Suffice to say it’s been the most interesting two weeks in finance, of my whole life.

We’ve lost the world’s biggest insurer, and basically all the world’s biggest investment banks are dead or eaten by competitors. Most of this happened in just 10 days.

In the UK, we had about 8 big banks of varying sizes, so far 2 are dead (NRK/BB), 2 have been forced into takeovers (AL, HBOS). That just leaves LLOY, BARC, RBS, and HSBC. It’s exciting stuff.

Meanwhile in the USA, idiot citizens are phoning in to their representatives, trying to stop politicians passing a $700bn financial stability package. This is tremendously short-sighted. What do you think will happen if the banks become paralysed or bankrupt? Hundreds of thousands of businesses will be screwed. Hundreds of millions of individuals will potentially be screwed as the housing market begins a new and steeper nosedive, as their pension funds collapse, and as jobs disappear. John Mauldin has it right - pinch your nose and do the deal, because it’s the least bad of many bad options right now.

Meanwhile, Taiwan has tried to keep it’s housing market and stockmarket afloat by making money cheaper to borrow again, i.e. dropping interest rates. But this is foolish - the banks are paralysed by not knowing what losses they’ve taken and what losses their counterparties are taking. So, it doesn’t matter how low you put interest rates, the banks simply won’t lend. This is a liquidity crunch now, far more than an affordability crunch (though the housing market here is pretty bad in that regard too!)

Check out the Taipei Times. Wow, the media is catching up to the fact that houses are absurdly expensive in Taiwan, particularly Taipei, and it only took them two years to realise that.

““Taiwan’s housing prices are still overpriced,” Chiang Li-wen, manager of Taiwan Cooperative Bank’s (合作金庫銀行) personal banking unit, said by telephone.”

“Taiwan’s top five banks, including Taiwan Cooperative Bank, issued a total of NT$31.97 billion (US$1 billion) in new mortgage loans last month, the lowest since NT$21.19 billion in loans made in February, the central bank said in a statement this week.”

Here is what happened in Japan 18 years ago when the banks realised they had huge losses on their books (just like Taiwan), at a time of ridiculously high house prices (just like Taiwan), and couldn’t lend any more (just like Taiwan). Notice the interest rate graph - dropping interest rates doesn’t save you in a liquidity crunch.

House price declines in Japan, last 18 years. From this article.

Interest rates in Japan, last 18 years. From this article.

Note: RBS and HSBA are the UK’s two biggest banks.
RBS is up 44.2% after the first hour of trading.

Also, a quick comment about Taiwan. The US is reporting some $80 billion NTD of losses for Taiwanese investors and banks. Taiwanese newspapers this week only mentioned about $2-3 billion NTD when reporting on companies that have been hit. If you are reading the Taiwanese press and thinking ‘it’s probably nothing’, you may get badly burned. If you think you are OK because your bank hasn’t been mentioned yet - consider the possibility it is because they are still trying to add up their losses. “No news is not good news” when it comes to admitting losses, unfortunately.

Addendum: check out this beauty of a graph!

Actions, however, speak louder than words.

Action 1: They are pouring taxpayer money into the stockmarket to stop it sinking so fast.
Action 2: They are handing out free/cheap money to the banks to keep them alive (top of article - 3.6 billion US dollars handed out in cheap money on Tuesday alone).
Action 3: They are reducing Taiwanese bank reserve deposit requirements (if the banks have spare money and are not at risk from the USA, why is this needed???)
Action 4: They are telling you not to panic. As they talk to the public following an emergency meeting. Think about it.

If you keep all your money in one place just now, you are MAD. Actually that’s true at any time, but especially true just now.

Check out this list of Taiwanese banks who took giant losses just from the failure of a single US bank.

If you want to see something really amazing, though, look at this. The line represents how ‘risky’ the banks see the world. (It’s the inter-bank lending rate, LIBOR, on which US home loan payments are based).

Here is what happened in Tokyo and Hong Kong when their property prices zoomed in the way that Taipei’s have. I believe that in ‘house-price-relative-to-earnings’ terms, Taipei has recently exceeded the heights of these graphs.

So, dear reader, I show you a possible - indeed, likely - future.

Click on the pictures to view them fullsize. These pictures are mirrored from reinet’s site.

If you look at the high point on those graphs… well, that’s where I think we are now. And if you look at the low point…. well, that’s where I think we shall swiftly go: 70-80% falls in property prices, and most of it too fast for anyone to hope to escape.

(Apologies, Scott… it was too tempting)

She had a great time - all my friends were really nice to her, and helped me to show her some cool places. I saw a few new places myself, too..

Mum, Leila, Ethan, and their children, shopping in a giant mall in Zhongli.

Exploring Taoyuan city centre

Tasting shui jiao (dumplings) for the first time, near Taipei Main Station.

Taipei City Hall area.

Enjoying the view from Taipei 101.

Looking out across Taoyuan city.

Exploring ceramics at Inge with Sean, Kyle and Leila.

The main Taoyuan city temple.

Visiting the Grand Hotel, Taipei.

Enjoying the decor, before lunch.

Travelling to Hualian County.

Discovering that in one Taiwanese hotel, only midgets can use the facilities (look carefully).

Reaching Toroko Gorge, Hualien.

Can you see mum on the bottom right?

Walking through the corridors of the Toroko.
This part of the road is said to be as ‘twisty as a Chinese dragon’.

Mum with Davie (our friendly host in Hualien) and his daughter Tina.

Stopping for a break at a lake near Hualien City.

Late night shopping in Hualien City with Davie, his son and a friend.

Exploring the beach.

First view of the Pacific Ocean

Myself, mum and Tina near “Cow Mountain”.

Exploring a temple on the East coast.

Back to Taipei. Looking from the Chinese Culture University (YangMingShan).

What’s that little building over there on the left?

Exploring the sulphuric geysers of YangMingShan.

Leila and Mum at an organic farm in YangMingShan.

Lots of wildlife…

Strange buildings in the mist…

Say Cheese…(Kyle, Sean, Leila, Mum and myself).

Kyle treating everyone to a healthy organic meal.

Picking Canna Lilies at YangMingShan.

Underground shopping at Taipei City Mall.

Visiting the Maokong Gondola, Taipei.

An ETF is just a form of index tracking fund, that can be bought and sold as though it was a company. Index tracking involves copying the performance of a group of shares, usually a well known group. For example, an index might contain the largest 500 companies in a particular country (the SP500, DAX or FTSE100, for example).

If you think of ETFs as a pretend company listed on the stockmarket, that performs like the average company in the market, you wouldn’t be a mile from the truth. For example, “ISF” is the name of one ETF, whose share price mirrors the level of the FTSE100. It also pays out the same dividend as the companies in the FTSE100, on average (less a fairly small annual charge).

Internationally, ETFs have been available to the public for a few years, and you can purchase ETF shares corresponding to almost any major stockmarket index: America, Europe (or individual countries in Europe), Asia (or individual countries in Asia), …

Unlike a mutual fund, ETFs don’t have an upfront charge to buy in units of the fund; nor an exit charge; and typically, ongoing annual charges are tiny - 0.4% per year being easily achievable on most major indices.

So why do I bring this up today? Well, for about a year I’ve been trying to find a way to invest in ETFs from Taiwan, so that my Taiwanese friends can enjoy the almost magical returns of passive, long-term-buy-and-hold index investing.

To date, I’ve only found ‘fake’ ETFs available through some Taiwanese banks - where “ETF” has been included as part of the name of a traditional mutual fund, to try to make it sound trendy, new and fashionable. These ‘ETFs’ aren’t worth spitting on; they’re not tradable like real ETFs; there’s often no real attempt to actually replicate a well-known index; they have high annual charges; and remarkably, they typically have costly entry and exit charges.

However, the Financial times reported today that the Taiwan Stock Exchange is to list more than a dozen real ETFs mirroring the indices of countries all across the world.

This is great news if you’re living in Taiwan, and especially if you’re limited to investing in Taiwan. These ETFs will offer an ‘easy to get in, easy to get out’ way of investing in index trackers, and at low cost - no upfront costs besides a small share dealing charge, and a tiny annual management fee.

For anyone who just wants to invest in international stockmarkets, but doesn’t want to learn about shares or funds or fund managers, this is a great choice. Also, there’s bucketloads of evidence that passive index trackers outperform traditional actively managed mutual funds, after charges are taken into consideration, so this is really a superbly effective way to invest spare money.

Anyway, please don’t take my word for any of this - this is a blog post, after all, not financial advice. Still, I’d recommend to anyone with some spare dosh, currently living in Taiwan, that it would be well worth your time to learn a little bit about ETFs.

NNT is one of the few authors in Finance I take seriously; the others being Warren Buffett, and Benjamin Graham. His books, ‘Fooled by Randomness’ and ‘The Black Swan’, are must-haves for any serious finance nut. Besides his theoretical savvy, NNT is a damned funny read, as you’ll see in this article.

I admire his guts. Remember, he is up against the entirety of financial academia as well as the bulk of the finance industry - stating out loud that the most basic theories in Finance are flat out wrong. Fortunately for him, he happens to be right.

Furthermore, he is in very good company. Anyone who has read ‘the superinvestors of Graham and Doddsville‘ will have become well aware that the core theories of finance are based on utterly absurd premises.

Here’s a sneak preview… enough to whet your appetite.

Last August, The Wall Street Journal published a statement by one Matthew Rothman, financial economist, expressing his surprise that financial markets experienced a string of events that “would happen once in 10,000 years”.

A portrait of Mr Rothman accompanying the article reveals that he is considerably younger than 10,000 years; it is therefore fair to assume he is not drawing his inference from his own empirical experience but from some theoretical model that produces the risk of rare events, or what he perceives to be rare events. (NNT, FT.com)

Click here for more.

The alternative explanation is simply too stupid to be true.

And yet people wonder why I travel by bus rather than scooter.

Sunset over Taoyuan.

Pastel mountains.

Taoyuan, the dark city.

Click the picture for a full-size version.

So let’s have a quick dose of reality. Shanghai is a crazy market in a country with at best ‘interesting’ financial regulation. If you’re investing there, then bluntly you’re a gambler who is taking a big risk to begin with - and an 8% smack on the bottom is a very small punishment for a gambler.

The PRC is still a developing economy, and the present asset bubbles there are very obvious. These bubbles, incidentally, are due to several different factors: an extended period of artificially low interest rates… yawn… lax lending policy… zzz…. combined with a trade surplus, high savings rate, and the widespread belief that for some reason, the PRC deserves success because, it, well…. err…. well, it just does, right! And chances of financial mishap be damned.

Anyhoo, here are some pictures that put yesterday into perspective, based on Hong Kong’s Hang Seng index (which is the world-class index most likely to be affected by price changes in Shanghai). These graphs were provided by Yahoo Finance.

The last 5 days in Hong Kong. It looks like the stockmarket is just grinding lower, and lower, and lower, every day! And yesterday is the nail in the coffin! Oh noez! How terriblez!

On this graph, showing the three month view, you can see, the market is in fact much higher than it was in December, or in January when everyone felt optimistic. You can also see there have been lots of 1 day drops like this in the last couple of months, and hardly anybody cared about it then….

And here’s the 5 year view. See how unimportant yesterday was?

A big perk of all this is that you get to see all the witchdoctors and horoscopists crawling out of the woodwork. Here’s one of them. Guess what: if you have 10,000 snake oil salesmen, each predicting different ‘horrible days’ in the market for each year based on their own feverish interpretations of the Da Vinci Code - and if you combine that with a search engine that allows you to pick out the ‘winners’ when something interesting does happen - guess what! You are likely to find some ‘winners’.

Coming up next: I predict it will be a terrible turning point for a major world market, on… emmm… July 19th, 2011, because on that day, there will be a conflict between overlapping MooCow Market Cycles!

Now all I need to do is cross my fingers and wait for people to start Googling for me if something actually happens on that day. And then I’ll be a famous financial pundit, and everyone will want me to explain exactly how MooCow Market Cycles work. Oh, and I’d better remember to use FTSE, NYSE, NASDAQ, NIKKEI and HANG SENG somewhere in this article so that they can find me more easily.

Oh well… even though I have most of my money in the market, I would be delighted to see some further falls - I’m young, so I expect to be buying far more shares than I sell over the next 10 years. And with bubbles in every asset class all around the world, further falls seem very likely indeed…

I’ve received some feedback since I wrote the original article, so I thought I’d follow the article up with a few more thoughts on cheap money & how it affects an economy…

Cheap money

First of all, a question: What do I mean by ‘cheap money’? Historically, interest rates around the world have averaged a little higher than inflation. In other words, if I know that prices of beans, cars, monkeys and so on will be higher in 3 years time, then if I lend you money for 3 years, I will want to get enough money back so that I can still buy at least the same amount of beans, cars, and monkeys in 3 years time. Further, I will want a bit of extra money as a thankyou for accepting the risk you might not pay me back, and for the fact that I have allowed you to make use of my money for 3 years, and for the risk that inflation might have been higher than I expected. So if I say ‘cheap money’, I mean money that is being lent rather freely without too much consideration for:

• Likely or possible levels of inflation over the period of lending.
• Achieving good returns over and above the rate of inflation.
• Risk of default, i.e., when the money doesn’t get paid back.

(more…)

I hope he’s paid well.

What on earth could possess a man to undertake such employment? The money behind the housing boom in Taiwan. Personally, I hope this guy is getting a decent hourly wage, because he is doing his job really well. You’d think he’d take a break every now and then, but no, he’s tireless - as long as he stands there, the arrow shall wobble - come hell or high water.

(more…)

Banqiao is an area in the southwest of Taipei. There seems to be a reasonable amount of building work going on there just now, no doubt partly due to the High Speed Rail terminal that opened there, though it was already a major MRT/train/bus terminal anyway.

Why was I there? Well, it turns out there are two main types of train in Taiwan:

• Trains that insist on stopping at a whole bunch of stupid places when you’re in a hurry or needing the toilet.
• Trains that definitely don’t go to the place you want, and that add insult to injury by going past your intended destination really fast and not stopping for a good half hour.

Depending on the kind of inconvenience you’re hoping to have, you may have to pay some extra cash. In my case, I paid for the luxury of being driven past Inge station (my intended destination) at high speed, with no stops for 30-40km, after hopping onto an express train by mistake. Having arrived in Banqiao, I decided I might as well make the most of it and have a look round.

A street near the train station in Banqiao. By the looks of things,
Banqiao has some sort of giant birds that crap onto the road.

Would you like to buy a vulgarness?

How about a remote control?

A treat for your dog?

So THAT’S what JSC stands for.

Getting dark now. Crossing the road is becoming a bit more dangerous.

A groovy walkway right next to the train station.

The following day, I went back to see how Banqiao looked with a bit more light on it. But I’ll leave those photos for another day.

Here’s the name. Just look for the christmas tree lights and you’ll be fine.

After a few weeks of trying to find some free time, I went there again with my friends and had yet another stunning meal - 3 people, 7 or 8 dishes, and drinks all came to $1000TWD in total.

Pete wonders if they are open yet…

They have the entire menu translated into English, and they have a good range of different types of food including several types of salad and fish dishes (if you’re vegetarian/vegan). Decor and music are… well they’re not quite as good as the food, let’s put it that way. Bring earplugs.

Lemon Fish (li mon yu) - $200TWD. So good I literally ate it twice, to the disbelief of the staff.
In my books, two fish for $400TWD is a bargain.

Tom ka gai soup (chicken/not spicy). $150TWD for a giant bowl. Spicy salad $80TWD.
My advice? Mix some tom ka gai with the sauce from the lemon fish.

“We highly commend the tasty food of Random Thai Place.”, say Pete and Angela.

After dinner, you can gaze in awe at the all-powerful Benq sign.

I’m not sure I want to try saying the name of this bookshop aloud.

An encouraging title.

Now, if only it really was this easy.

There is a special place in my heart for books about English grammar and style
that can’t even get the title of the book right.

Irony.

More irony.

What??? There’s only 103?

These signs started popping up on buses around Taipei in response to the bird flu epidemic in Asia, as a means of helping control the outbreak. Literally overnight, it seems, it became necessary to either leave your ducks at home, or take them on the scooter. One thing for sure is that duck-accompanied public transport has become a definite no-no.

Ostensibly, this kind of thing helps control bird flu transmission. In reality, it just makes ducks’ lives awkward, and forces them to take taxis instead when they’re in Taipei.

What is strangest of all though is that these signs seem to be confined to Taipei. In Taoyuan, we welcome ducks. If a duck can scrape together $15 TWD and explain to the bus driver where it’s trying to go, then as far as I’m concerned, it has earned the right to use public transport.

Where I grew up, it was possible to see thousands or tens of thousands of stars at night with your naked eye. Here, so far I’ve been lucky to see 40 or 50 - but at least it’s something, and I feel like I’m still in touch with the night sky.

This week, I’ve been standing on top of high buildings at sunset, straining my eyes while hoping for a glimpse of Comet McNaught. This comet was identified a year ago by an Australian astronomer, Robert McNaught. Since about a week ago, it has been visible around sunset and sunrise in many countries, starting with the northern hemisphere and more recently the southern hemisphere. You can read a little more about it here: Sci-Tech Today.

Unfortunately, Taoyuan has had cloudy weather for the last week or so, especially at sunset, which is quite infuriating. The only compensation I’ve had is that there have been some pleasant sunsets to enjoy.

Taoyuan’s factories are often staffed by (low paid) foreign workers - a topic which very easily stimulates discussion when presented to locals, irrespective of their own nationality. However, economic disparities aside, this influx of foreign staff represents a boon to the palates of students travelling between the city centre and university. By visiting the restaurants in the industrial areas, you are almost guaranteed to get food that is:

a) cheap
b) completely authentic

and only very slightly

c) contaminated by heavy metals.

The area midway between the city centre and Guishan seems to be predominantly Thai. This isn’t surprising - Taoyuan is the most ‘Thai’ city in Taiwan, with over 30,000 Thais among the 70,000 registered foreign workers in the city. There is another area of foreign worker’s restaurants that can be more easily found, by taking the underpass beneath Taoyuan railway station and look around. The area near the railway station seems to be predominantly Indonesian and Vietnamese, though a few Thai restaurants such as ‘Suwadee’ can be found. (…however, Sudawee wasn’t very good the last time I ate there…)

If you’re interested in trying some authentic food from the Thai restaurants near the Guishan area, here is what I recommend you do. Go to the Tonlin department store (near the train station - ask the first person you meet to point you towards ‘Tonlin’). Around the side, near some small food stalls, the number 7 bus departs. Step onboard, pay $15 TWD, wait 10-15 minutes, and you will drive past a big building with a “BENQ” sign outside. Step off the bus (there are two stops within 200 metres), and you will find yourself in a little street with at least 5 different thai restaurants.

My favourite restaurant is the one nearest to the Benq building entrance - approximately 50 metres away. The scenery and music really isn’t the best in the world, but the food…. the food is to die for. Truly, the most incredible Thai food I’ve found so far, much better than the other Thai restaurants I’ve found in Taoyuan. Try the lemon fish (lee mon yu), and tom ka gai soup, and mix the sauces together to experience an absolutely divine combination. If you’re feeling brave, they’ll be happy to supply a spicy salad that will take the roof of your mouth off.

Beware though. Many bad experiences that I’ve had in Thai restaurants here stem from the friendly nature of the hosts. If you have white skin, they will avoid putting anything spicy (or indeed, flavoured) into their cooking so as not to surprise you. Insist on getting your food spicy! (”hen la”)

To help your taste buds recover afterwards, a convenient steamed bread stall can also be found near the Benq building, selling a very decent variety of sweet, soft, freshly made bread, for about $12 each. Highly recommended for mopping up the chilli that will now be stuck between your teeth.

Anyway, this discovery has posed a significant problem for me, as it means I have had to radically alter an already quite healthy diet, to try and make it super-healthy. I’ve had to add in even more exercise into my life.

Fortunately, I struck gold while alchemically combining various foods, and found a wonderful snack that fills you up, tastes great, and is super-healthy. I’m fairly sure no one will have thought of combining British, Italian and Korean cuisine before in quite this way, so here goes.

First, you take a piece of wholemeal bread, the staple of a British diet. Eaten by itself, it is only very modestly healthy (particularly with the sugar they add to bakery products here), and it is certainly not very tasty.

Second, toast the bread. This increases the tastyness by giving it a bit of texture, but does not add anything to the healthiness or ability to fill you up.

Third, get a bottle of ‘extra virgin’ olive oil. ‘Extra virgin’ basically means ‘taken from the first squeeze of the olives’ and tends to be more nicely flavoured than normal olive oil, and also subject to no chemical refinement or processing. Don’t be mislead by labels such as ‘PURE olive oil’ or ‘100% natural olive oil’. Only the words ‘extra virgin’ have a special meaning, and even that might not be worth much outside of Italy.

Fourth, pour the olive oil all over your toast. Why? Four reasons. First of all, we’re going to be adding something in a second which will need that oil. Secondly, it tastes great. Thirdly, olive oil drops your LDL (bad) cholesterol, since it’s a monounsaturated fat. Finally, there’s no way you are going to be snacking on crap food during the day, since this tasty combination will leak calories into your bloodstream all day long.

Fifth, and most excitingly, get a small tub of low-fat korean kimchi. You will have bought this before you make the toast, to avoid any ‘lack of kimchi’ problems at this crucial stage. Kimchi is basically just watery lettuce and chilli. It’s healthy and tasty, but sometimes hard to match with western dishes due to the sheer amount of chilli that decent Kimchi contains. Now, we’re going to put it on the toast. Your immediate reaction to this should be ‘DEAR GOD, MAN, NO!’, because putting watery stuff on toast creates a very unpleasant mush. A most untasty kind of mush, in fact, which you would not feed even to someone you hate.

But wait! Something is happening! The watery-chilli goodness is rolling off the lettuce and somehow floating on top of the toast! That’s right - by allowing the oil to sink into the toast, you’ve imbued it with magical anti-mush properties, since oil and water are not exactly the best of friends. So, now, pick up your toast and eat it, being careful not to allow the kimchi chilli to slide off onto your hands.

And there you have it: Ambrosia Mu’s Kimchi Olive Oil Toast - food of the gods!