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Money matters: Cash is King
Graham Macdonald
MBMG International Ltd.
Markets suffer from what in human terms would be deemed
multiple personality disorder. There are fundamental, quantitative, technical,
behavioural and cyclical character traits we have to study in order to try and
understand our subject. There is no use in ignoring this fact – we can either
make a diagnosis of the patient or assign him to an asylum. Many market
commentators opt for the latter, it being the easier to conclude; however, this
option leaves someone paying the bills. I am not going to dwell on all character
traits but rather focus on the cyclical patterns we have identified.
This is by no means a complete analysis but it will force us to ask and,
hopefully, answer a couple of questions.
What is cycle theory?
Economists recognise four major cycles, or regular fluctuations, in
the economy as follows:
1. Kitchin’s short wave-cycle of average duration (3-5 years). Discovered in
1930.
2. Juglar’s cycle of average duration (7-11 years). Discovered in 1862.
3. Kuznet’s cycle of average duration (15-25 years). Discovered in 1923.
4. Kondratiev’s long-term wave cycle of average duration (45-60 years).
Discovered in 1922.
 I
thought it would be interesting to focus on the four year cycle. Not least
because it is far more relevant for our asset allocation over the coming months
but few (if any) investor has the patience to wait for 45-60 years. The shorter
cycles are obviously emphasised when coinciding with one (or all) of the longer
cycles but that is a separate topic.
If we examine the S&P500 to see whether this is reflected in the performance of
the stock market and looked at a chart based on a log scale and then another one
with a standard statistical filter (Hodrick-Prescott) applied to it there
certainly seems to be a cyclical pattern present.
What it shows is that the market clearly exhibits Kitchin’s short-wave cycle of
average duration 3 - 5 years. To be more specific, it bottoms out perilously
close to every four years (1994, 1998, 2002 and, more than likely, 2006).
Why does this seems to happen with
such monotonous
regularity?
The obvious stumbling blocks to the economy have been well documented by us and
other market participants over the last couple of months. The following
characteristics are not only prevalent in the US but almost all the traditional
Western hemisphere economies:
 1.
Very high consumer debt coupled with record low savings.
2. Slowing down in the housing market.
3. An oil price still sitting above USD60.
4. No recovery in real hourly wages.
Will history repeat itself?
Again, if one looks at a recent S&P500 chart, it is possible to see that the
forecast is pretty accurate. For the most part we can say that significant price
lows occur every four years (to be more precise about 85% of the time).
Take note that the logscale causes recent price movement to be greatly
under-emphasised and significant declines/lows in 1990, 1994, and 1998 appear as
mere blips.
The next 4-Year Cycle price low is due in October of 2006. Subordinate cycles
suggest that the low may arrive a few months on either side of that projection,
and there is no guarantee that the decline will play out in a straight line. We
believe investors should be wary of North American equity markets between now
and the end of the year. Fundamentals, as already mentioned, also present
problems for the market.
What about valuation
parameters?
The next lot of S&P charts worth looking at are the index of S&P500
earnings and a presentation of the Price Earnings ratio based upon prior peak
earnings. Over the long term earnings have trended higher in relation to a trend
line that rises at an average of about 6% a year, and the current earnings peak
is very close to that trend line. This has been the situation for the last two
years and could account for the market’s slow progress during that time. This is
not a favourable valuation!
Currently, the Price Earnings ratio remains at a level where,
except for the bubble years of 1998 - 2002, the market at best has had trouble
making forward progress and, at worst, experienced major declines. This will be
a significant drag on the market until the Price Earnings ratio can correct back
toward the area of 15, which represents fair(er) value. A correction to
undervalue, let us assume this to be under a level of 10, could also happen, but
that is a rare occurrence and not necessary to set up favourable conditions.
The MBMG International
Perspective
Normal cyclical expectations and high valuations present significant
obstacles for the market this year, and the bull/bear cycle suggests that a
significant decline could occur between now and the end of the year. We also
believe that the rally in the vast majority of global equity markets is nearing
its 36 month in duration, an uncommonly long period and yet complacency still
abounds with the VIX index close to all time lows.
As contrarians we are often labelled, comparing VIX action with that of the
market can yield good clues on future direction or duration of a move. Some view
readings of the VIX index below 20 as excessively bearish and therefore with a
level around 11 currently we have felt it prudent to bank some profits and raise
cash levels in the more balanced/cautious portfolios. Our cash holdings are
principally in yen and euros rather than sterling, which we think could ease a
little this year if our forecast for falling rates in the UK materialises.
Markets are currently limping higher on the back of merger and acquisition
activity but we believe the rally is looking very tired. We are not sure what
the catalyst will be that reverses market direction but our hunch is that it
will be linked to a tightening of global liquidity, either through a hike in US
treasury yields as the curve inverts or possibly an upward move in interest
rates by the Bank of Japan. Given these uncertainties another cliché springs to
mind as cash looks to once again be king at the moment.
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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: Hints to make life easier
by Harry Flashman
 Photography
is a life skill, I have decided. Sure, there’s the photographic “eye”
and an appreciation of “art” all wrapped up in it, but it is also a
physical skill requiring such things as hand-eye coordination, and
remembering where you put things!
So this week I thought I would write down a few photo tips that myself
and others have gleaned from many years of doing, losing, finding,
ruining and rueing. These are the sorts of tips that you just
incorporate into your photographic life and enjoy your photography just
that little bit more.
Take for example, how many lens caps have you lost? Lots? The secret to
never losing another one is to attach the lens cap to the body of the
camera, after converting all your lenses to the same size end diameter,
so you only need one cap. The easiest way is to carefully knot some
fishing line and apply it to the outside of the cap with 5 minute
Araldite two part glue. The other end is knotted to the swivel of the
camera strap mounts. The knot in the end of the line stops it pulling
out of the “blob” of Araldite. This also means that you only need one
size of filters to fit all your lenses.
Have you ever been caught out in the rain with your camera, with nowhere
to put it to keep it dry? Like me, you probably ended up shoving the
camera inside your shirt and walking around bent up double! Never again!
There is a simple safety precaution which my photographic friend Ernie
Kuehnelt carries (and which I too now carry, courtesy of Ernie) and that
is a shower cap. You know the things they leave for you in hotels. Pop
one in your pocket and you have an immediate “shower” cover for your
camera. Well done, Ernie.
Want to go and take some beach shots, but are a little worried about the
salt water spray that can cover your camera while you are shooting? If
you aren’t, then you should be! Two plastic bags are the answer here,
and the best are the transparent “ziplock” style – you know the ones
with a press closure on the top. Drop the camera body into one – a
fairly large one, and you will be able to still depress the shutter and
wind on. Cut a neat hole at the front so you can mount the lens. The
lens itself you protect with another plastic bag with the bottom cut out
of it, and hold the bag in place with two rubber bands at the respective
ends of the lens. This way you will stop sand and spray, and yet still
be able to use the camera and focus correctly as you are still looking
through the lens itself.
Have you ever forgotten you had a “short” roll of film in the camera and
suddenly find that at number 12 you’ve come to the end of the roll? And
lost the opportunity of a “great” shot! When using short rolls (cut
rolls or a bought roll of 12 or 24) put the end of a film box in the
slot on the back of the camera, blank side out and write on it the
number of exposures in the short roll.
Ever found that some of your images are “foggy”? Almost a misty, soft
focus quality about them? You have probably gone outside after having
your camera sitting in air-conditioned atmosphere for the previous few
hours. Hit the hot humid air and instant fog-up. If you have to clean
the viewfinder on your compact, you will have to clean the lens as well.
Of course SLR users will pick up the misting as they are looking through
the lens to focus. Be warned, it takes a little time for your camera to
adjust to the new ambient temperature.
With film, unsure of what speed (ASA) rating to load for general use?
With the latitude in today’s print film and processing, you should try
using 200 ASA. It is sharp enough for the majority of photographs.
Finally, keep a spare memory card for your digital camera in your camera
bag. The cards always fill up just when you are attending something
important, and you haven’t got the time to try and delete some images to
give yourself some working space.
Modern Medicine: Cancer research – why it is so difficult?
by Dr. Iain Corness, Consultant
“Cancer” is a word that everyone has heard, but is not a
condition that everyone understands. And that includes the medical
profession.
There are many reasons for this, including the fact that your reaction to
‘carcinogens’ (cancer producing substances) is not necessarily the same as
the reaction of the person sitting next to you. Individual differences do
exist, and may even be inherited (genetic) influences. This, in part, goes
to explain why your Uncle Henry smoked 80 cigarettes a day for 60 years and
was shot by a jealous husband when he was 103, while the man next door died
at 45 with lung cancer after smoking only 20 cigarettes a day for the
previous 20 years!
So what is a carcinogen? Cancer is caused by abnormalities in a cell’s DNA
(its genetic blueprint). Abnormalities may be inherited from parents, or
they may be caused by outside exposures to the body such as chemicals,
radiation, or even infectious agents including viruses. Some carcinogens do
not act on DNA directly, but cause cancer in other ways, such as causing
cells to divide at a faster rate. All of these substances that can cause
changes that can lead to cancer are called carcinogens.
The difficulties in studying them come from the fact that carcinogens do not
cause cancer in every case, every time. Substances classified as carcinogens
may have different levels of cancer-causing potential. Some may cause cancer
only after prolonged, high levels of exposure (remember the words of
Paracelsus: “Dosage alone determines poisoning”). And for any particular
person, the risk of developing cancer will depend on many factors, including
the length and intensity of exposure to the carcinogen and the person’s
genetic makeup.
So just how do we classify any compound as being a carcinogen? With
difficulty, is the simple answer. The boffins get much of their data about
whether or not something might be carcinogenic from laboratory (cell culture
and animal) studies. However, you have also to remember that Man is not a
Large Rat (even though certain young ladies might attest differently). It is
not possible, on animal studies alone, to pin the carcinogen rap on any
particular compound. It does, however, give us an indication. Although it
isn’t possible to predict with absolute certainty which substances will be
carcinogenic to humans based on animal studies alone, virtually all known
human carcinogens that have been adequately tested in lab animals produce
cancer in these animals.
Another problem comes from the fact that most studies of potential
carcinogens in lab animals expose the animals to doses that are far higher
than common human exposures. For most carcinogens, it is assumed that those
that cause cancer at larger doses in animals will also cause cancer in
people. This produces the concept, in some quarters, that it is reasonable
for public health purposes to assume that lowering human exposure will
reduce risk. Understandable logic, but far from absolute.
Another way to identify carcinogens is through epidemiologic studies, which
look at the factors that might affect the occurrence of cancer in human
populations. While these studies also provide useful information, they also
have their limitations. Humans do not live in a controlled environment.
People are exposed to numerous substances at any one time, including those
they encounter at work, school, or home; in the food they eat; and the air
they breathe. And it is usually many years (often decades) between exposure
to a carcinogen and the development of cancer. Therefore, it can be very
difficult to single out any particular exposure as having a definite link to
cancer.
The most widely used system for classifying carcinogens comes from the
International Agency for Research on Cancer (IARC), which is part of the
World Health Organization (WHO). The IARC has evaluated the cancer-causing
potential of about 900 likely candidates in the last 30 years, placing them
into one of the following groups:
Group 1: Carcinogenic to humans
Group 2A: Probably carcinogenic to humans
Group 2B: Possibly carcinogenic to humans
Group 3: Unclassifiable as to carcinogenicity in humans
Group 4: Probably not carcinogenic to humans
There are around 90 carcinogens in Group 1, with most being referred to by
long chemical names such as
1-(2-Chloroethyl)-3-(4-methylcyclohexyl)-1-nitrosourea (Methyl-CCNU;
Semustine); however, there are ones you will recognize like solar radiation,
alcoholic beverages, analgesic mixtures containing phenacetin, salted fish
(Chinese-style) and tobacco smoke.
Now then, has anyone heard from Uncle Henry recently?
 Heart to Heart with Hillary
Dear Hilarity,
Thanks for my weekly diet of laughs answering the cries for help from the
guys who left their brains at the airport. Whatever it is that these Thai
women have got should be bottled and sold. The country would make a fortune
from it.
Laughing Len
Dear Laughing Len,
What can I do, Petal, other than give as much assistance as I can and some
help for the hopeless? A shoulder for them to cry on while waiting in line
at the airport to reclaim their brains. As far as the country making a
fortune from the amazing abilities of Thai women at opening locked bank
accounts, this is happening already. Has anyone ever thought just how many
houses are paid for by love-struck foreign visitors? How many motorcycles?
How many meters of gold rope are around the necks of Thai women. Len, the
money is coming in right now. The builders, realtors, motorcycle salesmen
and gold shop owners have got their hands on it already. The Thai women
don’t need to bottle it. All they have to do is look into their “teerak’s”
eyes and whisper, “Open your wallet darling and say after me, help
yourself!” And they do! And they do! And they do! And they keep on doing,
for as long as the Brain Deposit Center keeps open in the airport.
Dear Hillary,
In the middle of all the silly problems that get wished on you each week,
could I ask that you look at my very real problems with my relationship. My
girl (28 years old) and me (22 year old) have been together for three
months, and the relationship is stable. She is wonderful, very sexy and
beautiful, and did work in a bar because her husband had left her, but
doesn’t work there any longer since we met. She looks after me better than
my mother ever did. There is just one problem, and that is her daughter who
is five years old who is now living with us. I agreed to have her come down
from the village because she was sick to get some treatment here, with the
idea that she’d be going back after that. Well she’s better, but there’s no
sign of her going back to her Gran’s. When I try and ask when she’s going
back my girlfriend just says it will be soon, and then goes out and then
last week buys a bed for her. She said it was so that we won’t be
interrupted at night when we go to bed. This might be better when we are
making love, but it doesn’t look like going back soon to me. The money comes
from me, so I think I should have more say in this. What do you suggest I
do?
Genuinely Concerned
Dear Genuinely Concerned,
Next time you are at the supermarket, go to the sports shop and spend some
of your money on yourself, my Petal. Buy yourself a pair of running shoes.
Put them on, make sure they are comfortable, and then start running, in any
direction, as long as it is away from the girlfriend, the five year old and
the new bed. Petal, you are not ready for a relationship like that,
especially with an experienced 28 year old Thai woman with a child. She may
have all the wonderful attributes you mentioned, beautiful, sexy etc, but
she is a mother of a five year old. She has been looking after this child
for 60 months, while she has been looking after you for three. Can you see
that the scales are not weighted in your direction? By something like a
factor of 20:1, forgetting consanguinity (lovely word for a weekend, so get
your dictionaries out). Sex is a very powerful weapon, and your lady knows
just how to use it. Please re-read the letter above yours and go to the
Brain Deposit Center, reclaim your wonder head filler and go back to
enjoying being single and stay away from deep and meaningless relationships
for a while.
Dear Hillary,
Do you ride a motorcycle? Most Thai women seem to start around eight years
of age, and I see them in their school clothes riding along with a six year
old on behind. They don’t have helmets either, but I reckon it isn’t because
they don’t think about it, it’s because nobody in Thailand can keep a helmet
because it gets stolen all the time. I’ve lost three this year already.
Correction, had three stolen this year already. How do you suggest we change
all this, Hillary?
Harry the Helmet
Dear Harry the Helmet,
You have posed more than one question here, Harry my Petal. Let’s deal with
the easy one first. How do we stop the thieves making off with Harry’s
helmet? Easy. Lock your helmet to the bike. It has a helmet lock for this
purpose. Just don’t leave it in the basket where anyone can lift it. Now the
other problem is much harder. That of the helmetless eight year olds. At
least you know that none of them have stolen your helmet, I suppose! The
legislation is in place, but the enforcement is lax, and that is way beyond
the scope (and powers) of Ms. Hillary, I am afraid.
Beyond the Beach: “Twenty first century Guru”
- An interview with Chris Wright
Caspian Pike
This week, following the frenetic pace of New York City, “Beyond the Beach”
comes back down to earth. Andrew Watson returns to the calm of Thailand, to meet
a person who marries the spiritual with the educational, in the appropriately
meditative surroundings of the Anek Kusala Sala Viharnra Sien Foundation, better
known around the region, as the “Chinese Temple”.
Andrew meets Chris Wright - an educationalist with a vision
It’s a quietly inspiring show set in one of the hidden treasures of the
Eastern Seaboard. Historically, physically, artistically and spiritually,
Thailand and China have always been close and their relationship is
wonderfully celebrated at the Chinese Temple, a place of seclusion,
meditation, peace and learning. However, as Watson points out, the word is
spreading, and the Chinese temple is attracting visitors from around the
world in increasing numbers.
Chris Wright is one of a new breed of ‘Superheads’ in the United Kingdom, an
international education specialist charged with charting a course of peace
and tranquillity for future generations. He’s an Englishman who is in many
people’s eyes, the embodiment of education with a spiritual dimension.
Watching the two protagonists in the coolness of the temple, listening to
their contemplative and reflective conversation, it occurred to me that the
obviously deliberate choice of the Temple as a venue for the show was
actually very clever. So many talk shows are diminished by inconsistencies
between set and guest; they often seem artificial, contrived, prosthetic.
Finding an appropriate stage for guests in “Beyond the Beach” lends not only
authenticity to the programme, but real interest as well as a third
dimension. Suddenly it’s not just about Watson, or in this case Chris
Wright, it’s also about the place that they’re in. It’s a subtlety that
viewers of BYB probably (and rightly) have come to take for granted but it
also demonstrates the level of attention to aesthetic detail which is
rapidly becoming the hallmark of PMTV.
It’s the right place to ask a question like, “What can the world of
International education learn from the spiritual world?” a subject that
appears to be too often overlooked by educationalists in Thailand.
Considering the depth, breadth and wealth of spiritual life here, it seems
like a missed opportunity.
Clearly, Chris Wright knows his stuff. Quoting C.K. Chesterton, he
eloquently suggests that education involves “transferring the soul of a
society from one generation to the next” and so a school, Wright believes,
should reflect the rich variety and beauty of human experience. You should
‘“feel something” when you enter a school; see the art, hear the music. I
felt like I was learning many things from this person whom Watson refers to
as a “twenty first century guru”.
The programme suggests that the art of teaching necessarily involves
recognition of what it means to be human and tackles the prejudice,
ignorance and suspicion which appear to abound in the current global climate
regarding the value of spiritual belief. In this sense BYB is not only
brave; it is adventurous as it seeks answers to relevant and important
questions.
Catch Andrew Watson’s interview with Chris Wright, “Twenty first century
Guru” on Sunday, at the following times:
Sophon at 8:00am - Midday - 4:00pm - 8:00pm and Midnight.
Chonburi at 9:40am - 2:00pm - 8:40pm and 40 minutes after midnight.
Jomtien at 9:00am - 12:30pm - and 9:00pm
Sattahip at 8:00am - 1:30pm - 5:00pm - 8:00pm and 11:00pm
A Female Perspective: “Forty? Bring it on!”
with Sharona Watson
So it’s here. It’s finally here. Forty; the number that when I was younger
seemed so far away and so large and now that it’s here, appears so small and
seems to have arrived so quickly. It’s a strange phenomenon, a peculiar
sensation. Why has this stage in life become such a landmark? Merely asking
such a question suggests that it’s one of those times to look back and to
look forward, to consider what I have done, what I should have done, what
I’ve left undone. A time to reflect on the good times, thank God I’ve got
through the bad times and hope for a better future. A time to ask questions,
such as; does being forty matter? Should I feel different? Should I look
different? Should I behave differently?
Over the hill at forty? I don’t think so!
Officially, I am now middle-aged and arriving at this point in my life
brings with it certain expectations and challenges, that frankly I am not
sure I am ready for. They are the kinds of expectations that in many ways, I
have resisted all my life on the grounds that I was still young. I could
avoid certain realities, certain responsibilities even, on the basis that I
hadn’t crossed the bridge into a different kind of world, where things (I
always supposed) were more serious, more tiring, more tedious, less fun,
less active, less interesting. Let’s face it, when you are anything less
than forty, it seems really old. Ask any child under ten and they’ll give
you the same response – the same one that we all gave at that age. Those
frighteningly perceptive young eyes see the reality behind the masks we
wear. They see the wrinkles, the lines, the silver hairs, the parts of our
body which seem to have become independent as they grow apparently without
care, control or consideration. Without prejudice, children comment on these
things, becoming innocent instruments of ridicule, laughing at the
inevitable decay they are witnessing. It’s a cruel world. Forty, it’s time
to deal with the demons.
Looking in the mirror, I sometimes wonder who is looking back at me. Where
has my youth gone? I remember looking in the mirror when I was younger,
wondering what I’d look like at this time of my life. I’m not sure that I
ever believed this time would arrive. Time seemed to pass so slowly then.
When I was twenty, a year was five percent of my life. Now, it’s reduced to
two and a half percent. I’m getting less for my money! Life is inflation! I
find myself asking, “Does life have more or less value as you grow older?” I
think probably more. I hope, more. But the ageing process is like a cruel
joke; the greater the value, the less time we have left to appreciate it.
I’ve turned the corner, I’ve reached the top of the hill and now there’s
only one way to go: downwards. Better not look back or down! Worse still,
there’s no going back. The clock’s ticking and there’s no stopping it. Stop
the train, I want to get off! There’s no escaping it; forty is old, the
beginning of the end. It would be easy to panic at a time like this.
Unless maybe, just maybe, it’s the end of the beginning. Perhaps I’ve
climbed the hardest part of the mountain and now I’m in a position to enjoy
the view? As I look into the mirror with a greater, keener focus, I can feel
the warmth of the past flowing in my veins, the acquired strength of
hardships overcome providing stability and confidence throughout my being. I
begin to understand the lines on my face as memories, passageways to the
past, directions to the future. Having resisted the temptation to dye my
greying hair, I see it now as a bed of silver threads, still reassuringly
thick yet wise to the world, a symbol of the bejewelled secrets of life that
only age can bring access to. I think about the impetuous nature of youth,
the passions which I now see in my teenage daughter. Whilst I am pleased to
have experienced all the rages of rebellion, I am more pleased still that
they have passed. Indeed, I am beginning to feel very satisfied that perhaps
those impassioned pleas from the past might have evolved into a more
rational and serious devotion to something like social justice, for example.
Passion with a little more worldly direction, you might say.
Ageing in a different light, is like travel. The more I see, the more I want
to see, the more I want to do, yet my understanding and enjoyment of one
place or one experience is always increased by what has gone before. So I
find that I am in a position to start appreciating the role the past has
played in the present and I become excited about the future, because I know
I am strong enough to deal with anything that comes along.
I also feel privileged and a little bit lucky and a little bit sad, for
there are many friends who didn’t make it this far. My path, which started
off as a lonely passage, joined with another. Two paths became one road. The
companionship of marriage, the joy of knowing love, followed by the
extraordinary and unique pleasure of motherhood has brought me great
happiness which continues, daily. My three sisters, so distant and yet never
far away from my thoughts and always in my heart, bring a smile to my face.
We have grown together. Our friends, loyal and trusted have become our
family too.
These are some of the great joys of arriving safely to this point in my life
and as I look forward with alacrity to the next part of my journey, there
are two things in particular that I will try and remember, which I hope will
help to ensure my continued happiness. Firstly, life’s a team game. Second,
I will try and maintain a positive mental attitude. After all, life’s only
just begun so bring it on!
Next week: A difficult time
[email protected]
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