Sam Park's Take on Finance and Economics

Miss Teen South Carolina on Subprime

2007-08-29T15:56:00.000-07:00

Q:
Studies show that about a fifth of homebuyers were not prime borrowers. Discuss the repercussions of loose lending standards on the US economy.

A:
I personally believe that US Americans are unable to get prime rates because, uh, some people out there in our nation don’t have money, and, uh, I believe that our banks like such as in South Africa and, uh, the Iraq everywhere like, such as and I believe that they should, our lenders over here in the US should help the US, er, should help South Africa and should help the Iraq and the Asian countries, so we will be able to build up our future for our children.

Apple's iPhone... Maybe in the US

2007-01-17T21:39:00.000-08:00

Apple's attempt to crack into the global cell phone industry will come with many hurdles. Sure its sleek design will attract some, but is it enough to capture global users?

Cell technology in Asia is so far beyond that of the US. I especially like how you can buy stuff with your phone... the iPhone should develop a partnership with credit card companies to have a function like Mobile's Speedpass. And then add GSP functions... then Apple's iPhone may compete with markets in Asia. Otherwise... I'm not sure the sleek design will be enough.

The Switch to Service

2007-01-09T13:29:00.000-08:00

Before regulators decide to take some protectionist policies to "protect" US manufacturing jobs, they should take a good look at the transition of the US employment. Here's a chart that illustrates how "Professional and Business Services" jobs have outnumbered "Manufacturing" jobs. The switch occurred right after the most recent recession, and I would imagine the gap to only grow wider over time.

Revolution

2006-12-26T20:19:00.000-08:00

According to Dictionary.com, Revolution means the following:

rev·o·lu·tion [rev-uh-loo-shuhn] Pronunciation Key - Show IPA Pronunciation –noun

1.	an overthrow or repudiation and the thorough replacement of an established government or political system by the people governed.

2.	Sociology. a radical and pervasive change in society and the social structure, esp. one made suddenly and often accompanied by violence. Compare social evolution.

No one can deny that we're going through a revolution; technological revolution to be more precise. But what does this mean? For one, I can understand why some have fought this change, but it's a force with which it is to be reckoned. This revolution has changed the WAY things are done. The internet has taken the power away from the media tycoons. This influence has gone to the people, like you and me.

I love music, especially those produced with the guitar. And to my amazement, I would've never been exposed to some of the exceptional guitar sounds out there (because the media geniuses tell me that I should listen to Britney Spears or Ashlee Simpson). Take for example, I doubt most of you haven't heard about Andy Mckee (I seriously suggest you watch the video). He's not the typical and marketable guitarist, but he has one gifted talent. I would've never found this out if it wasn't for YouTube. To those who YouTube may have noticed how he has been climbing the popularity chart. People like Andy will find recognition for their gifts because of this technological revolution. Talented people don't have to deal with media politics anymore... screw that. Normal people now get to have their say in things. Now, that's a revolution.

No Surprise

2006-12-18T12:59:00.000-08:00

Here is the 10-yr monthly averages of the CPI data. Whether or not you have any faith in government statistics, you can see that inflation has been rather tame in the months of November and December. The recent CPI release for November should've been no surprise as we've been hearing about discounts, discounts, discounts. Retailers are just trying to unload inventories before the yearend.

Got the Dollar Jitters?

2006-12-04T20:25:00.000-08:00

The Once Almighty Dollar has been falling against major currencies. Why, you ask? Well, where do we start... Trade deficit numbers in terms of GDP suggest that we've been consuming foreign goods well beyond sustainable levels. And why shouldn't we? Especially if someone is selling us goods cheaper than how much it would cost us to produce those goods and services. Oh, that's right... that whole comparative advantage thing and free trade have offered cheap stuff.

But things have been starting to change. Our greed fueled us to buy more and more, and we didn’t care about running up our credit bill. And our good friends Japan, China and the UK have been more than gracious in providing that credit by buying up Treasuries. Why not, our rates were relatively higher than what was offered elsewhere.

This excess flood of capital allowed many of us to buy homes that we couldn’t afford. In turn, we bought and bought because we could use homes to get even more credit. That’s awesome; only here, can we get credit upon credit. Now that we’ve bloated ourselves, we now have to settle our bill.

Given the not-so-grand outlook of the US economic health, our rates have fallen (you know… because the Fed would have to cut rates in case of a falling economy) below that of other nations like Australia and the UK. Furthermore, Japanese rates may go up, which would leave less room for carry-trade opportunities, especially with the lower US rates. So basically, nobody really wants to buy US assets (not to mention Paulson’s case about the restrictive Sarbanes-Oxley).

Au contraire, export-led countries like S. Korea would want the US Dollar to remain strong. That’s probably why their central bank has been trying to support the dollar. Then on the other corner, you have the Chinese, who also depend on exports to the US, who haven’t done much except indicate that they will start diversifying away from the US Dollar. Well… they’re in a predicament as well, given that they have much invested in the US Dollar and the protectionist-loving US democrats have taken over the house. Given the conditions, most will take tip-toe movements.

Either case, imported inflation looks like they will go up for US consumers... but then again, there is a Federal Reserve research paper that suggests real imports into the US haven't been significantly influenced by exchange rate movements. But that was "real" figures which get adjusted for inflation. That just tells me US consumers have been buying and buying despite higher prices of imports. No inflation… right… tell that to the economists who look ahead (and I didn’t even talk about the tight employment conditions). I don’t think Microsoft’s Vista will save the day with productivity improvements, but we'll see. Mr. Bernanke has a tough job ahead. Slower economy… higher inflation… hmmm… what’s a guy to do? My guess is nothing!

Anyways, this move away from the US Dollar has pushed US exchange rates lower. Follow the money… if you can. But what does this mean for the US? Tune in and find out…

On My Mind

2006-11-29T23:00:00.000-08:00

There's a lot on my mind right now... like my girlfriend pushing for that engagement ring... you know the story. I'm thinking maybe I should take her to see that Blood Diamond movie and show her the sad economics of how things work. We don't live in a perfect world, and that's how many profit... oh well. I'm not gonna cry about it. Then again, I don't applaud exploitation.

That's really not my point. Pretty things are all over the place; I just view useful facts as something beautiful. The thing is... information is all over the place and everyone interprets them differently. Not even the "Blue-Chip" economist can agree on how to interpret recent economic data. One will tell you this while someone else will tell you the other. You know what that tells me... Go figure it out on your own!

I'll post some of my opinions here and there. I'm not claiming that I know everything... instead, it would be great to hear what you have to say. That's why you gotta love this thing...

Yield Curve Signs

2006-10-26T20:24:00.000-07:00

Here's one of our recent newsletters... enjoy.

Buchanan Street Partners Newsletter

Taking on Real Estate

2006-09-25T21:04:00.000-07:00

I haven't posted in awhile, and that's because I've made a transition into commercial real estate. I've been learning that the commercial real estate industry is a whole different monster on its own. It's a great experience for me since real estate (not single-home) continues to thrive as a viable investment vehicle. Even hedge funds are coming into the industry to play their strategies. It's definitely a fun time as I continue to build my investment knowledge foundation.

Tom Au's Interview with Financial Sense Online

2006-03-30T16:27:00.000-08:00

Financial Sense Online - Newshour's Ask the Expert - interviewed our principal, Tom Au. This one hour audio interview could be obtained through this link. The interview discusses some of the topics in Tom's book, "A Modern Approach to Graham & Dodd Investing."

Pension Outlook

2006-02-15T14:58:00.000-08:00

Many people dream of their retirement days. We hope that when that day comes, we can crack open that nice nest egg and have sufficient income stream to live comfortably. Perhaps take several vacation cruises here and there. To realize this dream, every worker plans his or her personal finances accordingly. Sure it sounds simple enough; however, the behind-the-scenes involved with retirement plans resemble something more like rocket science, especially for the plan sponsors and the professionals that serve such plans.

The rest of my January report for RW Wentworth can be obtained at the following link. The report goes over the controversial accounting method for pension costs to companies and covers the current situation that surrounds the problems with defined benefit plans.

It's Just Unfair

2006-02-10T12:41:00.000-08:00

Intel said that the Fair Trade Commission (FTC) visit was a normal surprise visit. AMD said that the visit was more like a bumrush. Here's the story from Korea Times.

That's Hot

2005-12-05T11:46:00.000-08:00

Paris Hilton describes a trendy item or a passing fad by claiming “that’s hot.” Perhaps that’s how she’d depict some real estate markets in the U.S. Lately there have been some contradicting views about the current state of our economy. Some maintain that the economy remains strong and real estate price levels do not merit concern. On the other hand, some argue that certain pressures will eventually crack the adamant economy.

Well, exactly how hot is the U.S economy? GDP figures suggest that our economy has been continuing to grow at a healthy pace despite some of the negative exogenous factors (i.e. Hurricane Katrina, etc.). However a rapidly growing economy usually comes with inflationary pressures, and in turn with rising interest rates.

(My full 7 page report can be obtained at R.W. Wentworth)

Where's the Value?

2005-11-22T13:57:00.000-08:00

It's going to take more than a cosmetic makeover to turn around Sears/Kmart. I would guess that people shop at WalMart because shoppers know they will find cheaply priced products. I'm not sure how much power Sears has over its suppliers, but as many already know, WalMart dominates many of its suppliers. WMT also has unique, yet sometimes controversial, employee policies. WalMart has also been on top of the supply-chain logistics with things like the hub and spoke distribution network. WMT's control over the costs is what I'd imagine allowed the company to offer cheaper products and establish its current position. I'm not sure how Sears/Kmart's model works, so perhaps it's problem is more than what I've suggested.

It's kinda tough being a value investor in a strong market. Traditional "value" methods of screening for companies will rarely pick out winners in current markets. And if you look at it relatively, SHLD looks more of value play than stocks like WMT. SHLD's enterprise value is almost $22 billion. It's current assets amount to about $14 billion, so if you liquidated all of its assets (including PP&E and excluding intangibles), you'd probably have about $25 billion. Now consider WMT, which has an enterprise value of almost $240 billion. Yet it only has about $40 billion in current assets. And if you fully liquidated all of its assets, you'd probably end up with half that of its market value.Value investing is great and all, but it's so hard finding candidates that meet all the criteria. I guess it really depends on how you define "value." Besides looking at their assets, you'd also have to consider their liabilities and obligations. And compared to many other stocks out there, SHLD looks like a pretty decent value play. SHLD just needs to make sure it can get rid of their inventory, enough to meet its current liabilities. But it’ll take more than that to compete profitably in the long term.

When Mr. Buffett is buying companies like WalMart and Anheuser Busch, you'd really have to wonder how he's measuring value or intrinsic value. I guess he really does weigh ROE greatly into his valuation matrix. But I would've never guessed that he'd go for WalMart at these levels... he's probably using some revenue ratio to value that play.

A Scrooge Christmas?

2005-11-21T15:23:00.000-08:00

I remember driving past some retail stores three weeks ago, and I had noticed that they were putting up the Christmas decorations. I thought to myself that it seemed somewhat early to be pushing Christmas. The currently uncertain economic outlook must have led the retailers to act anxious and nervous about the upcoming holiday sales, on which many depend.

Naturally, I thought it would be wise to visit some well-known malls in LA over the weekend to see how shoppers have responded to the early Christmas promotions. Not to my surprise, I didn't see that many shoppers - not even the expected mallrats.

So what does this mean? Well, people could be putting off their shopping for Black Friday or last minute shopping. Perhaps many have planned to avoid the hassles by shopping online. Or maybe it's the retailers fears coming true. A bleak Christmas would mean some difficult times up ahead. People should check under the Christmas tree for the number of presents, which could be called the Santa Claus indicator. If you see less presents, then maybe we're in for a slowdown. If there are plenty of presents, then I suppose we shouldn't worry too much.

Phantom Trader

2005-11-16T10:35:00.000-08:00

Dealing with China has been less than smooth. First it's currency "manipulation" and lack of intellectual property protection, which have led US authorities looking to take some form of action - whether through its own countering actions via tariffs or through pressuring the WTO to take actions.

Now there's something else going on in China. It envolves a huge short copper position (in the hundreds of tonnes) by a trader named Liu Qibing, exept it's unknown wherther this individual actually exists or not. I'm not going to speculate here, but things smell rather fishy. Here's a link to a story on Asia Times Online that gives some possible explanations to this mystery phantom trader.

Don't Cook the Turkey in the Microwave

2005-11-15T16:22:00.000-08:00

Convincing a non-blogger to read blogs is like trying to persuade an oven user to use a microwave. Why should a person use one’s time reading blogs, when that time could be spent reading the traditional newspaper? Many people do not like changes, and those who tend to make slow adjustments usually get left behind.

Blogs offer readers various viewpoints of a particular topic, taking away some of the influence of the traditional media views toward certain subjects. How well the blogger convinces one’s readers will depend on the credibility of the information presented in his or her posts.

In traditional method of presenting information, the reporters’ or analysts’ works must be approved by the supervisor, who is careful (in most cases) to avoid any potential litigation dangers. I say “in most cases” because of the CIA leak story (which placed CIA operatives’ identity in jeopardy) by Judith Miller that was approved by the New York Times. Risking people’s lives to sell a story is beyond me.

When I prepare financial and economic reports for formal purposes, those analyses needs to be approved by my supervisors. However when I do research, I find it useful to read various resources which include blogs as well as traditional and formal sources. I’ve learned that some blogs contain unreliable data, but I’ve also found that others have valuable contributions to the information that I seek. This method gives me a wide perspective of the subject, which allows me to make my own careful conclusions.

Blogging represents a good medium to offer a quick thought on a subject or even hold forum-like discussions. If bloggers abuse their sites to express their nonsense, then that will be their demise. Others that offer useful insights will contribute to the sustainability of the blogging trend.

I doubt that the traditional newspaper media will go away. The way I see it, we will still cook our turkeys in the traditional oven. Sure you can reheat the cooked turkey in the microwave, but I would hate to taste the turkey that was initially nuked in the microwave oven. Additionally, as people have learned not to use metallic items in microwaves, I hope bloggers will learn not to use BS and nonsense in their blogs.

Snap, Crackle and Pop... Not the Rice Krispies Characters

2005-11-10T16:16:00.000-08:00

In the 90’s we saw a bubble in tech. Inflationary concerns have led to the Fed increasing fed funds rate, perhaps a bit too much. Imbalances have caused some to be very concerned, while others touted that tech will change everything and that their valuations should reflect this outlook. Smart money got out as many suffered the effects of a bubble popping. The slowdown in the economy had led the Fed to start lowering the fed funds rate in order to pump some confidence in the markets. Instead of going into a major recession, the money had shifted to real estate as these assets currently remain extremely inflated in certain hot markets. What have people learned from these experiences?

The real estate market isn’t liquid as stocks, but we’ve seen that real estate is more liquid than many have thought. Property flippers have come into the market like traders and contributed to the rising artificial price of properties. I’ve seen many people jump into this home purchasing bandwagon (mainly fueled by cheap credit). One of the problems we saw during the rise of the tech bubble was the use of leverage in the form of margin purchases. As the stock market headed southward, many began to receive margin calls, which may have accelerated the bubble burst.

I can’t help but notice the similarities between these two leveraged purchasing patterns. In both circumstances, many have used borrowed money to chase these rising assets – in many cases without fully understanding the risks they have bore. In some cases, those who have learned from the stock bubble have realized their profits from their real estate plays and have been laughing all the way to their banks. However, there still are others who are in a potentially serious problem. These people are those who have bought their properties during the peak using interest-only financing.

When I ask some of these people why they would do such a thing, they tell me it’s because they couldn’t afford a fixed financing, and that it’s ok since they plan on selling the property in a couple of years. They have bought into the idea that these prices will keep going up, just as those who thought the stock market will rise infinitely. Once again, we have “irrational exuberance,” but this time in the real estate market.

Relative to the real estate market, stocks look cheap. However, the US economy remains uncertain. Our principal at RW Wentworth, Tom Au, believes a lackluster future waits in the next coming quarters for our economy. You can read a brief highlight of his interview with The Wall Street Transcript (TWST). Where will the money flow next? Perhaps towards some value stock plays or maybe even toward international markets.

Risk Management

2005-11-10T11:14:00.000-08:00

Faire Isaac (NYSE: FIC) has hired a key employee to lead its efforts in Japan. FIC provides analytic and decision management technology to its clients. The Company uses advanced algorithms and programs to gauge risk levels of customers, which allows Faire Isaac clients to make intelligent decisions.

This is exactly what Japan needs. The country has been plagued with problems in the financial institution. Non-performing loans remain relatively high and threaten the health of the Japanese financial system. Japan will need to move away from their past lending policies that are heavily influenced by personal relationships.

Utilizing analytic technologies will allow these financial institutions to better understand their customers and the associated risk levels. The Japanese economy has been in the dumps over the past years, but it appears that real reforms are in the works. Their deflationary trends seem to be reversing, but Japan will need to clean house before things look clear.

Changing of the Guard

2005-11-09T13:51:00.000-08:00

US Treasury yields have jumped today. According to Bloomberg, approximately 50% of Treasuries are held by foreign holders. It appears that there is a slight stall in Treasury purchases, which would explain this jump on the yields. We will need to keep an eye on the countries that hold large shares of Treasuries such as Japan, China, South Korea and oil producing countries.

On the homefront, we are currently going through a transition period as many observe the various forces that will steer not just the US economy but the global economy as well. Many wonder how well Mr. Greenspan will pass the baton over to Mr. Bernanke. This transition should be relatively smooth, but will the new Chairman push towards a formal “inflation targeting” policy? Will there be a closer tie between the Treasury and the Federal Reserve? Only time will tell.

Inflation or Higher Rates

2005-10-28T17:33:00.000-07:00

When considering inflation, you can't just look at the figures in front of your face. You have to consider inflation expectations, and the Fed realizes this and moves accordingly. Greenspan has done a great job of keeping core inflation relatively low. Bernanke will come in and continue with his "inflation targeting" policy. My report on Ben S. Bernanke and inflation targeting should be available on RW Wentworth website in the coming weeks.

The reason why core PCE has been relatively low is a result of the Fed’s continued bias towards increasing fed funds rate and also from cheap goods coming from foreign countries. On the other hand, some companies have been biting the bullet because of high energy prices. They’re probably having a tough time raising prices on their products due to competition. So, they turn to operating efficiencies, but seriously, how much more do you think technology will be their answer. These companies will probably come together to do something to raise prices.

As mentioned, one thing that has kept prices down is the cheap goods from abroad - like China. Domestic producer concerns are probably why the senators have been so aggressive in pushing China to appreciate their currency. Last resort will be a tariff on these goods, which would directly increase prices of the items in the PCE and other inflationary measures.

Sure inflation isn’t here yet, but there are pressures out there. The FOMC will continue to raise rates to keep inflation stable. So it’s like take your pick: higher inflation or higher short term rates.

China's Financial Structure

2005-10-25T13:22:00.000-07:00

When people think about international investing, they cannot ignore China. The country represents a huge market, but some of its structures still remain questionable. Some major reforms are needed before people begin to trust their money in a socialist run economy. Today's post on Asia Business Intelligence, contributed by Mr. Howard H. Jiang, explains in detail the financial structure in China. Mr. Jiang thoroughly outlines the steps for foreign financial firms to enter this potentially profitable yet risky market. I highly recommend reading this piece if you consider doing business in China.

The $3 Trillion Stamp

2005-10-21T11:39:00.000-07:00

My report on the Privatization of Japan's PSS is up on RW Wentworth's website. Also up on the site is my summary of the recent Fed Minutes.

101 Uses for an iPod

2005-10-20T00:26:00.000-07:00

Steve Jobs wasn't kidding when he said that Apple will create markets by teaching people how to use their iPods. I love catching companies work themselves into movies or TV shows. The best are the quick subliminal type of screenshots. But going back to Apple, they seemed to have made some deals with TV show producers.

I was channel surfing and saw that Apple’s iPod had made its way into some scripts. On the new show E Rings, there were a couple of marines trapped in a small building. I believe they were surrounded by enemies and were in desperation for rescue, but they had no obvious means of communication. Wait… good thing one of them had an iPod. They were able to rig the gadget and somehow connect it to a telephone wire or something. They then applied the podcast application to transmit Morse code.

To those that haven’t familiarized themselves with podcasting, it’s a method of publishing audio and video signals over the Internet. Think of it as the audio and video versions of blogs.

It’s undeniable that we’ve entered a new era, and new markets will continue to be created. The digital world has been changing our society. I’ve heard that newspaper companies have been hurting during this transition. Internet sources such as Yahoo or even blogs can be blamed for the hurting newspaper industry. With the rising trend and popularity of podcasting and portable digital devices like the iPod, will radio and TV suffer a similar pain that newspapers currently feel?

Do They Really Have a Case Against Violent Video Games?

2005-10-19T01:47:00.000-07:00

I'm not much of a fan of Michael Moore. I find his bombarding interview tactics very rude and his manipulative editting methods very deceiving. It's funny how he accuses large corporations and greed for the problems in our society. Yet he uses his tactics to sell his story and make tons of money. But I'm not writing now to point out his hypocritical point of view. Instead, I agree with one of his points in his "Bowling for Columbine."

Media is quick to blame so many things on gun violence in our society. We have become so accustomed to play the blame game, and we see this everywhere. People probably fear taking on responsibilities anymore. I used to think taking blame for others was honorable... not anymore. It's flat out stupid to do so in our society. Especially while we continue to play this blame game.

I found one interesting point Michael Moore pointed out, and that was about the effects of video games on gun related deaths. I found it funny how Japan creates and plays most of these "violent" games, yet the country only sees 39 gun related deaths per year, according to Moore's data. This is opposed to over 11,000 gun related deaths yearly in the U.S.

Parents need to take some responsibilities and stop playing this blame game. Let these kids play their video games... if anything, it probably keeps them away from real-life problems. I don't really condone video games, but I know video games aren't to blame for the real-life violence. Kids will fulfill their appetites one way or another. If we take away violent video games, then we need to eliminate movies, news, history, etc. Come on, this is not realistic, and we will never live in a perfect society. Stop blaming others for your misguided mistakes that come from the lack of fufilling your own responsibilities.