Grrh part 2.

Well, My portfolio is rather heavy in biotechnology and Chinese stocks. So as you can imagine the past few days were pretty bad.

Now I am betting that the FDA will be scared to approve any drug that has even the slightest safety problem after the recent Glaxo Avandia bruhaha. Thing has been tough after the Vioxx case, that resulting the FDA approving less drug. Now, I bet the FDA will be scared to approve any drug application, even when the potential benefit may greatly outweigh the risk, unless it has squeaky clean profile. No one wants to be in congressional/senate hearing years from now if a drug approved today ended up having higher risk profile than initially thought.

I was enjoying some nice run with my little portfolio of Asian and Chinese stocks and ETF's. But then my old friend, Alan Greenspan, just had to take the punch bowl away, warning the market that a correction in Chinese market is imminent.

OK maybe now I should start buying gold bullions instead.

I Finally Found Wii, But...

Target won't sell it to me!

OK so you know that I have been looking for my Wii for more than 5 months now. A few days ago I stumbled this website that taught me how to check Target's inventory through their price scanner (the code is 207-25-0001).

OK so today I dropped by my local target to restock my cleaning supply, fridge and food cabinet. While there, I dropped by the electronic section and found no Wii in the shelves. Then I stopped by a price scanner and checked for a Wii. And alas, the thing said that the store's stockroom has Wiis so I approached the redshirt lady behind the electronic counter and ask if the store has Wii in stock. She quickly said "NO" and then I told her what I saw in the scanner. She finally relented and grabbed her handy talkie and called the stockroom. She said the store has Wii in the back but they couldn't sell it to me until Sunday. I asked "why?" She said it was simply store policy. She told me to go back on Sunday and line up in the morning and get a ticket or something. I reasoned to her that it was in both my and Target's best interest to sell me a Wii at the time. First of all it would improve the store's financial by reducing their working capital /inventory. She would also free up some precious shelf/storage space (maybe to keep excess PS3 inventories). Target's ratios will surely look better to those Wall Street analyst. Also I tried to teach her about time value of money that $1 at the time is better than $1 on Sunday. Well apparently my geeky arguments didn't work and I left the store without a Wii.

In my mind I said to myself that this is BS. Why would Target make their inventory public if they won't sell it to me. maybe they should simply close their inventory system closed to the public and internet sites like itrackr.

Oh on the topic of BS, yesterday I stumbled upon this interesting article about paid stock basher on Yahoo! finance message boards somewhere. Thanks to Jon at ValueWiki, I learned out that it's a hoax that's been around since 2000. Wow, I probably should stop paying attention to those boards now, it's pretty scary how much convincing hoax is out there.

Kiva

For the past few months or so, I have been involved as a volunteer translator with Kiva, a San Francisco based company that provides a platform for people to make micro-loans to small business owners in developing country.

I first got aware of Kiva when watching PBS' coverage on the company and its borrowers and partners in Uganda. Actually in the past year Kiva has been gathering a lot of press coverage. Most recently, Nicolas Kristof from NY Times did a very nice op-ed , (and watch the video!), with a very descriptive title "You, Too, Can Be a Banker to the Poor."

I think Mr. Kristof's coverage nicely summarizes why I support Kiva. Growing up in indonesia, I learned that pure charity doesn't really work in most cases, as it often encouraged dependence and irresponsible spending. However, most of the businesses that Kiva targets are mostly ignored by banks. Well, in most developing countries, where securities markets are not so liquid, the traditional commercial bank is the main source of capital, so it can be choosy. If you one is not operating a cell phone network, oil refineries, power plant, millions of hectares of soy or oil palm, etc. the banks will probably not look at its loan proposal. The other alternatives that these small business owners use to have was individual loan broker that charges ridiculous interest and term. In Indonesia these people used to be nicknamed lintah darat or "land leech." This article (in indonesian) describes how a lintah darat uses thugs to collect loan and charges 20% interest for one month loan (that's like 240% a.p.r.). For you finance geeks, the one month Indonesian rupiah government bond annual yield ranges from 9-12% in the past 12 month, and consumer lending rates charged by banks were in the 16-20% range. So the lintah darats charges like 200% premium spread. However given that most of the micro-business owners are uneducated, they are unlikely to be able to even read and fill out a bank or government loan form.

With Kiva, individuals with Paypal account can lend these micro-business owners. Kiva lenders does not charge interest, however the local partners may charge interest to cover its operational expenses. Like banks, Kiva also makes the business owners accountable for the loan they receive. Over the course of the loan, the entrepreneurs are required to regularly update Kiva and their lenders with updates on their business through a journal. As you can see it's not as sophisticated as 10-Q's or 10-K filings, but at least it teaches accountability.

I was skeptical about the model at first. Considering that by western standards, the credit quality of these borrowers would be even beyond sub-prime by developed country standard, I expected very high default rate. So the first time I lent, I thought of it as charity. However, I was pleasantly surprised when I learned later that after over 30,000 lenders have contributed more than $2.5 million in loans, the default rate has been almost zero. Well, about 4% of the loans are behind schedule, but I still find the numbers really impressive.

I found that reading the journal can be touching at times. It is so satisfying that the $50 I lent to a small business owner 10,000 miles away is helping someone lift his or her living standard, and it cost me nothing (well the lost opportunity cost of earning interest which is insignificant).

So what are you waiting for? Start logging in to Kiva and instantly become a banker to the poor.

Financial Contagion Party

Last night I went to a party. After a few hours pigging out and drinking wine and limoncello, someone started a discussion about the recent stock market downfall, asking why Chinese selloff triggered selloffs elsewhere in the world (e.g. US and Europe). Well, if all those pension funds, mutual funds, hedge funds and other savvy investors got out of Chinese stocks, shouldn't it increase demand for financial assets elsewhere? So why did US and European equity market went down also, instead of going up? well I had hard time answering the question myself. I remembered vaguely from my very limited reading that even economists had come up with hundreds of explanations, but no consensus yet. The best answer I could offer was the usual herding behaviour theory and the empirical fact popular after the 97 Asian crisis that markets are quite highly correlated, and therefore prone to financial contagion.

OK i got home and geeked out. So I searched "financial contagion" at Wikipedia and I found that Wikipedia article on financial contagion is well, still disorganized and a little too esoteric for most people. But I think this is the main point: "Despite of substantial progress in research, there is still no consensus on definition of contagion. Generally it may be defined as an excessive unanticipated increase in cross-market linkages after a shock to an individual country (or group of countries). ... Researchers argue that interdependence can be measured and anticipated. However, an existence of extreme, asymmetric patterns of excess volatility that can not be explained by fundamental links between economies has led experts to suggest that contagion - rational or irrational - can be the only remaining explanation." Which means that "Financial contagion" is the interdependence between financial market that experts cannot explain.

Then I found this nice page on financial contagion in World Bank's website. I am pleasantly surprised that this one was a little easier to read, but still concluded "So, What Is the Ultimate Cause of Contagion? This is a very hard question to answer. As you can find in this web site, different papers point toward different directions. "

OK if an army of smart people with average IQ of 180 or higher can't explain this, how can I explain? Here's my answer... Thanks to EclectEcon.