Bank Market Capitalisation

Banks. Safe, dependable banks. They put out ads with smiling executives in nice suits who greet you at the door with a firm handshake and seat you in comfortable surroundings with tea and biscuits. Or, in New Zealand, a horse going mad on a high country back block, for some reason.

This comfort was based on easy pickings in a time of rising house and commodity prices, and executives who thought that it was really easy to make money all the time, with little regard for the future, but huge regard for their prospective bonus.

Where are these banks now? This morning I received a graphic representation of where market capitalisation has gone since the beginning of the crunch. It's ugly.



To put some kind of perspective on it, the percentage drops are as follows:

RBS: down 96%
Citigroup: down 92.5%
Barclays: down 92%

Some of the less affected (!) banks:

Santander: down 45%
JP Morgan: down 48%
HSBC: down 55%

Still feel that banks are safe?

Solving the Crisis - Can we have our money back?

When I thought of it, everything seemed so simple. There is a way to have your money back and solve the crisis. It may get a bit messy for the bankers, but not for you.

SOLUTION TO THE CREDIT CRISIS. PROBABLY.

1. Each nation affected (USA, Britain, Ireland, Germany, New Zealand, Australia etc) pulls together their 50 highest paid bankers, and puts them in a room.
2. Send in a referee with one question: "Can we have our money back?"
3. If the answer is "No", then draw a name out of a hat, and shoot him. Leave them all in the room for another 24 hours. Return to 2.
   
4. If the answer is "Yes", the crisis is over!

I look at it this way: On Day 1 there is a 2% chance for any banker his name will be drawn from the hat. They'll like those odds. Unless a particularly stupid banker is the last man standing, the highest is a 50% chance they will be drawn (if there are two remaining at the end of this).

At the point they say 'Yes' (if they do) will give an indication of their own perception of what their own lives are worth, and I guarantee this is a lot higher in percentage terms than what they care about your money. This should be a warning.

Having worked for many years in banking, I can tell you first hand that banking is a very, very easy business. You take in deposits. You lend out the money. You take a margin on the interest differential (and charge some fees). There are obviously a few tricks to learn, but that's about it. Where it all comes undone is wealth management. Bankers take a look at it and say "Hey, we can do this!". It is, unfortunately for us, a very, very difficult proposition, and taken far too lightly by the participants.

More on that later.......

Part 2 - New York woman wants $!

Yesterday's post was a good question (and a real Gen Z question). Some guy answered - he pulled no punches!

THE ANSWER
Dear Pers-431649184:

I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament.

Firstly, I'm not wasting your time, I qualify as a guy who fits your bill; that is I make more than $500K per year. That said here's how I see it.

Your offer, from the prospective of a guy like me, is plain and simple a crappy business deal. Here's why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here's the rub, your looks will fade and my money will likely continue into perpetuity…in fact, it is very likely that my income increases but it is an absolute certainty that you won't be getting any more beautiful!

So, in economic terms you are a depreciating asset and I am an earning asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you're 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!

So in Wall Street terms, we would call you a trading position, not a buy and hold…hence the rub…marriage. It doesn't make good business sense to "buy you" (which is what you're asking) so I'd rather lease. In case you think I'm being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It's as simple as that. So a deal that makes sense is dating, not marriage.

Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as "articulate, classy and spectacularly beautiful" as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn't found you, if not only for a tryout.

By the way, you could always find a way to make your own money and then we wouldn't need to have this difficult conversation.

With all that said, I must say you're going about it the right way.
Classic "pump and dump."

I hope this is helpful, and if you want to enter into some sort of lease, let me know.

New York 25 year old wants money - and lots of it. Part 1

Sorry to all about my laziness the last week or so - in between articles to be written, market research and kids at horsey shows, I, er........ just haven't got around to posting. Fear not, I am going to do nothing but post a letter from Craigslist that I think is funny - the answer (part 2) is even funnier.

Here 'tis:

What am I doing wrong?

Okay, I'm tired of beating around the bush. I'm a beautiful (spectacularly beautiful) 25 year old girl. I'm articulate and classy.

I'm not from New York . I'm looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don't think I'm overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 - 250. But that's where I seem to hit a roadblock. 250,000 won't get me to central park west. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and she's not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level?

Here are my questions specifically:

- Where do you single rich men hang out? Give me specifics- bars, restaurants, gyms

-What are you looking for in a mate? Be honest guys, you won't hurt my feelings

-Is there an age range I should be targeting (I'm 25)?

- Why are some of the women living lavish lifestyles on the upper east side so plain? I've seen really 'plain jane' boring types who have nothing to offer married to incredibly wealthy guys. I've seen drop dead gorgeous girls in singles bars in the east village. What's the story there?

- Jobs I should look out for? Everyone knows - lawyer, investment banker, doctor. How much do those guys really make? And where do they hang out? Where do the hedge fund guys hang out?

- How you decide marriage vs. just a girlfriend? I am looking for MARRIAGE ONLY

Please hold your insults - I'm putting myself out there in an honest way. Most beautiful women are superficial; at least I'm being up front about it. I wouldn't be searching for these kind of guys if I wasn't able to match them - in looks, culture, sophistication, and keeping a nice home and hearth.

PART 2 FOLLOWS......

How it should be

I have no evidence that the following is true, and it could be a work of fiction. However I do agree in large part with it, that there is a much easier solution to the world's problems contained within, I'm sure.

LETTER:

To All My Valued Employees,

There have been some rumblings around the office about the future of this company, and more specifically, your job. As you know, the economy has changed for the worse and presents many challenges. However, the good news is this: The economy doesn't pose a threat to your job. What does threaten your job however, is the changing political landscape in this country.

However, let me tell you some little tidbits of fact which might help you decide what is in your best interests.

First, while it is easy to spew rhetoric that casts employers against employees, you have to understand that for every business owner there is a back story. This back story is often neglected and overshadowed by what you see and hear. Sure, you see me park my Mercedes outside. You've seen my big home at last years Christmas party. I'm sure; all these flashy icons of luxury conjure up some idealized thoughts about my life.

However, what you don't see is the back story.

I started this company 28 years ago. At that time, I lived in a 300 square foot studio apartment for 3 years. My entire living apartment was converted into an office so I could put forth 100% effort into building a company, which by the way, would eventually employ you.

My diet consisted of Ramen Pride noodles because every dollar I spent went back into this company. I drove a rusty Toyota Corolla with a defective transmission. I didn't have time to date. Often times, I stayed home on weekends, while my friends went out drinking and partying. In fact, I was married to my business - hard work, discipline, and sacrifice.

Meanwhile, my friends got jobs. They worked 40 hours a week and made a modest $50K a year and spent every dime they earned. They drove flashy cars and lived in expensive homes and wore fancy designer clothes. Instead of hitting the Nordstrom's for the latest hot fashion item, I was trolling through the discount store extracting any clothing item that didn't look like it was birthed in the 70's. My friends refinanced their mortgages and lived a life of luxury. I, however, did not. I put my time, my money, and my life into a business with a vision that eventually, some day, I too, will be able to afford these luxuries my friends supposedly had.

So, while you physically arrive at the office at 9am, mentally check in at about noon, and then leave at 5pm, I don't. There is no "off" button for me. When you leave the office, you are done and you have a weekend all to yourself. I unfortunately do not have the freedom. I eat, and breathe this company every minute of the day. There is no rest. There is no weekend. There is no happy hour. Every day this business is attached to my hip like a 1 year old special-needs child. You, of course, only see the fruits of that garden - the nice house, the Mercedes, the vacations ... You never realize the back story and the sacrifices I've made.

Now, the economy is falling apart and I, the guy that made all the right decisions and saved his money, have to bail-out all the people who didn't. The people that overspent their paychecks suddenly feel entitled to the same luxuries that I earned and sacrificed a decade of my life for.

Yes, business ownership has is benefits but the price I've paid is steep and not without wounds.

Unfortunately, the cost of running this business, and employing you, is starting to eclipse the threshold of marginal benefit and let me tell you why:

I am being taxed to death and the government thinks I don't pay enough. I have state taxes. Federal taxes.Property taxes. Sales and use taxes. Payroll taxes. Workers compensation taxes. Unemployment taxes. Taxes on taxes. I have to hire a tax man to manage all these taxes and then guess what? I have to pay taxes for employing him. Government mandates and regulations and all the accounting that goes with it, now occupy most of my time. On Oct 15th, I wrote a check to the US Treasury for $288,000 for quarterly taxes. You know what my "stimulus" check was? Zero. Nada. Zilch.

The question I have is this: Who is stimulating the economy? Me, the guy who has provided 14 people good paying jobs and serves over 2,200,000 people per year with a flourishing business? Or, the single mother sitting at home pregnant with her fourth child waiting for her next welfare check? Obviously, government feels the latter is theeconomic stimulus of this country.

The fact is, if I deducted (Read: Stole) 50% of your paycheck you'd quit and you wouldn't work here. I mean, why should you? That's nuts. Who wants to get rewarded only 50% of their hard work? Well, I agree which is why your job is in jeopardy.

Here is what many of you don't understand ... to stimulate the economy you need to stimulate what runs the economy. Had suddenly government mandated to me that I didn't need to pay taxes, guess what? Instead of depositing that $288,000 into the Washington black-hole, I would have spent it, hired more employees, and generated substantial economic growth. My employees would have enjoyed the wealth of that tax cut in the form of promotions and better salaries. But you can forget it now.

When you have a comatose man on the verge of death, you don't defibrillate and shock his thumb thinking that will bring him back to life, do you? Or, do you defibrillate his heart? Business is at the heart of America and always has been. To restart it, you must stimulate it, not kill it. Suddenly, the power brokers in Washington believe the poor of America are the essential drivers of the American economic engine. Nothing could be further from the truth and this is the type of change you can keep.

So where am I going with all this?

It's quite simple.

If any new taxes are levied on me, or my company, my reaction will be swift and simple. I fire you. I fire your co-workers. You can then plead with the government to pay for your mortgage, your SUV, and your child's future. Frankly, it isn't my problem any more.

Then, I will close this company down, move to another country, and retire. You see, I'm done. I'm done with a country that penalizes the productive and gives to the unproductive. My motivation to work and to provide jobs will be destroyed, and with it, will be my citizenship.

So, if you lose your job, it won't be at the hands of the economy; it will be at the hands of a political hurricane that swept through this country, steamrolled the constitution, and will have changed its landscape forever. If that happens, you can find me sitting on a beach, retired, and with no employees to worry about ...

Signed,
Your boss

Divorce - more dangerous than any market fall.

I make no apology for writing this post from a male point of view. Men are always told they don’t understand women, so why fight it? It's just a forerunner to another argument that starts a new disagreement. This posting isn’t technically about the markets, but there is a real chance for some blokes out there that this event would do far more damage than any market crash, and it's already been shown there are plenty of wives out there looking to cement their financial futures before hubby loses the lot for them. Remember, markets are down 40% so far from their peak, whereas this little beauty will see you lose upwards of 50% if you don’t do it just right. Some will feel the full wrath of the law and your then ex-wife.

It’s that time of the year when divorce lawyers say they are at their busiest. The stresses and strains of Christmas have finally broken the relationship, or just to keep the kids happy couples have held together over the holiday period. So here’s my guide on how to self assess your divorce risk.

If you aren’t much of a mathematician, try the Preliminary Divorce Quotient test (PDQ)

Question 1: Are you married?

If ‘Yes’, you have a roughly 35% chance of getting divorced. And, I’d wager, a 10% chance of accidently chopping your own head off whilst shaving, if you are particularly annoying. This is also a function of the size of your insurance policy, and how often you leave the mail on the floor for the wife to clean up.

Question 2: Do you have what is commonly known as a ‘trophy’ wife?

Tricky one, and anecdotally I would estimate you have a 70% chance of divorce.

Question 3: Do you have a trophy wife, one child……… and a nanny?

Sorry mate, it’s all over. Get everything in trust for the kid now.

Here is the maths test; there are two parts to it that you multiply together.

Divorce Probability =

PART 1: ((a/b)/c) x (m/(m1/m2)) = y

PART 2: ((j+k+l+m) x (1-n)) / (s x (t-ta)) = z

y x z = Ka-Fuckin-BOOM!

Where:

a= number of children
b= number of nannys
c= percentage of your gross salary wife spends on vases, makeup, brunch and hairdos

m= Total mates (friends)
m1= mates who have tried to shag your wife
m2= mates who have shagged your wife

j= annual earnings
k= trust fund balance
l= super fund value
m= prospective redundancy payout
n= percentage chance of getting another job soon and not sitting around the house all day buggering up her schedule of yelling at filipino maids

s= nights per week wife goes to ‘book club’
t= your attractiveness based on comments from wifes friends (max 10, min 1)
ta= your own view of your attractiveness (max 10, min 1)

It’s probably flawed, but it works in my head. Yes, I know I’ve excluded items such as credit card and department store card balances, but if they are so high they can materially affect the formula, you don’t need the formula. Just a drink. And a long meeting with a trust lawyer and accountant.

Still not sure? To establish how much trouble you could be in (and this is really for those contemplating marriage) and you need an easy, one off test to establish how the prospective missus reacts under pressure – hire this guy.

Formulas from the ladies perspective are welcome to be sent in.

Entrepreneurs - your time has come

Many large businesses talk about how agile they are, and how quickly they can adapt to changing market conditions. As someone who spent far too many years spending far too much time in far too many meetings with far too many executives wasting far too much time in far too many meetings – I disagree. Businesses only move quickly when they are doing things like closing factories or laying off staff. Then it’s just a great big mess. We’ll be hearing a lot more about that in the year ahead.

Over the last years it’s been far easier to get a job than it has been to develop an idea, so we’ve taken the easy way out and just got a job. The changes looming are invisible to some, but forced changes are on the way.

I liken it to a situation in the late 80’s when Telecom New Zealand laid off thousands of staff. I well remember the sheer panic and grief that many felt, and the worry regarding their futures. Whilst many of them then contracted back to Telecom at vastly inflated rates (it wasn’t the money that was the problem for the company – it was the headcount) many discovered new careers, new skills and new ideas that made them a lot of money. Redundancy was the making of them.

Telecom is still a cot case, though.

I’m convinced 2009 will see the rise of the entrepreneur – the person with the idea, no overheads, and an enquiring mind. If you’re fast, agile, and make it in a shed, this could be your year.

But to really get the economy going – we just need a sodding great war.

Gen Y Employment in 2009

So. Born after 1975? In the corporate world? Think you’re really good at your job, and therefore won’t lose it in the recession?

Forget it. Chances are you are regarded as an expendable liability. You are likely to be one of the huge number of Generation Y individuals who have annoyed superiors, rorted perks, stolen office products, misrepresented your qualifications, lied on your cv, pulled sickies to go to the beach or snowboarding, or spent much of your day in the office surfing the net looking for a better paying job, just so you can do this all again. With more money.

You are in for a hell of a fright. All the behaviour you have exhibited over the years has been noted. By people older, who earn more, and went through the 89-92 recession. They know what it is to look after their position. Many know what it was like to be shown the door, and then wonder where the hell the next door was, as most were closed for business.

And during the golden years, they have had to watch whilst deadlines, behaviour and time keeping were regarded as ‘old and fuddy duddy’, you did whatever it was you felt like with a minimum of effort, and under the archaic employment laws applicable, could do very, very little about it. They just grinned and sucked it up.

Their time has come. They are awaiting the moment when they can sit you down, and give you the great news. Got a job where work starts at 8.30, but you arrive 8.45 because traffic was bad, or the kids played up, or you just slept in? Spent endless hours in coffee shops talking garbage with other people, then when asked to do a project said you didn’t have time? Out at bars and pubs, big noting yourself to anyone with a functioning ear? Made a real fool of yourself at the office Christmas party?

Bye bye.

Here’s the key point: with relatively few years under your belts, you’ll be cheap to get rid of. And that, friends, is what makes it extra sweet for management.

They’ll be laughing.

Predictions that are worth nothing - here's mine.

Every single commentator seems to have a series of predictions for the year ahead (based on a whole lot of ‘Buggered-If-I-Know” scenarios). They are hardly ever right. It's like when the space shuttle goes up, and someone always says it will explode or crash. When it does, media commentators ask them "how did you know????"

But they’re fun, so here goes my lists (in no particular order).

SERIOUS PREDICTIONS

1. One of the big Aussie mining companies will painfully fold.
2. Fonterra (NZ) dairy payout will drop to around $4.40.
3. There will be a surprise, proportionately massive fraud exposed that will centre on Australia (and in my humble opinion………Perth).
4. “Generation Y” employees will discover what it is to work in tough times. See “Gen Y Employment in 2009”
5. There will be large redundancies in both Australia and New Zealand (well, d’uh).
6. ‘High Street’ retailers will fold in unprecedented numbers. Many will be acquired in takeovers at ridiculously low prices (remember Barings Bank for 1 Euro?)
7. One major pacific airline will collapse. Government will be forced to avoid a bailout to keep voters happy.
8. A major non core Aussie bank will be in serious trouble (if not fold).
9. Food riots in the US. Not really a difficult prediction.
10. There will be a net outflow of illegal immigrants from the US.
11. The Euro zone will lose members. For example, why would the German people care about Italian debt, or Spanish house prices?


NOT SO SERIOUS PREDICTIONS

1. The All Blacks, in an attempt to garner more funding, will play test matches against South Africa in France.
2. Sydney will realise that despite what it thinks, it is as relevant to the world of high finance as a catflap in an elephant house (apologies to Ben Elton).
3. Formula 1 to lose half the teams.
4. With the demise of the Australian cricket team, test cricket will become far less relevant.
5. This blog won’t last three months.

2009 - The year of living dangerously

Welcome to 2009. It’s been a long time coming. We’ll be hearing a lot more about it in the years ahead.

Many sites concentrate on the US, or Euro zone, and to a lesser extent Asia. I’m one of them, but I thought I would start this year by concentrating on Australia New Zealand, and looking at where I feel we are heading.

I’ll start by saying that this isn’t the time to stop doing things. Most businesses will feel the pinch, the most obvious exceptions being insolvency accountants and lawyers. Local councils are unlikely to feel it too much, simply because they have lived in a bubble for so long they don’t know how to pop it. Lower rates anyone? Unlikely.

My list of outright predictions follows, but here is what I think many readers will want to consider for the next year or so.

Firstly, let’s start with your money. Look after it. You earned it and you should be doing everything possible to keep other people from getting it. You may very well need all of it in the year(s) ahead.

Don’t put it anywhere where risk is unacceptably high. If someone is offering inflated interest, there’s a reason for that. They are a higher risk, and to obtain funds from clients need to offer higher rates. They are riskier for a reason. Use your head.

Secondly, I see no reason to pay retail for anything discretionary. TV’s, books, CD’s, appliances – anything of that nature should be negotiable, for a while at least. Don’t be fooled into thinking the ticket price is the sales price. If they claim it is, smile, turn around, and walk out the door. You’ll get it cheaper somewhere else.

Thirdly, sit your children down (or husband or wife), and tell them that this year is going to be different. There will be no huge handouts for toys and games, and they will have to start making their own fun (there’s a novelty). If you were to sit down and work out last year’s discretionary spend on stuff you neither need nor want or use, you may be surprised at how much of your money has gone “PHOOF” into the financial ether.

It’s a very good year to teach your children the basic concepts of financial literacy.

Fourthly, if you’re overweight or just plain fat (like I am) then you might consider that you have prepaid much of your 2009 food bill. Use it. Poncy dishes can be horribly expensive to make at home, let alone buy in a restaurant. Saving dollars is a good thing. Food will probably inflate markedly this year. Spend well. Grow some of your own. It’s fun.

Lastly, look after your job. No matter what anyone says, it is not secure. It doesn’t really matter how good you are – just how cheap you are to get rid of, or whether you are a constant annoyance to your superiors. See post “Gen Y Employment in 2009”

It’s to be a very tough year, with few exceptions, and a lot of financial pain to come.

If you get through this year with positive returns, I think you will have done well.

But most of all, enjoy the summer.