The Bulls of Baghdad
Trader Monthly/Trader Daily
By Phillip Robertson

In a nation plagued by bombings, kidnappings and political strife, a trading floor struggles to survive. Come spend a day in Baghdad’s financial trenches: the Iraq Stock Exchange.

It’s 9:59 on a Monday morning, the calm before the sandstorm at the Iraq Stock Exchange, mere seconds before the market opens for its twice-weekly session. In a spartan, sweltering room, a hundred or so traders stand on a vast stained lagoon of gray carpet. Surrounding them, a sea of spectators and brokers crowd up against a low barrier like bettors at a racetrack. Each of them cranes forward to get a better look at the numbers; several men wield binoculars to assist them in the task.

Few of the men in the room are clean-shaven — most have mustaches — but there are no flowing beards to be found. (If there are, indeed, no atheists in foxholes, there are also no fundamentalists on trading floors.) The large room smells of cigarettes, bad cologne and sweat. There are no Americans in sight.

On the wall hangs a plastic battery-operated clock, its second hand sweeping around the face. When that hand hits the top, the opening bell will sound, bringing to life another 150-minute session of perhaps the world’s most unlikely stock market, a trading floor whose hopeful cacophony may offer the closest thing this ravaged nation has for a soundtrack of capitalism. The hand reaches its apex, and another day of the Iraq Stock Exchange is heralded by the sound of . . . a doorbell.

A cheap doorbell wired to a grimy switch on a white wall, its static buzz is both familiar and weirdly appropriate. If Baghdad’s nascent stock exchange has a symbol, this is it. The Iraqi market — like Iraq itself — may be long on hope, but it’s short on production values.

The roomful of traders at the Iraq Stock Exchange don’t seem to care. At the sound of the bell, they leap into action just like traders the world over — yelling into their phones, scribbling down trades, pulling at their hair. In a roped-off section to the side of them, a crowd of investors and brokers, cellphones pressed to ears, begin shouting to the men on the floor. They shout at the stock prices. They shout at God. As many as four traders seem to work the same patch of carpet at the same time.

There are, however, no computers on the floor. Every aspect of this lunacy must be tracked by hand. To handle the job are dry-erase boards, upon which traders scrawl with multicolored markers. Several traders huddle around each, erasing buy and sell prices and madly scribbling new ones in their place. Somehow, they manage it all without throwing punches — perhaps more than one would expect from the boys of the NYMEX, were they to try the same.

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So on my little break back home in Utah, I have noticed an increased number of people I did not see very much of in New York: Mexicans. All over the news you see cases of illegal immigrants gathering on the corners of 7-Eleven's hoping some guy who wants his deck painted will offer some cash in exchange for some good manual labor.

So this brings to light a bigger issue, illegal immigration. It is no surprise that there are an increasing number of illegal immigrants from south of the border. A new poll in Mexico shows that 40% of its residents would move to the US and 20% would be willing to do so illegally (Source: Link). Now something like this causes most people to think about tighter border controls but that doesn't do anything to solve the problem. The long-term goal here is to disincentivize Mexicans from moving to the US... but to even get close to solving that issue, we must first ask the question: Why are Mexicans so willing to move to the US?

That question is pretty easy: the US has the world's largest and most productive market. Let's ask another question then: why isn't Mexico undergoing the kind of rapid development that is seen in China, India, Brazil, and other advancing nations?

This time we have to focus on the half-empty part of the cup. It's obvious that the US has a better economy with more jobs etc. etc. etc., but lets' take a look at why living in Mexico sucks so much that 40% of the residents want to leave.

After a little research, I think I have pinned it down to Mexico's growth-stifling regulation (feel free to disagree, but you'll be wrong):

• In Mexico it takes 58 days to start a business, compared to 5 in the US and 3 in Canada.
• As a percent of per capita income, the costs of starting a business in Mexico is 16.7%, versus 11.7% in Brazil, 10% in Chile, and 0.6% in the US (hrm, do we need a scatterplot to see a correlation here?)
• Despite what you may think, apparently it's really hard to fire Mexicans!!! (In Mexico of course). Laws in Mexico are so focused on the employee that the employer has to pay special severance fees, fines, penalties to the government, and provide ridiculously hefty amounts of paperwork in the form of advance-notice requirements to just fire an employee!!! That (according to Forbes) is equivalent to 83 weeks of the worker's wages!!! Jesus Christ... Pedro for President [of Mexico]!!!
  
• Some other reasons: high cost & time to register property, high interest rates, and an overall flawed economic policy.
  

Okay, so from the above I think it's safe to say that if we as a Bible-loving-Xenophobia-embracing-Black-hating-Female-undercompensating-free-market-hypocrite of a country want to reduce the flow of illegal immigrants from our southern border, we should probably strongly urge its government to enact institutional reforms in order to bolster its economy and put Mexico in the same boat as other rapidly developing countries.

Bottom line: more economic efficiency in Mexico = less Mexicans outside of 7-Eleven. Now if only we could do something about those damn Asians...

According to UChicago Economics Professor Stephen Levitt, the following eight factors are highly correlated with test scores:

• The child has highly educated parents.
• The child's parents have high socioeconomic status.
• The child's mother was thirty or older at the time of her first child's birth.
• The child had low birthweight.
• The child's parents speak English in the home.
• The child is adopted.
• The child's parents are involved in the PTA.
• The child has many books in his/her home.

And eight factors that are NOT correlated with test scores:

• The child's family is intact.
• The child's parents recently moved into a better neighborhood.
• The child's mother didn't work between birth and kindergarten.
• The child attended Head Start.
• The child's parents regularly take him/her to museums.
• The child is regularly spanked.
• The child frequently watches television.
• The child's parents read to him nearly every day.

The study basically states that the first eight factors depict what parents are, whereas the last eight are what they do. Much like how a politician needs to have people like him as a person (regardless of how much money he raises) to secure a vote, it isn't about what you do but who you are, at least in this context.

Source: Link

Currently reading Freakonomics. Here is an exerpt:

Consider this true story, related by John Donohue, a law professor who in 2001 was teaching at Stanford University: "I was just about to buy a house on the Stanford campus, and the seller's agent kept telling me what a good deal I was getting because the market was about to zoom. As soon as I signed the purchase contract, he asked me if I would need an agent to sell my previous Stanford house. I told him that I would probably try to sell without an agent, and he replied, 'John, that might work under normal conditions, but with the market tanking now, you really need the help of a broker!'

This morning at around 7:30am, guys at work wanted to find a song to download. Because we couldn't install iTunes or any sort of paid music-downloading software, they basically searched on the web to no avail until I stepped in with a solution: a Chinese-based search engine which has an mp3 search function, www.Baidu.com. We used this site and within 20 seconds, downloaded and played the song we wanted, it worked like a charm.

Strangely enough, Baidu also turned into a public company today. That means that it decided a long time ago that it wanted to be traded on a stock exchange in order to gain more capital from potential shareholders, and so they along with an investment bank (in this case, Goldman Sachs) went hand-in-hand over the past few months to set up what wall street calls an Initial Public Offering, or IPO.

The role of the investment bank in creating an IPO for a company that wants to go public is very simple: determine a market price for the company, find people to buy the stock, figure out all the legal details with the SEC, and in the end, do the entire job for a nice 8 digit fee.

So this morning when the market opened, the fresh-from-the-oven stock of Baidu.com (Ticker: BIDU) came onto the open market at $27. Almost immediately, the stock jumped to $60, within two hours, the stock rose to $80, and after 3 and a half hours, it reached $100. When the stock market finally closed at 4:30pm, the stock closed at $126, or up $95.54 in one single day. That is ridiculous. Now that seems great if you were lucky enough to get in on the deal and buy some of the shares, but most of that was reserved for large mutual funds and institutional investors (aka people who wanted a piece of the pie had to have been some of the huge ballers on Wall Street, with tens of millions ready to invest and really good relations with the Investment Bank).

At the end of the day, while the gain of BIDU was completely astounding, the biggest shock is not the potential value that was gained in a day (that within itself is a whole new post) but rather, the complete FAILURE by GOLDMAN SACHS to fairly value the company.

Why do I say this?

Think about it. If you are the executives of Baidu and the firm you hired [Goldman Sachs] values your company at $27 and tells you it will sell it to the market at that price (one of the typical roles of an Investment Bank during this process) and in the same day, the value of that $27 stock rises almost $95.54, you just got COMPLETELY FUCKED. It's as if I told you that your car was worth $5k, bought it for $10k, and then turned around and sold it for $100k -- at first you thought you got a sweet $5k profit, but in the end, you realize that you just incurred an opportunity cost of $95k. Got it? Yes, the CEO of Baidu might as well have just turned around, bent down, and taken it up the butt by every single institutional investor in the world... why? Because if we calculate the volume of the stock right now multiplied by the change in its stock price, you just got snubbed out of... well, a mere... $2.1 BILLION DOLLARS.

Not only did the executives at Baidu get screwed, but so did all the foreign venture capitlist firms who put up hundresd of millions of investment dollars to have the stock sold at $27....

And as per my character, I never criticize without providing some sort of suggestion or solution, and thus, the only possible thing to do for the executives of Baidu is obvious: sue the living fuck out of Goldman Sachs, they axed the IPO and deserve to have their white-shoe name tarred-and-feathered in front of Wall Street. In fact, that might really be what happens next, so keep your eyes peeled.

On a brighter note, I do enjoy taking credit for pointing out this stock before the IPO even came out this morning, as referenced by my music download in the beginning of the post.

Quincy Scott (Trader): "So what's your stock pick tomorrow Feng?"

P.S. Read the first sentence of my previous entry (put in at 10am).





Source Link: CNN

The Chinese search-engine Baidu (BIDU) is releasing their IPO today. With a market share potential of a billion users, will this be the next Google?

On completely unrelated matters: I really hope the guys in Washington did their cost/benefit analysis of this whole War in Iraq thing accurately:

Today there is a mind-opening article on the Front Page of the Wall Street Journal about the family of a Mormon Ford executive struggling to live an American life in the industrial city of Chongqing, China.

Link

China is in the headlines now, everyday. The world is beginning to realize the fundamental shift in the powers that influence our world. For the past fifty years, it has been the United States who has called the shots in the world scene, bullying other countries and getting what it wants. That is no longer the case anymore. With the war in Iraq in one hand showing a great example of both international and domestic dissent on American imperialism and in the other hand, a struggling economy artifically bolstered by low interest rates and high consumer spending, we can see that America, while still by far the most powerful country in the world in all respects, is beginning to show signs of aging.

I agree with Brian's comment on my earlier post that it is likely that China will become a world superpower in the next 25 to 35 years. The real question is: how long will America remain a superpower?

If we were to produce a list of the most prominent superpowers in the history of the world, most historians would bring up (in no particular order):

1. The Mongol Empire (1206-1368), largest contiguous empire in world history. Founded by Ghenghis Khan, it spanned from southeast Asia to eastern Europe. The Mongol Empire was the first of its kind to actually rule the world bureaucratically and autonomously by allowing conquered nations to maintain their own culture, government, and religion at the expense of paying annual fees to the Mongol government thousands of miles away.
2. The British Empire and Commonwealth (1485-1921), world's first global power and history's largest empire; by 1921, it held sway over a population of 400-500 million people, or ~25% of the world's population and covered 14.1 million square miles, or ~24% of the world's total land area.
3. The Spanish Empire (1402-1603), At its largest reach, roughly 1740-1790 Spain controlled about half of South America, more than a third of North America, and had significant holdings in the Pacific basin. It is arguably so that the Spanish Empire has had the greatest impact on the American continent, basically fueling the development of south-western North America, Central America, and South America.

How would historians a hundred years from now look back upon America? Were we really the country of free-market prosperities and civil liberties? Or an imperialist nation powered by special-interests covered by a veil of democracy? Perhaps a synergy of both?

NY is amazing. Would like to spend more time in Asia though, Hong Kong or Singapore would be fun too. Speaking of Asia, Japan has probably the most potential (out of any other country in the world) to become a world Superpower. Check it out:

Japan arguably has the second-best navy in the Pacific, centered around four helicopter-carrying destroyers, nine guided-missile destroyers, 34 destroyers, and 18 diesel-electric submarines. A large number of these ships (two of the guided-missile destroyers, 13 of the destroyers, and nine of the submarines) have entered service were since 1995, making this a very modern force. The rate of ship construction has held its own with China (which has added eight destroyers, 12 frigates, and 10 submarines in that timeframe), and this is with Japan arguably holding back.

Japan’s air force is similarly modern, and is built around the F-15J (a variant of the F-15C) and the F-2 (a stealthier version of the F-16 with four additional hardpoints). The total quantity of the F-15J force is about 200 aircraft (counting the combat-capable F-15DJ two-seater). Currently, 130 F-2s are authorized (49 are presently in service), but the figure could likely go higher as the 92 F-4EJ Kai Phantoms are retired as well. This is smaller than the 380 Su-27/Su-30MKKs in the Chinese air force, but Japan has a huge advantage, in airborne early warning aircraft, over China, having operated E-2s since the 1980s, and is now acquiring the E-767, four of which are currently in service. China might have four A-50 Mainstay aircraft in service as of 2005, but this is a huge if, and they are trailing Japan by 15 years in learning how to use them.

Japan’s economy is half that of China ($3.4 trillion to $6.7 trillion), but Japan gets its GDP from a population that is about 10 percent of China’s. Japan also holds a significant lead in technology (for instance, the Civic and Prius hybrids that are on the road today were designed in Japan), and its shipbuilding program continues (two diesel-electric submarines, two helicopter-carrying destroyers, two new Aegis guided-missiles destroyers, and four more Takanami-class destroyers are planned to join the fleet by 2010). Japan is also keeping its military strength at this level by spending one percent of its GDP on defense. China spends about 1.7 percent of its GDP. As one can see, Japan has the potential to be a superpower.