What do Chongqing, Reykjavik and Mombasa have in common? They are all sister cities of Seattle – and that is where I am moving with my family tomorrow morning.

We have been in Hong Kong for six years and with two small children feel now is the time to go back to the US. I have been doggedly broking the Asian story since 1993 and I felt it might be time for me to try something different. However, instead of resurrecting my pole dancing career, Mirae has kindly offered to keep me on to be based in Seattle. From September I will be publishing on a regular basis an investment product exclusive to Mirae, which will be distributed to Mirae’s global client base. Please watch for it.

Before that, after moving in to our new home we will be busy doing exciting things like buying towels and a vacuum cleaner. I will also try to remember how to mow a lawn and maybe attempt lighting a barbeque without burning off my eyebrows.

I want to thank everyone for their friendship and support and I look forward to re-emerging a few months from now.

Until I get my US work email up and running I can be reached on my website: www.stockbroking101.com

Many thanks again.

Derek

$$$$$$$

The above is a note I sent to clients today. We are moving and I want to stay in touch with everyone while we get set up in our new digs. I will be publishing on a regular basis from September.

Derek

“I still have twelve ships.”  - Admiral Yi Sun Shin, 1597

I am just back from a very interesting trip to the capital of Asia’s most successful country; Korea. I spent four days there with a client and came back mightily impressed. Having made my first trip to Seoul for the Olympics in 1988, I am no wide-eyed neophyte. During the Olympics, I took the opportunity to travel the length and breadth of the peninsula hitch hiking. (Note: NOBODY in Korea hitch hikes so if you have no money like I did then it is a great way to go…). Many years and many trips later, Seoul has really cleaned itself up. The city is spotless, the people are well dressed and polite and the buildings are tall, numerous and gleaming. There is a law in Seoul that all skyscrapers must have a sculpture so walking down any of the streets (all wide enough to land an Airbus) is like strolling through a giant outdoor gallery. Some of it was great, some hideous but a nice idea anyway.

It was plain to see on my company visits this trip a marked improvement of management attitudes towards shareholders than in the past. Previously, senior Korean management were badly dressed in blocky, often checked blue suits, yellow shirts and sporting white or lime green socks, looking much like awkward tropical fruit. Meetings were tense and adversarial with many questions  brushed off or ignored completely. Today’s Korean managers are younger, hipper and more relaxed. English, while improving as a medium of exchange, is still rare and often not spoken at all even in high end restaurants. At one famous and trendy venue I ordered the “signature” black cod for dinner late in the evening but my charming waitress shook her head and told me sadly, “We have no more codpiece.” (Note: Since writing this I have had a lot of questions about what a “codpiece” is. Popular during the reign of Henry VIII, a codpiece was a pouch that covered a man’s genitals in order to accentuate and protect them. In other words, a medieval jockstrap.)

Korea has long been the cheapest market in Asia and many blue chip companies trade at single digit PEs. Covering the market as a specialist in the 1990s from New York, I always explained the discount to US fund managers looking at it for the first time as due to: 1) opaque management, 2) disdain for shareholders, 3) extremely levered balance sheets, 4) Pyongyang was just 120 kms away.

Today, Korea is still cheap but balance sheets are strong, management strategy is much more transparent, attitudes toward shareholders are undergoing a steady improvement and Pyongyang is, well, still 120 kms away. It is interesting that several of the major companies we saw do not publish financials in English – despite foreigners accounting for a quarter of market turnover. Need to apply some discount there. However, the biggest threat to Korea now, of course, is not the spastic North but rather the sleeping yen. Korea has been able to beat Japan handily with the cross-rate at current levels – will that continue? Samsung (005930 KS) has morphed from an obnoxious wannabe into an admired and globally respected brand that takes market share from everyone. Does anybody even remember Sony? Sharp who? Put them in the same basket as Atari and Esperanto . Whether in consumer electronics, shipbuilding or autos Korea has closed the gap with Japan and can produce high quality goods at less cost. China is still cheaper for slapping stuff together but R&D investment there is close to zero and “Quality Is (not) Job 1,” to paraphrase Ford’s advertising slogan. With a maturing, almost developed economy, Korea’s real growth story is going to continue to be export driven. While a weaker yen represents future grave threat to the impressive gains Korea has made in recent years it seems that is not enough reason to avoid investing there and protection could be had relatively cheaply shorting that currency. Hyundai Motor (005380 KS) and Kia (000270 KS) trade at single digit PEs with double digit earnings growth and we remain overweight the auto sector. Both have broken out of long term consolidation patterns recently and are now reaching new highs. See our daily for more.

My favorite Korean hero (everyone has one) is Admiral Yi Sun Shin who was a towering Clint Eastwood figure in history and Korea’s own Admiral Horatio Nelson. He continuously defeated the much larger and better equipped Japanese navy in many engagements and famous sea battles over a long and turbulent career. He is also remembered for his do or die fighting philosophy, telling those under his command, “Fight like you will die and you shall live. Fight like you will live and you will die.” Admiral Yi was thrown into prison and his command given to a much lesser mortal due to palace intrigues. The Korean navy was almost destroyed during his absence. When Yi was released the king told him to go join the land forces and his response was classic Hollywood: “I still have 12 ships.” He took those 12 ships and defeated the Japanese again. Korea is likely to handle itself well again in the next confrontation with Japan on the export front.

$$$$$$$

You can get our research by typing MASR <Go> on Bloomberg.

Cheers.

Derek Hillen, CAIA

Jacob and I were having drinks with Willy after work at TGIFriday’s on a Friday. Yes, it was pathetic but that was the only new place in town and for some reason Willy wasn’t a fan of warm Taiwan Beer in a dirty glass. Carlsberg was on offer and like bees to honey we found ourselves hovering around that bar frequently.

“I don’t know how you chaps do it but Taiwan is definitely a difficult nut to crack. It’s hardly a maiden’s prayer.” said Willy.

I wasn’t sure what that meant.

“Yeah, I think it helps if you’re single,” I ventured.

“I’m not single. I love it,” opined young Jacob.

“Jacob, you’re marrying a local so you are all set up. Willy comes here with his wife, neither of them speak Mandarin and it isn’t easy settling in. How long has it been now, Willy three months?”

“Six.”

“Oh. How’s your wife handling it?”

“Blimey, better now that she has found us a church.”

“What? You go to church. Sing hymns and all that?”

He turned his well groomed bulk and fixed his watery eyes on me. “Yes. Why?”

“Oh, nothing.”

Memorable Names

“I have met some interesting characters here,” Willy continued. “Let me ask you, how do they pick their English names? In the office we have Johnson, Olivier, Gerry; those are normal names.”

“Some of them are pretty random though, aren’t they?” I agreed.

“Random, indeed. Crikey, I met one fellow the other day, the name on the card he presented me was ‘Teddy Bear’!”

“Really? His last name must be “Xiong,” which means “bear” in Chinese.”

“I once met a guy who’s name was ‘Buffoon,” commented Jacob.

“Get out of town.”

“No, I’m serious. ‘Buffoon Lee.”

“Jesus.” That reminded me of a story. “Well, I met a guy here at Friday’s not too long ago, right? He was visiting his grandparents in Taiwan and was born here but his parents immigrated to the US when he was around five years old – to Texas. Now, this guy looked like your stereotypical dork; skinny, buck-toothed with long greasy hair. AND he grew up in Texas.”

“So?”
“You know what HIS name was? ‘Orpheus.’ ‘Orpheus Wang.’ Can you believe it – growing up a dorky Chinese kid in deepest Texas with that name?”

Willy was laughing into his beer. Jacob thought a moment,

“I met a guy with a funny name on his card, ‘Peter.’”

“What’s funny about ‘Peter’?”

“His last name was ‘Pan!’”

We all laughed.

Then I remembered another one I had heard from a friend.

“I heard about this guy whose Chinese name was Zhu Shaoping.”

“That’s a pretty normal Chinese name,” said Jacob.

“Yeah, but he wanted to make it into an English one.”

“Blast. Tell me,” said Willy.

“Right. So he changes his last name, ‘Zhu,’ to “Jew,” J-E-W. And spells his given name, ‘Shaoping,’ “Shopping.” So you get ‘Shopping Jew.’”

“Oh Goodness, stop,” said Willy cracking up again.

Gentle Jewish Jacob rolled his eyes but I think he thought this funny.

Riding the Magic Bus

Next week Daniel suggested we invite a group of clients over to Taiwan and arrange a tour. He told us we would rent a bus and visit companies scattered around Taipei for a couple of days. I called it the “Taiwan Magic Bus Tour,” and we actually got a good number of fund managers from Hong Kong and Singapore to attend. The market was moving up and Taiwan was still relatively unknown to the international investing community. The tour was hard work as we departed from the Sherwood Hotel where the clients were staying early in the morning, spent all day on the bus with them visiting companies and translating when needed and then entertaining them at night. This usually meant bar crawling until late with the die-hards (and there are always a few) in the group. Daniel foreseeing this beforehand made a suggestion to Jacob and me.

“Ah, Derek, Jacob. We can put you up in the Moonbeam Hotel, which is behind the Sherwood for the three nights during the bus tour.”

“Really?”

“’The Moonbeam Hotel?’”

“Yes, we leave early in the morning and you both will be out late with clients at night. It will make it easier.”

At lunch Jacob and I walked a few blocks from the office to take a look at this place. We had never heard of it. I knew Daniel wasn’t going to put us up at the five star Sherwood and even if he had suggested it the idea would have been immediately attacked by Sybil. “The Moonbeam” was indeed a much cheaper alternative. It was what the Taiwanese call a “Love Hotel,” where rooms are rented by the hour. The outside of the squat 5 story building had a glitzy neon look with a happy smiling half moon logo and the car park was at street level inside the “lobby” and hidden by black curtains that hung down from the ceiling to about three feet off the ground. One could drive through the curtains and park in anonymity for their “tryst.”

Jacob looked at the place turned to me and said, “Wow, Daniel! A love hotel. I ain’t staying at no love hotel with you, Derek.”

“Yep. I concur.”

The thought of both of us checking into a love hotel together was far from appealing.

We binned that idea and made the best of the few hours of sleep we got that week commuting from home like always.

In Singapore They Believe in Fairness

Our tour was during the Taiwan summer and it was hot. I was chatting with a Singaporean fund manager after one of the company visits in the afternoon as our group of 30 were preparing to re-board the “Magic Bus.” There was a little shop that sold dry goods and some ice cream so I bought two and offered him one.

“Here, try this. We have to eat it now as we are late for our next meeting.”

He looked at the ice cream I had proffered as we walked toward the bus and said, “I cannot.”

“Cannot what?”

“I cannot have your ice cream.”

“It’s not my ice cream. I bought one for you too. It’s good. Here.”

We had stopped outside the bus as the last of the group boarded. The ice cream was starting to melt and run down my hand.

“No, so sorry. It would not be fair.”

Beginning to feel a twinge of exasperation I asked, “Fair?”

“Yes. I cannot be the only one to have ice cream.”

“What?” I was totally baffled by now.

“You must buy ice cream for the entire bus if you want me to have some.”

“Well, there isn’t time for that.”

“In Singapore we believe in fairness,” he said firmly.

I was flummoxed but he wouldn’t touch the now half melted ice cream in my extended hand. I couldn’t eat mine either and the bus was leaving. My little spontaneous act of hospitality was being transformed by him into a morality play. I tossed both ice creams into the garbage.

“Right. Let’s get on the bus.”

The “Magic Bus” tour everyone agreed was a success and would become an annual event. The following week back at the office Daniel called me into his office.

“Ah, Derek. Sit down.”

“Morning. That was a great bus tour, by the way, Daniel. Client feedback has been very positive.”

“Do you ever go to the movies alone?”

“Excuse me?”

“Do you go to the movies alone? A lot of people won’t do that…..”

Here we go again. Twenty minutes later I made my escape only to be collared by Sybil as I closed the door to Daniel’s office behind me.

“Derek. Come here” she snapped.

Out of the frying pan and into the fire. Now what do you want with me, you evil bitch, I thought as I stood before her desk. I received a verbal lashing for being rude to her new assistant in an incident that I didn’t even remember. When she ended it with her patent “…even the foreigners.” I knew I could leave.

New York Inspiration

Peregrine had an office in New York and we got a visit from one of their salesman. A Korean/American, Chris Park showed up at the office for a day and Jacob and I took him out to lunch. Chris’ main market was Korea and he had never been to Taiwan before. Taiwan and Korea competed in a few areas so he wanted a quick visit before heading to Seoul to meet a client. He was well dressed and aggressive, the typical Wall Street broker, I thought. We were very interested in Chris. He was our age and was working on “Wall Street” (well, Midtown). This was the Big Time and part of the Real World so we peppered him with questions but mainly we wanted to know our next career step.

“Chris, how do we get to where you are?” I asked him point blank.

“Well, man. You gotta keep at it. Bust your balls, make your calls. Ya know?”

“What’s that mean?”

“Dude, I mean you have to go out there and get it.”

“Right. Go out there and get it.”

I turned to Jacob, “Can you imagine working in a real office, in a real job and not having to put up with all the bullshit, like with Sybil.”

“Wow.” Was all Jacob could say, thinking about it for a moment, “I really want to go to New York,” he concluded. “Wouldn’t it be great?”

“Nah,” I said. “I’d rather go and work in London. More history, culture, close to Europe. That’d be pretty exotic.”

“And miss out on the bagels?” he asked. “New York bagels, man, nothing better.”

Chris looked at both of us with a sad expression.

His visit, while short, left a big impression. We realized that if we “made our calls and bust our balls,” there was a way out. In Taiwan itself there were only a couple of “houses” where foreign sales guys like us could work. Everyone wanted to work for Barings at that time as it, along with SG Warburg, were the premier equity brokerages in Asia. Warburg was very genteel and low key. They weren’t in the press all the time like Barings so we didn’t know much about them.
The head guy at Barings, Mr. Kurz, had been in Taiwan at least a decade by then, was married to a Taiwanese woman, had kids there and knew everybody and seemingly everything. His comments moved markets. Unfortunately for us, though, he had stated in a newspaper interview once, “I would never hire anybody who had worked at a local house.” Well, shit. That was Jacob and me! We had no idea why he took this position – and I still don’t. Shortly after making that comment his shop, Barings blew up thanks to the original “rogue trader,” Nick Leeson.

After our visit from NY salesman Chris Park, Jacob set his heart on going to New York. He could see it: the glamour, the money, the bagels. For me, I was still ambivalent about “my career.” As a single guy with itchy feet I didn’t see sitting in an office until it all ended with a coronary induced face plant into my keyboard as an attractive future. Sure, the money was better than teaching English – just. In our second year, both of us had received an increase in salary, quite substantial, in percentage terms too. I had started out making US$1,000 a month. My rent ate half that so there wasn’t much to kick around. In our second year, though, Daniel raised our salaries to $1,500 a month. That was a big difference. Chris based in New York and working for Peregrine, I think, was making much more.

Time to for New Digs

However, with the new found coins in my pocket, I decided to move out and get an apartment of my own. The decision was finally made one hot summer day with no air conditioning. It was a Sunday and Carol had some of her hippy English teaching friends over. I was trying to “work,” and was methodically going through a stack of Institutional Investor magazines Daniel had lent me. “II” is the blue chip rag of the industry. I was forcing myself to read each article in a stack at least a foot high. I only understood maybe a quarter of what I was reading and I was probably even getting that wrong but I knew I had to master the material.

“Hey, whatcha reading man?” a tall disheveled hippy came over to the table in the living room where I was trying to concentrate. I held up the magazine so he could see, wiping the sweat away from my brow.

“What’s that? ‘Institutional Investor’? Wow man, sounds boring.”

“Yeah, well.”

“Hey everyone, take a look at what he’s reading: “Institootianal Investor.” You one of those money guys?”

“Does it look like it?” I asked.

“I dunno.”

I went back to my reading, ignoring this goofball, but my concentration was shot. I put the magazine down, wiped the sweat off my brow again and went for a walk. I needed my own place and started to hunt around. Most people who rented in Taiwan, ie, all the foreigners, shared places. Apartments were mostly family sized and almost always three bed, two bath. Trying to find a studio or one bed one, bath place took a lot of time but I finally got one for the same rent I was paying to live with Carol, the birds, and the hippies. We had an amicable parting and kept in touch as I moved across town. (Good thing too because she ended up marrying my best friend and moving to Alaska. I flew up there for the event years later and was best man at a Jewish wedding in Alaska with a Cajun band. Seventeen years on they are still together with two kids in the house they built in the woods, but that is another story.)

The little dive I moved into, because that is what it was, was right on Linsen Bei Lu, the red light and bar district of Taipei. I wasn’t so keen on the neighborhood but it was close to work, I could live by myself and, thank Christ, it had air conditioning. The inside of my studio was tiled with big pink bathroom tiles. A nice touch. They were coated in a brown film as the previous tenant must have been a dirty chain smoking whore. After two days of bucket and brush scrubbing I had the pleasure of restoring the tiles to their original bathroom pink luster and like a hermit crab on a crowded beach moved right in. On my budget I couldn’t be too picky.

I am not a night person and my job required me to be at work early so I was concerned the area might be noisy when I was trying to sleep. My worries were misplaced however; the window mounted air conditioner was so freakin’ loud that it drowned out all, well most, of the fights and music just outside my shiny pink walls. In Mexico they describe politicians as being like air conditioners; they make a lot of noise but they don’t do anything. But my little boxy friend, noisy as he was, did blast cool polluted air inside which is what I craved.

When I went downstairs and walked outside in the evenings I would always say hello to the betel nut lady. Betel nut, as I mentioned before, is a ubiquitous Taiwan habit. The little brown and wizened old lady with a big baseball cap who manned the bin-lang stand right at the front of my building spoke no Mandarin. Whenever I came home from work at night she always greeted me with a big gap-toothed grin, “Li dung lai-ah!” Or, “You’re back!” Why, yes I am. I always come back after work at this time. In the beginning she tried to give me some of her best betel nut but I always demurred. We kept up a friendly relationship the whole time I was there.

Asking for a Raise

After a year and a half of constant abuse my one pair of black leather work shoes were falling apart. I walked around town looking for a place to get them fixed. I found a skinny old guy in torn pants and stained T-shirt who had set up shop on the street. He perched himself next to a building on a wooden stool, surrounded by old shoes and the tools of his trade. That was all that was available for shoe repair in the country so I went for it. Twenty bucks and a day or two later he fixed the soles. It wasn’t a great job but I had to make do. This well intentioned clown used roofing nails to hammer the soles in so now I didn’t walk, I “click-clacked” down the road. I went to talk to Daniel about a raise.

“Ah, Derek.”

“Morning Daniel, before you start, I wanted to talk to you about something.”

“Is it Johnny?”

“Uh, no.”

“Is it Gerry? It must be Gerry.”

“No. No, I want to talk to you about me.”

“What about you?”

I leaned back in my chair and lifted up my feet so he could see my soles. I told him the whole sob story I had rehearsed about only having one pair of shoes and that I didn’t have the money to replace them, etc, etc and etc. I thought it was a good story but the impact it had, if any, was negligible. Daniel was noncommittal and I left his office feeling discouraged.

And Getting New Shoes…

That weekend I got a call on my home phone. Thinking it was my parents calling from overseas I was surprised to hear Daniel’s deep voice booming over the line.

“Ah, Derek. Daniel here. What size shoes do you wear?”  he thundered. “I am in the department store right now.”

“Gee, Daniel,” I was thinking fast. This was not at all what I wanted nor expected. “I am US size ten,” I told him figuring I would call his bluff.

Monday morning at work he called me into his office.

“Ah, Derek.” He pulled out a large paper bag and from it withdrew a pair of black leather shoes!
“I bought you a pair of wingtips.”

“Uh, thanks. Daniel, but…”

“And,” he said withdrawing another pair of shoes from the bag with a big smile, “I bought you a pair of Diplomats. There. Now you have three pairs of shoes.”

He smiled again, triumphantly.

Thoroughly beaten I thanked him and gathered my new footwear and went back to my desk.
Everyone was curious to see me walking out of the boss’ office with a big bag. A few of the analysts came over to my desk as I told Willy and Jacob my sad story.

“He bought you a pair of shoes in Hong Kong?” Jacob asked incredulously.

“Not just one pair. Two,” I held them both up for my audience to see.

Willy burst out laughing, turning red as he did so.

Big Johnson, our deputy head of research, thought for a moment and then commented, “Derek. Daniel must really, really like you.”

“What are talking about? I asked for a raise and I got two pairs of shoes,” I lamented.

“No. For a Chinese boss to buy a worker of his a pair of shoes is … unusual.” He searched for the right word. “Not unusual, incredible! Yes, he really likes you.” The other Taiwanese there all nodded in agreement. I bit my tongue as Willy continued his guffaws.

I’m Outta Here

The market had entered one of its frequent periods of doldrums and clients were quiet. I was bored, restless and after another “meeting” with Sybil over nothing in particular but with the upshot being me getting penalized anyway, I made a decision. I told Jacob my plan.

“Fuck this. I’m outta here.”

“What? What are you talking about?” He looked up, surprised.

“I’m going to South America,” I said firmly. As I said, I liked to travel and I was tired of being desk bound in an office and needed to get out and DO something.

“What are you going to do down there? Sell burritos?”

“That’s Mexico, man. They don’t have burritos in Argentina and Chile. I want to go down there and check it out.”

“What are you going to do for pesos, amigo?” Jacob smiled at his clever remark.

“I’ve got some money saved up. Not much but enough to get me there,” I thought for a minute, “But it would be great if I could come back here. I mean nothing is going on now so it’s not like I’m going to miss anything.”

“You think Daniel’s going to let you waltz off to Argentina for a couple of weeks and..”

“Couple of months, I was thinking.”

“You’re nuts.”

“It can’t hurt to ask.”

He shook his head. I walked over to Daniel’s office and knocked on his door. When I came out I went back to my desk. Willy and Jacob both wanted to know what Daniel said. I just shook my head and we all went back to work. That night at Friday’s Jacob and Willy bought me a beer.

“Sorry you didn’t get your time off,” Jacob commiserated.

“Not so,” said I.

“Huh?”

“Come on old son, tell us what is going on,” said Willy.

“I’M GOING!” I almost shouted.

“But you’re not coming back right?”

“Look, Daniel said I could go and I could come back.”

“What?”

“Yep, I told him I wanted to go study the equity markets in Chile and Argentina and explore ‘cross border opportunities.’”

“You gotta be kidding. And he said yes?”

“YES. Drinks on me!”

Old Time Traditions

Taiwan it has to be said is the last bastion of traditional Chinese culture to be found anywhere. In China itself, Chinese tradition was at first frowned upon by the communists after their takeover of the country and then shot at and finally dismembered entirely. Taiwan escaped the cultural and historical self immolation and on a trip there today one can see the ancient customs and practices of a civilization gone by. One of these traditions is the making of offerings to the various gods which, in the Chinese psyche, bestow luck or take it away.

The Chinese concept of “gods” and “morality” has nothing to do with anything as stark and absolute as “right” or “wrong.” The only absolute is there are no absolutes. Luck however, is a force in the universe to be reckoned with. Luck is to be cultivated and worshipped. Businesses in particular in Taiwan observe rituals which require a table of “sacrifices” to be set up in front of the place of business on which is placed fruit and incense. “Ghost money” is burned as well in the hopes the smoke which is carried up to the gods will be returned with the real stuff in the not too distant future.

Once or twice a month in the lunar calendar these rituals, or “Ya” are observed in the hopes of increased prosperity. Many merchants often tape a coin for good luck to the front of their calculators too. Some businesses will perform a “Ya” monthly but ALL of them observe at least two: “Tou Ya” and “Wei Ya.” The first “Ya” at the very beginning of the Chinese New Year is “Tou Ya” – or “Head Ya,” while “Wei Ya” is “Tail Ya” and is celebrated at the end of the lunar New Year. As is often the case in ancient cultures, there is a proverb to explain the phenomenon: “No “Tou Ya” brings a year of bad luck. No “Wei Ya” brings a lifetime of bad luck.” Even educated Taiwanese are loath to break such time honored and hallowed rules. There are a lot of bad gods out there with time on their hands to do you harm. As one guy told me, “We’re not superstitious but why take a chance?”

The “Wei Ya” in particular has evolved into a larger office party usually celebrated just before the Chinese New Year. To add to the confusion, the Chinese calendar is not based on the movement of the sun, like the western one, but on the movement of the moon. (China always has a different take on things: their compass, for example, which they claim credit for inventing, points SOUTH, not north!). This means Chinese holidays and festivals jump around in our calendar every year. “Wei Ya” can be celebrated from December to February, depending on the year. Ours was in early January, which was perfect as it was high summer in S. America. I could do the “Wei Ya” and make my exit.

We held our wei ya at a hotel downtown with food and drinks for all the employees. It was a nice tradition. As the party ended and people were starting to think of leaving, Daniel stood up and looked at me across the long table and started to sing in his baritone voice:

“Don’t cry for me Argentina, the truth is I never left you….”

He had a great voice and I had to laugh. What a send off.

Down to South America

I hoisted my backpack and hit the road. It was good to be moving again. It was a new feeling to be travelling AND having a job to come back to. I had found a cheap ticket on LapSa, the national airline of Paraguay via Miami. The whole trip took almost 48 hours door to door and when we finally landed in the capital, Asuncion, I was amused to see how the luggage was slowly removed from the airplane and taken to the baggage area – by donkey and wheeled cart. It took a long time but my one piece of luggage, that backpack which pretty much had everything I owned in it, finally emerged dusty but unscathed. The adventure began anew.

We returned to Taiwan from our trip to Hong Kong with more client contacts and renewed confidence in our business prospects. There was a lot of interest in theTaiwan market among the client base but not a lot of knowledge. I saw that if I could up my game we would be operating in a target rich environment.

While we were gone, Carey had disappeared. Nobody had seen him for a full week. He was supposed to be in Taipei and at work but Carey found Taiwan even less livable than Willy. At least Willy had his wife here whereas Carey left his entire family behind in Scotland. The separation and the everyday language barrier – hardly anyone spoke English in Taipei those days – fed his morose nature and Carey began slipping into a deeper and deeper funk.

Economist Beats Up Taxi Driver

He re-appeared a day or so after we returned from Hong Kong, unshaven and downcast. He told us of his first fight with a taxi driver.Taipei taxi drivers, like taxi drivers in most places, are generally a rough bunch, poorly paid and sometimes aggressive. I have generally found them however, to be much nicer and superior to Hong Kong taxi drivers to whom I would gladly feed chocolate covered rat poison, but that is another story. Something happened which was never made clear but Carey got into a fist fight with one of these guys and had to be bailed out of a local jail.

That explained the wooden sword I noticed by his desk. Carey had worked in Japan for the Industrial Bank of Japan as an economist years ago and was a great admirer of Japan’s order and cleanliness; two characteristics notably absent in Taiwan to even the most nearsighted observer. To protect himself from the taxi drivers and chaotic traffic, Carey bought a three foot long wooden Kendo sword, a “bokken” and now carried it with him wherever he went. “My ‘bokken’ is not bloken,” he sang, “My good friend.”

Willy never went to the morning meetings as they were all in Mandarin. Carey, when he came into the office, usually arrived even later in the morning. I was only half listening to Daniel this morning in the morning meeting telling the firm about ways to attract people to parties. We finished off with the daily chartist showcasing another incredibly boring chart.

Sybil Beats Up Derek

Somebody came to my desk and said that Sybil wanted to see me. My heart sank. It was starting off such a nice day. Like a doomed man, I dragged my crestfallen carcass over to her dungeon.

“Sybil, you wanted to see me?” Inwardly hoping it wasn’t true.

“Yes. Again I am looking at your expenses.”

Her withering tone let me know this was going to be another trial.

“You mean from my trip to Hong Kong?”

“Yes, and again they are not right.”

“Well, I was travelling with Daniel the whole time. Ask him.”

“I will not ‘ask him.’ I am the Vice President here and you are just a salesman. We don’t have salesmen staying in fancy hotels. We all follow the same rules here,” she snarled and snapped.

“I didn’t book the hotel,” I offered.

“I don’t care. You will not be staying at the Furama Hotel again. I will make sure of that!”

I stood there, face reddening. We were in Hong Kong to see clients and promote our business. We did that and on the back of that trip business was increasing and we had opened at least three new accounts. But to Sybil, I noticed, it wasn’t about business. It was about blood.

Her phone rang and she began another conversation with somebody else. I stood there for a minute in silence and then left.

That night I went out with the “6:29 crowd.” I complained to Johnny about Sybil,

“I swear, Johnny. That woman, if that is what she is, has it out for me.”

“You be careful with Sybil. She is a very bad person. Very bad,” he told me.

The others around our small table nodded.

“She is well known in the market,” one of them commented.

“Nobody can stand her,” said a third.

“Yes, but she is our boss and you must live with it,” Johnny reminded me.

Changing the subject, one of the guys asked,

“Johnny, “TaiBen” at $13. Not bad. Looks pretty good, you still think so?”

Before he could respond with another, “It will PIERCE …” I toasted Johnny with a “lim jyu” and we all joined in. The evening ended well.

F#ck Xiaojie

The next day Carey came in the office late and was red and visibly upset. I asked him what was wrong.

“Fuck Xiaojie!”

“Who?”

The word “xiaojie” in Chinese meant, “Miss,” and unlike in English, it was used in common everyday speech to address a woman under the age of 50. Carey was complaining of somebody named “Miss Fuck.”

“Everyday,” he continued bitterly, “the newspaper is delivered to my door with a resounding whack. This occurs each morning precisely at 5:30 AM whilst I am sleeping. After the loud arrival of said journal, I, Carey McDougal, sleep no longer.”

Newspapers in Taiwan are delivered by people riding noisy old scooters. The scooter is saddled with two giant bags full of rolled up newspapers, one bag on each side, making the contraption look like a pollen-laden bumble bee slowly weaving through the early morning back streets of the city.

“I have called the paper to complain several times, but you know what it is like dealing with those custard faced loons.”

He was really getting going.

“So, this time. This time, I was ready for her. I heard Fuck Xiaojie’s scooter in the alley and as it rounded the corner she threw the paper at my door again. I was waiting and right after impact I flung open the door and charged her,” he swelled out his chest smiling triumphantly.

“What do you mean, ‘charged her’?” I asked, a little concern creeping into my voice.

“I grabbed my bloody bokken,” he held up his wooden phallus threateningly, “and I ran out into the street, this sword above my head yelling, “Fuck Xiaojie! Fuck Xiaojie!”

“Wait a minute. At 5:30 in the morning? Carey, what were you wearing, where did you run to?” Jacob had joined my side and was equally confused.

“Oh. I was just wearing my boxers. That’s all. But I ran right at her and almost caught her with the sword. Almost!”

“Good grief. What happened next?”

“She rode away with a quick burst of speed, that I can tell ya.”

He smiled and sat down, unfolded his paper and started reading.

Jacob and I looked at each other. Neither of us knowing what to say.

Journey to Exotic Hualien

I had a client visiting from Canada. Steve wanted to spend the weekend to “look around outside of  Taipei.” I suggested we take a train to Hualien on the east coast which is known for a stunningly beautiful gorge always cloaked in mysterious mist. Through the gorge is a narrow winding road that the Japanese built during their pre-WWII occupation of the island using Chinese labor and teaspoons. It is an engineering marvel.

All good. So we bought our tickets, half a case of beer and boarded our train. The trip there was beautiful and importantly, lasted long enough for us to finish most of beer. When we arrived at our sleepy destination in the late afternoon we were feeling well toasted. After checking into the hotel it was time to roam the town and see what exotic delights Hualien had to offer.

As in most of Taiwan, the streets were cluttered with scooters, outdoor markets and friendly locals. The Hualien area is noted for being a traditional stomping ground of pre-Chinese aboriginal peoples and we noticed some of the populace looked more Eurasian than Chinese, which added to the uniqueness of our visit.

Betel Nut Neophytes

After a dinner of “san-bei-ji,” or “three cup chicken,” we had more drinks and were walking along the street when one of us got the bright idea to buy some “bin-lang,” or betel nut chew. In southern Taiwan the roads are stained red, not from scooter accidents, although seeing the way they fly down narrow alleys you may wonder, but rather from red spit squirting out the gap-toothed mouths of the happy betel nut-chewing locals. This is big business in Taiwan and betel nut is the country’s second largest cash crop after rice. Much like tobacco “chew” in the US, the refined delicacy of betel nut is mainly enjoyed by daft old people and working class men. The marketing of betel nut is a Taiwan original in that little glass-enclosed metal betel nut stands can be found scattered all over the place, quite often with the precious green nuggets sold by young, beautiful women wearing just lingerie. Yeah, I’ll pay up for that.

Alcohol surprisingly overwhelming good judgment, Steve wanted to give it a try so we did. Chewing bin-lang takes practice because you don’t want to swallow any of the toxic powdered lime and tobacco paste that is sandwiched in the nut and you don’t want the red juice dribbling down your shirt either; that’s for amateurs. So there we stood on the busy roadside, two foreigners chomping on betel nut, leaning over to spit out great streams of blood red juice all over the street. If you surmised the local people stared at us with surprise, you would be correct because A) there are almost no foreigners in Hualien, B) foreigners never chew betel nut, and C) it tastes like shit.

To wash the awful acid/dirt taste out of our mouths we started off on another bar crawl. Steve spied a “TGIF,” or “Friday’s” down the road and there we marched. What luck, to find a real “Friday’s” in distant Hualien. The place was kind of empty when we walked in but the music was loud and the staff were all decked out in the traditional red and white striped shirts, some with goofy hats, others with badge covered suspenders, and all were friendly and festive. We took two stools at the bar and looked at the menu. “Welcome to Thursdays!” it read.

Thursdays? Was this some kind of misprint, or joke? We ordered a couple of beers and were discussing this little mystery when the Taiwanese boss came out from the back room and started chatting to us across the bar. Mr. Lin was a nice guy and spoke some English. One of the enjoyable things about a Taiwanvisit is how friendly and sincere the people are. He wanted to know where we were from and why we were in Hualien and to tell us what a great place it is. So, I asked him about the misprint in the menu. He told us, no, that is right, this wasn’t a “TGIF, Friday’s,” it was a “TGIT, Thursday’s!” I was kind of surprised and asked him point blank, “But isn’t this just a blatant rip-off of the original Friday’s franchise?” Proprietor Lin laughed and told us with great sincerity a line I will never forget, “No. Not at all. Our stripes are thinner!”

Carey’s Disappearance

The next week Carey disappeared. We didn’t really notice, however. His irregular hours at work meant some days he was there and some days he wasn’t. At times several days would pass without his appearance in the office. This time, however a few actual weeks had gone by with nobody knowing anything. I asked Willy if he knew where Carey was.

“Haven’t a clue, I’m afraid, son.”

I went to talk to Daniel.

“Carey? Yes, I haven’t seen him in a while. No, don’t know where he is. He’ll turn up,” he said brightly.

“Now, Derek.”

“Yes,” I was still standing hoping to make a quick exit.

“Ah, sit down.”

I did as told, my hopes dashed against the rocks of inevitability.

“Do you know the difference between private schools and public schools….?”

When I returned to my desk, after twenty minutes of nail staring, Willy looked up from his newspaper.

“What did Daniel say?”

“He said Carey would turn up. That was it.”

“Yes, indeed.”

And that was that. Everyone was rather complacent about the whole thing, I thought. I mean, Carey doesn’t speak Chinese, he’s a bit loony and walks around town in his boxers with a sword at his side.

Two more weeks passed with nary a Carey sighting so one afternoon I called his landlady. She told me he had moved out a month ago and gave me a forwarding number. I called the number and on the tenth ring, somebody picked up.

“…Hello?” a groggy voice answered.

“Carey, is that you? This is Derek. Derek at work. How the hell are you? Is everything OK?”

“…Derek. Yes. I am fine. How are you?”

“Fine. Fine. What’s up? We haven’t seen you in a while and everyone is worried.”

“I…” his voice trailed off. “I had some bad curry.”

“What! Man, we haven’t seen you in six weeks! Because of bad curry?”

“Yes. It was… really bad.”

We never saw Carey again. He hopped on a plane and flew home. Daniel was upset as this impacted his dream of a world class research product. Willy sympathized with Carey but felt it best Carey return home to his family. It made me think, what kind of people, foreigners that is, live in Taiwan and like it? I thought Taiwanwas a great place but I spoke the language and was there by choice. If you didn’t know Mandarin Chinese getting around was difficult and getting things done nigh impossible.Taipei itself was a tremendously unattractive city; clogged with traffic, mostly scooters, people absolutely everywhere and really ugly 12 story buildings covered the industrial landscape like a rash. The island had been under martial law until recently and there was a cap on how tall buildings could be due to concerns over air raids from China, I was told.

Bathroom Tile Fetish

Taiwan also had an architectural fascination, the only words that can describe it, with bathroom tiles. The exterior of all buildings were covered in bathroom tiles.  There were a couple of just completed office buildings clad in curtain wall or glass but they were a new breed and really stood out from their dowdy bathroom tiled brethren. Air pollution was also an issue. Two stroke engines, very popular for scooters and motorcycles which is what most people used to get around, were in the process of being banned. Over the next decade or so Taiwanwould lose most of its most polluting industry to China. Economically, this was a shock but the knock on benefit was clear blue skies. At that time, however, the average sky color was a nice latte brown.

As for the foreign community there at the time, it was mainly made up of people involved in international trade and manufacturing. Finance guys like me, you could count on two hands. When I started, now a year ago, one hand of fingers would have sufficed. Most expats were sent to Taiwan on a two or three year contract. Their children attended the Taipei American Schooland they lived in the hills just above the city in a neighborhood called ‘Tienmou.’ It was cooler and greener than Taipei and locals with money also lived there.

The word ‘Tienmou’ in Chinese meant nothing. It was a combination of the characters for ‘sky’ and ‘mother.’ A little investigation with my idle but curious mind revealed the story. During the Vietnam war Taiwan housed a large US military presence and the island was a favored place for R&R. One day, the story goes, a US GI wandered up into the hills above Taipei, liked the area and asked a local farmer, “Hey buddy, what’s this place called?” The farmer didn’t speak English naturally, and responded in Taiwanese, “Te abou,” which means, “I don’t understand.” “Te abou” became “Tienmou.” Whether true or not it is similar to the story of how the word “kangaroo” entered the English language.

Taiwan still had a six day work week and this sucked. For most people, including government workers, Saturday was a half day. I thought it felt like slavery. The only nod towards “modernity” was casual dress that day. As a small country of 20 mn people in the last gasping stages of industrialization, there wasn’t much to do for entertainment on the ground. There were precious few parks in the city and only two museums: the Modern Art Museum and the Palace Museum. The Modern Art Museum is self explanatory and you had to be into modern art to appreciate it, certainly not everyone’s cup of woolung tea. The Palace Museum, however, was world renowned as the best museum on the planet for viewing Chinese historical and cultural relics. I often took clients there.

Stealing ALL the Treasure

When Chiang Kai-shek fled China in 1949 he came to Taiwan with roughly 1 mn people, mainly soldiers. This changed the history of Taiwan overnight. With them they brought all of the gold from the dusty vaults of the Bank of China and all the art treasures they could carry. While viewed today by China as outright theft, this proved over time to be a very good thing. When Mao and his buddies took over the Motherland they proceeded to destroy most of China’s cultural heritage which culminated in the 10 year orgy of self destruction we know as the Cultural Revolution. Nobody knows how much art “CKS” and his acquisitive friends brought with them, but it is secreted away in bomb proof bunkers in the hills next to Tienmou. The museum itself squats snuggled into these green hills guarding its hoard like a proud hen sitting on dozens of eggs. The exhibits are changed monthly as loot is rotated out from underground into the bright light of day to be put on display. All this sounds fascinating and it is except mostly what they have is pots. Now I like Chinese pots as much as the next guy but when you have seen one pot, as they say, you have seen most of them. Every time I went to the Palace Museum and saw the long line of glass encased pots carefully placed in every room I suffered from a heavy case of MEGO. My eyes glazed over.

A few months later we were in the middle of our normal morning routine calling clients.

“Hey Rex, this is Jacob at Yung Kao. Yup. How ya doin? When are you coming over here so I can buy you some drinks?”

“Morning Mark, this is Derek at Yung Kao. I know you are looking at the petrochemicals sector, did you see our latest report on Nan Ya Plastics?”

“Nigel, a good morning to you, sir. Wilbur Williams here in lovely Taiwan. Yes, stocks are moving up and down like a whore’s drawers. What? Rectron? Never heard of it. Let me ask one of the chaps here, they’re very good. Oh, Derek. Just a second, if you please.” Wally whispered with his meaty but well manicured paw covering the phone. “Have you heard of some company called “Rectron?”

“Yes, 2302.”

“Well, what do they do, old son?”

“They make anal thermometers.”

Silence.

“They make what?”

“Anal thermometers.”

He bursts out laughing and tells the client this one while Jacob smiles and shakes his head.

Good times on the floor.

Flying Solo

I was getting ready for another marketing trip to Hong Kong. This time I would just be going with Big Johnson, our deputy head of research. Daniel was somewhere else and Gerry was “grounded” after our last fiasco. I walked over to Johnson’s desk.

“So, buddy. We fly to Hong Kong tonight, right?”

“I am not going.”

“What? Not again. Come on, Johnson you HAVE to go.”

“No.”

“Are you going to make me go face the clients alone?”

Silence. Johnson looked down at his desk.

I boarded the 90 minute flight alone that evening. This was going to be tough with just me, a salesman, facing the clients. I had all the research material with me this time and committed it to memory. I wasn’t looking forward to this trip. Sybil had kept her promise and now I was staying at the YMCA. This was a far cry from the gentle luxuries of the Furama Hotel but I had stayed in worse. Screw her. I’ll make the best of it, I thought.

I spent two and a half days seeing clients in the city. I quickly learned I had a lot to learn. I made it to all my meetings on time, which was a miracle, but often I couldn’t answer some of the client questions. Usually, as a sales person, you can defer to the analyst for the tough stuff, I mean, that is his job, to know the nitty gritty. But I was flying solo – and I was staying at the YMCA. I remember one meeting clearly with an American fund manager who had the reputation of being tough. Dreading this meeting I soldiered into his office.

He entered and we shook hands briefly, meeting for the first time. He sat down at his desk.

“You have 15 seconds to impress me.”

“What?”

“Ten seconds.”

What an asshole.

“Toilets,” I barked.

He started, “What? Toilets? What do you mean?”

“There’s this great toilet company in Taiwan you should see, Hocheng 9909.”

He smiled. I continued with my off the cuff pitch. Hocheng was a company I had recently visited and the details were, thankfully, still fresh in my mind.

“Yes, they are the best known toilet brand in the country. Have you heard of their best selling brand, “HCG? No? Well, it is an acronym for the company name but they promote it as “High Class Gentleman.”

I escaped that meeting only to have one right after that where the fund manager was from the UK, wore a Dunhill tie, French cuffs, wrote with a Montblanc pen and clearly appreciated the finer things in life.

“How do you do,” he said as we exchanged business cards for the first time.

“You are based in Taipei, I see,” he said staring at my name card. “And for how long are you visiting Hong Kong?”

“Just two to three days.”

“I see. In which hotel are you staying?”

I squirmed. I couldn’t lie and tell him the Conrad, or the Shangri-la so I came right out with it.

“The YMCA.”

“Excuse me? The YMCA?”

“Yeah. All the cool people stay there.”

My phone rang. I went into Daniel’s office and sat in the chair opposite his big desk.

“Ah, Derek.”

“Good morning, Daniel. How are things?”

“How do you wash your hands?”

“I use soap.”

By now I knew resistance was useless.

“Many people use soap. But just using soap isn’t enough.”

“Yes, I see.”

I started staring at my nails again.

The next week we got news that Yung Kao was going to do a Taiwan joint venture with Peregrine Securities in Hong Kong. Peregrine at the time was Asia’s most successful homegrown investment bank. They were opening offices right across the region and doing deals everywhere. They had a “can do” attitude, were in all the hot deals and everyone wanted to work there. This was seriously good news. I couldn’t wait for it to happen so I could call clients and say, “This is Derek, from Peregrine, Taiwan,” rather than “Yung Kao.” The whole “Yung Kao” name thing reminded me of Johnny Cash’s song, “A Boy Named Sue.” The story is about a boy whose Dad named him Sue before running off:

Well, he must o’ thought that it was quite a joke
And it got a lot of laughs from a’ lots of folks,
It seems I had to fight my whole life through.
Some gal would giggle and I’d get red
And some guy’d laugh and I’d bust his head,
I tell ya, life ain’t easy for a boy named “Sue.”

Life wasn’t easy for Jacob and me either when we called new clients. Even our regular clients still thought the name was funny. Those conversations would inevitably begin:

“Morning, James. Derek here at Yung Kao.”

“Ah, yes. Derek, one of the ‘Yung Kao Boys.’”

But cold calling new clients was worse.

“Hello, is this Nigel McAllister of Dipsy Doo Asset Management?”

“Yes.”

“Hi. My name is Derek Hillen and I am calling you from Yung Kao Securities in Taiwan. We..”

“Young what?”

“Uh, Yung Kao Securities.”

“Young cows?”

“No, no. “Yung Kao,” it’s Chinese for..”

“Derek at Young Cow. Hmmm. Are you selling dairy products? Ice cream, perhaps?”

And so it went. But now we not only had the opportunity to bury our awful name but to emerge with the very desirable Peregrine brand. I was all for it, just for that reason alone.

Daniel called a company meeting together to discuss the planned “integration” with Peregrine.
“As you may have heard, we will be integrating with Peregrine Securities Asia, based in Hong Kong. This will mean some changes will occur around here. Good changes. We will have more resources. We will have more research…”

Jacob asked a hopeful question.

“Are we gonna be Peregrine Taiwan?”

“No. I think we will be “Yung Kao/Peregrine Securities Taiwan.”

I couldn’t believe it. What?

News came to us that the CEO of Peregrine itself, Mr. Philip Tose, would be visiting us in Taiwan. I assumed he wanted to look over the Yung Kau operation first hand to see what he was buying. He arrived with Pat Fu, who was the senior salesman to be responsible for the Taiwan operation. Pat was a short and roly-poly Hong Konger who had previously worked for Daniel which meant he had undying loyal towards his former boss. Daniel could do no wrong in his eyes. Pat was round and ebullient, a good foil to Tose’s whippet-like frame and austere laconicism.

Jacob and I met them in Daniel’s large office where they had been locked away most of the morning discussing things. Tose was a sharply dressed, diminutive and quiet man with a shrewd face in his late 40’s. A former race car driver whose father moved him into the family business of stockbroking after a bad crash, he liked speed. He liked risk. He liked Yung Kau.

He had named his firm Peregrine after the swift and savage little raptor and enjoyed the firm’s equal reputation for ruthlessness. Peregrine was a powerful combination of Hong Kong tycoon money, bankrolled by Li Ka-shing – the richest man in Asia and Anglo-Saxon stockbroking know how. Tose’s partner was the impeccably well connected Francis Leung whose connections not only brought Li Ka-shing’s wallet to the table but extended to decision makers in Beijing and allowed Peregrine to participate in several lucrative Chinese IPOs. However, it was all to end badly for Peregrine and “Tosey,” as well. But that was several years into the future. Right now, it was about to end badly for me.

We had a brief discussion with Tose asking us what we thought of the Taiwan market. This was to make conversation and see if we knew anything. After a minute or two, he judged correctly that we didn’t. Jacob and I had both heard of Peregrine and were keen on joining the “winning team.” My exuberance about the whole thing allowed me to say something asinine.

“I am looking forward to research integration where we can present to clients the complete Greater China picture: China AND Taiwan.”

Tose replied drily, “I want to make money.”

Our meeting was over. Jacob and l were ushered out of the room.

“What was that bullshitty thing you just said?” Jacob mimicked me, “‘I am looking forward to research integration and…’” shaking his head as we walked out.

“Yeah…well….fuck.” I just stammered, turning red.

I only met Tose once or twice after that but Pat Fu was a regular visitor to Taiwan. He came when there were problems to sort out. As I said, he was a regular visitor.

The next day Daniel called me into his office.

“Ah, Derek.”

“Morning, Daniel.”

“Hoare’s was a great house.”

He was talking about the British brokers Hoare Govett where he worked for many years in Hong Kong.

“Yes.”

“At the time, we were the number one house in Asia.”

“Asia” at the time basically meant Hong Kong but the point was still valid.

“I am bringing my old friend to Taipei to work here. Wilbur Williams is a great salesman and you will learn a lot from him.”

This was also interesting. “Willy” had already retired and was in his mid-50s. Daniel had made some promises to get Willy to leave his comfortable life in the country in the UK and bring his ample frame and his proper English wife all the way over to gritty Taiwan. The upcoming merger with Peregrine was already having an impact.

“Really? Great. Has he been to Taiwan before?”

“I don’t think that matters. We worked together in Hong Kong many years.”

I had an uneasy feeling that this adventure wasn’t going to end well.

Willy breezed into our lives a few weeks later. He was perfectly groomed, perfectly mannered, loved a laugh and was very much an older, dyed in the wool British broker in the best tradition. Now what the hell was he doing in Taiwan; a place, at that time, that lacked all sophistication, was dirty and polluted and had a very small expatriate community? Willy’s Taiwan experience was to prove far different from his enjoyable time in Hong Kong with its English styled clubs and restaurants and entertainment supported by a vast army of British expats who still ruled the colonial roost and were visible running the civil service and police force as well.

Willy would always show up to work in a pressed pink shirt with French cuffs and tie, freshly scrubbed and bathed in cologne. Just shaking hands with him meant I carried that fragrance around all day long. But Willy’s lack of a sense of smell was more than made up for by his agreeable personality and he was keen to show Jacob and I how a real stockbroker operated.

Willy had a coterie of old friends still in Hong Kong managing money of various sums. Every morning he would call these mates up and speak in an authoritative BBC English tone;

“Wilbur Williams here. I would like to speak to Mr. Nigel Jones, please.”

A pause as he listened to the Cantonese secretary at the other end.

“Yes, Wilbur. Williams. I am with Yung Kau Securities Limited.” Pause.

“Ah, Nigel, old chap. Wilbur Williams here. Just a quickie, as the bishop said to the actress….”

Jacob and I, very American, looked at one another. We didn’t think we could pull that off.

At lunch Willy would often ask, rubbing his manicured hands together,

“Come on, chaps. What are we having for luncheon today, eh?”

“I know a new sandwich place down the alley. They use too much of that fake butter and the meat is green, but it’s pretty good.” So opined young Jacob.

“Right. I think we shall give up on that one, son.”

“There’s mostly just Chinese places around here,” I ventured.

“I am sure we can find something other than ‘double boiled squirrels bollocks.’”

Actually, you couldn’t. And that was the problem.

A week after Willy arrived and Pat Fu came to town and he took us three, the international sales team, out to lunch. A good broker, Pat knew how to keep a conversation going.

“Did I tell you I went to school in the US?” he asked. “Yeah, got my MBA there in Pennsylvania.”

“How was it?”

“Ah, it was great. Except Americans don’t know how to handle my Chinese name. Every time I called a restaurant to make a reservation it went like this:” he pretended to talk into the phone.
‘Hello, I’d like to make a reservation for dinner for two tonight at 7:00 PM, please.”
‘Yes, your last name, please?
“Fu.”
“Excuse me?”
“FU. F-U.”
“What? Yeah, well F-U too, buddy!”
“And they hang up the phone!”

He laughed his jolly laugh and we laughed along with him.

A couple of weeks later we had more news. Daniel was bringing in another member of the old “Hoare’s” team, Carey McDougal. A Scot with red hair, also in his mid-50s, Cary was to be our head of research and economist. He was a brilliant thinker but, like most Scots of my acquaintance, he had a darker, brooding side to his personality. The Taiwan experiment for him too, was to end badly.

When Carey arrived he found our research, such that it was, “appalling,” and “in serious need of repair.” Willy was glad to have Carey back on his team but much like Johnny Tsai, didn’t really give a fig for research. Carey, however, launched himself into the job and cranked out a 60 page report on the Taiwan economy – something we had never seen before. I think it was something no one had done before in Taiwan. The report was very erudite and Daniel was chuffed but you couldn’t really “broke” that story. However, we all agreed it was a promising start. We were getting our international team together and the future was bright. Things started to go downhill right after that.

I went in to research to get a report. Olivier was talking with Johnson and was in yet another new suit. His hair was immaculate and when he turned to face me I saw he had new glasses on.

“Nice shades, Olivier.”

“’Shades?’ What is ‘shades’?”

“Glasses. Nice new glasses, Olivier.”

“Thank you very much. I like them,” came his high pitched reply.

Jacob walked into the room overhearing the last bit of conversation.

“Hey, Olivier. Can you say, “Hot beef injection?”

“Hot feed what?”

“Hot beef injection.”

“Ok. Hot beef injunction,” his voice rising to a high note at the end.

Jacob laughed good naturedly. “Never mind. It’s cool.”

I looked at Big Johnson. “Johnson, I wanted to talk to you. Daniel says you and I are going on a business trip to Hong Kong to go see clients.”

I was enthusiastic about this, my first business trip. Johnson, clearly was not.

“I am not going,” he said quietly looking down at his shoes.

“What? Of course you are. Daniel said so.”

He didn’t say anything but I could see his obvious reluctance in actually leaving research to go face a client. All our analysts had this problem, I noticed. They were much more comfortable in their cubicles, surrounded by their papers and files, working on a company update that would never be read. Ripping them away from that cozy, protected environment was like plucking a goldfish out of the bowl and placing it on the counter; it would just lie there gasping a short while before expiry.

I walked over to Gerry’s desk. Now that Carey had arrived, Gerry had been demoted to assistant head of research. For some strange reason, though, he didn’t seem to mind. He looked up from his computer when I approached.

“Hi, Derek.”

“Hey, Gerry. What about this trip to Hong Kong to see clients? Who is going?”

“I don’t know. Probably you and Daniel.”

“What? Daniel?”

“Yeah, he always goes. He might want me to go along too.”

“Great. That would be better if it were the three of us.”

I didn’t think a trip with the boss alone was going to be a pleasant experience given all the lectures I would have to sit through. A date was set and research prepared three heavy boxes of presentations for us to take over to Hong Kong to present to clients. Gerry somewhat absent mindedly left them at the airport. This was the days before email and we just had to carry on without our material and I don’t think Daniel ever forgave him for that.

The meetings by and large went well with Daniel doing almost all the talking. He lived in Hong Kong and seemed to know everybody and equally importantly, where all the offices were. The place was a warren of buildings, overhead walkways and passages that was hard to navigate unless you had spent time on the ground there. Central Hong Kong was bustling with well dressed people compared to Taipei which was … bustling. There were more foreigners here than probably all of Asia combined. I had been through Hong Kong in the past but it was always as a backpacker on my way to deepest, darkest China. Actually being there “for work” and on a real “business trip” for me was very novel.

Daniel spent the nights at home, of course, but Gerry and I were put up at the Furama Hotel. I was loving it – a real business trip, free meals and a nice hotel right on the water. This was a far cry from living in my beat up old tent on a beach in Costa Rica. I felt I was going places.

I found an apartment to share through an ad in the Taiwan English newspaper. A Canadian girl had one roommate and was looking for another for an older walkup that had three bedrooms. The price was reasonable and it was in a neighborhood just down the noisy road from my new office. We met and hit it off right away. Carol and I had a brother sister-like relationship. She had come to Taiwan to learn traditional Chinese painting. Her area of focus was small birds on branches. It is harder to do than it sounds. She kept two small budgies in a wooden bird cage to study them and how they moved. I was cool with that.

Three’s Company

My other roommate was “Miss Lee,” a Cathay Pacific flight attendant. We all lived platonically and kept radically different schedules. I was at work by 6:30 AM and not home until after dinner. I rarely saw my roommates during the week. Carol, like most artists, kept late hours. Sometimes we would sit up and chat until it got late. Miss Lee came and went depending on which flights she was on. I never got to know her because one day soon after I moved in the phone rang and I answered. It was her father. The next day, she was gone. Thus began the search for a new roommate. We finally settled on “Miss Chen” who was Taiwanese but spoke English and worked at an embassy in town. So here I was, living the “Three’s Company” lifestyle in Taiwan. Just don’t call me “Jack.”

Our old apartment was roomy with wooden floors, high ceilings and a large central living room. The only thing wrong with it was the heat; the place was scorching hot. And the rats. Yes, we had rats. You could hear them at night. Sometimes I would get up at night and turn on the lights in the living room to see a handful of evil rodents scattering to different corners of the room. They had a nest of sorts in our water heater, of all places. Whenever we turned on the hot water, loud squeaking noises would emanate from the appliance as they moved about. I figured for the rent I was paying it was something I had to live with. Then one night as I was sleeping, I felt something near me. Very near me. I am a light sleeper and I opened my eyes to find a rat on my pillow chewing on my hair. The rat was as surprised as me and we both bolted out of bed at the same time. At that moment I knew, deep down, it was either me or them.

The Rat War

We bought some traditional mouse traps. I had to set them as the girls wouldn’t go near the idea. But these urban Taipei rats were smart; they could always remove the bait from the trap without triggering it. We had to try something else. In the dusty local shops I found sticky boards that you unfolded which were about one foot square and coated with glue. The target pest would get stuck on the board and you could then dispose of it. That was the plan. We tried placing these sticky boards along a wall, or by a corner, hoping a rat would run over it. Did I say these rats were smart? Ok, let’s put some food in the middle of the board to entice our foul, furry, follicle feasting visitors. We tried cheese. Several nights passed with no activity. We tried peanut butter with the same result. We tried bread, etc. Nothing worked.

One fine, fine day, I noticed we had this big box of Taiwan “pineapple cookies.” They are soft and square with a sticky sweet pineapple middle, sort of a rotting Fig Newton type thing and were found everywhere around the island. America may have Oreo cookies but Taiwan had these pineapple squares. I only ate them at friend’s houses as they were always proffered to guests and was thoroughly disgusted with them. But this turned out to be our secret weapon and was irresistible to the enemy. One night, I place one pineapple cookie right in the middle of the sticky board before going to bed. The next morning it had caught two rats! I called Carol, who was still sleeping. She got up, took one look and grabbed my arm in a death grip. It’s amazing how strong women can be. “Gross! Oh God, can you get them out of here?” I folded the board up with the two very stuck and alive rats inside and dropped them in the dumpster on my way out. A few weeks of this nightly routine and we had solved the rat problem.

Work was progressing steadily. There was a lot to learn. “Drinking out of a fire hose,” is the phrase that best describes it. I would get home after a 12 or 13 hour day exhausted but still interested in what I was doing. One evening, after climbing the three flights of stairs to the apartment and opening our front door, there was a huge painting, three feet by six, staring me in the face. It looked like a giant spider web with the spider sitting in the middle and was, well, creepy. Carol often hung her paintings around the place but usually they were of birds, or people. This, I could not fathom. Staring at it closely, I asked her.

“Carol, what’s this?”

“Oh. It’s my asshole.”

Right. Ok, that’s gotta go. Living with artists is different that living with other people. They think differently and they have moods. I’m all for encouraging art and art for art’s sake and all that, here, however, I had to draw the line. We had a talk about it and in the morning, thankfully, the offending painting was gone.

My Average Morning

My morning routine basically went like this; get up at 6:00 AM, shave and shower, put on my suit, step out of my bedroom, start sweating in the heat, check for rats and have a quick breakfast. I bought a Yamaha scooter for getting around. It was a little girly looking but kept your shoes dry when it rained and it rained a lot in Taiwan. I only had one pair of work shoes and needed to be careful. At the time, there were far more motorized scooters in Taiwan than cars. Scooters were cheap, fast and nimble. Many “salary men” like me rode to and from work every day on a scooter. Often entire families commuted on a scooter with Dad “driving,” the oldest child sitting or standing in front of him, one smaller child sandwiched between Dad and Mom, arms out like a koala bear and then another child who drew the short straw, clinging on to Mom for dear life at the back. In 1993, the scooter was the Taiwan family car.

I usually had time to go through one of the Chinese papers at my desk before our morning meeting began at 7:30. Daniel would always start the meeting, launching off on some topic or another. Today he was talking about using an electric toothbrush. We politely waited for him to finish and then one of the senior local guys stood up and gave another detailed lesson on charts. Everyday it was the same. At least my Chinese was improving; now I knew how to say “electric toothbrush.”

I went back to my desk and read through another local paper. Gerry helped me again getting the English “Daily” right.

“Ok, Derek. This isn’t bad. But what do you by margins are ‘getting better’?”

“Well, they are getting better.”

“We say ‘expanding.’ Margins are expanding. And are these gross, operating or net?”

“Uh…”

“Why don’t you find out and…”

His phone began ringing. “Hello, Honey. How are y… . Yes….. uh-huh…..yes, Dear……”

I quietly escaped back to my desk. Ok, I’ll fix this thing on margins and then start calling clients, I thought. By now I had several fund managers in Hong Kong and Singapore that I was speaking to regularly. There wasn’t much competition on the ground in Taiwan so even though I was as green as they come, these fund managers welcomed, or tolerated, me calling them. I guess they found it entertaining.

My phone rang.

“Ah, Derek.” It was Daniel, the boss. “Can you, ah, come to my office?”

Closing the door behind me, I sat down in the chair in front of his big desk. Daniel stared at me for a moment across his piles of papers.

“Ah, yes. Derek.”

“Morning, Daniel. What’s up?”

He paused and cleared his throat. “Is flying safer than driving? Or is driving safer than flying?”

“Flying.”

“Many people think driving is safer.”

He went on. I stared at my nails.

Reptilian Encounter

Half an hour later when I stepped out of Daniel’s office, Sybil was waiting for me. Her office was next to Daniel’s where she sat motionless except for the occasional flicker of her tongue keeping her reptilian eyes fixed on whoever was visiting the boss.

“Derek,” she rasped, motioning to me from behind her large desk.

I hesitated but walked into her office. Her office was always the coldest room on the floor. I don’t know if it was because of the angle of the sunlight, which couldn’t get in because she kept the shades drawn, or something else. It was cold and stuffy and uncomfortable. Unlike Daniel, who liked people and had various family photos on his desk and certificates on his wall, Sybil’s desk held only papers and a phone. There were no photos, or paintings, nothing that would lend any human warmth to the environment.

“Yes?”

“You were talking to Daniel?” She gave me a phony smile. The Chinese have a saying, “The skin smiles but the muscles do not.” I was instantly on guard.

“Uh, yes. He called me in.”

“He probably wanted to talk to you about your expenses.” She was fishing for information.

“No.” I wouldn’t say more.

Sybil smiled again, “I have your expenses here.” She held up a folder. I had submitted a bus ticket and taxi receipt to go meet a client of the firm two weeks ago.

“They are late.” I thought I saw the beginning of a smile which was quickly suppressed.

“Really? Sorry. I didn’t know…”

“You will be penalized. We all follow the rules here. Even the foreigners,” she hissed.

I stood there and stared hard at her coiled and menacing presence.

“You may go,” she said quietly, looking down at her bare desk and waving me away. Our meeting was over.

The next day, Gerry and Johnny told me that our company, Yung Kao, was expanding the sales department. I am sure this had less to do with my meager efforts than some inspiration from Daniel. They had put a classified ad out in the local English newspaper and I was to help them with the candidate interviews.

Two people answered the ad. One currently worked at a trading company and was possibly a druggie and totally unacceptable. The other was Jacob, a Jewish kid from Los Angeles who was a year or two younger than me and who also worked at a trading company but showed promise. I recommended we hire Jacob.

Jacob Joins the Team

Jacob was affable and keen to learn about the business. We all quickly discovered, however, he wasn’t going to be much help with the English editing of the “Daily” or the research. He wasn’t interested in the finer points of research, or even grammar for that matter. But Jacob had street smarts and was keen to talk to clients. He had lived in Taiwan a number of years like I had and spoke Chinese, only he was marrying a local Taiwanese girl. The wedding was a few months away and he was very involved with meeting all the endless relatives and the gift giving and gift receiving this entailed. In one of our early conversations on the matter, Jacob opined in his open offhanded way,

“It’s great, Derek, I tell ya. You should do it sometime.”

“Yeah. Well, we’ll see.”

“The Chinese are just like the Jews, you know?”

“But I’m not Jewish.”

“They like big families, they respect their parents. Money and education is important. You know what? The only difference between the Chinese and us Jews is pork!”

An interesting comparison of two ancient cultures, I thought. In my mid-twenties, I remained unconvinced about the whole marriage thing at that time, pork or no pork. I also wasn’t convinced Jacob knew a whole lot about Jewish history. A mutual friend of ours who was also Jewish but very knowledgeable confided this to me.

“Ask him where the Jews come from, you’ll see,” he told me. The next day when we were at our desks in the office I gave it a shot.

“Hey, Jacob, where do the Jews come from?’

“Uh…”

He thought hard for a moment, eyes squinting, stroking his chin. His concentration reminded me of Winnie the Pooh.

“The promised land?”

Jacob was very much a people person and liked going out. This was great for me and we became an effective team. He focused on clients that were like him and I ended up with the clients that had a more academic bent, or who were just total assholes. As more and more international funds started investing in Taiwan we became busier and busier. Jacob could go out with clients to dinner and drinks until late at night and do this three, or four, or even five nights a week. I never had the stamina for that. Often times I would get a client to Taiwan and take him out for dinner with Jacob and then leave the client in Jacob’s good hands for the rest of the evening. It worked well for both of us and we became good friends.

Monday morning we were talking about our respective weekends, as you do at work. Jacob told me about his watches.

“Yeah, it was cool. I get, like, two watches. Both Rolexes!”

“For what?”

“For getting married. See? It’s a Taiwan thing. When you get married, you get two watches and two suits.”

“Well, maybe I should consider it.”

A few days later, ever eager for a chat, Jacob sat down at his desk and told me, “Had drinks with Johnny last night. He kept talking about “TaiBen, 1310.”

“What, his $50 stock?”

“Yeah, he said we should tell all the clients to buy it.”

“Did he tell you it was going to ‘PIERCE’ resistance again?”

“Oh yeah. ‘PIERCE.’”

We had a good laugh but when I pulled up the chart I saw Johnny’s stock was now at $12.

I was starting to make progress. I could read all the Chinese newspapers now and had an idea about how the market worked. My knowledge was imperfect and incomplete by a large measure but at least I could string a few semi-coherent sentences together when talking to clients. I started visiting listed companies on my own and then calling clients about what I had seen. Clients seemed to love this. The analysts didn’t mind either. They didn’t see the reason for visiting companies. But this gave me “street cred” and improved my knowledge and confidence as well.

Love in the Research Department

Jacob and I noticed one day Olivier got a haircut. It wasn’t his normal cheap Chinese bowl cut either, Olivier was “styled.”

“Hey, what happened to Olivier?” we asked Johnson, our deputy head of research. Johnson was a large and sensible person. His family was originally from Shandong province in China where the people are tall and broad. Johnson was one of those gentle quiet giants and he was smart and always spoke carefully if rather formally. He and Olivier were best friends, even though Johnson was several years his senior.

“I think,” he smiled, “Olivier has a girlfriend.”

“Really?”

“Mei guo hua qiao.”

“No way. Some Chinese girl from the States is after our Olivier?” asked Jacob, astonished.

Johnson laughed, “Yes, it appears so.”

A few days later I walked into the research department and Olivier was standing there with his new hairstyle and now sporting a sharp new suit.

“Hey, Olivier. Nice suit,” I said as I ran my hand over his jacket sleeve.

“Yes,” he chirped in his high voice. “I like it.”

“New girlfriend?” I asked somewhat too directly.

Olivier turned red. He didn’t say anything. Johnson raised his eyebrows at me from his desk and shook his head slowly. Taiwan was still a conservative place and people didn’t talk about girlfriends or boyfriends openly like they do in the US. I had probably crossed the line.

“Well, you look good,” I told him and left.

Research is Useless

The market had started to move up slowly. I noticed Johnny’s top pick, “TaiBen” had indeed “PIERCED” the ten dollar mark. It was now trading at $12.40.

I walked over to Johnny’s desk on the trading floor.

“Johnny, good call on 1310.” “1310” was the stock code for TaiBen, “I see it pierced $10.”

“Goh tzap koh.”

“What?”

“$50. It’s going to $50. Tell all your clients to buy this stock,” he whispered earnestly.

“But we don’t have any research on this one.”

“Research is useless.” Johnny was a firm believer in common sense and the magic of “chou ma.” Research was for people who didn’t know the market and those people shouldn’t be in the market either.

After the market closed for the day at lunch, I wandered outside into the tropical heat and noise of the developing chaotic Asian metropolis that was Taipei. I found something to eat in a cheapish place that had air conditioning. That was my main criteria for a restaurant: air con.

When I returned to the office almost everyone was taking their post lunch, midday nap. This was a local custom and most office workers, if not all, even brought small pillows in with them and fell asleep, head on pillow on desk, tongue hanging out, drooling. The market closed for the day at lunchtime and the place was eerily quiet during this time. A phone would ring somewhere and often as not, nobody would answer. They were all asleep. It was like the wicked fairy that put the entire castle asleep for a hundred years until Prince Charming shows up and breaks the spell by kissing Sleeping Beauty. I’m afraid I was no Prince Charming and, unfortunately, there were no Sleeping Beauties there either.

I rode my scooter home after work and climbed the stairs to our flat. Carol was there in a flowing hippy gown. She was always very at ease and comfortable in her surroundings.

“What do you think?” she asked me.

“Think about what?” I looked around quickly for another anatomically correct yet disturbing painting and was relieved to see none.

“I am letting them free during the day.”

I looked up and one of the budgies shrieked and flew across the room.

“Cool. Can I shoot rubber bands at them?”

“No!”

I went to my room and took off my suit jacket. Nice, a fresh piece of green and white bird shit right on the shoulder. That budgie must have heard me.

The Singaporean fund manager at the end of the line was more than a little surprised to hear from me. I didn’t know anything about broking or what to say to a real client so I introduced myself and once he determined I was calling him from Taiwan, he became very excited and spoke very fast.

“Ok. Ok. Here is what you do. You are the first person to call me, ever, from Taiwan. Please call me every day. Bye.”

With that missive I had my first client! Well, we still had to open an account with him and get him to trade but I was now a “salesman.” My new exalted status required me to move my desk out of research and into “sales” – about ten feet away. My daily routine didn’t change very much, however.

Johnny took me under his wing and taught me the ins and outs of the local stock market. He told me research was a waste of time. Most of the local investors felt the same way. Stocks were traded on rumor and speculation. There was no investment, just pure speculation. The Chinese love to gamble but in Taiwan, as in China, gambling is outlawed. In the US, many American Indian reservations have banned alcohol as a corrosive and societal destroying force that their culture isn’t equipped to handle. Chinese people, in general, are not big drinkers but boy howdy, do they love a punt. There is no horseracing permitted in Taiwan. There was talk of putting in a dog racing circuit but that too, was voted down at the last minute. This was all good news for the stock market – the only fast game in town.

Learning the Ropes

Stocks were bought and stocks were sold by investors many times during the same day. This intraday trading could account for up to, and sometimes over, half of daily turnover. A “long” holding period might be a week, maybe two. Everything was traded on rumors and what was printed in the local press. The journalists were hardly unbiased too as they stood to make a lot of money depending on which rumor they started or which one they promoted. In this environment, it was no surprise that equity research was seen as superfluous. There was very little, if any, fundamental “investing” going on. But speculation? Oh yeah, we had lots of that. In 1988 the Taiwan equity index was at 2,000. One year later it hit 10,000, before topping out at 12,000 the following year. You can’t do that with fundamental research.

Johnny Tsai, short and stocky and from the wrong side of the tracks, explained it to me in Chinese over a greasy lunch box one day in the office.

“Do you know ‘chou ma?’ Very important, ‘chou ma,’” as he crammed more oily pork into his mouth.

“Chou ma?”

“Script. Paper. Who is holding the stock, how much is out there and what is the size of the free float?”

He paused, swallowed and said slowly in English, “A stock will never PIERCE resistance,” he said jamming a stubby index finger upward, “if there is too much chou ma.” “PIERCE,” I was to learn, was Johnny’s favorite English word.

“Ok.”

“You need to only buy stocks with a small float and restricted chou ma.”

“Got it.”

As I was digesting lunch and the basics of supply and demand, Johnny continued with another huge mouthful of rice.

Watch the Bin Zhong

“And the bin zhong. You gotta know what the bin zhong are doing.” He wiped his nose with his sleeve.

“Bin zhong?”

“Yes. The bin zhong are the money. They give it, or lend it for a day or two, or up to a week, to the big hands.”

“And the “big hands” are the guys punting the market in size?”

“Right.” He smiled, pleased with my progress, wiping his mouth with the back of his hand.

We had several private rooms just off the trading floor that were equipped with a phone and several screens. I had seen these. During market hours the “big hands” would play here, giving orders to our hungry brokers sitting by banks of phones and screens just outside on the trading floor. In front of the small army of expectant brokers, and there must have been about 50 or 60 of these, was the retail pit. The retailers were just that, mom and pop investors. They would amble in every day and sit in the hard plastic orange chairs set up in front of the hundred or so television screens showing how all the stocks were trading live time. Just walking by that wall of flickering old style color television screens I could feel my skin burn from the radiation.

Often I would see grandmothers sitting in the pit watching the stocks and babysitting a grand kid or two. Sometimes they would even be chopping vegetables on the little writing desk attached to their chair, always keeping one wrinkled eye on the screens. You could tell it was a bull market by the number of retailers on the floor of any local brokerage. When things were hot and the market was going up, there could be a hundred or more random punters there, faces glued to the screens, shouting to each other, commenting on news, passing rumors back and forth. When someone decided to buy or sell a stock they would just walk ten feet across the carpeted floor to the bank of brokers with the phones and place an order at the counter.

The Unspoken Fear

With gambling illegal and the market the only game in town, the government made sure the stock market was only open in the mornings. Otherwise, the unspoken fear was, the entire country would stop working. This catastrophic result would mean no more trading companies and no more factories belching smoke and farting out plastic flip flops by the billions.

At the time there was one stock account open for every five people on the island. Statistically, that meant in every family there was one market player. A lot of trading was done through nominee accounts to avoid taxes. The big hands weren’t using their own named accounts to trade but would “borrow” someone else’s and usually they had many different ones to swiftly cover their tracks.

Sharks and Chum

You could say it was a “rigged market,” with the big hands, the “sharks” and the retailers, the “chum.” But the market did provide liquidity to growing companies and was a social release in a society where outside of working six days a week, there was very little else to do. Basically, it was all highly entertaining.

The big boss of our little world was Daniel Chan. He was Chinese whose family was originally from Vietnam. Sophisticated , over educated and fluent in about seven languages, Daniel lived in Hong Kong but spent the weekdays in Taipei running Yung Kao. Daniel had had a long and prosperous career already in finance working for foreign outfits in Hong Kong when he decided to break open the Taiwan brokerage scene. Yung Kao was majority owned by Hong Kong money but Daniel had a small stake and was there to transform the inward looking, local retail brokerage into an international institutional one. He was a master of randomness and engaged in passionate debate on whatever subject popped into his over active mind. The Taiwanese were in awe of him; tall, well-spoken in Mandarin, Cantonese and English with old school manners and always impeccably dressed, Daniel was a Chinese Ricardo Montalban and he definitely cut a figure amongst the locals who weren’t really sure if he was Chinese like them, or not. Daniel himself was somewhat ambivalent about this too, I was to learn later on.

The Gates of Hell

Daniel’s number two was his hatchet man, or hatchet woman. Sybil Tsai was a potent local distillation of pure evil. Every interaction with her drew blood with the other party the loser. While Daniel enjoyed being the “good cop,” Sybil relished being the “bad” one. She was a menacing Kafkaesque figure with long straggly witch’s hair and walked with a limp, dragging her bum leg behind her. Most likely a victim of childhood polio, she took advantage of any sympathy an unsuspecting victim might have. Hard, cruel and calculating, Sybil quickly became number two after engineering the demise of Daniel’s second in command right after I joined. When Daniel wasn’t around Sybil called the shots but like a tamed bloodthirsty Cerberus guarding the gates of hell, she was craven and obsequious always in her master’s presence.

Our day would begin early with the team of research analysts flipping through the local Chinese newspapers. In fact, that was pretty much their entire day. They occasionally wrote “’reports” on companies; two to three pagers pulled from “knowledge” printed in the daily rags. I once asked one of them why they didn’t need to actually visit a company they were writing about, “It’s all here in the newspaper, anyway,” was the patient response to my inquisitive ignorance.

Our morning meeting began at 7:00 AM. There were about seven to eight analysts in the Research Department. “International Sales” was Johnny and me, but the local brokers dominated and were a group of about 50-60 people. All of us would gather in the retail pit and sit in those hard plastic orange chairs while Daniel often stood up and gave a talk on one subject or another. His musings could be about stocks but he could just as easily ramble on about table manners. One of the senior local brokers then would give us a long and tedious lesson in Taiwanese accented Mandarin on technical analysis and the meeting would be over in 45 minutes or so. Brokers and research went back to their desks, reading the papers and slurping breakfast noodles out of clear plastic bags bought on the street, belching garlic fumes with satisfaction until the market opened at 9:00 AM.

I quickly saw that to learn what was moving the market I needed to read the local newspapers. I already read and spoke Mandarin after a fashion having lived and studied in Taiwan before, but all the economic and professional terms peculiar to the trade were brand new to me. My Mandarin was about to get a whole lot better as I began to realize I didn’t even know what financial terms meant in English, let alone their equivalents in Chinese.

Our Head of Research

After Johnny, my new best friend was our head of research, Gerry Hsieh. Gerry was Taiwanese but spoke English fluently and had actually worked on Wall Street for a stint at Drexler, before they went bust. He understood the lingo, was a real analyst and knew how far we as a firm needed to go. Gerry was a retiring personality but he had this unique hair affectation and liked perms. In Asia, the only men with afro-perms are gangsters; it is part of their tough guy look. Slightly built, Gerry was a gentle soul and far from that ilk. He probably had just watched too much 1970s television while in the US, I surmised. I spent an hour with Gerry and his perm every morning, crafting the English “Daily” which was a compilation of local news chatter that we faxed out to overseas clients. Our conversations usually went like this:

“Ok, Derek. You can’t say ‘sales are up a lot.’ You always have to give numbers and use words like ‘increase.’”

“How about, ‘Sales have increased 15%?”

“Better. But over what time period?”

“The last nine months or so?”

“Then say it. ‘Sales have in…” (The phone rings. It is his wife who calls him every day, usually in the morning. She is a towering personality and wears the pants in the family. Gerry is afraid of her. He forgets about me. His knuckles turn white as he grips the phone).

“Hi, honey.”

Pause. I can hear her loud and strident voice on the phone castigating him again like a puppy for some transgression. What did he do now, poop on the carpet?

“Yes, honey. I….yes……yes…..Ok but…..yes……Sorry…..yes…..”

Pretty much every morning it was the same pattern. I felt sorry for Gerry. He was a good guy but buffeted between the menacing evil of Sybil at work and his intolerant unsympathetic wife at home, Gerry never really had a good day.

Meeting with the Boss

I went back to my desk to leave Gerry to his domestic torment. My phone rang, “Ah, Derek,” boomed a deep voice in accent less English. It was Daniel, the boss. “Can you, ah, come to my office, please?”

As I walked across the trading floor and opened the door to Daniel’s cavernous office, I wondered why he wanted to see me.

“Derek, yes. Sit down.”

I sat down in the chair in front of his big, cluttered desk. “Good morning, Daniel. What’s up?”

He stared at me for a while. “Is it ‘fluorescent’ or ‘florescent’?”

“What?”

“Is if f-l-u-o-r-e-s-c-e-n-t or f-l-o-r-e-s-c-e-n-t? Many people spell it “florescent” and yet others spell it “fluorescent.”

“Yes. Uh, isn’t it flores…”

“No, no, it isn’t. It is fluorescent. With a “U.”

“Right. F-l-U-o.”

He continued on about spelling and how important it is while I was thinking I should be working. But Daniel was the boss and I sat there for twenty minutes or so. This was also to become part of my daily routine I learned. My nails looked interesting. I stared at them.

Terracotta Warrior

Back at my desk I was reading some of the research. I walked over to Olivier, our steel analyst. Olivier was average height and wore thick glasses but he had an interesting face. Olivier looked, to me at any rate, just like one of the terracotta warriors from Xian. His Chinese face was ancient. Olivier, however, was young. And he was super goofy. He never combed his hair and like most Taiwanese, went to bed after taking a shower in the evening with his head wet. He would have made the cover of “Bed Head Magazine,” if there had been such a thing His cheap clothes came from the night market and his voice was always cracking as it soared to a high pitch when he spoke. The product of an ancient lineage perhaps, of battles on the plains of central China won and lost, Olivier himself, however, was as meek as milquetoast.

“Good morning, Derek,” he smiled.

“Hi, Olivier. I wanted to ask you, are steel prices going up or down? I just read your note and I am confused.”

“Yes.”

“Well?”

“Yes?”

“I mean, where are steel prices going from here?”

“Right.”

“Up or down?”

“I don’t know.”

He smiled again and went back to reading his paper. Baffled, I returned to my seat and thought about something else.

Dinner with the Boys

One day, after the morning meeting, Johnny came over to me.

“We have dinner tonight. With my friends, ok?”

“Sure, Johnny. Where?”

“I know a good place. 6:29 tonight.”

“How about 6:30?”

“Ha, ha, ha,” he smirked. “Taiwanese men never say 6:30. You know 6:30?”

“Uh, isn’t it between six o’clock and seven o’clock?”

“No! Look at the hands of the clock. Both pointing down. Limp. Taiwanese men, never limp!” He thumped his chest.

OK, I get it. Thereafter, when we met for dinner, the running joke between us was “6:29, ok?”

Johnny’s friends were like him, older and all had jobs trading the market in one form or another. These were local Taiwanese guys that had gone to school together. We spoke Mandarin only, for my benefit, as when I wasn’t there they talked to each other in Taiwanese, a radically different dialect which I didn’t understand. They were very kind to me and from them I learned many things about Taiwan, the culture and how the market really operated.

We always met at the same restaurant which was a tiny seafood place by an outdoor fruit market with f-l-u-o-r-e-s-c-e-n-t lights and linoleum floors. The glass doors were always open with kids and dogs coming and going. Diners sat on cheap round metal stools at the cheap round metal folding tables. It was like most small family restaurants in Taiwan at that time. The menu was always the same: Chinese style fish with vegetables, noodles and rice dishes. It was very cheap too. This was good. We drank copious amounts of the local Taiwan Beer. This was bad.

Experiencing “TB”

Taiwan Beer is always bad. At that time, the beer market was just opening up to imports but Taiwan Beer (or “TB,” as I called it) was the only thing most shops and eateries carried. It came in large brown bottles with a green and white label. This stuff was so toxic; you got your hangover while you were drinking it. And the locals liked to serve it warm too, just for that extra formaldehyde flavor. If you wanted your TB cold, ice cubes of questionable quality were dumped in your glass by hand. When I had been a student in Taiwan a few years earlier, it was the ONLY beer available. I remember one advertising campaign the government had tried with the proud boast, “Taiwan Beer. Every bottle tastes different!’ Memorable, yes, and accurate, too.

“You should buy ‘TaiBen.’ Taiwan Styrene Monomer. You must buy TaiBen,” Johnny whispered to us earnestly, while wolfing down a plate of noodles at terrific speed.

“I am buying it now. I will buy more.” Then in English he said slowly with great emphasis, “It will PIERCE $10.”

The other guys around the table were not impressed: a specialty petrochemical play that nobody was talking of ramping. Ramping a stock meant the big hands were in it and pushing it higher. You want to ride one of those stories. ‘TaiBen’ didn’t have a story, they said.

Johnny loved his charts and insisted more loudly now, “It will PIERCE,” jamming his thick index finger upward, “resistance at $10. Tell all your clients to buy it now!”

“Johnny,” one of the guys said raising his glass to change the subject, “Lim jyu!”

“Lim jyu!” we all shouted and drained our glasses. “Lim jyu” was Taiwanese for “Cheers” and if you were “lim jyu-ed” you had to respond in kind. We went through a lot of beer that way. In fact, it is one of the few Taiwanese words I still remember, probably due to all the practice.

As a young man, I went to Taiwan and Japan for several years to study and meet chicks. However, the misadventures of those times are beyond the scope of this story. At the end of it I finally escaped to Alaska in 1992. I satisfied my dream of becoming a commercial fisherman and worked on a salmon seiner for a season on Kodiak Island. For adventure, this was a good move. For money, it was not. Someone had alerted the fish to my plan of cleaning up in the industry and they mostly avoided the boat I was working on. Alas, it was time to try my hand at something else.

Easy Riding Down to Costa Rica

Since I had arrived on my motorcycle, a Suzuki 650 DR, I departed the same way heading south with the birds to leave Alaska to the real Alaskans before the snows set in. And I kept heading south until I finally crossed my last border into Costa Rica. There I met a rich farmer, Jose. When I say “Costa Rica” and “farmer,” you would be forgiven for thinking of a rough “Juan Valdez” figure who “peeks coffee beenz” with a trusty mule at his side. Jose was anything but this. His family was part of the landowning elite, he spoke perfect English, his cousin was “El Presidente” of the country and he rode around his “farm” in a Toyota Land Cruiser. I think he owned a third of the land in Costa Rica, or something like that.

“I want to buy your bike, Diego.” I speak enough Spanish to get myself in trouble and I noticed that in general, Spanish speakers cannot pronounce my first name, “Derek.” I go by the name “Diego” when travelling in Latin America. It opens doors with the added benefit that it sounds cool.

“Jose, I told you, I like this bike. It will cost you a lot of beans.”

He laughed. “You like beans? You come to the house for lunch, ok?”

While I was living in my tent on the beach with my bike parked right outside, Jose lived in a huge mansion with manicured lawns and many servants. Unlike the sweaty swarthy peasants in the fields, his wife, like him, was very fair skinned and well educated. He had two very polite children, a boy and a girl about ten and twelve years old. We sat at a long table outside on the veranda where the cook, an old woman named Maria, served us the main meal of the day.

The Beans

“Diego. You say you like beans, yes? My Maria, she makes the best beans in the world! I have been eating her beans since I was a boy.”

I was more interested in the steaks I thought I smelled but then I tasted those beans. Damn! Jose was right. They were awesome and I still remember them now, 20 years later. After lunch we agreed on a price for the bike, $2,000 USD cash.

“Diego, there is one problem. Import duties into my country are 100%. We must sort this out.”

“Well, what can we do about it?”

“Ah,” he smiled knowingly. “You leave it to me. Tomorrow we will fix this. Today, we go look at my cows, ok?”

Jose and I climbed into his brand spanking new Toyota Land Cruiser and took off around the farm. We drove for hours.

“You see those cows over there? They are mine. And you see those mountains way over there. They are mine too!”

The landscape was mostly a burnt red color. We were in the dry season and the vegetation had a dry, desiccated look.

“So Diego, you speak Chinese, right? You should get those fucking Chinese over here to buy some of my land. We can make a good business that way. I have too much land and they have too many fucking Chinese!”

I told him I would think about it.

The Bribe

The next day we rode up to see the Customs officer at the border. Jose and his ten year old son drove in a Cadillac, of all things, and I rode behind them on my motorcycle. I was interested to see what tricks Jose had up his sleeve to sneak his new bike into the country.

It was a hot and cloud free day. The three of us walked into the small cement single story building that had a painted sign out front, “Aduanas.” Inside was the customs officer, a short and portly middle aged man with a tightly buttoned blue shirt with his gut hanging out over his big belt. The buttons were stressed. He wasn’t. He was a little grizzled, a little drunk and seemed to know Jose. Of course, everyone knew Jose.

The customs man got into the Cadillac and the four of us drove for a few minutes to a ramshackle bar on the side of the road. It was dark inside the joint and there were homemade wooden tables and stools on the cement floor. We sat down at a rough hewn table and Jose ordered up the local firewater, aguardiente. Three shot glasses were put before us while Jose’s ten year old son had a coke. Jose explained his situation to the protector of Costa Rica’s borders, drank a few shots with him and then handed over a wad of cash. We had already prepared the necessary forms and Mr. Customs pulled out his stamp, had another shot of juice and stamped our import form with gusto. Handshakes all around. Another shot for the road. We were legal.

Back to “The Renegade Province”

The next day I bid goodbye to Jose and his country and flew back to Los Angeles where my parents lived. I picked up my only suit and my only tie and then hopped on a flight back to Taiwan. I was in my late 20s, nearly broke and needed a job. Taiwan was booming and I knew there I could find a job teaching English again, as distasteful as it was, so off I went. I liked Taiwan a lot but after five years of teaching English in Asia I really didn’t relish another testing time of that terrible tedium.

After arriving, I checked into a cheap youth hostel and the very next day saw an ad in the newspaper; “Needed: Person to correct financial essays.” Hmmm. I can do that and it beats teaching, I thought. I put on my thin suit and thinner tie and caught one of Taipei’s ubiquitous yellow taxis across town to the address in the ad. The sign on the building said, “Yung Kao Securities.” I wondered, what the hell is that?

The Interview

I had never studied finance, in fact, I majored in East Asian Studies at university because it was the fastest way to get my degree. I was hardly a “good student.” I just wanted to put school behind me and go see the world. Ignorance had never stopped me before and it certainly wasn’t going to stop me now. I walked into the building, took the lift to the third floor and got out. After handing my meager one page resume to the receptionist she asked me to wait. A little later another woman came out of the office and asked me a question, in English.

“Are you here for the brokers job?”

“The what?”

“The brokers job.”

“The what?”

She sighed. “You know, we’ll train you to be a broker and send you to Hong Kong and Singapore. That job?”

“Yes! I’m here for that.” Why not, I thought. It sounded way better than correcting dry financial essays or, God forbid, teaching English to screaming virus-ridden kids again.

“Great. Come with me to this meeting room.”

I interviewed with several senior Yung Kao Securities managers all in Chinese, which was great because they didn’t speak English. Then I met the boss, Daniel, who to my surprise, spoke flawless English and decided to hire me even though I thought “securities” meant “guns.”

Early Days for Taiwan

These were early days in the field of investing in listed equities in emerging markets. In fact, the term “emerging markets” had recently been coined by World Bank economist, Antoine van Agtmael. And for Taiwan, which had just opened its stock market to foreign investors, it was the very beginning of the early days. Taiwan at the time (1993) was a global manufacturing powerhouse. While China was only just starting to get its act together, from cheap plastic flip flops to semiconductors, Taiwan made and exported it all. What this meant was the Taiwanese were great at the business of making and selling stuff. Aside from trade finance, however, financial services were a new, new thing. And as far as dealing with foreign financial firms, they were in unchartered territory.

“Yung Kao Securities, Taiwan” was a Taiwanese retail broker that was trying to launch an institutional business. The words, “Yung Kao” in Chinese meant, “Always High.” Chinese love to give hopeful names to businesses, like “Ever Win,” or “Gold Advance,” or some other hokey moniker. “Always High” could be the motto for California’s Humboldt County, but for Yung Kao it just referred to stock prices. The words “Yung Kao” in English, however, sound like “Young Cow,” and calling for the first time from “Young Cow Securities” did elicit many curious reactions from clients, as you can imagine. But that was yet to come.

A Chinese Management Meeting

On my first day of work I was thrown into the research department as “Editor.” Being the only foreigner and only native English speaker in this firm of 100 people made that the obvious job for unskilled me. The research was written poorly in Chinese, translated poorly by the analysts and then edited poorly by me. The “product” was then faxed – yes! – to a few unlucky foreign money managers in Hong Kong and Singapore. The editing gig lasted about two weeks when the Number Two guy at the company, Mr. Liu, called me into his office and we had this meeting, my first of many with “management,”
in Chinese.

“Derek.”

“Yes.”

“Derek.”

“Yes.”

“Derek.” (I wasn’t going to say “yes” again, so I just waited). “You are an editor, right?”

“Yes.” (Ok, just once more).

“And you work in the research department where everyone wears glasses!” He paused to let this sink in.

“But you don’t wear glasses. Do you?”

“No.”

“Right. You should be in marketing. Sales, is what I mean. You should be a salesman.”

And with this pronouncement, Number Two walked me out to the trading floor and handed me over to the senior salesman at the time, Johnny Wang. He explained to Johnny my new role which Johnny thought a very fine idea. Johnny was a bright guy, older and wiser than me by about 15 years. He had previously worked at Bank of America in trade finance and knew some English but didn’t want to call up the foreigners and speak to them every day. They asked tough questions that nobody in Taiwan asked and it was uncomfortable. Johnny liked calling his local clients and sharing the latest tips with his plugged in friends. He really didn’t see the point of talking to some MBA graduate based overseas who didn’t understand Taiwan. Johnny saw me and Johnny saw his problems were over.

My First Call

“Here,” Johnny said, putting a phone in front of me.

“Here, what?”

“Call Morgan Stanley.” (Morgan Stanley Investment Management was the largest foreign institutional investor at the time in Taiwan. The Taiwan money was run out of Singapore).

Conscious that both Johnny and Number Two were standing there smiling expectantly, I sat down, picked up the phone and began to dial the number Johnny handed me.

“What do you want me to say?”

“Sell them something!”

The phone started ringing. I cleared my throat. And there it all began.

“GS Elevator Gossip:

#1: Some chick asked me what I would do with 10 million bucks. I told her I’d wonder where the rest of my money went.”

The Academy Award for Best Picture this year went to the silent film, “The Artist.” Market turnover in Hong Kong and the US has been equally quiet during the strange bull run in equities we have seen this quarter with the lowest turnover of the year for US markets occurring on Tuesday. Net outflows from US equity mutual funds continue apace with almost $5.5 bn draining away ytd. On top of that, corporate insiders have been selling in size with the sell to buy ratio hitting 13:1. Finally, IPO and M&A markets have also not seen enough activity to bolster confidence either. Such confidence, or hope, was easily shattered yesterday in China when Premier Wen’s parting shot at his last press conference warned of another “Cultural Revolution” and re-affirmed Beijing’s commitment to holding down housing prices. Wen also went on to say, “Forget me and the good I did when I die,” – but not until then, I suppose.

A Little History

The word “parting shot” is a corruption of the archaic term, “Parthian shot,” a war tactic used by the ancient Iranian kingdom of the Parthians. The Parthian kingdom butted up against the edges of the Roman Empire and as a result the two were always butting heads. The Romans were better soldiers but the Parthians were expert horsemen. (The Romans also sucked at naval warfare). The Parthian shot worked like this: the Parthian cavalry would feign retreat and at full gallop with the Romans in hot pursuit, turn in their saddles and shoot them full of arrows. This is a formidable display of horsemanship even today but even more impressive when you realize the Parthians were able to do it before the invention of the stirrup.

Another dramatic Parthian shot came out of the blue today from a former bronze medalist at the Jewish Olympics, one Greg Smith, he of Goldman Sachs. Not content to go quietly into the night after 12 years flogging derivatives at Goldman, Greg decided to pen his resignation letter in scathing terms and have it published in the New York Times as an Op-Ed piece. Read “Why I am Leaving Goldman Sachs” here: http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=1&hpw=&pagewanted=print

Greg’s main issue has to do with the moral decay of the culture of the firm, or as he puts it, the “secret sauce.” A reference to a Big Mac, “Two all-beef patties, special sauce, lettuce, cheese, pickles, onions – all on a sesame seed bun.” The two beef patties mentioned by Smith are Blankfein and Cohn who are now forced to engage in a public and superficial soul searching exercise. “Clients? Of course we care about our clients.” Aside from the “decline in the firm’s moral fiber,” evidence that clients are referred to internally by senior management as “muppets” at Goldman is sure to cause some discomfort. Which clients are muppets? That information I am not privy to but as the saying goes, if you have to ask….

$$$$$$$

Tencent (700 HK) reported “Ok” Q4 results but Eric Wen cautions the outlook for the company is one of slowing revenue growth. Margin recovery is also out of the question. Tencent’s reliance on online gaming means the company will be forced to continue to move into unfamiliar territory, such as online shopping and online video. The just announced merger of Yoku and Tudou will mean the new entity will have a 50% domestic market share in online video is also bad news for Tencent. The company will have to invest directly and in size in online video content acquisition to compete in this area, damaging margins further. Trading at 21X ex-cash PE with estimated three-year earnings CAGR of 26%, Tencent remains a Hold. Note attached.

$$$$$$$

Cheers.

Derek Hillen, CAIA

http://www.stockbroking101.com

Me: Russell, I am really interested to hear your views. I have been very bearish as well.

RN: Yes, but you know nothing. You are only a stockbroker, not a financial historian.

Me: True. So why so bearish?

RN: We seem to be looking at deflation.

Me: Globally?

RN: Of course globally, you twit.

LTRO = Zero Impact on Economy

Me: Didn’t the ECB just do another “trash for cash” program last night, handing out 530 bn euro to 800 something banks? Isn’t that fresh liquidity to the system?

RN: Yes, they did and no it’s not. If we look at the first LTRO just in December, the ECB lent out cheap money to the banks and most of it was just re-deposited back with the ECB. Some of it went into rolling over short term debt but almost none of it was lent out as “new money” to the private sector. And this latest exercise will be the same thing. This shows us the ECB is not creating money through the banking system. And remember, the ECB itself cannot “create” money, the banks do. They aren’t fulfilling that role.

Me: Does this mean European liquidity then is not easing?

RN: Correct. The banks are not expanding their balance sheets. All we are seeing is a giant refinancing exercise for the banks. This may help the smaller and weaker ones from going under and it boosts bank solvency but it is not resulting in more bank lending. According to the numbers I have crunched back in Edinburgh, net new lending from the last 489 bn euro was just 27 bn euro, or just over 5% of total! The banks simply have no intention of lending and the ECB is just pushing on a string.

Me: What about their securities-repurchase program? I thought they were also doing that to stimulate growth in the Eurozone.

RN: They were but they have cut that back massively and are now hoping to change bank behavior indirectly with LTRO and it isn’t working.

Me: I understand 800 banks participated in the LTRO last night. Surely, not all of them are just taking that money and giving it right back to the ECB?

Cliches and a Big Carry Trade

RN: The bigger ones are using this free shot of capital to play the carry trade. They are borrowing three year money at 1% and buying their local sovereign debt which yields 5%. As long as their sovereign doesn’t default…

Me: Money for old rope.

RN: I can always rely on you for broking clichés. So this money isn’t money lent to the private sector for productive purposes and banks continue to reduce their loans to the private sector. They are only funding the state. The credit available to the private sector continues to contract. This makes me think the outlook for equities in Europe is very negative.

Me: Is that it? Avoid European equities?

And the News Gets Worse

RN: No, the news gets worse, my friend.

Me: Do tell.

RN: We are witnessing a huge secular shift in the recycling of emerging market trade surpluses away from US Treasuries. Did you know in December China dumped $32 bn of US
paper to buy Renminbi?

Me: I heard they were selling some.

RN: So what are the implications for the global economy if foreign central banks stop printing their currency and have to buy it back?

Me: Rising US interest rates?

An Insidious Conspiracy?

RN: Maybe, but it’s more insidious than that. There is a great conspiracy afoot and the walls are tumbling down.

Me: Why do you speak so much better than you write, Russell?

RN: I could say the same for you. It isn’t data just from December I am looking at either. The peak in foreign central bank Treasury holdings was August last year. With smaller trade surpluses EM economies have been forced to buy back their currency instead of print it and they have been selling US Treasuries to do it. This is what I call “The Big Reset” and it means the world is rebalancing, if you will. US savers will now have to step up and fund more and more of the US gov’t deficit. These forces are deflationary.

Me: How?

RN: Most sales people would have given up by now, Derek. Are you sure you want to hear more?

Me: (Nodding enthusiastically).

RN: Right. Unlike banks which can print money individual savers cannot. To buy something they have to not buy something else.

Me: Ah, the “crowding out effect.”

RN: Something like that. Look at the capital flight we have started to see in China.

China Will Devalue

Me: Yes, I have been watching that. Everyone thinks the Renminbi will continue to appreciate against the dollar and I think they’re wrong.

RN: Exactly, they are wrong. I am calling for a Chinese devaluation within 18 months followed by the inevitable trade sanctions. The big question is will China continue to defend its exchange rate if it means a monetary policy that is bad for economic growth and full employment? No, it won’t.

Me: So what does it all mean?

RN: Do you get your lines from bad movies? What I am saying, my friend is the rebalancing of global growth is underway and this is being driven by the rapid rise in the price of Chinese labor. China and other EM countries will continue to withdraw from the US Treasury market. But it is an historical fact that the state must be funded. And it will be funded. Less foreign central bank support will bring in a period of deflation and financial repression.

Me: Won’t the US respond by printing more money, more QE?

RN: The history of printing money to fund government, especially pursued in a period when foreign support for the currency and sovereign debt is falling always ends the same way. US savers will be forced into the Treasury market and the printing presses will print money until they run out of trees.

Me: Didn’t Jimmy Rogers say that about the trees?

RN: I said it first. Governments will come up with new ways to steal your money because they will be funded. You are going to fund them whether you like it or not. This is very bad
for equities and I am very bearish.

Me: Where should one put their money?

RN: You should take it out of countries where the government will take it. I like Singapore dollars.

Me: Wow.

RN: Listen, I’ve got to run and market to real clients who pay real money for this analysis.

Me: Well, it’s been, uh, real. Thanks again Russell.

He lumbers off into the distance clutching his bag, muttering.

Cheers.

Derek Hillen, CAIA

“If there’s not drama and negativity in my life, all my songs will be really wack and boring or something.”   - Eminem 

The quintessential barometer stock for US equity markets has been Apple which just reached half a trillion dollars in market cap and is now exactly TWICE as big as former archenemy Microsoft and is also now fully 30% larger than the second largest listed company in the world, Exxon . Trading volume in Apple has averaged a massive $12 bn a day. The stock is up one third in the last two months and at current growth rates (the predictive method favored by analysts world over) market cap for Apple will reach US$1 trillion by July 1. Now I know February has one extra day this year but this is ridiculous. Analysts who like to play with their technicals have pointed out the charts look good. However, one other thing that worries, other than Apple’s incredible rise to global domination, is the breadth of the market is narrowing with the percentage of stocks above the 20 day MA declining in a straight line. That makes sense since everyone seems to be just buying Apple!

 
So a correction is in the offing which would give us a better entry point than current nosebleed levels.Asiawill not be immune either. Latest fund flow numbers from EPFR indicate emerging market equity inflows last week slowed to $350 mn vs the average weekly $2bn of inflows of the previous seven weeks.

$$$$$$$

Chinese women put up with a lot (I know, I married one). The dearth of public bathrooms for women in Chinahowever, seems to have been the last straw. Protests have erupted around the country with all women “sit-ins” of men’s restrooms led by the angry, the put upon and the bladder constrained. Ever sensitive to the “whiff” of dissent, Beijinghas slammed the stall door closed on all discussion of these protests for fear the fowl odor of discontent pollute the land. Any mention of toilet protest has been censored on Sina Weibo, China’s favorite microblog. If toilets are too sensitive a subject for internet discussion then forget about real strife and unrest, such as the riots yesterday in a small town south of Kashgar in Xinjiang where 12 people died. This all points to why I have been skeptical of Sina’s Weibo becoming “another Twitter .” The microblog’s Orwellian “freedom” to discuss approved subjects with approved conclusions is all that can now be said for it. The main attraction for many of the 300 mn users of the service was just the opposite and now that attraction is further diminished by the impending March 16^th deadline of real name registration requirements for existing users. Up to half of users have refused to be registered using anything but an alias and this provides us with another reason for our downgrade of Sina (SINAUS) to Hold today.

Eric Wen believes the stock is overvalued given very weak guidance and soaring capex plans (US$160 mn this year) to expand the Weibo platform. He also says plans to monetize the service using low cost advertising will only cannibalize existing ad supported businesses. “Sina cannibalizes itself while Twitter and Facebook cannibalize others.” Eric’s top picks in the internet sector remain Baidu (BIDU US) and Qihoo (QIHU US).

Cheers.

Derek Hillen, CAIA

http://www.stockbroking101.com

“Sing a country song in reverse and you will quickly recover your car, house and wife.”               Warren Buffet

1) His successor has been revealed to the board – but not to shareholders. Probably no company other than Apple is so closely identified with one man than Berkshire Hathaway is with 81 year old Buffet. All he says on the subject of succession is that it will be “seamless.”

2) Warren is still a big believer in America. 95% of the $8.2 bn spent on property, plant and equipment by Berkshire last year was spent in the US. “A fact that may surprise those who believe our country lacks investment opportunities,” as he puts it.

Sex and Housing

3) He admits he was wrong to call a US housing recovery last year but that it is coming because of “hormones.” “Everyday we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over.” Warren says that day is fast approaching and the drop in US unemployment that results will surprise many.

4) A substantial portion of the letter is devoted to the insurance business, which makes sense considering Berkshire is one of the biggest players in the P&C market. Unlike many analysts, however, Buffet manages to make the industry sound interesting and he skillfully weaves in one of his folksy jokes to make the point that good underwriters need independent minds, “a mindset akin to that of the senior citizen who received a call from his wife while driving home. “Albert, be careful,” she warned, “I just heard on the radio that there’s a car going the wrong way down the Interstate,” “Mabel, they don’t know the half of it,” replied Albert, “It’s not just one car, there are hundreds of them.”

To His Mangers: Don’t Leave.

5) Although a tiny part of his portfolio, Warren always includes the Nebraska Furniture Mart (80% stake) in his letter. He is full of admiration for the founding family of NFM and in particular the matriarch, Rose Blumkin, who started it all back in 1937 with $500. “She sold me our interest when she was 89 and worked until she was 103. (After retiring, she died the next year, a sequence I point out to any other Berkshire manager who even thinks of retiring.)”

6) In a business empire that sells everything “from lollipops to jet airplanes,” Berkshire is going to get more involved with alternative energy. The company has committed $6 bn to wind energy development alone and last year decided to invest $3 bn in two solar projects in California and Arizona. “Many more wind and solar projects will almost certainly follow.”

Make My Day

7) Finally, in May when Berkshire Hathaway holds the largest shareholders meeting in the country, for the first time Warren is starting “The Newspaper Tossing Challenge.” Always interested in money, Buffet claims as a teenager he delivered half a million papers of the Omaha World-Herald (how much of the world can you see from Omaha, I wonder?), and now that he owns it wants to show he can still throw a newspaper. “Any challenger whose paper lands closer to the doorstep than mine will receive a dilly bar.” Do you think you can beat Warren Buffet? Here’s your chance as he’s taking on all comers. “Take your best shot. Make my day.”

Roxy Wong likes what he sees in Asustek’s (2357 TT) recent Q4 results and has raised his target price from $308 to $328. Q1 guidance is in line and Roxy believes new product launches this year, including an Ultrabook and smart phones will lead to rising market share. Asia accounts for 44% of sales, mainly SEA, and that growth driver will continue to underpin further top line gains for the company. Trading at 10X PE, Asustek has also raised its dividend payout ratio which could imply a 5% yield at current levels. With EPS growth this year of 18%, Asus remains a Buy.

Cheers.

Derek Hillen, CAIA

http://www.stockbroking101.com

First, you call the company of your choice. It is best if the company is “investable,” meaning it trades enough a day to make this a commercial proposition for clients. There really is little point to visiting a small cap company with no liquidity and telling large institutions like Fidelity to buy it. They can’t. For larger clients the minimum amount of liquidity will be around $10 mn traded a day. Some may go as low as $5mn in daily turnover. Anything less is really more for smaller funds who are only interested in buying a few million dollars worth of stock, or large clients who are small cap specialists. A large fund, to make it worth their while, will want to build a position of $50 mn or so. If they accumulate the stock of a small cap company every day and keep to the normal 1/3 of daily volume, it would take 150 trading days to build a large position. More importantly, they wouldn’t be able to sell, ever.  

Any stock that trades below $1mn a day is a “PA trade.” The letters “PA” in finance do not mean “Pennsylvania,” or “Public Announcement,” but rather, “Personal Account,” or using your own money. So you may have done your homework, had a great company visit and wrote a wonderful note on the back of it but if there is no liquidity it will be about as useful to clients as a two story outhouse. 

Don’t Be Shy 

Remember, when setting up the meeting, call the IR (Investor Relations) department first. If you are visiting by yourself without a client tell them who you are and who you work for. Then tell them you have clients who are interested in the company and they want you to go see them. Don’t be shy, this always works. 

During the Meeting 

Most likely, you will be sitting across the table from somebody in IR who has a full color presentation to give you. Take it and let them walk you through it. A good example of this is the presentation VTech (303 HK) puts out. You can see their latest investor presentation here. (Have a look, it won’t bite). VTech has a current market cap of US$ 2.6 bn and trades about US$4 mn a day. This makes it a fairly liquid small cap story. 

I pick VTech because it is a manufacturer and relatively easy to understand. VTech makes cordless phones and children’s toys. Tech stocks fall into a similar category as manufacturers while internet and insurance companies would be placed at the opposite end of the “easy to understand” spectrum. 

The purpose of your visit is not only to get an understanding of what the company does (you should have a basic idea before you go) but what the likely outlook for them over the next six to twelve months may be. Is it a “Buy” or a “Sell” right now? 

The Drivers

This is where you need to find the drivers for the stock. We start with the basics: Costs and Profits. 

First, look at the recent trends in revenues and profits. VTech is seeing minimal revenue growth overall: 5.4% in 2011 vs. 2010. Most of that growth came fromEurope. Ouch. What’s happening inEuropenow? Right, it’s falling apart. So there is vulnerability here. What about operating profit? It is down 6%. So revenues were up but profit was down – this usually means costs are rising faster than sales. This is not a good thing and tells us we will have to look at costs more closely. 

Costs 

I always look at what the cost components are: is it labor (vulnerable to wage inflation inChina), is it plastics (vulnerable to oil price shocks) or is it rent (vulnerable to fickle landlords)? 

And where do VTech’s costs come from? Raw materials (plastics), wages and RMB appreciation. So they make ALL their stuff inChinaand sell ALL their stuff outside ofChina. What is the first thing you should think about when you see this? Right, currency vulnerability. If the RMB goes up vs. the USD and the Euro, that will eat into profit margins and might eliminate them entirely. What do they do about this? 

And what about that growing wage bill? The days of arming ten million Chinese with teaspoons to build the Great Wall are over. Exactly what percentage of costs are wages now? What were they a year ago? What will they do to mitigate the increase? Usually, companies have two choices: move the factory to a cheaper location (not always feasible due to component supply issues) or automate. Automating a factory means buying more equipment which means higher capex and less profit this year. 

Revenues 

Next let’s look at the revenue breakdown. Half of it is cordless phones. Is it growing? No, this is a mature product in a mature market (theUSandEurope). While it may be their biggest seller, is it the profit driver? If cordless phones are half of revenues and they are less than half of profit, then this is a lower margin business compared to the company’s other products and given it is a mature market this cannot easily be an area of future growth. Management should look to maintain this business and use the cash flow to invest in higher growth areas. This brings me to the next question: how dominant are they in the cordless phone market? Let’s look at market share. They have 50% market share in theUSand 30% inEurope. That’s pretty dominant. It is not in the presentation; I asked. 

Let’s look at their other divisions: ELP, educational learning products and CMS, contract manufacturing services. This is sort of a weird combination and investors usually shy away from a hodge-podge assortment of businesses under one roof. In VTech’s case they are putting more investment into ELP, maintaining the cordless phones and putting less effort into the CMS division. If the educational learning products are an area of focus then focus your questions here. The company doesn’t provide a breakdown of profit contribution among the three divisions, so you ask. 

Which reminds me of another common error made by junior analysts and sales people: don’t get overly excited about a new product or new market. Focus on the drivers of a company’s earnings, not the hope. Always keeping this in mind will prevent you from claiming how great a new product, division, strategy or market of a company is when it only contributes 8% of profit. Who cares? 

Are there any catalysts for the stock? Are they talking about making an acquisition that you think could happen sooner rather than later? Are the next generation of the founding family a bunch of whoremongerers and crack heads and about to take over? 

Risks? 

Now that you have a deeper understanding of the company, its drivers and their view of the outlook, what are the risks to that view? What could go wrong for them? They won’t usually come out and tell you and may only hint at it in the meeting. In your opinion, are they doing what they should to manage those risks? 

Also, see if there are any other things that could influence an investment decision here. VTech has $243 mn in cash sitting on its balance sheet. Will that be paid out as dividends? Historically, the company has been a high dividend payer and currently the implied dividend yield is 7.4%. That is high and they have the cash and track record to back it up. 

It may a great story but don’t forget about valuations. If the company is already trading at 30 times PER on consensus estimates then the story is well known and perhaps over bought. But maybe the market is wrong and the stock should trade even higher – or lower. You need to decide. 

What Does Your “Gut” Say?

Finally, what is your individual impression and opinion of the company? Clients are always interested in a fresh view. If you think the company is blowing smoke up your ass and something isn’t right – tell clients that. After visiting a company you should go back to the office and call clients to tell them whom you saw and what your conclusions are. Finally, put it together in a coherent and straightforward note. If your opinions are really negative couch those phrases carefully. A good rule to remember is: speak more than you write. 

To sum up, here are the 10 questions you can work with when visiting an investable listed company like VTech: 

• 1)      Drivers?
• 2)      Is profit up or down?
• 3)      Where does profit come from?
• 4)      Are costs up or down?
• 5)      What are the cost components?
• 6)      Catalysts?
• 7)      Risks?
• 8)      Anything else important here?
• 9)      Valuations?
• 10)    Your opinion? 

Now get out there and go see some companies. Let me know if you have any questions.

Cheers.

Derek Hillen, CAIA

“Slight was the thing I bought,
Small was the debt I thought,
Poor was the loan at best—
God! but the interest!” – Paul Laurence Dunbar

Now that the austerity package has passed the vote in parliament, what about the vote of the Greek in the street? Finally, I also note the word “compliance” has no connection to Greek at all…

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Today we downgrade BoCom (3328 HK) and cut our target price 14% to $6.30 as the bank faces fund raising of up to Rmb 50 bn. Recent market chatter indicates this could come soon and in the form of a private placement, due to the fragmented shareholder structure of the bank. Minority shareholders would face dilution of around 14% if true. Alternatively, the bank could issue new H shares to at least allow minority shareholders a chance to preserve their stake. Either way analyst Stanley Li feels BoCom is unlikely to outperform its better capitalized and larger peers, ICBC, CCB and BoC.

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You can get our research by typing MASR <Go> on Bloomberg.

Cheers.

Derek Hillen, CAIA

http://www.stockbroking101.com

Bill Gates: An Early Attempt to Stand Out

The financial industry is super competitive and if you want to thrive you first have to survive. A good way to do this is to stand out from the crowd and do something your competition isn’t.

A large part of the job, whether as an analyst, a salesperson or a fund manager, is visiting listed companies and learning as much as you can about them. We do this pretty much every day and it is the best way to get to know a company and stay on top of important developments and trends. Meeting senior management is also often useful for the intangible benefits of getting a feeling about how “real” or “sustainable” their story is. We all want to invest in undervalued gems that have a great story as yet unrecognized by the broader market and the best way to do this is to get off the couch and go see the company yourself.

When speaking to clients it is often a door opener to say something like:

You:     “Hello Fritz, Elmo here at Big Bird Securities. How are things?”

Client Fritz:      “Hello Elmo. Same old. Markets go up. Markets                                         go down.”

You:     “Fritz, I just saw Wing Ding Textiles this morning and they told                   me something very interesting.” Pause.

Client Fritz:      “Really? What did they say?”

And off you go about how wage increases in southern China are so out of control that Wing Ding is thinking of moving to Vietnam. You can use this information to build a story about listed companies that own industrial land in Vietnam and how cheap they look and how demand for that land is only going to skyrocket etc, etc, etc.

Don’t Be a Seagull

“Fresh intel” with a unique spin to it will make your call to clients stand out. This makes your competition just a bunch of seagulls, regurgitating cold research, while you are out in the field bringing down big game. Go Nimrod.

Company visits are easy to arrange by calling the investor relations department. It is their job to meet investors and is a good place to start. If you are bringing a client then you can try and get management of the company in the meeting as well. Some big clients do not want to see IR people but only senior managers. From a listed company’s point of view, a “big client” is either a current major shareholder or an institution that has at least tens of billions of dollars under management. Try for the CEO and work your way down from there.

Make sure you have a written profile of the investor and his fund that you are bringing. Use this to set up the meeting. If your client is a hedge fund some companies may look at this with less favor. Not all hedgies are flippers though; some are fundamental long term holders of stock. Tell them your client is one of these.

At the time of the meeting you will be led into the room and usually management will not have arrived. Give the client the middle seat at the table. You, as an analyst or sales person, should sit unobtrusively at their side. When management enters, stand up and introduce the client first – not yourself. You don’t matter. You are just a facilitator. After the client gives his business cards to management you may introduce yourself and give them your card as well. There is a right way and a wrong way of doing this without looking like a schmoe. For more on business card etiquette – and it is important – see the post I wrote here.

Warning Signs

If you are trying to arrange a meeting for a major shareholder to see a company and senior management is always “busy,” I take this as a very bad sign. This usually means things are not right and they really don’t want to see shareholders now. The best course of actions: Sell. Run for the hills! I have never seen a situation like this work out well for shareholders.

Now, on at least three occasions I have had management lie directly to my face and I KNEW it at the time.

Whenever senior management cautions you in confidential tones and says something along the lines like, “So you see, our outlook is good but things at the present moment are not so good. I really wouldn’t recommend people accumulate our shares right now.”

BULLSHIT! This should peg the needle on your BS meter. When they say this what they mean is: “Our shares are very cheap and I am busy buying them and don’t want any competition until I am done.” Sure enough, in each case these listed companies were doing just that when they told me this and it was the bottom for the stock. A perfect time to buy.

The Secret

Take copious notes during the meeting and make sure the client’s questions are being answered. Don’t play with your phone, Blackberry or fall asleep during the meeting. Falling asleep, snoring and drooling is just bad form. I have this weakness, I admit. But after several close calls early on in my twisted career I discovered a secret method to make sure this never happens. Read about it here.

Thank management at the end of the meeting and don’t discuss it with the client until out of the building. If the client thinks the company is a joke make sure he doesn’t say that in the bathrooms (you never know who is lurking in the stalls) or in the elevator (again, who is there with you?). Once outside, I always ask, “What did you think of the company?” And be prepared to discuss it intelligently. Clients often want someone else’s opinion, especially if that someone else is not an idiot. Staying awake and taking notes will help ensure you don’t slip into that category.

Back in the office you can call clients and talk about the meeting as long as the client you took there doesn’t specifically request you don’t do that. Sometimes they may want a day or two to do more work on the idea and will ask you to sit tight until they are done. Respect those wishes. Otherwise, feel free to talk about your meeting with other clients. I would wait a few days to put it in an email though.

Visiting companies and meeting management is a great way to differentiate yourself, get out of the stifling environment of the office and help you get a deeper understanding of the market and the players. Clients will also appreciate it and pay for your efforts as well. Give it a shot and let me know how it goes.

Cheers.

Derek Hillen, CAIA

http://www.stockbroking101.com

The weathervane of macro data releases is beginning to point firmly in one direction. The US non-farm payroll number we saw on Friday was huge and tells us the risk of a double dip scenario in the world’s largest economy is no longer worth worrying about. The 243,000 net jobs added is over 70% higher than consensus estimates of 140,000. Hiring was strong across the board from services to manufacturing. What’s more, is once you look inside the numbers you see this isn’t just people giving up looking for work and going back to the couch or jumping off high bridges: the labor force actually expanded. Average hourly earnings are also up and have risen 1.9% over the past 12 months which helps consumers either, a) deleverage faster, or b) go out and buy stuff, hopefully some crap made in China.

Commodity prices have also fallen on average 15% since April. Lower input costs and some recovering demand points to greater corporate profitability. This is particularly true for commodity hogs like Asian economies. Here in the Far East we are also seeing falling inflation allowing for greater policy response to slower economic growth. Further interest rate cuts are on the cards for China, in particular, and most of Asia as well.

Other good news for Asian asset prices are fund flows. Numbers from EPFR show that January saw the largest ever inflows to EM equity funds at $11.3 bn. If that sounds like a large number it is when you consider $11.3 bn is fully one-third of ALL EM fund outflows for 2011… Developing market funds were witness to an outflow and all the decouplers are excited and jumping up and down again. I’m a “coupler” and like “coupling” so I think this will not last long enough to become a trend. But you can’t ignore the real trend forming which is a stronger than expected US economy will help demand recovery globally and appetite for risk should continue to improve.

This does not mean we are off to the races and everything is hunky dory, of course. Clients are confused. I am confused. As we climb the wall of worry there are a lot of falling rocks that can derail this train, including:

1) Europe – blah, blah, blah
2) China’s debt problem – blah, blah, blah
3) Israel hits Iran (in a US presidential election year….? Unlikely.)

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While tempering our formerly bearish macro outlook, Mirae is still not positive for the outlook on the China steel sector. Our commodity team initiates coverage today on Angang Steel (347 HK) and Magang (323 HK), with both Reduce recommendations despite the view that falling iron ore and coking coal prices are a nice tailwind. The issue for analyst Shirley Zhao is overcapacity and the fact that these two companies are inefficient SOEs. Any profits to be found this year in the steel sector in China will accrue to the private sector where mills are more cost efficient and more flexible acquiring iron ore. See notes attached for this super bearish call.

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Today is the 60th anniversary of Elizabeth ll’s ascendency to the British throne, making her one of the longest ruling monarchs in the world. She has seen off 13 Prime Ministers and 11 US Presidents during her time at the Palace and roaming the world. While impressive, her reign still falls short of Queen Vic (63 years), or even Louis XlV (72 years). The key to her longevity seems to be a combination of never really voicing an opinion and keen survival instincts.

Cheers.

Derek Hillen, CAIA

“Vegas is fun. Macau isn’t fun. It’s just serious.”

This is amply reflected by revenue composition in Las Vegas where gambling accounts for less than half. I guess the rest is hotels, hookers and hot dogs: “Nevada resorts earned 34.1% of revenue from food, beverage, and ‘other offerings’…” reads the official blurb. Macau reportedly has ‘other offerings’ as well but it primarily exists as a safety valve and a popular way for Chinese to get money out of China. In the 60’s and 70’s across America, most towns had at least one Chinese laundry and when I was a teenager and announced that I wanted to learn Chinese, the idea was met by my unwashed peers with universal derision: “You want to work in a Chinese laundry?” was the most common response. (Recently, I notice all the same people are dying to get their children into Mandarin classes at school in the US. Hmmm…). Today the world’s largest Chinese laundry is the former Portuguese colony.

Recent surveys of China’s rich indicate that although they are not unhappy they are more concerned than ever about the future. Record numbers of Chinese applying for US visas and green cards are further evidence of growing anxiety among the well to do in the Middle Kingdom. With a significant political transition occurring later this year lines of patronage are sure to change and uncertainty will only grow. Whether the new crowd taking up residence in Zhongnanhai (China’s “White House”) is more liberal in their reforms allowing China to avoid massive social unrest or whether they pursue “red” policies taking the country back a few decades, only time will tell. What is relatively certain, though, is the “known unknowns” will mean more good times ahead for Macau.

Consensus forecasts for revenue growth this year for Macau are 20% vs. 42% in 2011. I think given the above factors and in the absence of a crackdown from Beijing, those forecasts are too conservative.

Despite the strong tailwinds pushing the sector along, analyst Adrian Lowe, today has downgraded Sands China (1928 HK) from a Buy to a Hold. The stock is near fair value after rising almost 40% in the last two months and rose 28% in January alone. However, there is risk of taking profit now with the impending opening of Sands Cotai Central and possible Hang Seng Index inclusion. February 10th is when the final decision on index inclusion for Sands China will be made. I would sell then. Sands China trades at 18X 2012 PE.

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Our Global Chief Economist, Bill Belchere, writes today in “Macro Matters,” global manufacturing PMIs for January indicate we are “bumping along the bottom.” But the good news is the dip we have been calling for is looking more shallow than feared.

Speaking of dip, this weekend we have “Super Bowl Sunday,” the most watched television broadcast of the year where two American football teams, the Giants and the Patriots, compete for the championship. More importantly, as a former avocado farmer I can tell you it is also the day where the most guacamole of the year is consumed. Guacamole is the main ingredient in nachos and is a dip made from avocados, lemon, salt and Tabasco sauce. Chopped onions and a dash of tequila are also permitted into the mix. The Aztecs used to eat this 500 years ago. In fact, they gave us the word “avocado” which comes from the word “ahuacatl” – or “testicles.” May the team with the most ahuacatls win.

Back to the macro outlook. Recent PMI composition has been of poor quality with inventory restocking comprising the majority of the strength. We need to see final demand accelerate to bring us out of the dip. The good news is while new order growth is falling the rate of decline is slowing. Asian policy response will continue and if leading indicators show final demand improvement we may avoid a deep plunge into the guacamole and alter our bearish view for the first half. 

You can get our research by typing MASR <Go> on Bloomberg.

Cheers.

Derek Hillen, CAIA

http://www.stockbroking101.com/

1)       Germany is now willing to see Greece out of the Euro zone

2)       Germany is sending a strong message to the PIIGs (as the Chinese say, “Kill the chicken to scare the monkey”).

“Angie” by the Rolling Stones, will be the song they start singing on the rocky streets of Athens:

“….Angie, you’re beautiful, but ain’t it time we said goodbye?

  Angie, I still love you, remember all those nights we cried?

  All the dreams we held so close seemed to all go up in smoke…”

The other unusual move in recent days by Germany that also oversteps normal boundaries of sovereignty is that Merkel has announced she will go on the campaign trail with Sarkozy to help him win re-election in France! I guess this makes sense on one level since the two are known now as “Merkozy” anyway….

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Our roving commodities team of Henry Liu and Shirley Zhao went underweight China’s thermal coal market in November and that call proved to be well timed with domestic prices falling 10% since then. Now at Rmb 780 a ton, coal prices are the lowest in over a year. In the last couple of weeks the Newcastle spot price of coal has rallied and has risen above the domestic price. Henry and Shirley are saying we are near the bottom of thermal coal prices. Look at this chart which shows the historical pattern of domestic coal prices when import prices reach a premium:

Buy:

Yanzhou Coal (1171 HK), the thermal coal producer most geared to spot prices.

Sell:

Sell the IPPs which have had a nice rally on the back of falling coal prices and a recent tariff hike.

Huadian (1171 HK) is the most sensitive to coal cost and that stock is up 72% from its October low.

Huaneng ( 902 HK) is the second most sensitive to coal prices; the stock is up 49% from its October low.

Cheers.

Derek Hillen, CAIA

http://www.stockbroking101.com

It is a cold January here manning the fort on the eastern front of global finance. All is quiet on the high plains in Hong Kong as the Chinese New Year holiday comes to a hazy end. With the beginning of the Year of the Dragon, activity in our markets is sure to pick up. A lot of that activity, however, will be cost cutting rather than money making. Last year, the global financial industry may have lost 200,000 jobs, depending on the source. Let’s look at the recent announcements of some of the big banks:

Citi: Plans to cut another 1,200 jobs in the IB. Share price down 38%, 2011

JPM: Cut workforce 4%, plans to cut another 1,000 jobs. Shares down 11%

MS: Plans to cut 1,600 jobs. Shares down 33% 2011

GS: Cut 2,400 jobs last year, possibly looking at more. Shares down 35%

Etc, etc. The common theme here is current cost structures can’t be supported by current business flow. In the absence of rising revenues management has to prove to shareholders they will at least see falling costs. That means more layoffs ahead on top of the estimates above. The only thing that will avert this is a roaring bull market sweeping down majestically across the plains. Wait, let me stand up in my stirrups and look at the horizon. Nope. Don’t see one.

How to Keep Your Job

Moynihan, the CEO of Bank of America, according to Reuters is, “…scouring the global banking and markets unit for expenses to cut after a 58 percent stock plunge last year.”  Your manager, wherever you work, will be under pressure to do the same. We are all fighting global forces largely beyond our control but there are a few things you can do to protect yourself.

1)     Head down. Don’t raise your head above the parapet and become an instant target for the snipers prowling around you.

2)     Don’t make any mistakes. Similar to number one; basically, don’t give them a reason to can your ass.

3)     Bring in new business. If you can attach yourself to a new revenue stream, whether you are a trader, a sales person or an analyst you may buy yourself some time.

So, You Got Your Walking Papers

Well, you tried all the ideas above and you still got the axe. Welcome to life in a cyclical business. There are two good things, if you can call them that, about losing your job now:

1)     Nobody will blame you

2)     The hiring season is ahead

Let me explain the first one. With hundreds of thousands of people getting the pink slip, your resume won’t look bad in the future because of this dismissal. A future job interview will probably go like this:

Interviewer: I see you lost your job in 2012.

You: Yes, it was a bad time for many.

(Note: Try and be magnanimous here. Don’t say things like, “Those assholes fired me to protect their own jobs.” It makes you look immature. Everyone will know and remember all the layoffs in 2011-2012. There is no stigma here).

The other “good” thing about your recent dismissal is the time of year. It sounds counterintuitive that banks are hiring while they are laying off thousands but they are. Management likes to use terms I hate, such as “talent upgrade.” Even if they let go half of their sales desk they will likely hire one or two more “new faces” that have relationships they still need. It is the same with research and trading.

What to Do Now

1)     Don’t cry. Be a man – even if you are a woman

2)     Thank everyone you worked with including the prick who fires you

3)     Update your CV

4)     Stay visible

Now you need to network. But don’t be somebody that everyone feels sorry for. Keep a positive attitude and people will respond accordingly. When you meet friends or people you know in the business after you lost your job you don’t want them to feel sorry for you. Don’t tell people you are sitting at home, finger up your nose, watching a phone that never rings. Tell them you are “having discussions” or are “in contact with” several shops but are happy to wait for the right offer. This gives you “social proof.” If you aren’t talking to any firms, or nobody is showing interest in you, it gives the impression to the market that you are toxic waste. But don’t overdo it. Honesty is always the best policy and we are kind of entering a gray area here.

Headhunters – Good or bad?

Most quality executive search firms find people for jobs – not the other way around. They are not an employment service. They work on a (hefty) commission to go out and get the right person for the job mandate they have been contracted to fill. If you find a headhunter who is interested in you, remember they will be taking a big cut of your first year’s compensation at your new job. The bank will be paying you less in order to cover this cost. Beware of recruiters. They work at the mass end of executive search and basically collect resumes that they use to flood banks, hoping one sticks. They aren’t much use to you and your CV is just tossed in a box along with everyone else. At the end of the day, the bank takes the box and throws the box away. Don’t ever pay a fee for this type of “service.” Some shysters out there work on such a boiler room model and you won’t get anything after you hand over your cash.

My Two Favorite Words: Time Off

If you are banging your head against the wall for months and months with no results then it is time to re-evaluate. Either the business isn’t coming back or you are perceived by the market as not suited to the business. You might want to try another field. Or you might want to go back to school, or go dig toilets in South America. Do something that you want that will make you stand out when you jump back in the job market again. You can have fun doing this and it will make you a better person too.

Good luck.

In earlier post I wrote about how the morning meeting in equities is the most sacred part of the day. One of our readers was interested to know: how do you drill the analysts and what kind of questions do you ask? I thought, great! Now I know what to write for my next post. 

(If you aren’t familiar with the morning meeting ritual, you may first want to read that post here).

Sales people speak to clients daily communicating the analysts views and changes to those views on stocks. To speak effectively to clients, we need to understand exactly what the analyst is saying – and why. You don’t want to just parrot the research and, oh God, how many times have I seen sales people do that without knowing what the hell they are talking about. If you don’t understand, ask. There are no stupid questions but there are a lot of inert, unenlightened sales people who remain in an intellectual fetal position due to their fear of asking questions. Remember, if you don’t ask questions you will never know more than you know right now – which isn’t very much. 

Rules of Engagement: 

1) Don’t ask a question because you like the sound of your own voice.

2) Keep your questions as short as humanly possible. We all want to get out of there.

3) Don’t embarrass the analyst in public unduly. A little will suffice.

4) Thank the analysts for their answer (and write it down in your brokers book).

It is useful to remember the purpose of the morning meeting: this is the venue to get everyone together and discuss and learn what that day’s “message” to clients will be. As a sales person you must go in there prepared. Only losers or those who already have another career picked out, show up to work a minute before the meeting starts. You should be at your desk early and have digested all the overnight market action and news before the morning meeting begins.

Take a look at the analyst report while they are presenting and think; what is the story and is it relevant? Who is it relevant to? Do I understand it? What don’t I understand? You will be on the phone with a client afterward and you don’t want to look or sound any more stupid than you already are so you need to get an idea of what the gist of the report is. You can read the note more thoroughly after the meeting so don’t worry about getting 100% of it up front. But when you don’t understand some of the reasoning it is time to ask a question. Let’s look at some examples.

A “Buy” note?

You Ask:         I see this stock is trading at 18 X PE and has 10% earnings growth. It sounds expensive. Why do we have a Buy on it at this level?

Analyst:         This stock is always expensive.

You Think:    That isn’t a compelling argument. Forget about it.

A sector initiation or stock initiation?

You Think:       This 150 page report would break a bathroom tile if I dropped it. No client on earth is going to read all of this. What do I need to highlight to them?

You Ask:          You have put a lot of effort into writing this report. Can you tell me where we differ from consensus?

                        or 

                          This is a massive report. What three main points do you think clients must know here?

A stock downgrade after the stock has fallen 50%.

You Think:       Jeez. Little late on this call, Bozo.

You Ask:            I see the stock has already come down 50% from its highs. Why do you think there is more downside? Shouldn’t we be buying it here?

A “Hold” note.

You Think:       This is useless. How long do I tell clients to “hold” this for?

You Ask:          I see this stock is a Hold. What do we need to see for you to upgrade or downgrade it from here? How likely is that catalyst?

A sector update or review.

You Think:       Is there anything new here or is this just maintenance research?

You Ask:          Any changes to views on stocks here?

Finally, don’t monopolize the morning meeting with your questions (remember rule number one). Let other salespeople speak. This is common courtesy which is a misnomer since it seems quite uncommon in practice. I limit myself to a maximum of three questions to a particular analyst on a particular story. If I have any more questions I call the analyst after the meeting and speak to him or her. If you work in the same office then don’t call the analyst, walk over to their desk and ask them face to face. You get much more information that way and it helps build the relationship. Remember, although some may not look like it, analysts are people too.