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Money matters: “The name’s Bond - Treasury Bond”
Graham Macdonald
MBMG International Ltd.
There is a danger that with equities being such an
extremely risky investment right now, investors will again turn to favour
bonds, or fixed interest securities, as they were doing prior to last
year. During the last equity market downturn, bonds comfortably
outperformed equities from 2000-2002 with global bond markets achieving
double-digit returns in both 2000 and 2002. However we believe that the
danger now for investors is a double whammy - a stock market collapse
combined with falls in the value of bonds. Therefore asset allocation has
to take a much broader remit than previously. Our clients will make
positive returns this year, but I’m not sure how many other investors
can confidently say that.
However, before we write off bonds, let’s take this
opportunity to fully examine what they actually are and how they work.
During the 1970s, bonds were shunned by many investors, who correctly
surmised that inflation is one of the main enemies of fixed-interest
investment because it erodes the value of capital over time. In current
financial markets, the scenario has radically changed. Faced with an
environment of protracted low inflation, slow economic growth and
uncertain returns from equities, it was hardly surprising that the
attraction of bonds resurfaced. The strong economic growth that drove
equity markets up and was such a threat to bonds in previous market cycles
has been replaced by low growth. The sophistication of the bond market has
also increased. Financial innovations have resulted in the emergence of
many different types of bond, and individual bonds are now subjected to
the most intense risk/return analysis.
The bond market has grown rapidly in size and plays a
vital role in the economy as a source of capital for governments and
companies, and a bond’s yield is also an indicator of the financial
market’s view on interest rates, inflation, public debt and economic
growth. At the simplest level, bonds take the form of debt issued either
by a government or a company. This debt is tradable and the investor
effectively lends money to a government or company in return for a fixed
rate of interest and repayment of the principal at a known date in the
future. Debt may be short, medium or long term and the price will depend
on economic conditions and forecasts (particularly for inflation), supply
and demand, and the specific characteristics of the issuer. Government
bonds tend to be more liquid than equity investments and dealing costs are
significantly lower. For government and index-linked bonds, valuations are
most influenced by future interest rate and inflation expectations; if
interest rates rise, bond prices should fall.
In theory, index-linked bonds are not vulnerable to
rises in inflation as they offer protection of capital and income against
inflation, and provide a modest real return as well. In the UK,
index-linked gilts are tied to the Retail Price Index, which represents
the most widely used measure of inflation. The government bond, or
sovereign debt, of major economies is usually regarded as being of the
highest quality since the debt or interest would only be left unpaid if
the government itself failed. Gilts, for example, which are bonds issued
by the British government, are regarded as free of default risk and
assigned a triple-A rating – the highest possible level. This is not the
case for all sovereign debt, however, as shown by the Argentinean default
crisis in 2002. Indeed in the 1930s the UK was the only major nation not
to default on its bond commitments at that time, although even there the
bonds were re-scheduled.
Corporate bonds, which are bonds issued by
non-government issuers, offer a higher yield than government bonds and, in
a low-interest environment, this has obvious attractions. The price paid
for a corporate bond reflects the market’s perception of the credit, or
default, risk associated with investing in it. Corporate bonds are said to
trade at a credit spread, or yield difference, to the risk-free government
bond yield, and the greater the risk then the greater the credit spread.
In other words, the higher the credit risk, the greater the return
required by investors to compensate for the additional risk.
Investment-grade corporate bonds offer an excess return over gilts,
without excessive risk or the high downside potential of equity
investments. The potential for added value through good stock selection in
credit markets gives additional scope for performance. A major source of
out-performance in corporate bond funds is the avoidance of bonds that are
likely to suffer unexpected downgrades. While credit agency ratings
provide a guide (the higher the rating, the cheaper the cost of debt to
the issuer) it is vital in corporate bond markets to have a full
understanding of the industry, as well as a detailed financial analysis of
the company, and a comprehensive assessment of the management.
However for now, fixed income arbitrage is about the
only reliable way to make money on bonds in the short term as capital
values will come under severe pressure over the next 12-18 months.
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 graham@
mbmg-international.com
Snap Shots: Helmut Newton - the continuation of an icon!
by Harry Flashman
At the beginning of this year, one of the world’s
more controversial photographers died in a car accident. His name was
Helmut Newton, the man who turned fashion photography on its ear in the
1960s with his extremely confrontational images, and left the world the
most amazing photographic book, called "Sumo" - a tome which
weighs in at 66 kg and costs USD 1,500. Even some of his previous works,
which are now out of print, can fetch large sums. I have in my collection
his book published in 1984 called "World without men" which is
currently valued in the USA at USD 250.
 Paloma
Picasso
However, as well as his photographic books, his widow
has made sure that her husband’s works are still seen, displayed in the
art gallery in Berlin, bequeathing the entire collection to the German
authorities. "His heart was in Germany," she said at the opening
of the exhibition. For some people it seemed a strange statement, as
Newton is not a German name, and many people believe that Helmut Newton
came from Australia; however, this was not the case.
Newton was truly a unique character. He was born in
Berlin in 1920, where he was the son of well to do Jewish parents who
wanted him to join the family business. However, even in his early teens,
he was single-minded in his purpose, saying that he wanted to be a
professional photographer. Consequently, he was apprenticed to the studio
of Yva when he was 16. However, two years later, with hostilities looming
and his father arrested by the Gestapo, Newton was sent to Australia in
1938. It was there, in Australia, that he westernized his German surname
into the more easily pronounced (and accepted) one of "Newton".
After the war he resumed his photographic work gaining
some international clients and then moved to make Paris his base in 1961.
His hard edged approach to his fashion shoots stood him apart from the
others of the day, as well as his exacting perfectionism in the actual
taking of the photographs. He was the ultimate hard-driving ‘Type A’
personality.
In 1971 he suffered a heart attack and gave up the
impossible time schedules he used to take upon himself and embarked on a
style of photography that was more personally pleasing for him. That style
was, however, even more confrontational, with women fighting often being a
recurrent theme, and erotic images and innate cynicism showing through his
fashion portfolio.
Some of Newton’s work has been labeled pornographic,
but he refused to admit to any definite demarcation between the erotic and
the pornographic. He just had an eye for the image that will produce the
most impact, and even the fashion shot published here has that powerful
presence about it.
A portrait done by Helmut Newton was not an airbrushed
soft focus beauty shot, but was like the one of Paloma Picasso - powerful
and traffic stopping. As Paloma and her famous father were themselves.
Now while many will say that Paloma’s portrait is
"art", Newton himself had no time for the "Fine Art"
school of photography. Speaking about those photographers he said, "I
admire their steadfastness but often find their pictures boring. I have to
thank the ‘consumer society’ - for whatever success I have had, not
foundations, museums or grants." He spoke further, "When I take
pictures I don’t do it just for myself, to put away in a drawer. I want
as many people as possible to see them."
In his lifetime, this photographer became an icon for
many, and the legion of photographers who have copied his style are also a
tribute to him. When Newton adopted the ring flash to his fashion shots,
used in medical photography, sales in ring flashes went wild. However,
none have the sharp edged way of presenting the subject matter as did
Helmut Newton.
Helmut may have gone to the great darkroom in the sky,
but his desire that as many people as possible should see his photographs
lives on, through the generosity of his widow.
Modern Medicine: Coughs and sneezes spread diseases!
by Dr. Iain Corness, Consultant
A catchy headline, but not mine I am afraid.
The honours go to the late Tony Hancock, a fine British comedian, who whilst he
could make other people laugh, found life too depressing and ended it all in
Sydney Australia many years ago. So sad.
However, sniffles and sneezes can try the patience of the
proverbial saints too. It really is a condition that makes you miserable. Drippy
nose, sneezing, croaky throat sometimes and generally feeling sorry for ones
self.
Colds characteristically come at the change of seasons, and
right now we have had a change of season at least four times a day. As I write
this, the water is streaming down outside, after three hours of brilliant
sunshine.
Now if you think you are having a hard time of it with this
cold of yours, wiping your nose with a tissue every five minutes, think about
how it was for the more primitive civilizations who did not have such luxuries.
By the way, did you know that the reason we have buttons on the sleeves of
jackets was to stop the wearer wiping his nose on his sleeves! True!
Your cold, or Coryza, as we medico’s call it, is not
produced by a bacterium, but by another of those pesky viruses. This is why
antibacterial agents (called antibiotics) do not work for the simple cold. In
fact, not much works for it, but there are a few options to make life a little
better while we wait to get over the condition.
The first thing to do is to dive into your supply of
paracetamol which you keep at home or if you don’t, then that is what you get
at the pharmacy, not antibiotics. Take two 500 mg tablets four times a day, keep
your fluids up, prop yourself up in front of the telly and make the most of your
enforced 24 hour holiday. It does help get you better quicker. Paracetamol comes
as different trade names such as "Sara" and "Tylenol" and
"Panadol" - just read the packets carefully.
Staying away from other people in the office or wherever is
an important factor too. I am not going to directly accuse any of my office
mates - but, the thought is always there. The cold virus is very contagious and
hangs around in the air every time you sneeze. When you release millions of
virus bodies in the moisture droplets in your sneeze, they have the potential to
go and infect the next person who inhales them. Or even groups of people. This
is why colds run in epidemics - so don’t get too close, please!
Of course, there are times when the cold progresses into
something else. The sniffles turn into a really sore throat, you start to cough
up green or yellow coloured phlegm and you begin to run a fever. What has
happened is that another infecting organism has come along and hit you while you
are down. This is particularly likely if you are a smoker, because the oxides of
nitrogen in cigarette smoke depress your ability to shift mucous and funnily
enough lowers your resistance too. Just another of the three million nine
hundred and ninety seven good reasons to give up the fags!
Now it is time for the appropriate medication - and your
doctor can advise you on this. Please don’t just go to the pharmacy and grab
some "antibiotics". That is not good medical practice. Let your doctor
prescribe!
Horsin’ Around : The walk
by
Willi Netzer
The horse, like most mammals, can move in different
gaits. These are the walk, trot, canter and the gallop. The walk can be
considered as the most basic movement. A horse with a good, lively walk
always shows a nice trot and with certainty a remarkable canter.
 A
good walk by Vanilla and rider Lauri.
These facts are, however, more secondary to a first
time rider. His major concern will more likely focus on the very basic
question of: How do I get this horse going? Or perhaps: How do I prevent
it from running away?
To get a horse going, the rider has the forward moving
aids, like his seat, a braised back, his legs and perhaps a whip. To
prevent a horse from running away, we can pull on the reins. A skilled
rider would use forward driving aids together with the reins, to slow the
horse down or draw it into a halt.
This may sound like a paradox, but it is the essence of
modern riding. Creating impulsion. If a horse with impulsion is restricted
in moving forward, it will step higher. It will lighten up. Its movements
become harmonious and beautiful.
Of course, this will require a nicely balanced horse
with a certain degree of education. After decades of teaching new riders
their first riding steps, I am well aware that requirements for a beginner
demand a somewhat less responsive animal, which overlooks conflicting
signals given by the new riders. There are various ways of teaching a
beginner his first few steps and I am probably the last, sticking to
rigid, dogmatic rules.
This is a very personal matter and caution is as important, as a
certain amount of risk taking. Carefully balanced, these extremes keep us
on a horse beyond our first walking steps. It provides us with joy and
fulfillment and hopefully keeps this wonderful sport going beyond
overcooked safety precautions and misguided attitudes.
 Heart to Heart with Hillary
Dear Hillary,
Some friends of mine are coming to Thailand for their first visit. They are all
middle aged couples (and even older, but they wouldn’t like me to point that
out), but they knocked me over with their request that they want to see a sexy
show while they are here. I know that these go on in the night entertainment
areas, but these are not the places I would go to. There I was finding out about
temple tours and they want to be middle aged voyeurs? Do you think this is a
good idea, Hillary? Or should I tell them that everything is changed these days?
I really don’t know what to say.
Flabbergasted Fanny
Dear Flabbergasted Fanny,
Do I think what is a good idea? The fact that your friends have become peeping
Toms? Oh dear, what a predicament, my Petal. Here you are, as pure as driven
snow, and your grubby friends want to see what they have been missing out on for
the past forty years! However, you have really no need to worry. Those sort of
shows do not exist in Pattaya anymore, or so the nice policeman told me last
time I was asked about this. And we know that policemen would never tell a lie,
don’t we! However, there are plenty of karaoke bars that do not seem to have
incurred the wrath of the upholders of justice. Perhaps your naughty friends
might try a night in one of those. But do warn them that the Fun Police will be
taking them back to their hotels shortly after midnight, when all our taxis turn
into pumpkins. Tourists have to learn to toe the line too, it seems these days.
Dear Hillary,
This is a very important money problem. I tried to speak to Mum about it, but
Mum thinks it’s nothing, but to me it means a lot. It’s my pocket money
allowance. My Dad handles the money in the house and it’s not as if I don’t
get an allowance. The problem is that the other kids at school are getting more
allowance money than I get. I’m 14 years old and my Dad only gives me 200 baht
a week and I find it bad because I don’t get as much as the other 14 year
olds. Some 12 year olds two classes below me get more than me. Do you think it
is fair Hillary? How much do you think I should get?
Schoolgirl Sue
Dear Schoolgirl Sue,
It is not as easy as saying that if Jane gets 500 baht then so should you. There’s
lots of differences between families in the way that they divide up the family
budget. Some families make the children responsible for their own toilet items
or entertainment, for example, so those children will appear to get more of an
allowance than children who get their toothpaste from the family budget. Do you
have to pay your own way in the movies, or does Dad give you the money when you
go? If you reckon you’re underpaid, and Mum is not supportive, then all you
can do is to sit down with Dad one day when he’s in a good mood and discuss
things as you see it, but do remember to listen to how Dad sees it too. There
are always two sides to everything. Hillary also believes that any allowance
should reflect the work you do in the family - it should not be a ‘free’
hand-out every week. Mum and Dad work for their money, and so should you. When
was the last time you tidied your room for example?
Dear Hillary,
My problem is very embarrassing. I am an ordinary looking 25 year old woman of
average height and weight, but my bust development stopped when I was about
thirteen, so I now have only a 30 inch bust. I know I have to live with this
problem, but it doesn’t make it any easier. Try wearing a 30 A bra. I normally
wear big sloppy shirts to disguise my figure, but I cannot go to the beach
because it is so obvious that I have nothing on top. I know the easy answer is
to avoid going to the beach, but there is a man at work who is showing interest
in me and he is a very keen sailing enthusiast and has asked me out on his boat
a couple of times. Have you any advice for flat-chested girls, Hillary? Please
don’t say a padded bra as I gave up trying with those many years ago.
Two Fried Eggs
Dear Two Fried Eggs,
At least you have a good sense of humour, and it is probably that which makes
you attractive to this man in the office. You can always wear a bulky yachting
parka style of top I suppose, but if your fried eggs are really holding you back
then you should consider plastic surgery. It can be done in Pattaya and I know
the Bangkok Pattaya Hospital has a cosmetic surgeon on staff. You’ve nothing
to lose by enquiring, and it sounds to me that it would do your self esteem a
power of good.
Personal Directions: Leaders
can be made
by Christina Dodd
When the subject turns to leadership,
someone inevitably asks, "Isn’t leadership something that you either
have or you don’t? Aren’t leaders born that way? Can people really
become better leaders?" These questions are as hardy as cockroaches –
they just won’t die.
In fact, leadership characteristics can be developed. You
can be a better leader. It is true that some leadership characteristics show
up early in life, but it is also true that people often can’t predict who
will become the superstar leaders. Some people come into the world endowed
with self-confidence and a keen intellect. That is clearly an advantage. But
nearly all people are made better leaders from specific developmental
activities. Leaders are a lot more "made" than they are
"born."
Some individuals clearly have a higher probability at
succeeding at leadership than others. But this does not mean that ordinary
managers cannot become extraordinary leaders. Leadership potential can be
developed. With effort and practice, you can move beyond the skills you’re
born with to be an excellent leader.
"The most dangerous leadership myth is that leaders
are born – that there is a genetic factor to leadership. Myth asserts that
people simply either have certain charismatic qualities or not. That’s
nonsense; in fact, the opposite is true. Leaders are made rather than
born."
Warren G. Bennis
One of the major failings of many leadership development
programs is that they don’t expect enough. Michelangelo stated, "The
greatest danger for most of us is not that our aim is too high and we miss
it, but that it is too low and we reach it."
Too many good leaders feel that being good is "good
enough". They don’t believe that they are personally capable of
achieving superstar levels of performance. They believe that extraordinary
leaders are prodigies, having been endowed with some unusual gifts from
birth. They watch amazing leaders the way many people watch concert pianists
and think, "It would be wonderful to be that good, but I could never do
it. I just don’t have that much talent."
However, innate natural talent is not the best predictor
of who will become the excellent concert artists – or the extraordinary
leaders. What makes the difference is discipline.
As one professor explained, "Discipline is always
more important than some natural ability. With some dedicated practice,
those with discipline will surpass those with natural ability in a few
semesters. Without discipline and the ability to learn, those with natural
ability will never progress above their current ability." In fact there
is quite a bit of evidence that shows concert musicians are so good simply
because they have practiced two to four hours a day for over ten tears. They
just had the interest and discipline to do it!
Most individuals, as they become managers for the first
time, go through an intense learning period. They receive a great deal of
training and personal coaching and are open to ideas and suggestions from
experienced managers. They take time to plan meetings and performance
reviews and how they will give feedback to direct reports. They also pay
close attention to others, watching to understand techniques and skills.
They are practicing leadership with the intent to get better. Their learning
curve is steep.
Once they get reasonably competent at being managers,
they switch from practicing to playing. Playing at leadership is inherently
more fun but skill development is very slow and sometimes stops altogether.
To improve everyone’s leadership ability:
Push for improvement from everyone: Blaming
bad leaders for the company’s woes is too simple. Accept the need for
everyone to undertake some level of improvement.
Take an interest: Why are some students
willing to practice longer and harder? The key difference does not seem to
be ability, but interest. Become an astute observer of leadership and
implement what you see modeled.
Practice – don’t play – at leadership: Bad leaders
assume that deliberate practice makes no difference, so they continue to
perform, but never improve. Good leaders keep their focus and continue to
build skills long after they achieve an adequate level of performance.
For decades, leadership experts have tried to find the
list of distinctive traits that define great leaders. Perhaps a metaphor for
understanding leadership is a large tent, with three-dimensional space under
the canvas representing leadership effectiveness. The poles in the metaphor
represent key "strengths" of the individual leader, especially
those five that have been shown to make a difference in separating the great
from the good: 1) character 2) personal capability 3) focus on results 4)
interpersonal skills and 5) leading organizational change. The tent canvas
represents all of the possible competencies a leader might display.
The key to becoming a more effective leader is to lift
more of the tent by hoisting multiple poles in the air. Lifting one tent
pole pulls the entire tent up around that pole and raises a broad expanse of
canvas. As a second competency pole is lifted, a new section of the tent is
elevated, which not only raises the canvas above it, but also raises the
canvas between the two leadership poles. With each succeeding competency
tent pole, large expanses of canvas are lifted, until ultimately there is a
huge volume of space under the tent.
Develop critical competencies: Seek to be competent in
each of the five leadership areas.
Develop a combination of competencies: The canvas will
not be raised with just one or two competency poles in the air. Great
leaders need a balance of complementary skills.
More is better: Leaders with strengths in each of the
five areas will hoist the most impressive tents.
Great leaders are not defined by the absence of weakness,
but rather by the presence of clear strengths. The key to developing great
leadership is to build strengths.
If you would like to write to me or contact me further
about our leadership development programs or any of our other professional
skills programs, then please email me at Christina.dodd@
asiatrainingassociates.com
Until next time, have a fantastic week!
PC Blues - News and Views: The Santa
Cruz Operation
by Monitor
A long time ago, there was something called SCO UNIX.
AT&T’s monopoly had fragmented, and this was one of the (respected)
variants. I used it myself, in the early 90s, on a project for NatWest
Bank.
Business having turned sour, SCO are threatening Linux
users with legal action if they do not pay SCO rather large licensing fees.
Their argument goes like this.
They claim rights to UNIX source code on the basis of
purchase of the copyright from Novell. They claim some of this code has
been improperly inserted into the Linux kernel. They therefore claim that,
as long as people keep using this kernel (and how can linux users not use
the kernel?), they should pay SCO for the privilege. Just in case this
argument breaks down, they claim the General Public Licence (GPL), under
which the kernel source code claims copyright, is in breach of the
Constitution of the United States of America! See
www.linux.org/news/opinion/sco20031205.html
As there is a lot of source code, not just the kernel,
protected by the GPL, this last claim is serious, if proven.
Unfortunately for SCO, the Novell contract seems to have
gone missing, and it appears SCO may not be able to prove their ownership
of copyright. (Perhaps they may have to repay the licensing fees to their
regular customers for years past). Also, they refuse to identify the piece,
or pieces, of source code they claim is theirs.
If they did, the linux support community would rewrite
these sections so as not to offend SCO. The linux kernel users would
upgrade their kernels, and SCO would have no cause for complaint. Very
reasonable, you might think, but SCO would then have no claim on the
millions of Linux users who are not SCO customers.
Read the whole sorry mess at
www.linux.org/news/sco/timeline.html
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