the world over, although some cultures seem to exhibit a
stronger bias than others.
Contrary to this bias, however, there is a substantial
body of research in the social sciences demonstrating the power of
situations to influence people, for good or for bad. Psychologist Stanley
Milgram’s classic experiments showed how normal subjects could be
influenced by situational factors to administer seemingly dangerous and
potentially lethal electrical shocks to innocent people in compliance with
instructions from a sanctioned authority.
Social psychologist Philip Zimbardo conducted a study of
criminal behavior that has formed the basis for a theory known as “broken
windows.” He planted cars without license plates with their hoods up
variously in a wealthy community, and in a poor, distressed neighborhood.
Both cars were vandalized when passersby sensed that they had been
abandoned. It was suggested that any sign of social disorder in a community
would serve as an enticement to others to break the law.
Just as one broken window in a neighborhood can entice
others to break more windows, crime feeds on crime, resulting in an
increasing spiral of illegal activity. Likewise, according to social
learning theorists, people are influenced by the behavior of others they
observe around them. Thus, the spectacle of unpunished illegal acts being
carried out by a few criminals could influence other typically law-abiding
individuals to join in.
New Orleans, like other urban centers, undoubtedly has its share of
social problems, including poverty, racial discrimination, and criminality.
Nevertheless, conditions leading to the breakdown of social order during
the aftermath of Hurricane Katrina are not unique to that city. This
episode reminds us how fragile is this social order that we take so much
for granted. However distasteful it might seem, the potential for
lawlessness and anarchy lies within each of us, and in the situations that
sometimes exist within our societies.
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Dr. Catalanello is a licensed psychologist in his home State of Louisiana, USA, and a member of the Faculty of Liberal Arts at Asian University,
Chonburi. You may address questions and comments to him at [email protected], or post on his weblog at
http://asianupsych.blogspot.com
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