Bo Keeley 6-02
Part 1
“Gentlemen,
there are two things you should know about the American company I represent.”
Around me, the
Korean eyes narrow; in India they had opened with curiosity, in Philippines
they had sparkled… And on, for nine emerging markets worldwide.
“The Niederhoffer Fund is known for its unorthodoxy, and its
success.”
At this, I
plop the arsenal of company clippings onto the shiny conference table and
breath easier as their eyes trail from mine to those. “Shoeless trader,” “Sly like a fox,” “Niederhoffer voodoo, it
works.”
In the past
three months, I’ve visited the exchanges, brokers, banks and streets in
Pakistan, Sri Lanka, India, Egypt, Philippines, Indonesia, Thailand, Turkey and
S. Korea. The purpose in each is to
feel the pulse of the economy, identify indicators for an investment edge, and
make contacts to utilize that edge. The
knot of the tie loosens in each succeeding place as I get the hang of
appraisal.
The emerging markets in ‘97 are
multiple multi-trillion dollar ventures that control half the world, with the
juiciest cuts in the Mid-east and Southeast Asia. The progress of the Pacific Rim countries, collapse of the Soviet
Union, world westernization, and expanding market-driven economics have swung
the flood gates. “Whenever I make big
money in a country, Victor Niederhoffer, wrote in his autobiography Education of a Speculator before the
onset of this trip, “I take out a map and look for the countries that are the
nearest… I have a big Rand McNally map posted in my trading room, and I
frequently consult it in this regard.”
From ‘93 to
’96, his firm had a compound annual rate of return of about 40%. In ’95 and ’96, Niederhoffer was the #1
commodities trader in America. My
return ’96 appearance on his doorstep after four years globe-trotting was
timely. “Doc, I’d like you to go to the
Mid-east to make contacts. Then go to
Southeast Asia. I’m going to invest
there too. Live the high life and look
at the lower indictors.”
The
motive soon bared at a Jacuzzi chat on Niederhoffer’s patio one midnight
between his trades and my autobiography chapters. I questioned his abandoning a secure position as reigning champ
of the American market to enter unknown territory. He put chin to knee and stared at the bubbles a moment, then said
he’d give an answer later. In two days,
a secretary delivered a standard Niederhoffer note:
The best fish often
swim deepest, the savvy investor knows that the best opportunities often
lie beyond the reach of the
average. With wealth in his dreams, he
turns his attention to investment around the world, not just in his home
country. The emerging markets, those
countries with common stock widely available to the public for say 30 years or
less, provide ideal picking in this regard.
The 30 countries considered to be emerging markets in 1996 are listed on
attached Table 1. Together their stock
holdings total more than $1.2 trillion as of year end 1996.
We are decided to
set off to these countries with a view to finding out which are going to be the
stars and dogs. But the fact is too we
have to see the commonplace, everyday things that people are doing, to
concentrate on the common people in their normal activities. $1.2 trillion is about the total market of
all US securities in 1987 which in the subsequent ten years have ballooned to
about $6 trillion. So, in aggregate the
total emerging market represents the most opportunity, and a challenge.
“Emerging
market trends in Asia” observes the Daily
News (2-28-’97) and lists hotspots Indonesia, Thailand, Singapore, and
Philippines before I spring into tour.
We toss in five Mid-east picks from the mentioned Table to comprise the
full nine-country swing. Each is
characterized by strong economic growth supported by recent market
liberalization. History repeatedly
shows wealth waiting in far-off places where some dare travel for money and
others for adventure. Niederhoffer
investors rub their hands, as do I at the awaiting bank of experiences. This will be the ultimate working vacation.
This is the adventure version of a
global business trail from the original nine 30-page reports written and
expressed from each country to Niederhoffer that accumulated into a fat Yankee Hobo binder that stands in his
library. The voyage includes: Introduction, Country Stops, Impact, 50
Things I Learned, and Broker Questions.
Abbreviations are: NiedCo for
Niederhoffer and Company, LI for lower indicators which are italicized, and $M
for USA millions of dollars. Businesses
are correctly named, but the individuals are changed for privacy. The author, NiedCo and publisher guarantee
neither accuracy nor the readers’ wallets, though I’ve an exacting eye.
PAKISTAN
Preface: My
previous visit as a tourist a decade ago to this country found me lost in the
33-mile Khyber Pass on a muddy mountain track with camels and men in sheet-like
outfits. Suddenly a uniformed figure
tapped me on the shoulder and motioned me the other way. I’m led to an adobe hut with the Pakistani
emblem on the door where an interpreter is found. “Mr. American, why do you pass from Pakistan to Afghanistan,” the
circle of smiling immigration officials look in wonder. “Don’t you like our country?” It was
unintended of course, and gratefully they had no computers to input my illegal
exit, otherwise I might not be back for this emerging market visit.
Karachi Exchange
The exchange
is like a circus. There’s a ring
20-yards in diameter with 100 men gesticulating wildly and yelling, then two
smaller, less active rings. Trading is
by outcry, then handwritten orders pass hands between traders who rush them to
a clearing desk for recording. Each
trader has a radio to contact broker offices above the rings. Skyward still, a
circular viewing gallery spills over with screaming observers. I’m told that below and above it’s “usually
civil” with only spitting and a few weekly fistfights. One recent year, for the first time in
history, a female tried the big ring where there’s much pressing, and the same
morning retired to a remote office.
Make a note to send wife Susan Niederhoffer, the first NY pit lady
trader, without delay to put them in place.
The Karachi version of the ‘big board’ is under installation above the
center ring at this instant. It’s 3 X 5
meters with wires sticking out like spaghetti, but the board should be complete
in six months to electronically handle 90% of the floor trades via
computer. Today is a moment in history
to witness.
.
Here’s the
step-by-steps of a trade till the board’s done: Client Niederhoffer phones the broker with a trade, and backs it
by fax. Confirmation is while waiting
on the phone as the trade is transmitted via walkie-talkie to and from the
floor, with fax support. Then client wires dollars to the custodian bank, from
which the broker draws the trade amount. Settlement is Mondays, so money should
be in the account by Sunday night.
A brokerage
office at the exchange, a requisite for trading, costs $1M. This is a
strong commitment, more so as it cannot be sold. My tour here was arranged by MNS Brokers
with a prestigious office location above the big ring. 700 companies are traded at the exchange
where the hours are 1000 to 1430 hr. Sun. - Thur. The other exchanges are in the cities of Lahore (200 companies
traded) and Islamabad (100 companies).
Brokers
The four are MNS Brokers, KASB Brokers, Crosby Securities and JSBS Brokerage. I’m first whisked to MNS Brokers, likely to highlight them by my guide and his father, the latter who’s entwined. I meet the owner, chairman, department heads and main researcher –find the cards attached to the literature. They court me more richly than any other firms, hopping to my smallest need often before I anticipate it. All on their side have hungry looks of traders with singular eyesight on Niederhoffer. The house is young since ’95 and small compared to the three others. They claim to provide more personalized service and to be a major source of Nastaba, my guide’s, radar-like market intuition. They’re less knowledgeable than the other firms, but “What we don’t know, we find out quickly.” There are repeated examples via immediate phone calls with solutions. The meetings are at the downtown Karachi office, medium size with five rooms, a few modern computers and team of five. However, their office at the exchange is impressive, occupying 50% more space than most others and staffed by three traders and a dozen clerks. They’re all men, and it’s seen the 10% businesswomen workforce in this Islamic nation is at menial jobs. I jot on the business cards (and shall continue in each country) who speaks English, a grave consideration in a flurry of trading activity.
The main
exchange trader, Irfa, is most often called by others for detailed
answers. A couple other voices deserve
mention before diving into the material.
Solda, the vice-chair is a wealthy, mid-twenties merchant of jewelry,
mainly watches. He runs the family
business having branches throughout the country with 300 employees. He’s traveled, sophisticated,
business-headed, good English, and unctuous.
I don’t like dealing with him personally but would not hesitate to do so
in business. On the other hand,
chairman Grona is the most delightful charismatic I’ve met on tour. Fifty-ish and hard driving, some call him
the true founding father of Pakistan because of efforts in industry, politics,
and customs, the last which he headed.
He was secretary of commerce, then communications. I ask him why he shifts from positions, and he
shyly replies it was luck that let him into the first government job, and after
a year’s hard work “those who be” decided to give his ‘magic’ a try in another
job, then another... He “cleaned up customs”, gave “jaws” to the steel
industry, wrote poetry books and so the stories go. I suppose one day he’ll be an inspirational hero in history
books, if not already. His extensive
contacts ease many a bureaucratic bump in this nation of deserts and mountains,
and are worth heavy regard.
Inquiries
answered: The house has offices
throughout Pakistan. Commissions appear
to run equal among brokers, 1% in and out, reduced to .6% on big trades; and
fast turnarounds of a week or less enjoy just the in-fee. No custodian is required but one’s
counseled, and they’ll set it up. The
bank account can be in dollars or rupees and may zero between trades. Opening with the enclosed forms is simple
and after a week’s processing the first trade’s made. Closing and cashing out in dollars is as straightforward, takes a
day and any amount of dollars may be taken from the country per any
instructions. Importantly, taxes on
profits are zero for a non-corporate investor, and here’s where a firm’s
contacts come to play. Otherwise, the
corporate tax is 30%. There’s no
difficulty in executing Niedco trades in the style of speed and high volume.
There’s no margin trading or short selling by foreigners. This company has no
foreign investors presently, but wants them.
Their impression of the market is it’s at ‘rock bottom’ now. The national budget is clarified in 120
days, after which they expect a steady rise.
They can suggest specific stocks at that time.
The second
broker is KASB. I sit in the firm’s open and currently
equipped building and interview just the top man, Nasif. His English is good and body language better
as he motions to the ornate chess set you view on their brochure cover. I offer as an opener, “Speculation and chess
have many angles and parallels.” He
travels to NY often, so I’ve invited him to stop by our shop, and he’s given an
advance gift of a hardcover of Pakistan’s history.
One of the
oldest Karachi houses, Nasif’s father founded it forty years ago, and for the
past three years running it ranks #1in the country. It hosts many foreign clients the world over. Their methodology includes intra-day data
and, knowing our fondness, they’ve sent samples. Nasif’s historical review of the market is maintains a level
until there’s a “shake”, and the next is in a few months when the government
finalizes the budget. “The hopes of the
people balance on these shakes, and the hopes are what drive the market.”
I call on Crosby Securities third. Where the first house was young, small and local, the second old, large and local, Crosby is a giant spanning the globe. Before the Yankee tour initiated, Crosby in NY set a meeting with the “big three guys” at Crosby Karachi. They court me in the corporate offices and at meals. The facilities are medium-size and modern, and the men are of assorted ancestry who’ve studied in England or America. They’re dapper and slick, proud of their international status. They stress being with the biggest on the block is good, and graciously offer the entire data bank of their “renown” research division. Account opening, trade steps, commissions, etc. follow suit to the other brokers. New information is 25 of the 750 exchange stocks are of sufficient volume and liquidity for our trades. Soon the interviewees become inquisitive; I swell that such a giant should stand at attention to Niedco’s reputation and that my “Head of emerging markets” card prompts them to quiz me on the relationship between classical music and price patterns. I think the three would go to work for our company at the drop of a hat. Crosby is a natural choice and I find not a fault during our two days together. The fourth broker is JSBS, until recently associated with Bear Stern. The manager of equity sales and I chat amenably for an hour in the downtown office which is, like the rest, is modern and well-supported by computers. The roll of the Q & A’s is familiar. This firm has an average daily volume of 18M shares for $25M and deals high speed, large volume transactions with ease since it need not enlist other brokers to meet sizeable orders. Many of their clients are Middle-eastern desiring trade scenarios similar to ours. He offers to contact us instantly with few-minute window trades. “I can create a market psychology because we are a big firm”, he asserts.
Custodian banks
There are
three custodian banks but I attend only Standard
Charter. (The others are Deutshbank and Citibank.) The initial vault tour reveals a tiny mine,
but the manager escorts me across the street to the new site under construction
and due to open in two months. It’s
princely, and the certificates of ownership will be stored on high shelves or
in cabinets laid in rows inside steel walls.
The procedure for using the bank on a trade is: Niedco notifies the bank usually by wire to
release funds to a broker about to make a trade. The client may maintain funds in dollars or rupees or sends them
by settlement day, Monday. The
advantage to using local currency is the Exchange rules don’t require
registration of shares, but with foreign money they do. Registration lengthens turn-around time, a
short-termer spoil. This bank is
favored by foreign accounts, the manager is thorough and cordial, and they are
the main custodian candidate.
Other meetings
Some priceless
engagements match athletic peak experiences.
Burning the midnight oil with
Nastaba produces material to share delicately except the following. Foremost, the sessions are fruitful because
he's an astute, energetic businessman from handling the considerable family
textile industry. Such an extended family business is an oft-missed joy these
dys. The cohesive goal is family honor
followed by money, from sweeper to apprentices through executives about town
and nation, each doing his job as did the preceding generation, and shrinking
back to the founder, a great-times-X grandfather. Nistabe, the head, is busy as a bull at fly time hence the late
meetings. Now 28, he took honors in the
Pakistan math Olympics before continuing college in America, after returning to
the family business. He’s our ideal
inside advance man and comes to NYC so I’ve arranged a visit at Niedco.
The six
brokers I visited and Nastaba uses are the biggest of Karachi’s 100. He
supplements facts for the foreign investor in Pakistan. "Sometimes there’s no formal agreement
beyond a verbal one between broker and client.
The reputation of the broker is his future. This is what keeps everyone in line." Intra-day trades of $1M create slight market
ripples, but a $2M one causes a tidal wave.
There's no margin trading but it's possible to get a rupee loan against
an existing account to finance trading, or to carry a stock past settlement
date and roll it over for a month. A
custodian bank stores certificates, does back office work and pays 6.2%
interest on dollar deposits.
Repatriation of funds is free with no maximum. A common 'parallel' market may be used to change rupees to
dollars or back at an unofficial rate with a 3% advantage. I'm familiar with the “black market” used by
tourists in dozens of countries, but what happens here with big bucks is
grander. A security van is hired at the
cost of $100 per trip. The van picks up
the customer's rupees at the bank and transports them '" essentially risk
free" to the unofficial changer, then returns with dollars to the bank. Big changers can convert $1M per day. One sees these security vans performing
daily on Karachi’s streets. Another
accepted method is to hire a person to physically carry back and forth ten lots
of $100,000 to reach a $1M total in 24 hours.
Finally, there's a special group that transports any amount of any
currency to any doorstep of the world "virtually risk free" for a fee
of about 2%. As for buying into local
companies, he asserts textiles is the largest sector for bad debt so is greatly
undervalued at present, and he will place management if desired. Nastaba is a
valuable tool If Niedco enters Pakistan.
A 30-minute
meeting with Hawn, head of UBL is
another honor. I was advised ahead of
time to shave to meet the #2 man in this powerful bank. He’s older with a spry step and eyes that
twinkle when he says, “Please have Mr. Niederhoffer contact me before he
invests in this country.” The bank
itself is for sale if you’re interested, and note my interview is not for
custodian but for angled business opportunities. This is the second bank ever that the government has authorized
for private sale, and with 2000 branches worldwide it isn’t as though the owner
would stand out. A price tag of $17M is
said to be a bargain since the government needs money. The other option discussed is attractive and
supports Nastaba’s offer. Textile
operations are a good buy from now through six months, and Hawn has the
contacts. There are typically three
divisions per site: spinning, weaving
and dying. A crisis that soon should be
relieved is putting holes in the industry, and companies are for open sale or
investment. A good-sized one may cost
$10-20M. No license is required, no
hindrance to the foreigner, taxes run about 35%, and the expected rate of
return is around 90%. “It’s a safe
investment one can make a killing on,” he remarks. He explains the economic fate of the nation depends on foreign
investor activity. With more, the
government will be strong in the coming two years and the economy will rocket;
with less it will fall. Hawn, Nastaba
and the brokers all wear serious faces when discussing business reminding of
the Arab proverb “Live together like brothers and do business together like
strangers.”
Malcontent citizens hike the streets of Karachi. Militia and armed guards are everywhere balanced, I’m told, by each household with a gun. This circumstance married to the people’s durable intelligence - one can build a wrestling or chess team with a saunter around a city block - foretells troubled times. Consider before investing that these folks won’t stay pinned under a thumb long without squirming.
Recall the “lower indicators” were
conceived at jacuzzi chess after I toppled the king, pulled aside the board
spanning the pool and told Niederhoffer about American hobos and the Wall Street Journal. “The way to tell a tramp from a hobo is both
stuff the paper under their clothes for insulation, but hobos read it
first. The fewer Wall Street Journals in boxcars and freight yard, the lower the
unemployment and better the times.”
Years and hundreds of LI’s later, I like Niederhoffer quoting Moby Dick where Herman Melville talks
about sailors getting the fresher air than the captain because they get it
first; and they know what’s happening by the time it gets wafted about the ship
to the helmsman. Yet, lower indicators
are small threads of the whole sail.
Summary
The single
clipping of you holding the world champ squash racket is worth five pounds
announcing Niedco as the best American trader here where the sport’s the
Pakistan businessmen’s choice. The aims to investigate and make contacts in the
emerging market are complete. The
meetings include four brokers, a custodian, an international banker, and
frequent insightful visits to the exchange.
The market businessmen have integrity stamped on their foreheads, and
seem to be community pillars. Our guide
rises above the rest. He assures the
reliability of a ‘merchant network’ that covertly achieves financial scenarios
we can take up in private. Capitalism,
he says, should seed well here, so I advise jump starting entrepreneurs as we
tried in South America except using Nastaba to key prospects. But wait
The lower indicators conflict: Honesty is positive, bullets are negative, optimism is positive, discontent is negative, unofficial channels help, yet ill-advised to the fat greenhorn. Enter warily. One large broker reports that local houses “run up the books” to lower commissions and, without batting an eye, offers that their firm does a little of the same and that it’s widely accepted. It seems brokers see a foreign investor take a large position, and also take it to keep the commission down. “It should be figured as a tiny fixed operating cost of about .5%.”
Broker choice is more clear-cut: I like MNS for the shape of reasons above. KASB is next with strengths of rank, experience, and class. Crosby and JSBS are nearly as competent. You can use some or all four with one custody bank. Timing is easy: Look at Pakistan in three months when the budget’s clarified, then pause two months for completion of the Exchange board with computerized trading. Consider delaying an additional period until the guns are replaced by smiles on the streets.
SIRA
LANKA
Preface: I survey every bulky person.
A suicide pedestrian strapped with bombs blew up the fish market. What am I doing here?
Colombo Exchange
I enter, after
a requisite frisk in these troubled times, into a fifty-yard square floor
scattered with fifteen manned terminals, one for each broker in the
country. There’s a chalkboard as long
on one side divided into industries such as tea and minerals, with a writer of
bids and sells who’s fat magic marker lays idle. The gallery is an elevated ghost walkway. But wait!
Every ten minutes there’s a screech of voices on the floor and the magic
marker flies to confirm a trade.
The process
begins when Niedco calls an order to our Sri Lankan broker who phones it to the
floor broker, who writes it on a buy slip while yelling the price. The chalkboard man puts it up, and the wait
period begins for the offer to be met, and when it does the board’s
erased. The floor broker phones his
outside firm who calls Niedco to confirm, then official confirmation comes by
fax in the evening after the exchange sends the printed order to the
broker. The total market volume peaked
at $24M daily in ’93, and has held steady at $5M for the past year. The exchange personnel are sharp and
optimistic, pointing around the floor.
The electronic
big board will be installed in two weeks, followed by direct computer link from
the brokers to exchange floor. The big
board now rests in a corner of the trading floor, and the freshly uncrated
direct-link computers sit on the floor brokers’ desks next to the older ones in
present use. When everything’s hooked
up and the switch is thrown, it’s said the volume should jump. This moment is
to be seen in countries along the world tour, and it would be prudent to
quantify the market moves proceeding, during, and shortly after instating the
modern technology. Establishing the
pattern of a few forms a model and edge for investing in the next.
Brokers
The brokers are John Keelis Holdings, C.T. Smith
Stockbrokers, CDIC, Somerstill Brokers, and Bartleet Mallory Ltd.
I’m greeted at
the fence surrounding John Keelis
Holdings by Diam and Suran, traders and our contacts, and learn they’re
competent with good English by the time we walk to the main building. The brokerage is part of a sprawling
conglomerate, largest in the country, with divisions in luxury hotels, tea
plantations, etc. Two securities floors
are divided into employee cubicles where the staff is 36, halved from the
‘golden era” of ‘93. Young, quick-eyed
traders at modern computers take me in at a sweep and pause, for alas there’s
not much cooking in the kitchen. When
the market soared there were smiles and money on all, but all slumped badly
three years ago and now they’re stuck.
These surviving traders are the best by evolution, twenties and crew
cut, eager for sweets once tasted.
The answers to
our stock questionnaire come via a dozen meetings with the managing director
and various specialists throughout the day.
Keels Holdings is #1 among the 96 brokers and holds 19% of the market
and 24% of foreign trading by dollar volume.
The standard commission fixed by the exchange of 1.5% on the in and out
slides to 1% minimum for trades of $.25M.
“There are other advantages given the diversity of the company,” and
they display a photo gallery of extravagant hotels. There are no other costs except the custodian bank fee. No leverage, but a stock may secure other
trading. Settlement is T+5 buy and T+7
sell. No special restrictions to
foreigners, no capital gains tax, and the only tax is 15% on dividends. T-bills
are traded but disallowed to foreigners, and there’s no bond market.
Let’s cut to
the chase here. A rebel group holds the
north jungle of this island and recently occupied the main city there. The government just days ago recaptured the
northern city under a hail of bullets, and the rebels retreated into the
jungle. Remember, this island’s radius
is about 100 miles. “It’s become a
‘people’s war’ because no one can tell the white from the black hats any more. People from the cities and bush jump to one
side or the other, get arms and start shooting.” Once a week, a tag of the rebel group of 3000 pops from the
jungle for a firefight or bombing here in Colombo. “Walking suicide bombers” blew up the Colombo train station and a
couple government buildings.
Construction has shut down except cleaning the rubble, shops have closed
doors, and the city’s at a standstill though citizens venture outdoors. Quickly noted, the government has amassed an
army of 250,000 troops that sifts the northern jungles even as I write. Yet people in this firm and on the streets
still smile, for it seems their nature.
“The standard
of living here is good, and an even better quality of living. People are generally happy.” Inflation is 15%, averaged 9% over the past
5 years, and should drop next year. “The
government has shifted funds from the economy to the armed forces and soon
shall quash the rebellion,” I’m told.
This house
flung open doors in the ’91 modern era, and in the ’93 hit year did $1M volume
daily, and in ’96 were the top firm.
They now hold 75% of the country’s foreign accounts by number rather
than by dollar volume. The responses to
our standard questions match the earlier broker and aren’t restated. Their answers throughout are precise with
body language indicating honesty.
“The big ‘road
shows’ to gather foreign clients in ’93 were royal, for things were going
through the roof,” the research manager reminisces. “Nowadays, the market’s in the basement and there are no road
shows.” They want our business. The market bio is: ’91 – Market opens as it’s known now in the ‘modern era’; ’92 –
Performance is strong with an average daily volume of $7M; ’93 - Best performing market in the
world; ’94 – The big decline from the
previous year’s growth of 74%; ’95 – A
flattening of the decline defining rock bottom; ‘96 – The market climbs a fraction of it’s potential and holds steady; ’97 – It’s as flat as all get-out.
Their future
and our insert? Watch the March
national election, and an April mandate put to the citizens regarding the Tiger
war. It’s said the government’s
generous offer will cause the rebels to throw down their arms and unify the
nation. I’ve heard the mandate will
pass, the country’s fortune will turn, and this will be a nest in which to
invest.
The city
center has every big broker within ten minutes taxi from each other. CDIC
is in a tall, bank building with one floor for securities. The space is sectioned into trading,
research and accounting. The staff of
30 is equally divided and westernized.
They’re young, attended USA colleges, and chomp at the bit. They’ve
prepared for me, having reviewed our package and sporting Salt Lake City and
Bloomington, Indiana shirts. Find the cards
of the bigwigs interviewed, and now some of their responses.
I’m seated to
tea and a computer slide show of the market, then we delve into our
concerns. Where other brokers delivered
generalities, CDIC answer specifics.
“For the first time in fifty years, the monsoons do not come to Sri
Lanka. There’s no water to run the dam
generators, nor to water the crops.
Here, even in the business part of town, there were recent daily
blackouts lasting six hours for a month.
Exports were not met. People did
not eat.” On the rebellion: “The weekly city bombings are hard to
control because, instead of jets that can be shot down, the carriers are people
like any other except they strap on explosives and walk into key buildings or
crowded places, then ignite.” Is it a
wonder those who can afford it move to another country?
This house
commands 5% of the total market share, and 13% of the foreign share. We know from other brokers that commissions
are fixed and slide from 1.5 – 1% based on trade size. The “rebate” loophole is interesting. If X and Y are different American funds who
decide to pool invest under one name (let’s say X) in a issue, not only does
the commission likely drop to the minimum 1%, also the Sri Lanka broker
handling the trade rewards the “official” investor for bringing aboard the
other. This rebate is then split among
X and Y. Nifty.
There are 15
brokers in Colombo, six have foreign clients and I’m interviewing all but one.
These five are on an onerous treadmill that breaks them even, only because
foreigners input a few substantial trades daily. Their future read is for a quick, short market move after the
March election, an amplified one in the dust of the April mandate, a spurt if
the regular June monsoons arrive this year, and following that a sustained 2%
climb by the time Santa comes. No one
argues that the Sri Lanka market is a dormant volcano waiting to erupt, so hook
up your seismograph to broker comments, to my LI’’s and stay tuned to the
weather reports. This firm earns 5-stars
for preparation, knowledge, detail, honor and polish, and is a top choice.
Bartleet Mallory Ltd. Is in the financial district near
the city center. A rule of thumb is
that the top, older, respected firms are found here in the center, whereas the
local and newcomers often shack up in the residential area where rent’s
cheaper, per the last broker. This applies to various businesses and many
countries.
The firm
occupies the second floor of what appears to have been a huge warehouse, now
tastefully decorated with new computers
and a workforce of 45, nearly all male. They lack the sophistication of other
houses, but drive hard and speak good English.
This is the country’s #5 broker, with a strong base in local
investors. They have only a couple
foreign clients but seek to expand and prize Niedco. “We will give you enormous personal attention.”
Where am
I? Solely in working for Niedco do I
find myself handing out business cards at a national badminton tournament. One of the Bartleet traders is the national
coach and that’s how latter in the day I find myself in the front row of the
tournament. Another trader next to me
wants to teach Niederhoffer (former world squash champ) about the Sri Lankan
market and squash. He’s the reigning
and 5-time national squash champ.
Niederhoffer remarked two decades ago when I started, “You can train a
national champ to become a strong trader, but not the opposite. The discipline, drive, organization,
strategy and follow through that make a champ prepare you to trade.” Hence the athlete:employee ratio, and weigh heavily the number of elite
athletes within a selected house.
Niedco’s has included reps from squash, paddleball, racketball,
basketball and wrestling.
Custodian banks
Hong Kong
Bank, located n the same building as the exchange, is the largest custodian,
first choice of foreigners, and the only one I visit. A custodian is required and the account is at the bank rather
than broker. It’s easily opened in
dollars with an average interest of 6.5%, and upon a trade money is converted
to local currency at the normal rate.
The fee is outlined in the literature, with our contact’s card. He, sober and overworked, exclaims at my
mirror-image notes and demands a writing lesson. The transfer is by Swift.
Streets working hard with traffic and citizens
provide impromptu meetings. A voice
booms on my evening indicator walk, “Mister, don’t go down that street because
it dead ends at the bombed corner.”
Surprised to hear English, I wheel and behold a slender, excited man
with sincere facial lines and a limp who has just risen from sleeping on the
steps of a federal building. He points
to the corner and smiles, “The rubble and glass is up to my knees. Beware of the ‘tiger’ in the city!” I’ve found my guide for tonight’s LI’s. “The Tiger rebel group,” he states, “is
taking the fight to the government on it’s own ground.” The moon rises as we
walk and he explains, “The poor and normal people in this country are unhappy
with the government because so many, like me, are out of work and thrown out
into the streets because there’s no money for rent. I can’t even buy rice for my family, unless I beg,” and he spits
into the gutter. “The government funds
the troops at a cost to the country welfare.
Watch where you step!” and I slalom debris from an explosion.
Two hours
later, I tip him for the educational tour, and we separate. We’ve passed a bombed building every twenty
minutes – Bank of Ceylon, various shops, the fish market. Who does one believe: The brokers who say the quality of life is
good, or the man on the street? Who
does one support with his heart: The
government crushing the “Tiger” people, or those rebels? I turn a couple corners until satisfied the
man hasn’t followed, then enter the Grand Oriental Hotel. After calculating the chances of my bed
blowing up are 1 in 10,000, I sleep well.
Over a
breakfast plate and through the window is a panorama of Colombo’s port, where
dock cranes for cargo ship hang idle.
When they start lifting, start investing. I walk new parts of the city before the morning meetings. Many of the buildings are 150 years old
rendering a British colonial ambience.
The people are friendly as if the next passerby couldn’t be dressed in
explosives, and fortunately the prevailing body type is thin, so I give others
wide berth and avoid crowds which are targeted. Their body type predisposes them also to work, to be driven to
keep busy and thinking; they become antsy when unoccupied, like last night’s
escort. This shows in a high literacy
rate, and they read in free time on the corners or buses, though the national
print appears to me as spaghetti thrown against a sheet. English is widely spoken and I suspect a
solid educational system of ready students.
I like this place, and one day may bicycle the island perimeter to learn
more of it. I propose this is an
opportune spot for seeding capitalism as we’ve tried elsewhere, for the reasons
given and because the people are goal oriented, more so to a full pocket after
a full day’s work.
I explore the
hotel health club in the line of duty.
“Massage here?” and though the receptionist doesn’t follow English there
are female giggles from an interior room.
I enter and review the gaggle of pretty ladies to pick one with a
winning smile and large hands. She
leads me to an isolated room where the day’s work is rubbed away and the handshake index is gotten though it’s
hard strained to apply as an indicator without more figures. Find enclosed the expense account receipt,
also for the next night and the next.
Columbo, at
less than a million population, is the administrative capital on the west coast
with one of the largest artificial harbors in the world. Seaports are pleasant
diversion due to constant change and all that goes with a seashore stroll. I tramped the same city beaches five years
ago as tourist about to make a frightful mistake. The boardwalk was crammed with vendors and sideshows when I
stepped up to the weaving head of a 10-foot black cobra, coiled and reaching
high out of a basket. I was tired and
the charmer’s flute seemed to mesmerize the snake and I, nose to nose. I recall as if in a trance a circle of drop
–jawed bystanders and the snake head big as a black saucer. I reached out and patted it gently on the
head, feeling the scales, and it nudged back as tenderly against my hand. Then I snapped to my senses, stepped back
and left. A few women turned white and
fanned their faces. In retrospect, the
highest erratum of my life, one step forward, and I vowed to never get so run
down as to error in survival again.
Today, walking
from the exchange to my hotel, a fellow approaches to pawn trivial wares and
chat. A friendless person with a weight on his shoulder finds solace in a
stranger he’ll never see again who tells him disagreeable truths, and thus I learn lower indicators though some
hit hard. I’m dressed well enough to be
called ‘mister’ and prey. The man’s
quickly followed by a scarecrow, then another, and all now wanting to lead me
to the British Army-Navy store. They
shepherd me into a narrow alley of seedy shots that dead ends. I recall the guide’s nearly prescient
warning the previous night, “Beware of petty thieves who gang to mug tourists,
in particular when one after another join up until you’re outnumbered. The second man has a knife and they’ll rob
you.” I cling to the briefcase
containing this report with one hand and use the other to feel my jacket pocket
for the wad of small bills I regularly secret there to toss into the air and
dash off while they stay to fight over the fallout. Too soon they edge me toward a wall near a shop entrance wherein
I race in as they perch outside. The
owner says the British store closed years ago.
The three eventually dissolve into the cracks and I return to the hotel.
The street
signs protest a Niedco approach. This
major city is war-torn with rubble and hungry people. On the last night in Colombo, the slight fellow who warned me of
the next-day robbery limps up scolding, “I told you not to go near the Hilton
Hotel! Why didn’t you listen? That’s where the muggers pick-off the rich
tourists and that’s where you…” and he accurately describes yesterday’s heist
attempt. “ They were very bad boys,” he consoles. The street grapevine is fast.
We walk together until again the moon rises above the skyline. Nearby, a middle-aged man with a toy,
plastic rifle slung over his shoulder sings sorrowfully to a poster that’s the
country version of “Uncle Sam wants You!”
My limping benefactor whispers that a year ago his family was killed by
the Tigers, and now the poor, crazy fellow sings for hours.
Summary
Never in a
childhood dream induced by strikingly exotic stamps from Ceylon (now Sri Lanka)
did I think I would come here. I fly
into Colombo, the capital of this Indian Ocean island the size of West
Virginia, when the tropical monsoons for the first time in 52 years have failed. The land, people and market are dry, far from my colorful childhood memory, but
an instructive stop ensues. I attend
five brokers, one custodian bank, an investment advisor, and scores of streets
in three days. In addition, I suggest
the Grand Oriental Hotel with a harbor view, walnut-and-honey milkshake, health
club, business center where this 20-page report is typed, and that it didn’t
blow up.
It’s an honor
to sit with surviving traders in a long wind down because they’re most fit in
the marketplace history. In ’93 all
were pups in tall oats as the economy soared; in ’94-6 only the big houses with
foreign clientele broke even as others fell like ten-pins; now, in ’97 the
veteran traders as other professionals flee the island stay and say, “We’re
optimistic”.
What bungs the
economy? We’ve learned the June rains
failed causing power and crop failure on the teeny island. I offer that hungry, thirsty people plagued
with blackouts become sympathetic to rebel promises. Had government officials stood on speaking platforms as gaunt as
the listeners, perhaps they would have rallied round them. The quality of life during a drought is
better in nearby jungles where survival skills can get fresh food and water
from vines, so the Tiger cause grew.
The lesson dawns of how primitively simple life is in a small, closed
system like this island, and how vulnerable a little market is to a single
factor like withheld water. That’s the boom and bust of Sri Lanka, and I
suggest commissioning a meteorologist and cloud seeder to predict and manipulate
the market to better times.
The broker
selection is: First, the biggest Keels,
for their foreign client expertise, candor, English, personal attention, gusto,
hinted extras, and low commission. A
close second is the much westernized CDIC, and third the slightly stodgy C.T.
Smith. In sum, it’s a pleasure to work
among people of integrity who appreciate a working light bulb and glass of
water. I also enjoy their custom of not
smiling when talking business. I
characterize the marketplace as resting in a modernization juncture of
equipment and habits, nowhere as developed as Southeast Asian and Mid-east
countries, but worth following.
Timing? The economy is dumped from war and
weather. When these are resolved the
new exchange scoreboard will light up.
Watch the March election, the April mandate, and the June weather
predictions. Since there may be no
other chance, I thank Niedco for sending me into a place where the present
specialty is suicide bombing. The
clean-up after last week’s explosion at the fish market is ongoing, and as a
vegetarian that bothers me.
INDIA
Preface: A thin
young man in a white business suit rushes into my hotel. “Doctor Keeley, I deeply apologize. The monsoon struck this morning and my
$100,000 Mercedes washed into an unseen crack in the road. It’s starting out to be one of those
mornings, but I think the sun’s coming out.”
This is Visha, my guide, whom I come to esteem through the week of
meetings.
The exchange
is apparent bedlam. I catch a glimpse
of papers flying amid shouted orders before being hustled to the SEBE office,
covered below. The Bombay exchange is
by far India’s biggest, and the other sizeable one here is the NSE (National
Exchange). There are lesser ones in
Calcutta, Delhi and Madras. The limit
to short term trading now in India is it’s not done electronically; however,
“In nine months the electronic trafficker is slated to begin. Then, a year after that, the electronic
transfer should be complete.” This
turtle’s pace may guide Niedco’s decision to enter the market. The exchanges days are Mon.–Fri. and the
Bombay hours are 0930–1430 , and the NSE 1030–1530 local time.
SEBE is the India regulatory agency for the exchange, their
version of our SEC. and is located in the Bombay Exchange building. They grant the key “Foreign Investment Item”
(FII) required of foreign traders.
Processing the license takes 4-6 weeks for a “one-time, no-worry fee”
meaning the $10,000 is paid after the license is assured. Then trading may
commence. Henri, our contact here, politely pages through selected articles on
Niedco, brushes them aside and smiles, “All we are concerned with is the
one-page FII form, that your company has a 3-year track record, and the $10,000
fee.
The Indian
etiquette of business cards is to lay your own on the table before each of the
attendees, and each in turn places his before you. They remain untouched, unlike poker where one has the option
drawing to the hand, then are gathered at the meeting’s end.
Brokers
This section
begins with a preview composite of all the brokers’ impressions and answers to
my questions.
Broker
business matters are done instantly, not later, here. Calls are made forthwith, meetings are set up now and attended in
an hour, information is gained at once, all by habit. Then it stops. Outside the inner circles of these top houses,
things turn to mud. This is
entertainingly contrasted to America where, in general, the individuals
procrastinate within a system that moves like lightning. The net result is the
same in both countries – consummation of affairs in tolerable time. Fortunately for us in India, there’s a
lubricant in the slower, lower systems I call “grease”, or tips and what some
term bribes. All executives know and
use it, indeed the entire country from street vendors to cops to politicians up
to the market is run on grease. The
import cannot be overstated; know the right hands to grease, or someone like
our contacts who do. With that, should
you decide to invest in India, it takes about a month to get properly installed
as a foreign entity before trading begins.
“There should be no unexpected surprises en route.”
Non-local
traders must obtain a Foreign Investment Item license (FII) from SEBE at a
one-time fee of $10,000. The trading
account is kept with a custodian bank rather than the brokers, and the best
we’ve found is Deutsbank. Virtually all
sizeable foreign investors choose to have an offshore account at Mauritius
usually set up through Arthur Anderson.
There are some 150 stocks of suitable volume and liquidity for
Niedco-style trading. All the brokers
contacted can handle transactions in the $2-3M range on 1-2 day swings. The
normal commission is 1% on the in and out, but slides down on larger trades,
negotiable within each house. There’s
no margin trading nor shorting of stocks.
By going the legitimate Mauritius route taxes are reduced from the usual
55% to about 15%. There’s no problem on conversion of any amount of rupees to
dollars even on closing the account, and no maximum on dollars removed from the
country.
Foreigners
anxious to get into India take these steps:
Process the FII with the aid of a broker; obtain the Mauritius company
via Arthur Anderson, and get a custodian bank with the aid of a broker. These procedures run concurrently and take
1-1.5 months.
The brokers I
visit are ANZ, Motilal Brokerage, JSB Brokers, SSKI Brokers, Crosby Security,
Prime Brokers, DSP Brokers.
Motilal is an old house in the top ten Indian
brokers and traded $200M last year.
Visha, who sets up and accompanies me to all the broker meetings, says
it’s important that Niedco gets the local flavor of the Indian stocks and this
is one of the best houses for that.
“They are good with esoteric data.”
I explain our need, the standard opener, “We are looking for $2-3M
single trades with a capacity for 5M and quick in-and-out, perhaps within a
day.” The answer is, “We can, and it’s
important you choose a broker that handles not necessarily a large number of
FII’s, but FII’s that use similar short-term strategy. We do.”
They trade in 60 companies from 15 industries while relying heavily on
research from which I’ve sampled and am lugging back one kilo. They see the overall market on a continuing climb for the next
months.
JSB Brokers specializes in local flavor and
institutional trading. They are
Bombay’s third largest by volume and offer an impressive office and aggressive
staff. “If Niedco chooses liquid stocks,
we have no problem handling the volume,” they say. Examples include but are not limited to State Bank of India,
Disco, OBC, and Reliance. They do an
average daily volume of $1.5M, typically 60% from institutions, and handle
about 35 FII’s. They agree with other
brokers that Deutsbank does the best job as custodian. Their market impression is a moderate rise
in the coming three months, then down a bit until the budget is completed on 19
July, after which expect a big move up.
SSKI Brokers plucks us from the hotel lobby, drives
to their building, and throws out the red carpet. This is the city’s oldest house, begun in the late1800’s, and now
ranks #3 by volume. They’re proud of being the first domestic broker and one of
the few originals to sustain. They
trade 120 stocks for an average daily volume of $3-4M. Their contacts run deep and throughout the
market. Specialty is institutions. It’s prudent on accelerated trades of 2-days
of less to tell the operation desk at any broker at the time of buy to instruct
the custodian to hold rather than move the certificate. Again on close, Niedco tells the broker desk
to inform the custodian that the house holds the certificate, so the
transaction is done and legitimate.
Curiously, they bring up cigarettes and the idea of studying discarded
stubs in a certain city area. “Go look
for butts there,” they say without flinching, so I assume a prior Niedco
contact. The commission is standard
throughout the houses at .5 – 1%. They
like auto stocks and ITC for us, and expect the market to stay fairly quiet for
a few months before running active toward the end of the year. This and the
last broker are two of the most aggressive for our account.
Crosby Security is one of the big international firms
and quickly points out the ease of relationship via their NYC branch. The meetings last an hour, and our contacts
are straight-speaking and informed.
They can handle our wants and suggest staying with the top 50-100
stocks. The rest of the information
matches the other firms.
Prime Brokers graciously accepts us an hour late
because it’s the first early morning meeting after the brief storm which
flooded the streets that hid the holes that caused Visha’s chauffeur to drive
the Mercedes into a “crack” of the pavement.
This house is young but motivated and Visha speaks well of them. Their space is a labyrinth of connecting
rooms with a hustling staff of 30. The
present rule against margin trading should be lifted next year, and for now
leverage is limited to trading one stock against another.
DSP Brokers is one of the biggest in the country
and 40% owned by Merrill Lynch. The
physical facility is ample, modernly equipped and busily staffed. They do business with 90% of the FII’s and
have a general large capacity. Their
network of contacts after twenty years in business is extensive. They say SEBE is a chain of links which must
be greased one by one before pulling to advantage, and they know the
links. A quick call to SEBE arranges my
exchange go round this afternoon. The
people are brainy and affable, and pursue us with a zest soon explained. The glory days were three years ago, and
brokers all around became rich. That’s
when American hedge funds like George Soros’s flocked to the country, and the
better hotels spilled over. The rupee has depreciated about 8% each of the last
three years. The current market should rise quickly over the next three
months. I resist informing that the
five previous brokers shared a conservative short prediction, and wonder if anyone
graphs individual broker predictions vs. an accumulated one vs. the eventual
market. This sum broker index could aid choosing one.
Custodian
banks
A custodian
bank is required by Indian law of foreign investors. Deutschbank of India
is reputed the best and handle FII’s of many global big boys. Opening is simple at any branch in the
world, and one bank handles as many brokers as desired. The fee schedule is attached. Our contact,
Paul, talks skillfully for an hour and shows me the impressive physical
facilities including the vault where securities are stored. He is familiar with our fast trading pattern
and remarks it’s curious that England and Switzerland parallel our style but
not other Americans. Their computer software is designed for FII’s wanting
trade speed. As taken as I am with
Paul, he is as much with Niedco, and offers his services and contacts anywhere
he’s worked including Japan, Singapore, Europe and India.
ANZ is the second bank appointment. It’s also a gigantic modern operation with large vaults for the
millions of certificates that are stacked within cabinets that slide on rails.
Consider this as a model for the voluminous Niederhoffer libraries. I reject this otherwise capable custodian
because our contact worked for SEBE for years and, Visha explains, “He could
have a drinking circle of old buddies from the rules department and one day at
the table information of a private nature might accidentally slip out.”
Other meetings
Arthur Anderson is the preferred consultant for setting
up the Mauritius off-shore account. Our contact is close-mouthed and Vishs
whispers it’s because a consulting agency normally charges a fee for dispensing
information. On the other hand, I figure
he should provide us a fee as a prospective huge client. I hate these meetings like officers clanging
sabers against the chairs in bluff, and nearly stand to walk out. Instead, I present the Niederhoffer articles
on shoeless trading, voodoo and the Yankee hobo, and our contact suddenly
becomes animated and spouts answers.
FII’s trading over $20M a year use an off-shore account to reduce taxes
from 55% to 15%. It takes 4-6 weeks to
set up, but is done concurrently with opening the custodian and securing the
FII license from SEBE. He sumarizes the
purpose of AA in India, “We are the best in smoothing moves through the various
levels of the business network, without which things move dreadfully, painfully
slow.” The fee to AA for the whole
offshore setup including grease-jobs is $25,000 up front, and Visha says after
the fee’s paid, “there are no worries.”
There is, however, an ongoing annual fee directly to Mauritius of
$15,000 for their services.
Bombay’s streets are lush with lower indicators. Stock bulletins blow in a fiery breeze on man
city corners with overseers shouting to suited passersby “Get em while they’re
hot!” Similar ads posted on street
signs advise drivers to buy companies going public. “There’s a difference between India now and last time you came
through ten years ago,” Visha tells me. “Now there is opportunity for the
Indian talent. This, in turn, is a
strong indication for foreign investment.”
.Bombay
remains India's chief financial, commercial, educational and cultural center,
plus is the land’s Hollywood. Cinemas,
in my opinion, have been the main inroad of global Americanization. Youngsters
pick up English phrases, heroes, actions and mannerisms taking a part of
American home. India films are a
surprising second in worldwide popularity in my informal poll, with Hong Kong
next – one in which I once had a crowd part.
In Bombay, throughout India and many countries of the world, there’s a
regular “black” or alternate market for cash and travelers checks to a 6%
advantage vs. the bank rate.
Transactions are safe as my
local contact takes the dollars and reappears minutes later with rupees, or
vice versa. The common citizen
integrity is refreshing. Taxi drivers
charge the meter fare and street venders return proper change, though I wonder
about the street walkers. I take a
nature walk in the interest of the company to the vicinity to ask and discover
them heavily engaged. Prostitution is popular
as hamburgers and I illustrate this with an anecdote from a similar foray in
Dehli in my younger years. There was a
four-square block area where hundreds plied their wares, and more in the
tenement buildings. A most peculiar condom index became obvious after visits
to a half-dozen bordellos where outside the entrance to each was a pile of
condoms. There were never less than a
few hundred and often measuring two feet high.
I figured it advertising, like McDonald’s arches with X-number sold. Certainly the higher the stack the more
seductive the business, and the more of that the better the times. I’m told that the Indian man will buy such
fun before bread for the table, but can’t say this is limited to this
country. As for condoms, I buy American
when it really matters and carry them with me wherever I go. In any event, I pay each madam for the
information and hurry on.
The country is
renown for poverty, and in Bombay I walk through poorer sections past hundreds
sleeping in alcoves, abandoned buildings and on the sidewalks. I feel
comfortable having cruised countless skid rows while hoboing boxcars across
USA. These Indians have a dry, shady,
safe place, a meager source of income when awake in errands and begging, appear
fed enough, bathe at fire hydrants, and enjoy the company of many in similar
holey clothes the better to admit a breeze.
I don’t wish the lifestyle on anyone, but there are many worse places in
the world and this one unjustly gets most the credit. Begging here is interesting and annoying at once. I’ve covered it extensively in “The
Indicators”, and won’t try your patience except to say Indians are champ
beggars and today I meet one of better.
“Monsieur,” a little voice begins and rattles on in French. I shake my head to which follows, “Senior,”
and the little girl takes my hand while continuing in Spanish. Not releasing, she tries English. “Sir, my mother is a great woman now without
milk for my little sister. I am the
working child of the family, so ask you to buy some canned milk. I want no money, nothing for myself, only
for the baby.” I sigh, for it’s about
the hundredth plea of the day and I normally keep a simple rule: Give to the first deserving three askers
each day, then ignore the rest. Having
a short background in begging myself, it’s easy to pick candidates, “Where’s
the store,” I question the 7-year old wrenching my hand and she points
ahead. The canned milk costs ten-times
the normal beggar take and the shopkeeper bags it to offer dryly, “She speaks
six languages and this is the forth milk of the day.” Begging given competition requires ingenuity. I acquiesce and am in Nirvana the remainder
of the day. Some don’t need to overtly
beg, are naturals. I ride a train first
class in a seat next to the lavatory for the backward trots and observe an old
lady sitting outside the door. I must
explain India toilets are a flat, hole-in-floor concern with much slipping and
sliding. She ignores the filthy tracks
and stench and placidly eats chow directly from the floor with a piece of
cardboard. I look at her complexion and
into her eyes to see the picture of health for someone half her age. She finishes the little meal and another man
comes by and drops a new glob, and she scrapes it gratefully. Truly, western has much to learn from
eastern medicine about germ theory of disease..
Few realize
the oddities bookshelf in the celebrated Niederhoffer library where I go for
evidence of human extremes along the lines of the first editions of Guinness’s Book of Records. Many of the most remarkable claims come from India: The man who stood on one leg looking east for 30 sunrises,
another who buried his head in the sand for a month praying, and the array of
cave dwellers for years. I haven’t
discovered my first levitator or spontaneous human combustible in fact, but
continue looking. Sometimes what’s most
remarkable about the fakirs and feats of India is what’s fake. Tremendous, old walled forts are ubiquitous
across the land where one may enter thick gates to inspect the insides and
climb the rampart. On a trip I was high
atop a fort wall with flock of tourists when suddenly came up a shout from as
if from an invasion. We peered over and
down the wall onto a spectacle of a dozen natives standing on a gigantic
material quilted together from a dozen light blankets. “One shouted fair
English, “Throw us your coins if you are willing and the gods good we will
disappear!” Wait a second, I
mused. If we throw they can run off…
even as the tourists pelted coins onto the material. Yet the actors remained as statues in the rain waiting for
more. Satisfied, the main voice raised
his hands to beseech, then the others grabbed the great cloth’s edges and
turned it upside down, quickly crawling under.
There was short moment underneath then it went flat and still. A minute passed, and on the wall above the
group began to mumble. Suddenly an
associate of the disappeared party ran out below and pulled the blanket away to
rush off. There was nothing under but
bare ground. To this day, it’s
unexplained, though I suspect trap doors in the earth to underground passageways
that lead to riches.
I remember my
first landing as a wet-behind-the-ear globetrotter in Delhi, and right off the
plane I was hounded by ruffians who tugged my clothes to follow them to this or
that while pick pocketing me. Suddenly
and quietly, “Come to the celebration,” and I looked over the ring of scamps to
a young man, not so different from the rest by appearance, waving me toward
him. I followed. ”I am just in veterinary school,” he
announced at once and adjusted my gait because I had just graduated in
same. “Where are we going?” I
asked. “To a party…wait.” We walked an hour to enter a stockade style
building where smoke poured from many chimneys. “The party is inside.” It
was a crematorium! I got to tour the
facility managed by the escort’s father.
Hooking tourists and dipping from the donation pot at the exit probably
paid for his textbooks, and who can question the choice of major after being
around so many people like this. “Did I
not tell you it was a celebration?” he clarified as I left, and of course it is
a release to leave this life for some.
Affordable cremation is uncommon in India, and many acquire a friend,
probably put him in the will to keep his clothes. On the same trip, I found myself led to a wide river where a reek
nearly drove me away but I pursued the shores edge where a few wood rafts
floated, gradually burning and disappearing amid the crackling fired fat. The wind shifted over the big soup and I
forced a retreat. When the normal
crematorium smokestacks burn fuller at the same time the raft pyres dwindle,
good times are in India.
Why
do I prowl the city streets? These are
the fringes between ordinary people’s lives and high finance. Biological boundaries fascinated me even
before I understood scientists had named them this. As a kid, I flanked woodlot edges, skirted lakes, followed pole
lines cuts, walked seashores, and railroad tracks, all because there’s the line
where two world’s collide producing greater variety of plant and animal
species, and exciting hybrids.
Similarly, the streets hold many and strange lower indicators, plus the
idea of quantifying and ordering them to give an edge in speculation. Adventure comes to play, and an answer
to Niederhoffer’s boast that I get scammed,
skinned and swindled more than any businessman he knows: A cowboy gets bucked off more often than a
worker slides from the desk chair, and I calculate this is why I get hired for
this job.
A medical anecdote from a previous Bombay visit illustrates the Good Samaritan attitude and inherent fair play involving a wart, mine. Having tried over-the-counter medications, physician’s electrocautery burning and liquid nitrogen freezing, and waiting unsuccessfully for years for spontaneous disappearance, I was led by yet another guide to the city dockyard of this major port. I had conquered warts down to this proverbial last one that hanged so long atop my right index finger knuckle it became a sort of pet to be rid of. His promise was a wart specialist of mystical standing for work on sailors who suffer them. The weaving waterfront cobblestone streets were crammed with shanties until we reached one no different from the rest. “This is the doctor,” the guide assured reverently, and a door opened at his knock. A teenager in soiled rags emerged toting a black leather medical case that he unlatched with a flourish to reveal a neat arrangement of suction cups, hoses and medicine vials. He was so professional and the case so worn I began to think him experienced. Inquisitive neighbors circled us on the street and a sacred cow peeked out the living room window of a home to watch. “This is what the wart roots look like”, and the doctor shook a vial holding gray slivers that resembled half-inch worms. The crowd gasped, and I didn’t suggest warts have no roots but let him have his way. He pulled a scalpel, demonstrated its edge on his shirttail, and took my finger in a steady hand. He lopped off the wart and blood spurted until the crowd backed a step. “Now for the roots!” And with quick hand movements he produced a suction thimble and placed it on the wound. There was the slosh of liquid suction and he thrust high the cup as the ring of people closed in. With a roll of his wrist, he poured a thimbleful of blood and roots onto a cobble. “Roots!” shouted the watchers. “Count them!” yelled the doctor. ”One, two, three, four, and five,” and the doc extended his palm at a buck a root. I bargained to three and he happily accepted. “Jungle powder,” he declared to everyone and sprinkled black powder from a vial onto the cut, pressing it in. “Go in peace, the wart is gone.” The crowd dissipated, the cow pulled in its head, the doctor shut the door, and to this day the wart has never returned.
The heat and
noise of this concrete jungle is inescapable to many, until .the monsoons soon
hit in full force, and I’m told it rains four days straight harder than a
sainted cow peeing on a flat sidewalk.
Traffic comes to a standstill and meeting-goers are allowed an automatic
hour grace. For now, the bovines wander
the dry, hot streets as indicators themselves.
My extraordinary guide throughout, Visha, talks of a cow’s life as not
“Having a care in the world, belonging to no one and revered by all.” He says that when times are good, the cows
tell you by showing fat for being fed as homage. Skinny cows mean lean times.
Summary
The week here
consists of fifteen major meetings and scouting the streets for
lower-indicators. All objectives are met and the net result is very positive. My notion from this week’s cross-section of
Indian businessmen is he’s savvy, efficient and enormously hard working. Most the rest of the country, especially in
the larger cities, is wretched in dirty streets squabbling for morsels because
they’ve known no better. But, given a
chance at business, the Indian is superb.
He drives relentlessly and honestly.
The people I’ve met in the marketplace take your dollar only after the
thought that they can return it or better.
There’s everything in the workforce to persuade Niedco to come to India.
Visha the
guide gives Niedco unmeasured value directly through his contacts, diplomacy
and insights. After this tough week,
he’s already off on a camel safari for two weeks, then won a youth executive
trip to Brazil for placing in the top 15 of his graduating class at NY
University. He’s a chip off the old
block, as his father started the Indian family empire by placing fourth in
India on his SAT’s to gain a birth and scholarship to college. “My only problem,” confides Visha, “Is
trying to look older than I am.” He’s
gifted, toils, polished and, despite it being a broker hunt, I suggest this man
also if there’s a slot. He carries a
cell phone on the camel.
Brokers at the
finish line show a photo finish. Visha
says if Niedco chooses to keep all investments under one umbrella, DPS is
it. They’re big with penetrating
contacts throughout the market and country, and have interests in 90% of the
FII’s. Each of the other local houses
is large enough to handle our wants and no doubt they share inside info with
the former broker. JSB is a tiny notch
above the rest for aggressiveness.
They’re capable and unswerving, and I cheerfully break a personal rule
by accepting a dinner invitation.
Motilal is efficient and handles other quick-trade FII’s which is
important. SSKI is the largest and
oldest domestic broker. They claim
contacts throughout the market and fit the mold of the others in honesty and
amenability. Crosby Securities has the
edge of internationalism with NYC affiliates.
Their Bombay house is professional and fits our requirements. Prime Brokers has the respect of their
peers, which says much. They’re data
oriented and though the smallest of those interviewed, indicate ability and
willingness to do the job. Consult
Visha for the final picture on the brokers.
India is attractive now according to international reports
because of cheapness and strong fundaments.
My advice for Niedco and India, wait. You’re a short- term trader in a long-term
place. I don’t like rigmarole and
grease anywhere, but I’ve tried to guide you through to optimal advantage. In filling out the FII form, use the word
investor, never trader, and disclose interest only in medium to long term
investment. After the FII is granted,
short term trading begins without penalty.
Other foreign investors here trade mainly long-term, I suspect because
it’s the long country habit. The
mentality has been deliberate, there’s time, move slowly, and be pulled by
others. Short term trading in India
will commence in nine months when the electronic hookups to the exchange begin,
plus another year to throw the switch.
I suspect the Indian mindset will succeed this technology, and
anticipate the removal of the $10,000 FII ticket to play ball, destruction of
taxes to undermine the off-shore company, and drying up of the all around
grease. The greening of India may start
with the emerging short-term market in 1.75 years and may you contribute
greatly to substantial reward. In the
interim, it’s a hedge for long-term wart removal.
EGYPT
Preface: One day the Sahara desert will be pushed
back by the spread of greenery. This
will be heralded by a widening band of peoples freed from the narrow Nile
valley and their ancient thoughts, and that will be indicated by a powerful
economy thanks to the success of the emerging market.
Cairo Exchange
The major
brokers encase the exchange in a tall downtown building. The floors are stuffed with people elbowing,
like a bullfight, to get near the main arena.
A Groucho Marks look-alike appointed as guide by the exchange chairman,
whom I met earlier, pulls me through the mob to the trading floor entrance. Fists pound vainly at the door like men
clawing to get out of debtors jail, but Groucho gives a polite single rap and
it cracks. We alone are admitted.
Two years ago
the inner exchange was entirely non-computerized and trading was conducted by
outcry. I’m told the din was incredible. Now, in stark contrast to the outer
commotion, I witness a quiet, professional system. Three concentric circles of computers are manned one-each by a
floor trader – 110 in total. They’re
hooked to a central server in an adjacent wing and that’s where the interaction
occurs. Calls from brokers such as the
ones I visit come to the floor traders, who key them in and a trade is found,
then confirming calls are relayed out.
The computers are a few years old but being updated. “Until “technological inserts” are complete
there are infrequent rocky moments, but usually the process is smooth.” The sum daily volume averages $17M and
increases steadily each week. The
exchange hours are 1130–1630 Egypt time.
Brokers
I
call on EFG Brokers, Delta Brokerage
and Nassef. A sore point, and then
forward. My main contact wears the
lather of a racehorse in explaining he isn’t cheered at setting up multiple
meetings in little time on short notice. The Niedco team was to have organized
this entry far in advance. There’s a
country network of regarded individuals he intended to plug me into, but it’s
got to be a fast go all around.
EFG is the biggest broker in the country with a daily average
volume totaling a sixth to a third of the entire market. The company owns two
large downtown Cairo buildings with the brokerage at one and corporate offices
at the other. The furnishings are
modern enough but the computers a tad outdated. Their literature is slick with emphasis on research, and the
securities staff of 70 is youthful and professional. The pace is brisk with
business at hand, and moderate trading in progress. Ala, a bit older, is our main contact who started the firm from
scratch, though he handpicks trader Elwa as my capable younger shadow. I meet and chat with all division heads, apt
and ablaze. It’s relief after some
other countries that English is a second language among the educated and higher
business levels.
Since this is
the first broker, I’ll dwell on the responses.
They handle many foreign accounts, and can field the $1-3M trades
required by Niedco. A trade this size
melts into the market, and waves begin at $5M. Virtually all foreigners use a
custodian bank. No forms to open an
account; just fax the first order and, presto, business. No requirements nor
license. Commission is 1% each way, but
“adjusts slightly in rare large trades which Niedco is capable of.” Margins and swaps don’t exist. Terms are T+4 buy, and T+2 sell. No tax of any type. T-bills are sold without leverage on
discount basis at a Monday auction for the 6-mo. and Wednesday for the 3-mo.,
with next day results. There are 5-yr. and 7-yr. government bonds yielding
11-12%. All this information comes from
Ala while gliding room to room as he efficiently trades via a mobile phone.
The steps for
a trade are: Niedco calls in an order
with follow-up fax. Ala phones the custodian bank (on sells) to confirm the
stock name, then calls his exchange floor trader to execute the trade. There’s no computer hookup with the exchange
at present. Ala confirms to Niedco,
although the “official” confirmation comes with the 1830 hr. printout and fax
of all the day’s trades.
The state of
the economy is steady progress. The GPD
per capita has doubled in the last five years and they expect it to catch
another 15% next year. The economic
growth is about 5.4%. The currency
should appreciate against the dollar in coming months. There is a forceful privatization program by
the government that relates directly to the overall economic strength, and it
should continue. There are many
American companies here. There are 100
brokers in Egypt, all faring well with the past two months showing a flood of
foreign hedge funds. “The big shift in the people is mental,” he asserts. “In this economic boom fundamentalism is
diving because the people are finding something tangible to grasp.”
The Delta firm is next, full of
surprises. The exterior appears to be a
quaint apartment building under construction on a quiet residential
street. I grab my hat at the door
thinking it’s the wrong place, but darkened stairs climb into a lighted level
where a heavy door swings open to a community scurry. Our contact is an attractive, thirtyish lady pinned in her office
by appointments, so I must wait. Below
are the responses of Neva the managing director, acute as they come.
This is a
medium-size outfit, seventh by daily volume ($2-3M) among the top ten
brokers. The staff of thirty is
competent albeit Neva has the best English.
“There is too much business to hang curtains, sorry”, she sighs as paint
dries on the walls around us. Workers
and clients are in and out the door during the 30-minute interview. They’ve been in business for two years as
one of the first “new” brokerages to open with the ’95 national exchange law
change. Delta started as a family
business and then merged with Egypt Bank.
The smaller firm enjoys a good reputation. (There’s a gap as she gets tough with a meddler; in Egypt it’s
called “chewing the head”.) “My
personal code is to tell a client to wait for a better trade if I think one’s
coming rather than grab the instant commission, and I’ve never broken it.” Commission is 1% both ways, but slides to
.5% on jumbos. They have a handful of
foreign clients and the capacity to deal our large trades. A $1M trade makes ripples, contrary to other
input. The trades in this country are
in physical shares. “Settlement is sometimes bumpy, as in any emerging market. I don’t hide this delay.” I like a business busy as a ticking clock,
and businesswomen who keep the beat.
I SNAP my
suspenders to get attention. “You and I
are alike,” I say. “We both wear
suspenders and value efficiency. I see
you’re busy so will ask just ten questions, each of which requires a
one-sentence answer”. As he nods, I
figure what they’ll be. The replies are
the next paragraph.
The firm is
among the country’s top ten by volume.
His normal commission is only .3%, undercutting the others. He can field Niedco sizeable orders. If duties as coexistent broker and exchange
chairman prevent personal handling of our trade, ask for his brother Sela, a
trader.
A lady cuts
in, so pretty I wince and, recalling Niederhoffian advice that shills could be
used as distraction, refuse to look at her again. “She’s brilliant too,” smiles
the chairman, “And a broker!” I
complete the ten questions and rise.
“Too bad you have to leave Egypt so soon,” she chimes. I march out into the bubbling sea that fills
the broker floors that insulate the quiet exchange.
.
I visit the
three top choices: CitiBank, Amex Bank
and Egypt Bank. Note all the brokers
counsel use of a custodian, and a fee is saved by having the broker use his
affiliate bank. One custodian can serve
more than one broker. An account is easily opened in dollars or local currency
and this is used to pay for trades.
Conversion to local currency is at the local rate of exchange with no
fees. The transfer of funds is by Swift
system. There’s never a problem, I’m
told, in getting funds back in dollars within two days after closing the
account. Bank interest is about
5.2%. Elwa says of the top three,
Citibank gets the nod, Amex Bank second, and Egypt Bank not so far below.
Citibank occupies floor after floor of a
towering building busy with a class staff.
The bank name speaks for itself.
I was not allowed to visit the vault because of corporate rummaging within
at the time. Forms, fees and other
information is in the literature. Amex is also highly touted, and
modernly equipped. The vault is a
sturdy room the size of the cell Jesse James broke out of, but here it’s in a
barred and guarded basement. English is
spoken, and you have the cards. I don’t
tour Egypt Bank but speak briefly
with a representative. He aggressively
seeks our account by mailing information.
Other meetings
CMU regulatory agency is the Egyptian equivalent of our
SEC. I enter a concrete government
edifice and traipse dim cement hallways to the deputy chairman’s door, knock,
and enter a bright office to shake hands with a fellow who stands like a
college professor with critical eyes.
“Welcome. My name’s
Garthie.” He steers the conversation to
the advantages for foreign investors in the emerging market: Rules are strictly adhered, steady growth
forecast, and then he launches into technicalities that riddle until I raise a
palm. “In truth, I’m unfamiliar with
the topic details though you explain them well. Did you used to teach, like me?”True, and education is our escape
hatch for the rest of the meeting. He
hands me a copy of exchange regulations that you’ll receive, and note the “floors and ceilings” of a
stock: On a given day, if a stock price
rises or falls 5% then it must trade the rest of the day within that
extreme. I chose not to explore the
low-life indicators with the deputy chair, but exit as his words echo along the
hard hall, “Opportunity and protection…Opportunity and protection…”
Pub-Ent is the privatizing office I enter with relished memories of
my early entrepreneurial days as a Cool-Aid sales kid on hot Idaho streets,
through California swap meets as mogul of fishing poles, soft porn and
decorated cow skull,; and finally a stint as peanut salesman for Niedco’s
“Nutcracker sweets” on Manhattan’s 42nd street. The lesson learned is I don’t much like
interference. My awareness heightens at
shaking hands with an apparent Clark Kent keeper of the Pub-Ent light. I step back for him to duck under the desk
to emerge in a Superman uniform. “This
is not an agency of pig-headed bureaucrats!
Our staff is skilled and things get done. Privatization in Egypt is gung-ho and won’t stop.” He passes me a list of the main companies
being privatized this year.
Tark, whose
card you find with the list, went to Harvard and then got a “privatizing
degree” in Washington DC. He looks
late-thirties and is vigorous from squash and judo at which he’s a black
belt. His discourse on individualism
and free enterprise is eloquent and he’s a fitting speaker at your Junto or
Doug Casey’s Eris. Foreign investors
are invited to participate with money and/or personnel in Egyptian companies
and he hopes to hear from you personally.
Pub-Ent is strangely, but justifiably, a government agency albeit he
claims it doesn’t operate like one. “We
function as a small enterprise”.
Our pleasing
thirty minutes includes a short history of privatizing in Egypt. It started in ’89 and the government
responded by creating the Pub-Ent (Public Enterprise) agency that same
year. The original intent was to
educate people to throw off their veils, but it was a hard sell in the early
days. By ’94 citizens began to modify
their thoughts, so by ’96 the ball began to roll with companies for the first
time offered for privatizing. They were
taken up for the most part, and so it goes through the years to the company
list in your hand. In addition, he
suggests you send him directly a company profile you seek, and he’ll customize
a list. Most foreign input is in the
range of a $100K or more, but I get the feeling they’re open for smaller
inserts too.
A supper
discussion with Ala, the founder of
EFG Brokers, reveals more on commissions.
For huge trades it’s “nearly negotiable” to the lowest percent. In a few months, commissions will decrease
greatly across the board reflecting a change in exchange regulations. Within the coming year, if we take in with
them, there will be a “linking of trading desks” between Niedco and EFG,
meaning there is no need for orders to go through a trader. I find the man smart, decisive, American educated, capable of fooling me,
and hungry for your business. “Victor
Niederhoffer is a renaissance man”, he says.
I excepted this invitation because it’s one thing to understand business
matters and another to appreciate a person, and this one I sense is
valuable. The amount of drinking at
dinner with businessmen is, I believe, indirectly proportional to their future
success as business partners, so here’s to you.
Lower
indicators flourish in the streets of Cairo. One walks city
blocks before finding a butt longer than the filter, and that means tough times
at a street level. The twist is the
butts are much longer at the firms.
Draw your own conclusions. The derrick index is non-existent here where
20 huffing laborers and sets of ladders are the stand-in, however there are
many of these. I read this year that
Mcdonald’s again dominates the international fast food market with about 42% of
total sales, however their share is dwindling by about 1% per year as the next
in line, Burger King and Wendy’s capture more appetites. In Egypt things shape up differently. Kentucky Fried Chicken recently took the lead
from McDonalds in the fast food race, but McDonalds is combating with home
delivery, the first and only n the world.
The new:old car ratio is dismal. When things pick up – I expect another year
as families use realized excess cash for essentials - then late model cars
should run the lanes. For the moment,
everyne drives rickety crates, taxis are banged up, and trucks roll lopsidedly
on bent axils and mismatched tires. There’s
a fantastic parking system in Cairo.
Everyone double-parks – miles of them.
Not one driver locks the door but leaves the car in neutral, removes the
keys and walks away. When someone who
has a car blocked in wants to drive off, he hires “car rollers” who for an
Egyptian pound push this car, then one behind it, sometimes a rank of cars
until the one to be freed has room to pull out. Someone should build a parking garage with the market prices
projected on the walls, and use the profit to invest in automobile
manufacturers a year after the boom comes.
Can I count
the ways street affairs sicken one? In
small business there’s enough wheedling to choke a camel. The classic scene is two bargainers over the
simple price of a head of lettuce, each unyielding until the other
starves. A purchase is as unbending as
ancient chess when opponents out-waited rather than out-witted the other to
keel over. Negotiation to hear one’s
own voice is the most valued piece. The
common starting point in a sale is the most extreme prices offered by both
parties, and it proceeds. I walk into a
rug factory to view the workings and am greeted by a salesman, “What would you
like?” “Nothing”, I reply. “Yes, we sell that. Step this way.” The rule of transaction seems to be never say no when a client
asks for something, even if it’s a striped camel. Refreshingly, he will try to locate one and have time to sketch an
explanation of the impossibility, then offer to sell a spotted one in its
place. The next ticklish point is
bribery, as it is here preferred over honor. Small shop owners, cart salesmen, taxi
drivers, hotel clerks and whole systems of people are greased up and down the
ladder before advancement is had.
Greased transactions, something I dislike, are the custom. Tips based on merit I like, but not bribes
on refusal to work. I don’t single out
this country as even of a minority operating by the “bite”, but if one
established a bribe index for a
nation and waited for a sharp decline, it would be a strong signal to
input. On the other hand, apparently,
and fortunately for us, the higher business echelons such as brokers among the
marketplace are westernized in method.
The illiteracy
rate in this country is 50%, yet the children are smart and among the more
trainable in the world, like so many puppies trying to escape the back
yard. It will be interesting to see
exactly where the money goes once it starts pouring in like sand, but if the
country’s smart they’ll invest in educational stock. At present, Egyptians have much time on their hands. I know the feeling from having tried and
been driven back from the streets not by lack of funds, nor by hunger, but by
flat boredom. Kindly, the citizens are
neurotic as should be among a keen populace having nothing but to stuff their
pipes. They are Olympic smokers. Graph
the puffing pipes in coffeehouses, bars and homes vs. the economy and you’ll
fall from the smoke with an advancing economy.
As for electricity, as early warning, recall I’ve circled the globe by
plane for two decades quantifying runway and city lights. I’ve watched Mexico and other countries from
above change illumination over time from the dull orange of sluggish current to
the brighter white glow with updated wiring and power plants within expanding
cities. As an economic signal, a bigger
glow in good times, like educational stock, means a continued up trend. Now, gloomily in Cairo, the reverse -
blackouts. They used to occur here
frequently, but have dwindled to a couple a week. I would hesitate to trade in a city until blackouts are cleared
up.
Cairo, from an
earlier trip, is now cleaner and friendlier.
Progress is in the streets on every footstep and lip, and on the skyline
with sweaty laborers balanced on ladders knocking together new constructions. If I had a hand in Pub-Ent to attract
foreign investment, I’d hire a fleet of camels to sweep visitors through the
city to point at these things. It’s the
largest city of the Middle East and one of the world’s oldest civilizations, a
blend of old and new, East and West. It
takes only a block’s stroll to conclude it’s okay for male politicians or
military brass to walk holding hands nonsexual but affectionately. The Pyramids of Giza sit at the southwest
edge of the city where a few years ago I was physically knocked back with as
much awe as at India’s Taj Mahal. The
taxi ride braving city traffic to get there was another matter, and I suspect
the driver kept the most circuitous route to up the meter. He landed me near Giza where self-appointed
guides swarmed the cab. “Careful,
Mister, They’ll hit you over the head and rob you.” So I exited and one of the urchin guides whispered in my ear,
“Hurry, the taxi driver will cut your throat and take your wallet.” As it was, I hired two camels and an escort
who took me beyond the pyramids into the desert, then suddenly pulled reins and
asked, “Do you have a gun?” “No, I
replied, “I don’t need one.” He left me
lone.
“Look along
the streets at night for hundreds of lovers hand-in-hand,” Ala told me, and I
did to find it true, “This is always a sign that economic times are good,” he continued. “The historical relationship here is religious fundamentalism
which discourages public displays of love.
I’ve noticed when the country’s economy is on the upswing, more people
turn from religion. They have
incentive, something to do, new goals and show it via affection. Big changes are coming to Egypt with
privatization and the emerging market.
Just look on the streets.”
Another unprompted indicator was unveiled. “Count the number of veils on the females to rate the rise and
fall of the economy. When times are
tough and fundamental sentiments high, there are many covered girls. They don’t have money to fix their hair, or
their husbands want them to hide as religion demands. However, as things improve, the fundamentalism drops aside and so
do the veils.”
The Cairo
swing is a colorful triumph with ten meetings over the course of two days. The whirlwind go-round is propelled by the
drive, intellect, contacts and English of Ala and Elfe of EFG. I sit with top men in all meetings. Most recall, “The American who writes
forward, like us" per mirror image from right to left. The only blight is ours, that Elfe the
organizer was notified just before my arrival, causing last-minute scrambling
among prominent parties. Remember,
efficiency is a high virtue anywhere.
This country's report comes typed at the last broker before departure,
and is sent overnight mail. The dual
purposes in Egypt were to make market contacts at the exchange and houses, and
to investigate privatization with investment intent, and I'm satisfied with the
results. I'll make the weekly phone
call to Niedco tonight.
It is seen
among the Egyptian top brokers that the best have charismatic ramrods. It’s all so very attractive, as I told the
dogs in veterinary school, “But don’t pick up the first big bone because the
next may taste better.” My top broker
pick is EFG for reasons given, but the others have such distinct flavors why
not pick two? Second choice is Nassef,
the dual chairman at his brokerage and the exchange. Rarely, but that day much went into the first handshake, and I’m
reminded of prizefighters taking in what’s possible at the touch, withholding
much, and imparting one’s code of ethics.
In his fifties, he was the Egyptian gymnastic rings champ. “There is no conflict in running a brokerage
as well as the exchange. How could
there be?” Delta as oddball broker with
a dynamic lady leder can be trusted in a questionable market. Most desert flowers bloom and perish, but
this new one I think will survive. The
choice is yours.
The lower
indicators show a dull green light growing brighter. I don’t advise jumping into a place where there’s grease and
blckouts. While the dress and manners
of the teaming masses in the noisy streets resemble skid rows, the business
sector is westernized. I like the
integrity and pride fostered in big businessmen by the burgeoning market. I think as the market expands and the economy
climbs, a plateau will be gained where the hardworking populace below will trot
into place like herds, furthering the country’s advancement. That will be the
boom. Egypt could become westernized
overnight. In short, wait one year. Watch the veils.
--------------------------------------------------------
I stop at Dubai,
a constituent of the United Arab Emirates, to invest my curiosity only. One could walk border to border in two days
and finish for a dip in the Persian Gulf, but I spend the time afoot in the
fascinating Dubai City. An original
fishing settlement having expanded along both banks of a creek plied by
paddlers and small boats, the present international business district is
connected by a tunnel and two bridges.
Knee-length Kurta shirts with matching baggy Shalwear pants replace
suits and males glide in these long white robes between old mosques and posh
malls. They are a sturdy, intelligent
people from what I see, but over-fed by the rich oil spoon here in the
city. I’m told imported contract labor
–apparent wherever a broom or shovel is lifted - includes housing and no option
to marry or immigrate. My glance around the city reveals a planned, modern face of
concrete and glass built on the 1966 discovery of oil; however, the minds under
those sheets suggest a culture deeply rooted in Islamic tradition. People are strange when you’re a stranger,
odder still as I’m ignored in the city.
Never on balance but content, I exit back onto the emerging market tour.
-------------------------------------------------------------------
Yankee Hobo continues the trail in Part
II in the Philippines, Korea, Indonesia, Thailand and Turkey, plus an Impact.
------------------------------------------------------------------------------------------------------------
YANKEE
HOBO IN THE WORLD EMERGING MARKETS
Bo Keeley ‘02
Part 2
The emerging market trail was
salted with surprises in part one. This
second part picks up wiith five countries to the end, and then some.
PHILIPPINES
Preface: Hold
these three things before investing here:
Schools are the best kept and attended of anywhere on tour, the people
are honest, and they love to gamble – from cockfights to market pits. Gauge the countrymen’s pleasure and learn
his misery.
Manila Exchange
The exchange
resembles a basketball stadium with “a Hong Kong scoreboard” – electronic,
4-sided, and suspended from the high ceiling - so prices are read from all
angles. 80 little dealer cubicles cover
the floor. Everything is modern, and
minds fly fast.
Across Manila
lays the other market exchange with a hundred traders. I didn’t tour this, but am told it resembles
the main event described above. The
bigger firms are computer-linked to the exchanges. The hours for each are Mon.–Fri. 0930–1200.
Brokers
I meet Hagedorn Securities, Albacus,
Peregrine, and Angping Capital spread over three days because of congested
streets. I’m informed store and bank
robberies, common in years past, now hardly exit for there’s no chance of car
getaway.
Hagedorn Securities was born in the early ’40’s and
remains one of the oldest. Spacious
offices reflect earlier times and price movements are still scratched on
chalkboards. “We want to put in a
modern electronic board,” a trader states, “But the clients insist on the chalk
on board.” There’s a large seating area
for patrons to watch these. The
securities staff is 50 with more in sundry divisions on other floors. “We first brought Bloomberg to the
Philippines and used it to research Niederhoffer. Remarkable!” Adrenaline
runs through the house today with traders and clerks scurrying, and the chalk
flies. The most memorable comment of
the hour is, “The investor must remember the oriental mind is ruled by emotion,
not logic”. The trader shakes his head
as if in indigestion. “That’s just the
way it is.”
Our contact is
the most fantastic yet. Robert steps
out of a James Clavell story of the business Orient. He’s hulking, bald as Kojack, in his early thirties,
behind-the-scenes guy, entrepreneur moonlighter, plays rugby, has a lightning
mind and maverick tendencies, and is the only licensed non-Filipino trader in
the country. As head of international
investment, he dances through the office with all at his fingertips. He also resembles a Pirate or double-agent,
shadowy and a step ahead of everyone, and I offer this man can help or hurt you
very much.
He defers
politely to a single man in the firm, the owner, who is purely oriental. Jaba, wears many hats in various industries,
sits on this-n-that boards, and is in motion always. Different families appear to oversee the various country’s
industries, and Jaba is the father of one of these. We get on well, but most of my time is with the Robert the
maverick. He’s the answer man,
personally knows the other firms’ presidents, has at request anyone on the
phone using a thick wad of business cards stored in a sports coat pocket, and
anticipates me like radar.
The answers to
your questions are here in some detail since it’s the first broker stop. The top ten brokerages in the country owe
thanks to foreign investors. This
firm’s share of the market is 7% where the average daily market volume is
$100M. A $1M trade of a large stock
doesn’t rock the market, and $2-3M single trades are frequent, however a bigger
one causes ripples. The top ten stocks
account for the majority of the index.
A custodian is urged, and Hong Kong bank is good. Margin is possible and normally 10-days that
can swing to 30-days. Off-shore stock borrowing is easy and takes the place of
shorting. Settlement is T+ 4. There’s no index swap trading, but T-bills
(in weekly auctions) and longer term issues are handled. The only taxes are on dividends.
The steps in a
trade are straightforward: Niedco
phones Robert with the order, he passes it on-line to the floor trader at the
exchange who executes it with forthwith confirmation. The scenario can be followed on Bloomberg. The standing commission is .5% in and again
out, with no other fees. “For larger
trades it slides down to .35% or lower.
We accommodate.“
Looking to the
upcoming year’s economy, he predicts a general slow growth of 9% in the
outlying island provinces, while in Manila 4%.
Inflation is stable at 5% now and 7% last year. The government is urging the people to go
back to the provinces where there’s more opportunity and the response has been
moderate. Rice, the staple, influences
the marketplace. In the May ’98
elections, Romas, who’s been a “wonderful wizard” for the country, will step
down. Closely observe the outcome. Robert provides the names of young strong
IPO candidates, and the leader is Smart Co.
The stock to look at now is Solid Group that has exclusive rights on
specific Sony parts for USA. The
maverick passes the acid test to brokers, “Do you invest in the stock
yourself?”, with “Yes”.
“Education is
the only way up and out for a national of this country, and special attention
is paid to it.” Also, the code of
ethics is powerful. The family unit is
strong. There’s poverty but no
starvation; poverty here means discomfort in life.
I accompany
Robert this afternoon to a rugby match where his bulk steamrolls the field,
though he’s not the athletic match of some who grace the Niedco office. I’m surprised at the international overlap
of rugby players into finance, as dozens of players/businessmen from assorted
countries compete in a schedule of financial capitals. In a week he travels to Hong Kong for a
six-country spectacle. Robert was born
in New Zealand, worked in England, lived and worked through Asia including
Japan, and has been in the Philippines since ’92.
The next broker is Abacus Securties, established inn ’90 and now ranked third among the top 10. The facilities are modern, and this was the first brokerage to have an electronic board. They have 3% of the total market share, and half their business is institutional including a “few” foreign clients. Our contacts are Henra and Lora, head and VP of institutional sales. I also meet the usual array of researchers, traders and the firm president, all whose cards are enclosed. The staff is fresh, informed, eager, no negative traits, and I rate them highly. The answers on trading, commission, settlement and custodian run parallel to the earlier broker. The general feeling here is that the present Philippine economy is sound. Investments are a major driving force. The market is up 20% from last year and should show sustained growth. The top ten brokers control a lion’s share of the market and are doing well as of three years ago, and much of the reason for their viability is foreign investment. The next is Perigrine Securities, and I shorten the report here by saying the house and staff plus responses are similar to the previous brokers. Find a full deck of business cards from VP’s down to department heads, including literature. Our main contact is Joel, the international trader. The consensus for the coming year is profits are to be made in selected issues such as Mondergo (casino resorts) or Lotadanin (gin and rum) despite overall dry news. Alhough I endorse this firm, the other two are quicker and surer with answers. My input is to dig at the underlying reasons for the top stock choices being casinos and liquor. The next, Angping Capitol, is a top candidate. They match the others tit-for-tat except are traditional Oriental, mostly Chinese. I meet owner Mr. Angping whom someone whispers, “Mr. Angping is being shy because it is our way. He is the number one man in the Philippine cement industry.” Industries simplified, I figure one family runs each, and these network to influence politics; just an educated guess. I imagine there are intermarriages for power jockey, as in royalty. There’s a delicate moment when Mr. Ping comes to me red-faced, “Should I call you Bo or Keeley?” “Either or both”, I reply. “Should I call you Ping or Pong?” A man’s character is revealed in the way he fields a jest. Disarming laughs are had all around and– at risk of chagrin – we may be remembered as daring traders, and I better weigh this house.
The meeting is
at a round table with dignified Chinese trying to contain zest so not to lose
face, yet they’re nearly out of their skins to get our account. It’s classic: The noble president, whippersnapper right-hand man, the exotic
female international sales lead, and steaming tea. English is a poor second language, so smiles and nuances carry
the communication. I feel like a dog
trying to read cat body language. Note
the better English speakers are quantified 1-5 on the business cards, with the
best here pulling a 3.
The securities
division of this corporation has grown strong and fast since inception three
years ago. They’re #1 broker for local
investors, and #3 overall with 70% of their entire trade done by
foreigners. They own 2% of the market
share by volume. The fashionable offices spill over two floors where the staff
numbers 80 including four dealers and four traders.
Miscellaneous
comments: “The Philippine psychology is
‘short-term minded’. Short-term minded
mean today, long-term tomorrow, too-late is yesterday.” I get the feeling these Chinese share not
the Philippine penchant for gambling.
The overall economy is stable with the only weak link that exports are
down. “Don’t miss ‘Midnight Madness’
tonight at the Mega Mall!” Today is
payday in city. People spend money
before it falls out of pocket.” The
lines circle blocks, and the spending spree begins at midnight when the doors
open.
A personal
incident nearly lost face for our company.
In the custom at the round table of exchanging business cards and bows,
I fumbled for the dwindling stack in my pocket and, like pulling a card off the
bottom of the deck, produced a condom to the beautiful head of international
sales. Luckily only she noticed,
giggled, and I stuffed the accident back before it rose the circle. I apologize to Niedco for this.
I rate this company
high with the misgiving that their custom to clam up or smile benignly replaces
the awkward “We are the best,” or “We don’t know that.” I prefer all cards on the table and let
faces fall as they may. Also, it may be hard to find a good English speaker for
a quick trade.
Custodian banks
The Hong Kong
Bank is experienced and highly recommended.
The staff of 150 sits on an enormous bank of securities and money in a
skyscraper in the clouds. Our contact
speaks good English. Opening the
account in dollars or pesos is easy, a basic custodian agreement, and there’s
not a problem to recoup closing dollars.
The best transfer method is swift. The system will be script-less within
months. Our contact states, “The market
itself is high risk, and very volatile.”
Other meetings
The lanes of Manila, population 9M, announce the din of advancement, slow
and sure. Earlier, at Hagedorn
Securities it was rousing when Robert motioned out a large window, “There are
eight malls either new or under construction within a mile radius. These are signs of the city growth.” They also contribute to a mall index I’ve tracked casually for
years. “Let’s count the construction cranes,” he said, and there are
eight within the same area. We hadn’t
spoken of my own crane count either,
but evidently he’s read of the lower indicators fed Niederhoffer by a hobo
living in his basement. The malls are
jammed and the cranes are moving. One
of the new malls is said to be the largest in Southeast Asia, and 9 of the top
10 stocks at the market have interests in malls. Note among Hispanics and many third world countries the mall
occupies a more prominent place in the people’s intent than you might
think. Families plan picnics, pleasant
views and buying sprees under one huge roof because of the air conditioning
with escape from street noise and pollution.
Think of a Manila mall as a combination of NYC’s Central Park and a
bank. People in the shopping centers and streets say the
government is stable, and after a slow growth they expect a big spurt in the
homeland.
The red
districts fall under scrutiny and are busy as monkeys at a flea convention, a
good sign. Equal time to all, and what
of prostitutes as lower indicators?
She, like the secretary or janitor, is another Filipino worker. She goes to the job, punches the clock, and
goes home. The force is female, young,
pretty, savvy, hungry for money, cheekier this year, and competitive. I favor one in orange who has my tongue,
“Wanna date, sailor? She has hopped
off a park bench to stand out from the bevy.
The ensuing interview reveals the price of fruit has increased with a
burgeoning local women’s liberation movement.
This also explains the swollen assertiveness of the ladies at men who
don’t make prompt advances and quickly find the tables turned. My normal position is to sit in a red light
area for an hour and quantify workers, Johns, offer frequency, etc. Most
women now ask for a business card or hotel phone before leaving the
company of their friends. One shares
this for security, to roust a prolonged session, for her girlfriend to come in
minutes for an emergency, and to repeat business the next night. The best time to frequent red light areas
for such an parlay is after prime time around midnight. Anyone left then charges less – easier on
the slim expense account – and is eagerly taken off the cold street to
talk. She starts the clock beating with
the first words and research often carries into the next morning for she has no
other business so late. The gal who was in orange reports
upright times with elevated prices and fierce rivalry. I work many nights running on this company
project.
Repeated
blackouts are an early indicator of down times and continue to plague major
cities here, but not so badly as in the past.
Once I sat during a two-day blackout in a candle-lit circle of Filipinos
at a wake of the father of a lady I’d met.
Instantly the chair under me shattered into pieces and I sat on the
floor. At that moment the city lights
burst on and jaws dropped around except the old man’s whom witnesses looked to
for more, but I fled the scene before finding out.
This island nation is 7000 land dots
separated by sea that requires a boat or plane to link. I’ve visited many previously except the
southernmost group that currently is off limits because of Moslem friction. The
more populated islands are so many progressing modern states contrasted to the
thousands of tiny, fairly uninhabited islands that lay as sleepy escapees. I want to call on them all! I land on a distant one after the week of
broker meetings. Palawan is what
happens to Gilligan’s Island after capitalism moves in, and may be a model for
emerging economics in other islands, or in little far-flung nations. You decide whether or not it’s advancement. The capital Puerta Princessa speaks of
evolution within its own generation.
The fresh look of unused education on the children’s scrubbed faces,
more electrical current pumps through enlarged lines, and construction projects
scratch the streets everywhere along with assorted flea markets and a new dock
with boatloads of new merchandise unloading daily. Listen, a newly busy port town like this often leads a greater
wave of economic growth throughout the country. (I’ve seen it in one country
after another in my travels) Recall also, the Philippine government presently
encourages Manila and larger island residents to relocate on smaller ones like
this.
The young:old headshake ratio is useful here
and elsewhere. The young lean into
their strides with forward-thrust chins and dollar signs in their eyes, while
their grandparents shake their heads side-to-side in disgust and
resignation. So much to have changed so
quickly! And what of the parents -
between the youth and aged? The parents
struggle between two tides and don’t figure into the indicator, but likely
after the modern economy is in place they’ll swing to the younger generation,
the grandparents will die and the ratio falls to the wayside. Today, however, I’ve never seen such a high headshake quotient anywhere, indicating great change. There’s an attractive side effect: It should take two generations for
capitalism to root here. The reasoning
is from ground zero the first generation denies capitalism even as seeds grow
in the cracks; the second is confused by it, and the third is gung-ho and
contributes so free enterprise takes off.
Apply these principals also to the brokerage houses where Chinese
conservatives due to footholds in industry have dominated until recently, but
now westernization, particularly Americanization, supplants them in full
force. That’s a lot of head
wagging. I believe old oriental ways at
the firms will drop after the grandfathers pass, for better or worse. On an even larger scale, as the world is
swept clean by the little brooms of emerging markets, a global paradigm shift
may follow with the old shaking their heads reactively to a new world market
ushered in.
On another
island, I hurriedly exit the port city and am engulfed by the thick tropics
with a parade of picture postcard scenes of coconut trees, sandy beaches, and
hut villages on stilts hidden in the jungle.
Remember, in scouting for indicators in these small towns, general
custom replaces individual feeling. I
travel rough for days in/on “jeepneys”, hybrid bus-trucks where passengers ride
seated, in the aisles, on top the roof or hood, or hanging from the sides and
bumpers. The superior spot is bucking
along the top, ducking branches for more views. The ride’s akin to “decking” the roof of a freight train with the
same advantages and hazards. A vine
nearly decapitates me while distracted by a monitor lizard 5-foot long crossing
the road, to get to the other side I imagine.
Another moment I get stung in the eye once as the truck pitches in a
rutted track and I claw the roof edge until pulled being back aboard. One ancient jeepney drinks in the radiator a
gallon of strem water every thirty minutes all day. At wider rivers, I become the bellwether for kids riding atop who
follow my jump to the bank when the ford looks deep enough to make the bus go
submarine. The trucks crawl only to
stop every fifteen minutes for passengers, cargo or water. One brightly colored jeepney has three flat
tires in as many hours, but the fifty aboard remain cheerful until the bus
kicks into a rough spot and sends a crate flying from the top, crashing and
spilling wine bottles across the road.
The owner hops madly around the broken bottles but after the cleanup,
cheers and passes around free samples.
I tour a penal
colony on the far size of one isle where convicts with very long or accumulated
sentences are put out to pasture. Bank
robbers, murderers and others with lesser crimes work small industries like
wash, or tend administration gardens and clear jungle roads. I discover the colony while riding a “tuk
-tuk” or 3-wheeled motorcycle taxi on a country road that suddenly comes upon a
work gang of 60 convicts restrained by shotgun-wielding guards. We dead stop as the group of heavily-muscled
men with machetes cut, chop and drag a fallen tree from the road ahead. A whoop goes up, and without warning the
gang turns and begins running at us.
They close to five yards and I await shogun blasts that never come;
instead the men split like a river at the tuk-tuk bumper and flow by either
side until the last passes and the guards follow. Simply, the work day had ended.
On the next island, I catch a ride along a rural
road that opens to a clearing where dozens of cars and bicycles stand outside a
tented stadium. It’s a cock-fight! This is to the Philippines as bull fighting
is to Mexico and horse racing is to Hong Kong.
Inside, circled bleachers around a central 10-yard ring are tiered up
the tent sides to seat about 400, and the crowd is riotous among flying
feathers. Instantly the ruckus abates
as the assemblage spots me, the only gringo.
I peer deliberately about the stands, thrust up my hands like Richard
Nixon and throw both thumbs. The noise
swells instantly as if the volume is turned on and all eyes go back on the roosters. Blood flies, booze flows and bets soar. The rabid gambling is a metaphor of the
marketplace floor.
On a different
island, I stumble into a scenario that conjures the “Dumbo Speculator” who
reads line lengths at Orlando’s Disney World.
Upon drawing near, I see a man tossed far above tree level tethered by
an elastic rope. He drops below the
coconuts and I trace a roar of approval to an open area where stands a
four-story derrick. It’s an inspired
bunji jump! When it’s his turn, one
person steps from a line to climb a single-story tower and is strapped into a
harness. The thick cord hanging from
the crane is stretched by winch downward to clip to the harness. Another rope that has been securing the man
to the platform is snapped free and he rockets. He sails above the crane by 20 yards then plummets earthward to
the elastic’s maximum just above the crowd’s heads, and bobs up and down like a
yo-yo until coming to rest in midair. The ride’s applauded passionately, and
the next steps up. The line of people
is a block or 45 minutes long and heavily weighted by Filipinos compared to
whites like me who gawk on the sidelines.
That's why I offer this corollary of the bunji index that the more in line for them the higher volatility of
the market. One of the largest bond
traders in America lives near Orlando, Fl. and frequently takes his kids to
Disney World. The Dumbo ride is the
most advertised and popular ride among families, he says, and there’s always a
line with a sign out front informing the wait time before the last person in
line gets on. He jots the number of
minutes and graphs it vs. the bond movement throughout the year, and claims the
Dumbo index is as reliable as any for
trading bonds.
Back in Manila, my fondest bizarre
memory is the Hobbit House. In your mind’s eye enter a bar from R.R. Tolkein’s The Hobbit.
Everyone is a dwarf two feet shorter than I, and a rock-and-roll
band of short-people slams out a Chuck Berry tune. I eye an attractive lady half my height and ask to dance but am
rejected. I withdraw not knowing if I
would have picked her up during a slow dance or gone to my knees. Perhaps the most enjoyable peoples of the
world – from a roving misanthrope – are Filipinos. They still call me “Joe “ or
“Hey, GI” even wearing a business suit, leftover from when it was occupied and
badly damaged by the battle for American recapture in WWII. They’re by and large scrupulous, industrious
and prone to speculation. They take
profits with lumps, grinning, as if playing a bigger game in life, which must
be factored.
Summary
The literature
on and mailed by Niedco preceded me and paved the way to productive talks;
thanks and please ensure they arrive to boost other country wins. The exchange, five brokers and custodian reported
above all lay within the capital, Manila.
This bustling metropolis shows a plethora of LI’s particularly in the
clogged streets. I see one traffic cop
in a cowboy hat, unmistakable for his unhinged dance in busy intersections,
whom I encountered seven years ago.
He’s the symbol of freedom, of speculation. Hard work is fashionable here, reminding me of ‘50’s
America. The people and land are
fertile for the seeds of capitalization.
Filipinos are gifted with their hands but not prone to piggy banks. “Working hard to get paid and gambling it
off are in our blood,” I’m told, suggesting a mindset of American subcultures
like cowboys and hobos. Bet on everyone
to take an honest paycheck to games, to lose, to have to work again. The cycle’s ideal for speculation, or for
self-perpetuating capitalism, like jumping into a skip rope.
Robert of
Hagedorn Securities has been my astonishing guide, and I suggest he knows what
we want and will cater it. His contacts
are of enormous value, he does things directly with a knack for at once
grasping detail and general concept, he’s non-Filipino and well-traveled, is an
original thinker with strong backgrounds in business and sports, his age allows
him many years before dropping from a heart attack at the pace, he’s fascinated
by the Niedco peculiarities, and he’s the first to study us before we study
him. In baiting a mouse trap and
leaving room for the mouse is a way of saying in business to offer latitude
with options, and Robert figures I’m able to take one, or leave all. Ensure a backup if he’s off at rugby. As for his firm, it’s old, established,
large and the only poor mark is the chalkboard. Most the other houses get high marks as well. For a truer oriental flavor consider Mr.
Angping’s outfit, and that malls are much made of cement. Keep in mind the Chinese oversee the
majority of Philippine industries which turn the market. Why not try both houses?
The
Philippines is acclaimed as among the best emerging markets in Southeast
Asia. It’s my job to evaluate the
brokers and if you believe, as I do, that they’re as capable as any on the
world trail so far, it falls then on my second duty, to estimate the potential
for investment. Watch this country more
closely than others since it’s riper.
The May, ’98 election may be our pivot.
Many feel the market, driven by foreigners, will shoot up after it. There are also great opportunities in IPO’s
and seed capital projects – common here – in a style after our own. There’s another personal reason to Niederhoffer
for the Philippines allure: The
market’s a gigantic poker game because of the gambling habit of the
natives. If one can read their hands,
one can predict his winnings. Temper
this with the fact that foreign investment plays heavily into the game, so
stall for trade times when the more foreseeable local element enters
strongly…then push your chips.
-----------------------------------------------------
Singapore is inserted into the report because it must fall somewhere
in the scope but, of course, it’s a different island nation and apart from my
emerging tour. Many of my flights
within Southeast Asia countries land here to shuffle passengers before
continuing to my destination. I
stopover one day in the capital with which I’m familiar from earlier
travels. Upon stepping from the plane
the dissimilarity to other Asian cities is immediate. Everyone is educated and the streets sweepers look like
professors. I ride the subway and walk
a mile before finding a single piece of litter, with no butts the whole
day. The eyes of the locals are clear,
smart and the penalty for drugs is hanging.
I have a personal theory developed from years of globetrotting that the
world’s going to hell in a hand basket floating on drugs, but here is reverse
support from the immigration form visitors must sign, “DEATH TO DRUG TRAFFICERS”.
For other indicators, the new car index is astronomical at about 95% with nearly every auto
in city lanes being shiny new. It costs
about $50,000 just to get a permit before the price of the car. In like, everything about the city is
modern. Utopia, a planned dream
community comes to mind, and someone explains (English widely spoken as a
second language) the existence of an autocracy that takes care of all. “The ruling party is a brilliant mind
group”, I’m told by a citizen on a bus.
People are content with automatic smiles and have no conscious want,
but… Did you ever read Watership Down
about the hutch of rabbits, perfectly tended so having no needs, until a group
of breakaway rebel rabbits re-educates them?
Did you ever see the end of Stepford
Wives where the perfect citizens are revealed as androids. The Singaporeans are not these, but they
risk becoming automations in a real-life sequel “Stepford Island”. Singapore has a strong emerging market but
since no appointments were set, I choose not to adjust my itinerary to stay.
On the flight from Singapore, I sit in an aisle seat and
read with shoes kicked off and sox in the laundry (and they call YOU the
“shoeless trader”) when a middle-age man walks by and collapses on the floor to
my left. Oh no, I’m going to have to
work on this heart attack barefoot, I think.
Everyone on the plane is oriental and prim, and the guy in the aisle is
white as chalk. I suspect he’s just
made his worst business mistake, but because of the colorless complexion and
blank stare can’t tell if he’s under arrest or just fainted. Many of the Orientals face value this look
while their minds work inscrutably behind closed doors. His breathing is slight and there must be
resuscitation within 15 minutes or his chances are nil. The passengers shriek and I begin to rise
when the attendant rushes up and kneels over him. There’s a Chinese shout and an oxygen tank is wheeled out of
nowhere. Slowly the man slowly regains
consciousness and is helped to his seat where he’s okay for the rest of the
flight.
-------------------------------------------------------
KOREA
Preface: I knock on
brokers’ doors cold. Small men peer
through the glass and scurry for an English speaker. “What you want?” I press
a business card to the window and yell, “From Niederhoffer Company in
America.” “How much you worth?” “125 million dollars.” The doors open.
The key to
locating the exchange is the Korean phrase for ‘financial distinct’ which I
gain from a doctor in the form of a prescription and jump in a taxi. I discover the exchange in a futuristic
high-rise centered on an island within Seoul curiously called Manhattan. I enter a swarm of round, brown faces and
find myself tailed by a secretary who taps my shoulder, “I wanta practice
English. You speak?” She leads me to a visitor’s gallery
undergoing construction so precluding a personal view. The tail says the floor trades 25M shares
daily for a total $400M Korean. There’s
direct computer linkup to the broker houses.
The hours are 0930-1130 and 1300-1500.
The atmosphere is electric, as is my escort. She just returned from vacation in America, so I ask for the
fondest memory. “There so much
room. And you get to jaywalk!”
Brokers
Having
pinpointed the exchange amid myriad skyscrapers on Manhattan, I drop the idea
of getting help stateside and pound doors and windows along adjacent
streets. Most signs are in Korean and
few greeters speak any English, but I visit two neighborhood brokers, KDB Securities,
and LG Securities.
KDB securities yelled, “Come up, come up”, when I announced the
Niedco fund size, and I did. Our
contacts are Sang and Kang, both managers in the international department.
“Gentlemen,
there are two things you should know about the American company I represent.”
Around
me, the Korean eyes narrow.
“The Niederhoffer Fund is known for its unorthodoxy, and its
success.”
The splash of
our literature is an exclamation point.
Headlines: "Victor Niederhoffer – Renaissance Man of Wall
Street" (Opportunity, 11-19-96),
"I owe my success to the Enquirer says Wall Street Wizard," (The Enquirer, '96), "Whatever
Voodoo he Uses, it Works" (Business
Week, 2-10-97). They read
slowly, grunting in rumination. I
twiddle my thumbs for ten minutes until they look up and beam.
This huge
conglomerate has a total staff of 700.
The securities section opened six years ago and is tenth ranked of the
country’s 40. Note only 15 of these,
including this one, handle foreign clients.
Sang and Kang are among four international traders, and their English is
the best, though sketchy. A license
from the exchange is required and they’ll facilitate it, then the account is
easily opened with a custodian bank recommended. Liberalization of broker and foreign trade regulations should
take effect in six months. The
commission is .5% on buy and sell, and though “fixed” it’s lowered slightly for
large trades. There’s direct computer
hookup to the exchange floor, where it’s automated without floor dealers. No taxes on ttrades. The firm deals in T-bills but foreigners
aren’t allowed to participate.
“Economy
poor. Korea no tiger. Maybe soon.” International competition has brought the nation to its economic
knees. The steel industry is down to
the tune of decreased worldwide demand.
Land prices have risen dramatically in this country whose length can be
traveled by train in a day. The cost of
labor is sky high, so anything requiring such as construction is dear. Optimistically, there are two theories on
the economic turnaround and market comeback:
The first states the market will bottom this year, the second that it
will bottom next year.
LG securities is just down the road and ranks #2 among all
brokers. They own 15% of the market
share and trade for many foreign investors.
They claim there are four major international brokers in Korea of which
theirs is tops with a staff of four traders specializing in foreign clients.
You have the contact cards. The
responses to the usual questions parrot the previous house, and their English
is similar.
This
particular firm does well in these tough times since it’s large and
successfully shorts the market. True,
the economy is down but it won’t reach the lowest until either the second half
of this year or the first half of next year.
Then comes the turnaround, and the market will shoot up. The deal on the steel industry is
interesting with the economy needing much its export. Giant Humbo Co. went belly up recently precipitating a political
scramble that caused government takeover.
With the government at the reins of the giant, the Korean steel industry
isn’t as lame as some think.
With little to go on and less for
comparison, I recommend these two brokers because they’re big and seem
honest. A trading room without orders
is like a house with closed windows, but the traders I view overcome torpid
times with hope and reading material.
Other meetings
Three items
fall under this heading: The
Insightful, nightly chats with my doctor/landlord, the city of Seoul from its
streets, and searching for Victoria.
The doctor mentioned earlier in this report
is a panacea. Candid, traveled,
informed of Korea’s situation, and inquiring of USA, we talk evenings. “Korea is working through its worst economic
times ever. Big companies are going
bankrupt while a general depression sweeps the land.” The economy is dominated by corporate conglomerates that make
charitable contributions to a government that is making bad decisions, perhaps
based on personal interests. His take
on the steel industry is the 3-D factor, soon explained. The labor fee is so high as to be
prohibitive; for example, maids make as much as the technically skilled. “It’s crazy! People avoid what I call the 3-D jobs – dangerous, difficult or
dirty.” So great is demand that a
street cleaner makes as much as a dental hygienist. “The government is a
mockery. It’s common knowledge that
it’s holding the country back. Better
times to come after the national election, then recovery will be slow but
sure.” His specialty is internal
medicine.
Seoul is the
capital with about 10M population and was the site of the ’88 Summer
Olympics. Drunks litter the streets in which there is no other
garbage. Good people staggering and
dropping everywhere without worry of getting soiled. Singapore has spotless lanes because of penalty, whereas here I
think cleanliness is due to Korean honor.
So why do they drink? That’s the
potential indicator I’ve tried to survey elsewhere – Yugoslavia in the 70’s,
and China in the 80’s - a spin in history when a fairly virtuous populace is
driven to drink by an oppressive government.
They are escape artists, not drunkards, drinking to remain stable. A few drinking tents are erected along the
streets, in lesser numbers now since the government outlawed them. I strain outside to catch tones through the
material. More often, a well-dressed
man or woman buys a single bottle from a store and walks the town alone until
he can hold no more, then falls on the spot.
I slalom dozens nightly. They
don’t otherwise litter, and I watch transfixed today in a subway as a
schoolgirl erases a quarter-page of writing, ostensibly to save paper, then
carefully brushes the particles into her purse.
I walk into
the university area, today infiltrated by police squads in full riot gear –
helmet, shield and club. It’s a blast
from the American past when anti-war protestors battled police lines in tear
gas clouds around campuses including mine at Michigan State. Hundreds of cops bus from one corner to the
next, perhaps to inflate their show.
The milling students scowl at the buses and an English-speaking pupil
tells me, “Student riots are ‘seasonal sport’ with the riot squads. We’re mad because idiotic government cheats
the nation by skimming profits.” Ten
thousand mice nibble at each policy passed down.
I journey the
500-mile length of the country by
train while waiting to hear from Niedco.
The northern portion of S. Korea is mountains and uplands, but soon the
hills flatten into rice fields with primitive little greenhouses of clear
plastic stretched over sticks to give private gardens a jump on spring. It’s agricultural scene after scene rolling
by, dotted by infrequent primitive highway construction or minor building in
hamlets. Whenever I see the moon on two
consecutive nights to know the wax or wane, I reflect on my first off-beat
indicator letter to Niederhoffer on “Full moons and the marketplace.” Guidelines for gardening are unchanged and
straightforward as to the moon.
Generally, farming activities for growth and production increase,
especially for plants that produce above the dirt, during waxing. So, fruits and vegetables to be eaten soon
are gathered at the waxing moon.
Planting crops that yield below ground, and harvesting for food to be
conserved or preserved, occurs best during the wane. On the whole, speculators are thought to become more volatile
under a full moon. I must remember to
ask the yield, if any, of that early informal marketer’s almanac. The Korean train network is adequate, more
easily more maintained by the country’s diminished size, and puts to shame USA
where even many hobos won’t ride Amtrack because the double-deckers speed
dangerously fast and the schedule’s spotty.
Two of the five Amtracks I’ve taken had accidents, but only one of the
250 freight trains. On this Korean rail
trip, I take in the land as one of Asia’s “Little Tigers” because while rice
fills the stomachs, the breath of the nation is from competing tenaciously in
the international trade of manufactured industries. This is at once the most pleasant and challenging of countries to
get around. Everything is unfamiliar,
getting lost is easy, and no one understands the word “help” though they want
to. Once back in Seoul where
one-quarter of the country lives, everything seems so raw and fresh.
My thought is
the economic situation is a veterinary predicament: The country is a tigress caught in a physical depression. It has such strength by nature that it’ll
outlast the condition, and knowing this one should buy it now from the pet
store while the price is cheapest. On
the other hand, who wants a sick tiger when you can wait till it recovers. (I’ll continue this line in the summary.) The strong stock of the S. Koreans, nearly
entirely ethnically Korean, is supported by their isolation on this distant
land claw. Conceivably, you can judge
the country’s prognosis by the peoples’ makeup, and the people are big-handed,
strong-hipped, wide-cheeked, tall and defiant, with intelligent eyes, deep
morals and working minds. It’s all in
their steps, the short bitter butts they toss, and the drunks who fall before
getting home. They won’t be kept down.
On return to
the capital city there’s still no
word from my company. Where are the
financials? Why have there been no
answers to my faxes in the past two weeks?
Where are my contacts? I'm
wandering the city like a lost soul after a milk-run air flight and train run
down the peninsula, and am haggard. I
assume by your long record of achievement that an emergency has popped up, yet
is it so great as to abandon the Yankee hobo?
As last resort, I'm faxing the boss’s 11-year-old daughter:
To Victoria
From Bo
Re: Urgent
I’m stranded in a far-off country
called South Korea with no English speakers or contacts, and no one met me at
the airport as was supposed. My support
staff in your dad’s trading room has apparently disappeared. Your mission, should you decide to accept
it, is to bail me out. I located the
exchange only by going to the finest hotel in Seoul, the capital, and asking
where the stock exchange is. The best
English speaker pulled a thick dictionary, looked up “stock”, and said, “You
want go where pigs live?” I shook my
head. “You want go where horses
live?”…He went down the animal list and ordered me out to the street, despite
my coat and tie.
They let me send this fax from the
hotel before kicking me out. Victoria, I’m not kidding. Imagine my plight. Right now, go upstairs to the trading room and ask someone to
contact me. Tell them I need the names
of the guide or brokers that were to have been sent a week ago. Use the return number on this fax, and maybe
they’ll let me back in to pick it up.
Fulfill the mission and make money for your father to pay for this.
Thanks,
Bo
Summary
The fax reply
never arrives, so I wander afoot refusing to return to the airport before
gathering intelligence. Having located
no proper English speakers at the best hotels, the next thought is the tourist
board, but of the bevy of ladies only one has a small, scattered
vocabulary. I learn the word “doctor”
and am raced to one who speaks English and runs a convenient bed and breakfast
out of his home. This is my
salvation. With a prescription that
says in Korean, “Take this man to the financial district”, the Seoul stopover
evolves into a choice opportunity to knock on brokers’ doors cold. Without advance notice, they can’t and fluff
the cushions and call the shills. It
becomes an adventure, and you’ve read the reports.
That said, I’ve
learned South Korea is not the freewheeling capitalist society some hope, but
at present a nation strangled by government bureaucracy. “Everything is regulated down to the flavor
of ice cream”, someone told me. I’m
also informed the restrictions on brokers are relaxing over the coming year,
and perhaps the market will become the vanguard of advancement. Watch but
hesitate before jumping on the wagon at that bend. Korea is so geographically isolated and
clothed in its old ways that it may take about one generation after the freeing
and return of the market for the true effect of nationwide freedom to ring in
the safety of your investment. I’m
hinting at a one-generation lag from
economic turnaround to point of entry.
There are similar examples in Mexico along the border where “wetbacks”
enter, work hard in America, but a gap of one family generation is necessary
before the children break loose from the old and are captured by the new –
language and ways – with ultimate progress.
It’s a case of the father working not for his son who’ll stagnate in the
transition, but for his grandson who’ll prosper.
The natural
house choice from the limited field is LG Broker. If you plan to enter this country in a big way and require more
than one, remember there are now only four in the country with international
desks. Ensure the contact speaks
English, plus a backup person. The
brokers are eager for business but honorably point to the future as a better
enter point. Pre-arrange a return trip
with a local house before placing any money.
Keep glasses on the steel industry, elections and market
liberalization. Wait until broker
regulations and commissions relax in a year, or when there are “absolutely no
limits on the brokers by the year 2000”.
Also, look for the people to straighten, then come into the
country. I bet they define the world
resiliency, and when the economy in which they live reaches rock bottom, their
mettle will show.
----------------------------------------
A side trip to Taiwan
is included on the Korea ticket, and though not part of the emerging market
trail, this is where twenty-five years ago I initially learned the vacationer
and businessman can be one. I was fresh
out of veterinary school, just moved from cold Michigan to the sunny
California, and took a left turn that’s proven vital. While waiting six months for the multiple-choice California vet
boards result, I started hitting the racquetball around San Diego, mecca of the
new-sprung sport, and got sponsored to play the pro tour. Leach Industries was the leading racket
manufacturer in the mid-70’s, and invited me to join a three-man team to go to
Taiwan to combine forces with the world’s leading all-rackets manufacturer,
Kuhnan Industries. The brain was the
head of Leach, the brawn was the chief engineer, and I was the pro on
display. My part, once there, was to
impress the Kuhnan people, many athletes themselves, with racket prowess. This I did, and posed often holding an
oversized 4-foot racquet for photos. I
learned nuances of business in another culture: if one bows, do it low; the practicality of gifts, a Chinese
given; provided “dates” and the snare of mixing work with pleasure; and if
you’re the best the appointment knows, it’s good enough. Incidentally, we flew away with the
contract, the companies subsequently merged, and – much due to this outing –
racketball swept America as bowling had twenty years prior, and made many
including myself money and small fame, before dropping to the wayside in popularity.
Now on the Yankbo tour, the streets of capital city Taipei
are like an anthill aflame with citizens.
The fire is in the people is free enterprise, plus throwing off the
traditional ways. Though this country
isn’t considered within this tour and there are no prospect appointments, there
could be next time around.
-------------------------------------------
Preface: Rising out
of the surrounding miles of stench and garbage is the business skyline of
Jakarta. This oasis has grown in
diameter and height since my previous visits, so now it’s a moderate taxi ride
from hotel to appointments. The
architecture is magnificent, comparable to Hong Kong. Remember, however, the base sits on acres of trash and open
sewage, hovels and litter blowing in the wind.
This is the Jakarta exchange, located on the ground floor of the reflective skyscraper that houses the larger brokers. It’s up-to-the-minute including a public gallery and electronic signs that flicker prices. The most fascinating angle is looking down at the floor which is set like a carpeted Roman amphitheater. It’s stepped and sprawling and on the tiers lay some 500 computers manned by floor traders. What a contrast to the screams on the floors of public outcry trading! There’s no shouting when things reach a fever, though I’m told the 500 computers hum and buzz. There’s direct computer link between the house dealer to whom you’ll call trades and his man or men on the trading floor. The exchange is squeaky new and so tight, I’m told, it’s hanky-pank proof throughout the trade. The average daily volume is $240M and single trades of $1-3M are “medium sized” and frequent, but a single transaction of $10M causes a shock across the market. The hours are Mon.-Thur. 0930-1200 and 1330-1600 their time.
LIPPO Securities is the only listed public security company, 2nd
by volume among the country’s 230, and handles foreign accounts with
regularity, including George Soros. The
firm occupies a floor of one of the sundry skyscrapers rising from the city
streets. The equipment is ultra-modern
and the personnel sharp. Our contact is
institutional sales head, Huri, who went to school in San Diego and is direct,
efficient and reliable.
My opening
comment must be on Ramadan, the ninth month of the year in the Islamic calendar. This comes no doubt as a weird indicator to
your trading room in Connecticut, but I accent it here. Ramadan is 30-days of ceremonial rigor
including fasting among the Moslems that compose 80% of the country population.
Business slows dramatically for one month akin to a blackout in America, to
continue with renewed vigor at its end. My reasoning as an indicator is most
the traders here, judging by their life stories, are recently successful as
this is a freshly emerging market, yet they staunchly maintain their religion.
The men in these offices don’t have to suffer through it, but choose (it
appears to be from piety rather than peer pressure) and it shows in their
character strength, something we wish to deal with. It’s more difficult for the newly rich to fast than the long
poor, and my opinion base is personal.
We’ll see how Ramadan comes to play throughout the report.
LIPPO has been
in business since ’89 and presently holds 7% of the market volume. Of this, 64% is from foreign clients, and of
the markets’ total foreign investment 67% is via this broker. They’re hungry for more. Huri will make an exception and begin
trading immediately without any forms being signed. No licensee or permission required, and no capital gains
tax. A custodian bank is needed and he
recommends Standard Charter or Hong Kong Bank.
The literature suggests a fixed commission of about 6% on the buy and
sell, but our contact assures its dramatic lowering due to our large
volume. Settlement is T+3 buy and T+6 sell. There’s no swap index trading, and T-bill trades begins in three
months.
The general
economic picture has a double standard.
The standard of living in Jakarta is high, while low in the rest of
Indonesian. The villagers cannot afford
the city. Huri offers, “The country
economy is better than the world thinks.”
The growth of 8% has been steady each of the last 15 years. The inflation rate is low, last year 5.6%
and this year 1.2%. The currency is
stable with trade increasing each of the past three years. The state of the
securities houses is the top fifteen are holding well because of foreign sales,
with the others struggle. There are
lots of IPO’s and companies to put money into, and you’ll receive a list
prepared by the research staff. He
confirms there’s much ongoing construction in the city, and the government
estimates it would take one billion dollars to modernize the present open
sewage. Till then, as long as there are
periodic rains, the city smells like roses.
The LIPPO
traders and workers are gaunt after a month of fasting from sunrise to sunset,
but joyous in liberation from it.
They’re disciplined Moslems and don’t celebrate with drink or sex, but
put their refreshment back into business.
They’re a hard driving lot, something I don’t need to tell you
about. The interesting angle is that
during Ramadan, ending a week ago, inflation rises as the economy slows, then
predictably recovers. This happens
almost every year. It reminds me of dry
spells in the low Sierras when growth’s put on hold, and one must watch for
wildfires that probably won’t spring up.
I believe the firm, like Huri, is capable and worth working with.
I’m sitting in
the next broker Barings,
Johnny-on-the-spot typing this report across from the international sales
room. Public computers are hard to come
by in these far-flung countries, and after interviews I often ask to use one to
write and express their report in a timely manner. Silva, the main contact with whom I spent the past hour, now sits
through the glass at the international desk.
Next to her is Darwin, the boss, with whom I spoke for ten minutes and
wanted more to plumb his formidable market knowledge. The total staff of 60 includes 4 in international sales. Sexes
are split half-and-half, and are fairly independent of position. The exception is all males in the settlement
room “Because their arms are stronger for stamping the certificates.”
These offices
occupy a dozen rooms of one floor half-way up the glass-sided skyscraper that
houses the exchange. Furnishings
include state-of-art computers and a lavish meeting room with a 20-foot table,
built-in telephones at each chair, and a lazy-Susan microphone. Barrings was born into securities in ’90
when the market opened, and boasts of being one of the originals while thanking
foreign investment for the market’s dawn.
They’re still grateful, hence the red carpet wherever I walk. They rank among the country’s top five,
capture 4% of the market volume, and are a leader in foreign funds. There are offices in London, San Francisco.,
Singapore Hong Kong, and NY, and Niedco has the option of trading via the
latter.
A trade works
like this: Niedco calls NY or the
international desk here, the trade is keyed in and transmits by computer to the
floor trader located a few floors below the exchange. the floor trader executes
the trade via the central exchange computer on the floor, and the info returns
by computer to Silva at the brokerage.
She confirms by phone to us, and the official printed confirmation is
sent in the evening.
The economic
forecast is for continued growth at the same 8% rate of recent years. The market dances very much to the tune of
politics, but the upcoming national election won’t affect the market because
“The winner’s predetermined”. The government maintains a successful program to
keep devaluation at 3-5% per year, and with currency stability there’s been a
huge influx of foreign money. The head
analyst adds that in the near future Indonesia will be the leader among the
Asian emerging markets. Everyone here
is emphatic that though non-Asian eyes are focused on Thailand, Indonesia is
the better speculation. For this,
Silva and two team members recently turned down job offers in USA following
graduation there. Foreign interest In
Indonesian IPO’s and value companies are “a really big show”, as Ed Sullivan
the analyst say. Barings is a primary
liaison and shall contact us as these crop up.
Also, find a clipping of IPO’s for sale that I pulled from the full last
page of the Indonesian Observor
newspaper.
Their
responses to my prepared list of broker questions are unhesitant and vary
little from the previous brokers.
There’s a clarification that big houses use a sliding commission based
on trade size, going down to 1% on the in and out, though it may drop to .7% on
gigantic deals and lower as the broker-client relationship grows. Their best stock picks are Indonesian Int’l
Bank, which I’ll back as the manufacturer of the thousands of little
motorcycles and mini-vans I see crawling below on the city lanes; and the
colossal Toll Co. that makes sense given the on-going construction of ‘flyways’
or elevated traffic shunts over busy city intersections for which a toll is
levied. I like the working, qualified,
friendly lot in this big firm and issue many gold stars with no black
marks.
Carr Brokers, the third and last on the schedule (though I may do
some independent probing later) is an enigma.
Where the others dusted the rug to their executives’ offices, this firm
chose the back door route along a shabby carpet to a second-level man. He, our contact, is Irswin whose English is
fine and sharp eyes are distrustful.
They’ve been around since ’89 and have a staff of 60. I get the feeling they think I’ve dropped by
unexpectedly into their global poker game where they think I’m bluffing despite
our have our advance package. His
answers are dodgy and he doesn’t show enough cards to earn a recommendation,
particularly in light of the two other class brokers.
Other meetings
There are
signs of the times across Jakarta. The incoming flight reveals a marked
brighter glow of city lights since my
last visit five years ago. The voltage
is upgraded, with probably fewer blackouts. I’ve commented on like progress in
Central and South American over the years where on night flight approaches and
takeoffs I’ve watched major cities extend electrically into the landscape. The streets shine with new autos by approximately 15% increase. There’s frenzied construction
in the business sector, with numerous ‘flyways” or elevated highways along
congested areas. The alley cat index holds high and steady
since my last stay here, bearing out constant filth, hence rats about the
city. Curiously, the white dog indicator is down. Recall the more white dogs the fewer poorer
roads, brakes and lighting; thus the less advanced the city. The darker ones get run over. I feel comfortable in calling this an
official sign having monitored it around the planet for years. One also studied the walking males under
streetlights in the touristy spots and every twenty minutes a young lovely
would take him by the hand to a nook.
Now it takes about three times as long for the approach, ergo the standard lay index has dropped. Commission
sales in assorted shops and businesses are on the up, a signal of economic
headway, reflecting better service.
Businesses emerge from many slants when employees are rewarded in part
by sharing profit. Finally, general wages are up to ten bucks a day for Jack
and Jill Indonesia for secretaries and day laborers. The net result of this plethora of indicators, nonetheless the
mysterious disappearance of white dogs, point to advancing times.
My
observations include the usual count of fast food joints and when they went
in. The golden arch index (McDonald’s) is climbing and, significantly, the inner arch index (congestion within the
joint) is high with much congestion to get a meal. There are about 15 in downtown Jakarta and I sampled four on a
milkshake project to determine cow feed and found nothing unordinary. The crowds are middle-class or higher,
educated and many university students who, different from America, come in from
the oppressive heat for a relatively costly meal. Coat-and-ties are common under Big Mac smiles, while the poor
stay home with their rice. In parallel, the Kentucky Fried Chicken index is up,
with 40 locations in the city. Kentucky
took root earlier in the suburbs, hence the higher number with some newer sites
within the metro. There are also
numbers of Baskin Robbins, Wendy’s and others that make me think if Niedco got
hold of the data of proposed fast food sites and overlapped them onto a single
global index, the countries to invest in would appear like stains. I’d be out a job. A lfurther ook around Jakarta shows numerous shopping malls recently completed or under construction in the
financial district, an auspicious sign.
They’re jammed, another, with people buying. You’ll receive a copy of the Indonesian
Observer and a newspaper subscription may be in order since it hosts
business news throughout Southeast Asia.
The classifieds, of course,
are a meter for the country’s’ percolation.
It takes money to place the ads, literacy to read them, and phones to
respond to them. An easy, quirky,
possibly useful study would be to count the number of ads columns vs. the
market movement over time. I expect
classified rise sharply with a beginning boom, sustain through steady times,
and imply steering from investing in a place where the number is low.
My reading
stock running low in Jakarta, I join a throng holding texts as they enter a
building for what I figure is a book sale, but turns out to be a rare Christian
church service. The success of such in
nations near the equator rests not initially in the “word” but in the air
conditioning and soothing music. Compare to Hong Kong where I encountered
alcohol fumes in the ventilation of oriental businesses, and in the L.A. county
jail ether vapor from the ducts during a three-day stint for refusing to sign a
jaywalking ticket. Now you realize a
success formula in air conditioning at fast-food and religious chains. Back at the church service of hand-waving
and speaking in tongues (I think), I find the door before the healings,
nevertheless refreshed after thirty minutes.
A
lesson from this world tour is the businessman and vacationer should be
friends, a step out from Rodgers & Hammerstein’s Oklahoma, “The farmer and the cowman should be friends.” One man likes to push a buck, the other
likes to push his luck, but the businessman and vacationer should be one. I have some personal remedies on the
condition know as Traveler’s Fatigue, and the first is joining vacation to
business to mutual benefit. I know the
fatigue as an insidious, lackluster performance, to wit, in Sri Lanka petting a
cobra; in Rwanda locking stares with a male silverback gorilla with a harem who
fancied my group of otherwise female tourists; and recently in Philippines
producing the condom as a business card.
The treatments you hear about are to be fit and rested before a trip,
drink liquids, and tranquilizers. My
other ideas after having crossed thousands of time zones are: Arrive hours early at the airport and spend
time kicking back. Fly business or
first class if affordable. Land for an
important meeting a day early and prepare by relaxing. Find a quiet island or resort every two
weeks during a long tour such as this one, and spend a few days to get
sharp. Physical fitness is indirectly
proportional to symptoms, so pack a pair of jogging shoes for sightseeing, plus
walk to appointments. Keep body
plumbing in motion with lots of liquid.
Add an hour of sleep to the first night in a new land, and consider ear
plugs and nightshades. Finally, take a
“redeye” flight if you can sleep on it to awaken as fresh as if never having
moved. One day I’ll publish Keeley’s Kures, an informal set of alternative
treatments gleaned from vet med, old medical tombs, and adventure
self-treatments.
Still, there’s
nothing quite like getting out.
Indonesia is an archipelago country of 14,000 islands strung far into
the Ocean, though about half are occupied.
I harbor fond memories of a ship cruise many years ago, unlike what you
may expect. I slept on deck by choice
with the improvements of jumping porpoises and sailfish, fresh air and
sunshine, and perfect moons over calm waters.
The requirements for a week aboard are a tarp, books and food. There’s the option of going below deck
anytime with the teaming hundreds swinging in hammocks above children vomiting
through diesel fumes, and then waiting in line for an hour for a plate of
unidentified goop. In port for a few
hours once a day, I walked the town and watched the unloading and loading of
passengers and cargo. The cost for this
less-than-luxurious but highly enjoyable cruise was $20/day all inclusive.
Jakarta is the
capital and largest city located on the island Java. It’s the main trade, industrial, educational and financial
center. There’s progress in every
direction one looks from the business section, especially construction, albeit
with a hundred sweating teenagers replacing each building crane. Infrastructure
construction such as telephone and communications proceeds even swifter
here. Perhaps a better-scrubbed future
environment will conduct higher individual adequacy. Jakarta, the major city, signals outside investment, but
remember, it’s one city on one island of 14,000.
Summary
If you choose
to invest, here’s some help. My broker
pick is Barings with its “largest emerging market desk in NYC” located on
Madison Ave. near the old – sigh – Niedco office. Only a hair behind is the LIPPO broker.
A personal
warning: Despite the skyscrapers and
high song of Indonesia the leader, I’m reluctant to put into the hurrah because
of the low-life indicators. It doesn’t
total correctly. The greatest
indicator, of course, is incompetence,
and for locals on the streets it’s a way of life. It’s expected and desired since in its absence an individual
could be held responsible. The regular
guy fills his body with alcohol and nicotine, curses at perceived spirits of
the mind, and spits at every crack in the sidewalk. An investment here would be hair-tearing, to wit I steamed often
and yelled twice on the streets during the stay. It’s conceded, on whole, events iron out. One is overcharged at a shop then
undercharged at the next; items turn up missing in the laundry but with new
ones to replace them. Is this something
you want to risk with your funds?
Yet the Ramadan factor discussed above among the
brokers must be factored.. Ramadan
includes lessons of athletic training including suffering, discipline and goal
orientation that preclude success.
Don’t underestimate the collected strength of character among the
emerging market executives to tug a country
from an economic muck. The
everyday citizens are basically good people beaten down by generations of poor
habits that capitalism could help. Put
the carrot before one donkey, the rest follow, and almost miraculously other
carrots appear. This is true anywhere,
despite shortcomings leveled at capitalism.
In a thought,
hang back a bit until the Indonesia market emerges more, then enter for greater
profits without greater risk. Praise to
the Niedco three-person team that prearranged contacts, mailed our literature,
and faxed me with adjusted itineraries.
Their exactitude penetrated this dense country chaos. The visit is relatively smooth on rough
waters. This report comes to you typed at the airport business class waiting
room a few hours for departure.
THAILAND
Preface: The
situation in Thailand resembles that of next Turkey with the capital city
advancing stupendously above the countryside of plodding ancient ways. The moment is pivotal: Will the city envelope the country before it
swallows the city? Which direction will
the people move? As a backpack traveler
I enjoy the old countryside, and at once I hope that if Niedco comes to
Thailand the city spreads. Meanwhile,
I’m in for the ride of my life.
I’m forewarned
there’s little to see at the exchange except screens. Indeed, it’s computerized to the hilt with direct linkage from
the outside brokers to the floor. There
are no workers on the floor, only computers and armed guards. A vacant viewing gallery hangs above, and
still higher the big electronic scoreboard.
A lady at a mike in a broadcast booth provides live coverage via
satellite, and you know, somehow I miss the hubbub of public outcry at Karachi
and Bombay. Modernization is better for
Niedco though, and the average daily volume is $200M. The hours are 1000-1230 and 1430-1630. It’s slow between sessions now, and I select books from the
exchange library on history and rules before leaving.
By the Buddha,
I must be in the wrong building! This
is my notion at peering up the insides of the Security One skyscraper that rises like a Hyatt Regency. This firm offers the most elegant structure
to date on trail. I’m met with a cool
handshake by our contact, Val, a nervous young man who’s reviewed our advance
packet. The elevator climbs many floors
in ominous silence until the doors open on the trading operation.
Dozens of
heads remain buried before humming computers for an announcement that may ring
all phones off hooks and make the market go mad. I’m shunted swiftly to the international manager’s office where
Gram rises to shake hands with his eyes glued on the screen. Little is accomplished in 15 minutes for my
not wishing to break his absorption and him unwilling to tear away, except the
assorted quotes you’ll soon find.
After, there’s a meaningful hour tour with Val of eight office floors
holding 200 employees, including 25 in international trading and 50 in
research. They’re young and
professional, albeit still gathered at the terminals in frenzied knots with
intermittent exclamations “Ola!”
Securities One
started trading twelve years ago and quickly stampeded to the top. They hold 8% of the market share for a #3
spot among brokers, and capture 12% of all foreign investors making them that
#2 choice. Commission is .5% in and
out, and there’s no margin trading, .Since the broker has direct computer link
with the exchange, a trade goes: Niedco
calls the order to Val, it’s keyed into the computer, goes to the exchange for
the trade, relayed back to Val, all the while you’re on the phone. Formal confirmation comes at day’s end. Settlement is T +3 on the buy and sell. Trades of $3M are common and don’t affect
the market, but ones of $10M can cause ripples. Opening the account is easy with the forms, as is closing. There’s no T-bill trading, and government
bonds are done in a very small way.
Gram says of
the future, “The extreme negative public opinion should reverse in 1.5 years,
and this will be led by the market reversing in a year from now, so the economy
will pick up in two years.”
Meanwhile, I
start to grasp the screen agitation.
Recently, Financial One, the country’s largest institution, was unable
to meet debt obligations, and the government allowed an historic first in
admitting the central Cank to back the failing goliath. The public is stunned and has formed various
factions. An approaching announcement
may rock the nation, but I must leave before it so miss the tumult.
In a sentence,
Gram and Securities One wish our business in a big way but I don’t trust the
devious wrinkles around the honcho’s face.
“So soon?’ he remarks as I rise to leave his office, then adds, “We want
to be your broker. I think I can
provide you with the cleaner communication and the commission savings which
have been holding you back from trading more in Thailand through your present
American middlemen.” The English spoken
in the house is fine, they’re a leader among foreign investors, and I can think
of nothing to discredit them except that their sheer size could mean less
personal attention.
CMIC Brokers rolls out the red carpet from step
one. Tony, buoyant and informed, is our
guide who ushers me through the department heads including Anne the leggy,
pretty head of trading who jumped fields from chemistry; Tom, a bulging and
capable leader of research, and the president with whom I chat for ten
minutes. Find their cards with various
ratings for English, honesty and knowledge on scales of 1-5 with five being
tops. This is a big operation, a
combination of financial and securities services. The latter is our focus where the staff numbers 300, with 35 in
trading and 20 in research.
It’s all
housed on ten floors of yet another ultra-modern, high-tech downtown
edifice. The public viewing room has
seating for 200 - filled in former boom years but ghostly now – with a colorful
readout screen the size of a small cinema and a broadcast booth that reaches 29
branch offices around Thailand. It’s
tall and polished, surely, but don’t sway yet.
It’s far and
away the most Asian company to date here.
The dress and manners are conservative with stiffness in the air. People pass and bow, and the hierarchy is
easily determined by the depth of the bend.
The gal who serves the president and me tea practically defers to the
floor. I don’t cotton to formalities
during time otherwise better utilized, but find middle ground with nods, dips
and sips. The firm seems rooted in the
past with no other white heads present.
Office banter is in Thai, and their best English is more broken than any
other house. Intriguingly, this may be
a superior house because of the traditional values. You decide from the facts.
I’ve painted
the picture of a gigantic, slick Asian company where one walks in and feels
he’s in heaven. It’s a heady place, but
the stumbling block is communication. I
must repeat two-syllable words to our contacts and hardly follow his replies,
so I’m afraid heaven would have a price tag of mistakes. At the elevator, I shake hands with Tony,
and he pumps mine refusing to release until the door nearly closes, dragging us
both down. That's the report.
Thimex Finance has a lower volume ranking than other
houses, but don’t be mislead. This is a
sizeable and fancy institution. It occupies
six floors of a contemporary skyscraper with a securities staff of 200,
including six institutional salesmen and eight traders. The outstanding thing is this staff hails
from a dozen countries the world over.
I’ve never seen the likes of the collection, and this is the only firm
where English rather than Thai is the office language. The ten leaders I meet closely have a mint
quality, like the “shell” and “mineral” rooms at your Connecticut home where
each specimen singularly represents the special environment of a distant
place. A thick carpet leads to a public
viewing area that seats a hundred with a Times Square electronic sign above for
tracking stocks. Scant seats are
filled, “A sign of the depressed times,” they admit.
Our main
contacts are absorbing, well-traveled and I’ve invited them to stop by your
States trading room. Our #1 link, Jay,
is Thai but lived in NY and knows the Niedco trading operation. #2 Papon was born Thai, educated in USA, and
has done business in many countries.
His thesaurus vocabulary from extensive reading and top tennis and
squash rankings put me in mind of Niederhoffer. He’s a fountain of dry business facts too. Third, Niwit graduated from Penn State in
engineering and was heir to a gem business that he turned from because he likes
action and “rocks don’t move as fast as stocks”. His mind is like a boxer’s jab but controlled in the oriental
way. I was fairly struck dumb by what
the three had to say and accept an uncustomary invitation to dinner.
Total company
assets are $64M. They have .6% total
volume market share, with a goal of 2% by year’s end. The commission is .5% in and out as fixed by the exchange, but
the large customer is “accommodated” to half that. A custodian bank is suggested.
There are no restrictions, licenses nor capital gains taxes required of
foreign traders.
On the
house: “Bluntly, we are
struggling. The search for the correct
survival strategy is ongoing. One route
we’ve chosen is taking foreign investment.”
One gets the idea of a Houdini house under the ice looking for pockets
of air, then suddenly I come skipping from America with a big balloon of
oxygen. On the market: “It won’t turn around for at least nine
months, and even after that it may not.
It depends mostly on foreign funds.”
Niederhoffer
specified, “Investigate the state of the negative psychology of the country,
with its course of expected reversal.”
The firm recently hired a full-time psychiatrist and you may want to
consult him.
Many like to
wine and dine, but these gents don’t drink and dribble away life’s
inconsequentialities. I discover at the
meal that to take Niedco aboard would boost this outfit into the big-time. They’re frank, “You would be our primary
concern as our largest customer.” Later, “Don’t let the fellows at the exchange
convince you of a rosy economy. The country’s in poor shape, but we’re
emerging.” At desert, my veterinary
background’s examined and I table diagnose the twelve pets among the three. The dogs are mostly St. Bernard’s, odd for
this city, but I deem it a display of strong individuality. It won’t due to argue for I’ve diagnosed the
owner from the patient for a long time.
I find not a
single fault with this company other than smaller size and recent ease into
foreign cliental. The “three
musketeers” joined two years ago and turned to foreign investors with immediate
effect as the house climbed from 48 to 42 among the top 50 brokers by dollar
volume, and they expect to be #30 next year.
Have you ever heard of the little engine that could… and did? Thimex could.
Asia Securities is another door into another high-rise
of the financial district, and then it's Disneyland. The center escalator rises between two water curtains into the
public trading area. Twenty persons occupy
the cinema-like setting that can hold a hundred. In every direction one sees the grace of high technology.
However, they
lay the ragged carpet for me. They
received the advance Niedco parcel that other businesses choose to memorize in
advance, but here it hasn't been touched.
Our contact, forbid you should be entrapped, is a female version of Kelly's Heroes sergeant, tank-size and
barking orders at everyone including the Yankee Hobo. The irritating thing is she turns instantly assuming the commands
are followed. When she orders,
"Sit down!" I feel like marching past the waterfalls and out, but
there's my superior Niedco to consider.
Find Oga's card and one for second contact, Ran, a willowy meek fellow
who trembles at her bellows. He went to
college in Wisconsin but claims he's forgotten English, so I must talk directly
to Oga, who remembers hers from before the marriage divorce of a German. I cut the interview short.
The house has
brokered since '74 and ranks seventh by volume with 3.5% of the market. A recent campaign for foreign funds is
successful and they hold 30% of the sum foreign investors. Money and math are
levelers, one socially and the other intellectually, and when she can’t or
won’t convert Thai bot to dollars I set my jaw rather than descend to the level
of her upturned nose. Getting forms is
like pulling teeth, and she finally hands them over chiding, "They're in
English, but hard to fill out."
Now she drops a tied wad of brochures and huffs, "Lucky you. We just did a road show in Europe and these
are left over."
I get a
walk-through by Ran of the numerous floors.
Two are magnificent, open soccer field-size and divided by cubicles with
up-to-date computers manned by professionals.
The staff is 320 of mixed gender with 120 traders, 6 foreign traders
including Oga the biggest head, and 30 females in the man-less settlement
area. "The girls are more
dexterous and pay better attention to detail to detail than men," I'm
told.
The only good
counsel I get from hoodoo Oga is, "Thai people like to gamble. It's an itch they have trouble
controlling." So much the better
for her. I suggest our follow-up man turn
back at the water walls. Shoeless
trading ain't their style. Further, I
propose word circulates quickly around the financial block that fresh meat has
landed in Bangkok and the bigger brokers have already divvied up Niedco,
leaving Oga out in left field.
Tisco Brokers is a westernized, ride
hell-or-high-water outfit. Our three
top contacts are the international sales manager, head of research, and an
appointed trader. They are
mid-thirties, English good, strong character, to the point, and pursue us
doggedly.
The company
originated 25 years ago with the inception of the stock exchange. The grand year for foreign trading was '84
when they were the champs, but after slid downward with the increased vigor of competing houses. Now,
they're 20th in the top 50 by volume and own 2% of the market share
while managing 8% of the foreign contribution.
There are three floors, one for trading and international sales, one for
the public viewing, and the last for institutional sales. Everything is class,
on a par with any of the earlier places. The staff of 200 in securities breaks
down by department in parallel with earlier houses. Here they comprise a happy, working machine and, importantly,
committed. I give this firm high marks
The present
state of the economy is the pits, worsened by the recent clobbering of
Financial One right when the market was expected to turn around. Many small businesses have fallen in the
past 4-5 years of depression, and many more will welcome Niedco “rescuing” them
at a better time for all in the future.
The consensus is the economy should comeback after the new year. .
Other meetings
Thai brokers
all are capable of guile, but only about half choose it and the others remain
sparingly honest. High in skyscraper
air-conditioned rooms, they shake heads at the chaos below on the streets and remark that public confidence in the economy is
down, and this is a driving force in the market. I hedge that the most these street scamps care about is their
next meal and hardly look up at the general economy. Construction cranes dominate the Bangkok horizons like an eerie late scene in War of the Worlds. I'm told at present there are 90 major construction projects
including three in major transportation:
a subway, new train station and myriad flyways (elevated highway
bypasses). These speak to the capital
city, and I wonder why the prevalent opinion abroad is this is a badly
depressed country. Perhaps the capital
will show advancement to outlying areas, or the reverse may occur. This old question of is the universe
expanding or contracting begins for the speculator in Bangkok.
Other signs of
progress greet me across the city. One
used to rely mostly on traditional 3-wheeled tuk-tuks (motorcycles with
canopied sidecars) for transportation, but now great fleets of new taxis scoot
the ways. The meters work, they’re much
utilized and that’s great development in a third-world nation. The new:old
car ratio has climbed from about
10% three years ago to 50%. There are
new tires all around too, even on bang-up vehicles. My own stories on flat tires in remote countries are countless. In Trinidad I rolled on two rims in a taxi
with a 400-pound woman, and in the Nepal mountains once walked out in thongs
after all the spares had gone. Hence,
observe the new tires in Bangkok.
I take in the
touristy Buddhist temples and monasteries I’ve seen before but now with a new
eye for indicators. The tourist factor is steady, suggested by
lines to see the famous, giant reclining Buddha whom one mustn’t point toes
at. The shared amiability among Thais
at street level is at a height as extreme as the depth of the common ignorance,
without relationship, and I’m often caught between handshakes and fists. The street businessmen are usually above
cunning compared to other countries on tour, so a shop owner like Abe Lincoln
chases you with forgotten change. They’ll
tell you it’s the Thai way. I’m
gratified at the recently elevated minimum wage to $10/day. The secret of my shoestring travel for two
decades has been to live and work in a first-world country, and travel in
third-world ones. An optimal ratio of
one work day at home per four travel days abroad has allowed me to journey 75%
of the year. I learned around the globe to count tourists at key spots and this
expanded into identifying the circuits they used like ants under backpacks. Ants follow scents, but travelers follow
predecessors’ routes as laid out in the most popular guidebooks. Africa has eight major loops, South America
six, Southeast Asia five, Australia five, and so on. Knowing these, I devised with a friend Full Circle, a guide to world travel circuits actualized after
James Michener’s novel The Drifters.
Television set numbers have climbed astronomically since
my last tally three years ago. Then, I
drifted along dozens of alleys after supper to count the antennas per city
block. Downtown families live in rows
of concrete or wood shacks up-and-down the alleys, while the street sides are
occupied by businesses. I recall there
being one television per alley mounted high on a basketball hoop with an audience
of every kid on the block. A poor man’s
cinema, I was often the viewers’ choice for an instant, a shadowy figure
striding by while counting on fingers and disappearing. This isn’t the case tonight on this tour
where a dozen or more personalized antennas shoot from rooftops and everyone’s
watching inside. The cockroach index is at an all-time low,
and must relate to modernized garbage collection (trucks), and maybe a swing
toward cleanliness, or a shift in appetite toward the insects as food in these
low times. Roasted grasshoppers are sold like peanuts on the street and I leap
at the opportunity to eat them. They
taste like roaches, and that’s from the streets.
Bangkok is the nation’s political,
cultural, financial, and educational capital, and the major port. The streets
are a perplexity of long angles and short honks where it’s a great relief to
escape by boat taxi along hundreds of miles of intra-city rivers and canals,
frequently used for longer city crossings just as one gets on the NYC subway. I decide this method to visit prison. Prison side trips in foreign countries have
been a hobby since the early ‘80’s when I refused to sign a jaywalking ticket
and spent three harrowing days in the Los Angeles county jail catacombs
searching for Bobby Fischer. One year
in Bangkok I taxied to the outer wall of a large
prison, well presented with passport in hand as well as paperbacks for
an inmate and chocolates for the gate guard.
"Books for prisoner, chocolates for you,” I gestured, and signed a
Thai form allowing the visit. The thick
wooden gate opened to a courtyard with a few dozen milling Thai prisoners. They stared blankly, skeletal with holey
t-shirts. The guard motioned to sit on
a concrete slab and returned minutes later with a thirties man with a bristly
beard and as emaciated as the rest. I rose and smiled, "No trouble. I'm a traveler with some extra books and
candy." He brightened. I learned there were three white inmates in
the otherwise exclusively Thai prison:
This American was in for drug smuggling, me for chocolates; A Canadian for an unnamed crime, and an
Englishman for showing his feet at the stone Buddha, a disrespect warned in
guidebooks. "How is it?" I asked.
He glanced down and teared,
"Get me out of here, please.” He
acquired Thai in the initial six months of a two-year sentence but chums with
the Caucasians for protection. He
alleges cell vermin, beatings and execution by machine gun. Many prisoners turn to heroin for release
for which smuggling got them there. The
guard suddenly approached the Caucasian prisoner, who related, "The
river’s coming! It’s bath time, and the
screw says you got to go.” They
diverted a river through the prison twice a week for hygiene. “Thanks,” and we separated. Others interested in prison visits find it
not uncommon in third-world countries and the Lonely Planet or other guidebooks
provide details.
You as
athletes understand the pluses of ankle weights, though they play hell with the
airport metal detectors, and in Thailand mine cause a stir. People approach hourly to inquire, and can
you guess why? Thai boxing! The sport started in medieval times when
battles were fought in close contact with knives and swords, where also the
arms, knees, elbows and legs were used.
Now it’s the same as the old days but without the steel weapons, small
gloves are worn, and the loser’s allowed to say “Uncle” before dying. The thick brutality is everything American
big-time wrestling struggles to be. I
walk to my favorite stadium that resembles the Philippines rooster fights except
on a larger scale where already screaming hundreds in a tiered amphitheater
rising above the center ring hoist fistfuls of money for action. The pandemonium and betting approaches the
Karachi, Bombay and Cairo exchanges.
This match ends when the victor performs a back flip next to the bloody
loser, then the next match begins. The
chisel faced, olive-eyed hard-bodies weave a warm-up to live ringside music
like the Sri Lanka cobras. After a
short prayer in distant corners, the fighting starts and the music increases
tempo to whip them and the audience into a fever. If the fighters slow down, the music picks up, and it heightens
in measure each round like a Gioachino Rossini masterpiece. The style differs from international boxing
for not only the fists, but knees, feet, and elbows are thrown. Also, no woman is ever allowed to step into
the ring for fear her presence will destroy the strength and skill of the
boxers; and there’s not a female in the stands, reminiscent of the Niedco early
trading rooms. It’s too ear-splitting,
so I exit after four fights to the darkened streets.
The next day,
“You wanuh sell ankles?”, and I wheel to face a sturdy brown man with a fixed
grin at my feet. Another
solicitor. I shake my head “No”, but
indicate a desire to visit a fight club, and we hop in a taxi. Soon, “Ya!” he
shouts, louder with each of my feeble kicks into a heavy sawdust bag swinging
on a chain. A minute later, exhausted,
I give him the weights and he hammers the bag measurably farther. Grinning still, he returns them and I
stammer an apology, “I would give them but they’re my only pair and I walk so
much.”
A worrisome
matter for us as an indicator is the patrons at the equally famous massage
parlors have dropped dramatically. However, none of the girls speak English to
explain, only say, “You god, want massage?”
The parlors are legitimate, usually nonsexual and often posh, with
hundreds of individual rooms within a high rise. On the other hand, at a separate location is the notorious
Patpong, Bangkok’s bawdy red light district.
I don’t make it there tonight, but there’s a strong memory of last
time. I escorted two Canadian female
tourists to a class Patpong strip joint where naked Thai girls wrestled and
after a pin I got the tab. We’d drunk
only sodas and after factoring in a show fee, the bill was still three-times
what was proper. There could be no
complaining since no one in charge would admit English, so I left more than
fair pay on the table, and we stood for the door. The waitress stalked, and the bouncer stepped in gesticulating
madly, and I danced around him to find the exit door had no handle! A secret tap was required to have it opened
from the outside. The bouncer came at
me and before either of us knew what happened I used a wrestling “slip”
maneuver to slither behind him, and rode his back like a bucking bronco until
he began to tire and slow. I let him
go, and reached for my pocket, pulled the required amount and we were let exit.
You see, they were lining up the rest of the bouncers outside the circle of
spectators, and probably the band was staged to raise the tempo.
I long for
places outside the city where may
lie clues to the puzzle of the market’s set of negative high indicators and my
set of positive lower ones. A day’s train
ride north from Bangkok brings one to a beautiful, jungled hill region. I book a 3-day combo-trek by elephant, boat
and foot. My idea of a working vacation
is from between an elephant’s ears. The
secret is to grasp the tops as reins and trust the flat feet parading through
the jungle. The boat trip is spiced by
animal sightings, but coming ashore the next morning is better. We take native trails connecting villages of
barefoot, grinning Thais and sleep the night on a dirt floor hut next to old
ladies smoking opium. Villagers tucked
back amidst rice paddies seem immune to the depression elsewhere in the
country, and the river still has fish and the gardens grow.
Summary
For brokers, I
like the fresh, cosmopolitan cast at Thimex.
Their English is best, commission lowest, and they’ll spit the truth in
your face rather than lose your money while saving your face. Though small,
they’ll climb with Niedco’s support, perhaps.
Consider picking too a big house like the class TISCO where they look
you in the eye while relaxing and explaining things. Both these firms guarantee personal attention to our
account. Avoid rude Oga, smoking Gram,
or outfits where English isn’t a password.
Forget the waterwall shows and think of how we dress. The more involved the speculation, the less
trust to appearances.
When to
invest? It’s moot, apparently because
someone from Niedco’s on the way to make sure the hand’s dealt right. They’ll be met cordially and hopefully with
this report – going out tomorrow – in hand.
I think your decision to send an advance scout, myself or anyone, prior
to one of our own traders has been a good move.
The lower
indicators here are in sharp contrast to the economy. They suggest fair to good times, but the country’s depressed. I’m a bit bewildered but can theorize. Perhaps the city surges while the rest of
the country stagnates to mix the indicators; or, the upbeat LI’s may be a
carryover from better times before the Financial One fiasco; or, maybe the
strong indicators such as the crane index
are being seen now within a lag period – something we’ve talked about as
critical to know when to invest. That
is, are certain indicators I’ve listed predecessors or followers to economic
moves, and by how much time? This would
take more data over time that we don’t have, so all that’s possible now is
seat-of-pants deductions.
I think
Thailand’s cities cry for money while the countryside carries on with backyard
gardens and fishing that feed the family as well as never. So, the nation’s overall economy is bottomed
albeit not in the sense that America would be under similar circumstances. The fall of Financial One, the country’s
largest financial institution, and odd bailing out by the Central Bank confuses
the nation. The consensus of
specialists I’ve talked to is there’s a base of truth to the citizens losing
faith in the economy, but it’s a partial loss since each person looks at the
next while waiting for his own confidence to be restored. “We’re guaranteed now of getting our money
…. aren’t we?” is my phrase for describing the circular faith on every city
street corner. There’s little wonder at
the existence of in-house shrinks, and it’s plain as an elephant’s track that
the fate of the country hinges on foreign investors like you.
In sum, the
conflict of positive lower and negative higher signals create wide
possibilities that become a poker game of players making best guesses along
strongest lines of probability. You
already figured that; nonetheless, it’s the best I can do from the exchange,
brokers, streets and hill country.
TURKEY
Preface: This report
begins on a low note and rockets upward.
Each country success hinges on my bilingual guide - his character and
the timely manner in which he's alerted of my arrival by the Niedco team. The Turkish guide is superb, but I’m
announced so late that the meetings are fewer, of poorer quality, and with less
eminent contacts. That said, it's still
a triumph.
Istanbul Exchange
The Istanbul
exchange is spacious with stock and bond systems totally computerized. There are three separate markets
here: Stocks, government bills and
bonds, and repo transactions. The
stocks floor has an electronic board to track trades. The T-bill area, which especially interests you, is 40’ x 40’
hugging a ring of twelve computers. My
escort and I are taken aback, “How can a small arena handle the enormous T-bill
market, she wonders. However, a lady
who works a trade screens illuminates, and we’re satisfied.
The way it
works is this: A brokerage or a bank –
someone authorized to trade T-bills – calls the exchange to place an
order. One of the workers such as the
screen lady answers and executes it. This is called the “combination system”
because the remote broker or bank have duplicated on screen most of what’s
on-screen here. The trade is
simultaneously verbal by phone, and on-line.
Asked for
recommendations, our insider says the prevailing deal is short-term government
bonds that mature in 3-6 months. Much of
this and another twenty-minute interview with a stocks person is in Turkish, so
I refer you to the appropriate business cards and a booklet entitled Turkish Bond Market in English. The average daily volume for all three
markets is $1billion, which breaks down to $150M for stocks, $100M for T-bills
and bonds, and $750M for repos. The
hours are Mon.–Fri. 1000-1400 for same-day T-bills, and 1400-1600 for next-day
ones.
Custodian banks
I present here
the banks before brokers since they popularly trade Turkish T-bills, a Niedco
target. I attend four: SurBank (Editor’s note: Only this name has been altered for soon
apparent reasons.), Guaranti Bank, AkBank, Yapi Bank. Their functions are to trade T-bills, handle their physical
storage, plus do the back office work, though on rapid trades there’s no
certificate to transfer. Every broker
suggests the use of a custodian banks and the top picks are SurBank and Chase
Manhattan. Both have NYC branches where
the account can open with ensuing quicker dealing. One bank may utilize many brokers including the bank’s own
traders.
The first stop
is SurBank. I meet with the female higher-ups whose cards are with the
literature. The vast facility embraces
many floors of a skyscraper with new computers everywhere. Four screens look at the bond market. The hundred-odd staff includes thirty in
stocks and ten in bonds bustling like lizards in warm sand. The bonds manager is female, and
international sales are handled strictly by women.
I notice
everywhere in Istanbul’s financial sector that the bosses are as often as not
females. I except the reason may be
their innately superior verbal skills including language (English) acquisition. Their explanation, “Women are smarter in
Turkey,” doesn’t compel yet. They’re
aggressive, honest, direct and proficient.
Not one of the hundreds identified at banks, brokerages and the exchange
is over thirty, 10% have gone to school in America, and at least half speak
passable English. The males fall
dismally to the streets by comparison.
A personal
informal survey reveals that half the women who fit the above profile are men haters, giving rise to the
indicator. The greater the hatred for
man, the more man should invest. I
hasten to add that, psychologically, the gender has been pinned here so long
and now suddenly rises by merit to dominate… so, let them and make money. By point, at SurBank half the women
executives are solid men haters in the same sense than some females call men
chauvinist pigs. I don’t ask them, they
don’t specify as I carry the Niedco high-price tag, but I judge it in their
dress, eyes and off-color comments such as “Men, such dumb beasts yet they can
be trained”. Among that half, the
majority are lesbians or bisexual. This
doesn’t bother me, but next time for the company good send a female should you
ever decide to hire one.
Ergo I sit
across from three executives throwing daggers with their eyes for one minute
before anyone speaks, “Who is Niederhoffer?
Why don’t you have an appointment?”
The news clips on you with the wacky headlines about using “Voodoo” and
“Music” and a “Hobo” soften them to grant the following information.
This bank is a
custodian and trader of T-bills for numerous foreign clients. One can also use brokers for trades. There are two types of trading in
T-bills: “Repos” (repurchasing
agreements) where the shortest term is intra-day and the longest 90 days; and
hold-to-maturity bills. All are
volatile with 5-10% daily moves. This
bank’s daily average volume in T-bills is $1.3M and in repos $3M. It’s simpler
to open the account at a NY branch.
Flickering
lights and air conditioning crash due to poor city power mars the interview
with the three witches constantly complaining, “Hotter than Hell” and fanning
themselves with our literature. Then
more questions are answered.
Treasury
auctions are announced Tuesdays and conducted the following day. Prepayment for the auction is 1% and you’ll
find the steps for trading in another bank report. The minimum trade is $1M and maximum $5M, the limits set by
exchange rules. The fee schedule is
enclosed. The present yield for T-bills
is very high at present, about 122 basis points. It’s important, they say, to declare all income to the
government, and they drop the tax schedule in my lap. I suggest SurBank as custodian but not as trader because cocky
chicks who conservatively tie themselves to rules can prick the relationship.
Guaranti Bank shows a sizeable T-bill area, called
the “treasury room”, slightly larger than at the other banks. Here ten modern
computers are manned by efficient workers.
I meet managers of the treasury room and other departments, and all are
men with barely comprehensible English.
Sadok, older and distinguished, of the T-bill room is said to be the
local, sought “guru”. The tour covers
other floors of the bank building including equities, and then I spend an hour
at the elbow of Sadok. At the other
elbow sits Katy the translator, a young American financial enthusiast who’s
been in international investment for two years and already speaking
Turkish. Her translations as well as
personal answers come crisply and ring true.
Here are the tidbits from our triangle.
The advantage
to using a bank as trader is it has a generally superior team, better info, and
can form synergies with outside groups.
Some of the biggest brokers, as opposed to banks, do a fair job of
trading T-bills, but stay away from the smaller ones. A criticism leveled at banks is they trade less speedily than
brokers, but this is said not to be the case with Guaranti which matches the
pace of dealing in the States.
An order works
this way: Niedco phones Sadok (via an
interpreter, I suggest) who instantly picks up a line to the treasury room a
floor below his office. There the trade
is made and confirmed on the spot to us.
There are shared screens, even as we speak, in front of Sadat, the
treasury room and the Istanbul exchange.
The dollar T-bill volume of this bank is astronomical and confidential,
so I must pass it myself. He is open to
fee reduction on big trades. Reclaiming
funds in dollars after an account’s closed is simple, nippy, with no
ceiling. Even physical funds above $1M
may be taken from the bank with a couple days notice. The literature on taxes is “in theory, not practice”, which is
fortunate since it’s in Turkish. Take Sadok’s word, he says, the government
never pursues capital gains and specifically doesn’t track foreign
investors. Guaranti has a NY affiliate,
the Bank of NY.
The saying in
the countryside outlying the city is, “The streets of Istanbul are paved with
gold!” There is enough opportunity to
make the head swim. One departs on
vacation and returns a week later to find another building constructed. Women, says Katy, operate in international
investments because they’re better at it.
“The men are unable to think of the future.” The government is poor but unable to hold back the ongoing boom. “It is hard to train the Turkish men to plan
beyond their noses,” she grumbles.
“There is huge opportunity for the entrepreneur but it must come from
outside this country because the existing Turkish mind simply doesn’t grasp
building a business for a better tomorrow.”
Her Canadian boyfriend, for example, recently started a coffee business
and is doing well. Her father has begun
an import business under her direction and is advancing.
Guaranti is
the #1 Turkish bank in terms of equity, and in the top ten for fixed
income. Many foreign institutions
choose them for trading but few as custody bank, a quirk speaking in their
favor, I expect. I tour some half-dozen
floors including one entirely for the “sessions rooms” where 2-6 traders knot
around each of dozens of screens watching equities turn, yelling at them. It’s like a horse race, and Sadot dryly
comments the bank is very big into domestic stocks. “The traders are criticized for being volatile but like their
jobs and the feeling it gives them.”
The massive,
new skyscraper with big red letters AKBank
certainly touts it’s status as the largest private bank in Turkey. Our contact, Kair, answers key questions in
broken English. The only new
information is that bank interest is about 100% annually, and T-bill/bond
interest is around 125%. Yes, these are
the correct figures, but recall the high inflation. This is a mammoth operation, yet as all cards and literature are
in Turkish, I suspect they deal mainly nationally. I have nothing negative to say about them, only that the others
banks are at least as good, plus speak English.
Here I sit
encircled by managers in the towering Yayi
Bank, ranked #1-2 for trading in Turkey depending on definition. They do heavy T-bills for foreign
clients. Our chief contact is Uka, the
exacting chief of international investment, alas the only person I talk to
because, I surmise, he’s the one who speaks English and even at that it’s hard
to follow. There are dirt road school children the world over – I’ve been
beleaguered by them begging to practice simple English – and yet these
institutions haven’t decided to learn English or hire a translator to attract
clients. For this reason only, I place
this and AkBank low on the list of preferences.
Brokers
Eczacibasi Securities is an equities broker that also
handles T-bills. If physical layout
reflects competence this place makes the grade with two floors within two
buildings for trading. Furnishings are
up-to-date including electronic boards that provide a Merrill Lynch look. I show early to see the 100 staff arrive on
time, mostly under thirty, scrubbed and stepping lively. Much can be told from the first and last
point of a rackets match, or the first and last minute on the job. Our main contact is Sima, a young female
with strong English, quick mind and integrity. She introduces me to the firm heads. The Niedco literature, articles and financials prove the
icebreaker for after viewing them
for minutes everyone opens up. In
truth, most house presidents are more interested in the shoeless picture of
Niederhoffer trading than in the financials.
Last year this
house traded $8 billion in fixed income.
They were #2 in foreign trading, and #1 for fixed income trading among
all the brokers, but #8 overall (including banks). Their practical advice is banks generally dwarf single brokerages
in dollar volumes, but banks have other tasks, so stick with a trading
specialist. This one services many
foreign clients. Their information on
trading, accounts, lack of requirements and restrictions, commissions, taxes,
and recovering dollars runs common with other meetings so isn’t repeated
here. The oft given phrase around the
table is, “You come and go as please.”
They emphasize our stateside house must maintain a 24-hour office
because of the time difference, and little do they know of the filled minutes
of the 24 hours in a Niedco trading day.
You’ll receive a stack of literature including research, their cards,
and opening forms.
I pointedly
ask each interviewee for an opinion of the present and future economy, and for
specific investment prospects. The
inflation is 65% (wpi) and 80% (cpi), and they expect the coming year figures
to rise to 90% and 75% respectively.
There are many outlay opportunities spread over sundry areas, and Sima
is preparing a current list as well as continual updates. This firm utilizes intra-day research on
trades and gladly shares it with us.
Many exclaim on the explosiveness of the T-bill market including their
top economist, “T-bills have been profitable for some time and will get a
little better in the coming months.”
This corporation is big, informed, frank, hungry, and earns nothing less
than high marks.
ATA Securities is also sizeable and modern. The talk table includes our main contact
Gutz, who heads international investing, the senior VP, and others, most who
speak passable English. A fluent answer
is provided to each question posed.
This house deals heavily in repos, where a single trade of $1M is easy,
but $5M may take an hour to complete.
They handle numerous foreign clients but most via London.
Global Securities offers two floors of young ladies in
mini-skirts and young men in short haircuts and ties within but another
Istanbul skyscraper. Our
two English-speaking contacts are Alto, a hairy man who chain-smokes and anticipates my every question with
remarkable radar-answers, and Asha who conjures Miss Turkey. We sit in the male’s office amid smoke and butts on the floor – puffed to
various lengths depending on his volatility – and though he’s loquacious, her
polish also shows through. Both
attended university in America. The
girl and I escape after twenty minutes to tour the facility.
This is the
largest equity broker in the country at just six years old. Their
equity base is $80M making it one of the best capitalized. They specialize in short and medium-term
issues of high volatility. The staff of
400 occupies as many computers, with 30 in a research department that ranks
first in Turkey. “We excel in market
acceleration,” says the head, “and in pattern research.” The steps for trade and other information
runs the same course as our other sources.
“Many of our
investors are eccentrics,” winks Alto, and escorts Asha back to the office, the
only smoking area on the floor. I place
this firm high on the list for the remarkable Mr. Alto.
I
enter the vast Grand Bazaar and am quickly lost among everyone else, reminding
me of California swap meets only this one’s under a city-block tent and the
clamor along a hundred aisles is outrageous.
Mobile hawkers are pestiferous, but now occur to me to use to yoke
customers at the swap meets I sporadically work. One follows me like a spy at a distance for ten minutes, sizing
my interests, then zooms in to guide me to the top places for things I’ve been
admiring. I exit and over the course of
hours each day visit enough mosques and palaces to last a lifetime; some dwarf
even Camp Niederhoffer. A full day’s
given to sauntering the gentler old city where lies my hotel. Note I walk daily across a bridge 45 minutes
to the Asian city side for business appointments rather than taxi equal time
through traffic knots.
Istanbul is situated on a peninsula at
the entrance to the Black Sea and is the country’s largest city at 9M population. It straddles a strait and thus lies in both
Europe and Asia, hence the bridge. The streets are alive with the sight and
sound of progress per the spirit of the reports. Sidewalks and roads
are being poured even as I walk around them, and new factories and houses
steamroll out from the center into surrounding hills. It’s an attractive sight for countrymen and I’m told half the
population is under 25. Many are
female, multicultural, multilingual and want to become managers, lawyers,
accountants, economists and traders.
Everyone’s wound-up with enthusiasm and it’s an honor to be here at this
pivotal point. The
economy seems to be tearing away from state control by threads as thousands of
family industries break open with sales.
It’s said that if these little businesses continue to fly, Turkey will
take off.
Turkish
bathhouses are as popular as American health clubs, and I step into one on a
walk. There’s a warm mist everywhere,
in a large locker room and along the main corridor to the central steam room
that is as large as a small house with a fountain in the center. Steam and men flow out numerous smaller
branch via concrete paths to littler rooms where benches and warmed by nearby
rocks on which to poor cold fountain water.
Hisses everywhere, and if you peer closely into alcoves there are 2-3
businessmen discussing, I infer by their gestures and tones - deals. One finds nothing less in the American
athletic clubs, of which I once was introduced as having attended more than
anyone (as a pro racketballer). No one
says you have to shed your sheet in the central steam room to lie naked on
heated stones as a furry man lathered with suds applies soap to your body and
massages. I retire to a room with a
cold fountain, remove my sheet now drenched with sweat and steam, and alternate
sitting under hot and cold water spigots squirting out the wall. The Turkish bath is an off-spring of the
Roman baths popularly used for hygiene, therapy, relaxation and business. It’s a princely wind down to a day’s meetings.
Quite by
chance, I stumble into the entrance of the University of Istanbul, Turkey’s
oldest (founded 1453) university.
Students pass briskly through and I feel seeped in riches until suddenly
one stops and smiles. I’m momentarily
smitten as she offers a hand and Turkish greeting. “American,” I explain, and she becomes wide-eyed. “Come meet Papa,” she declares, grasps my
hand to pull me along city lanes. Via extremely limited English, I discover
she’s a last-year attorney student at the top of her class. We halt at a female dormitory where she
gently shoves me onto a bench and disappears inside to emerge with a
translator. “She want to know all about
you…” it begins, and five minutes later, it ends… “She say she love you.” I blush and their eyes avert. The permutation unwinds in my mind, and I
excuse myself lamely, never to meet the father.
Going alone to the train station for a
change of scenery, I ponder the platform arrows. A voice booms, “You are Jewish, yes?”, and I turn to grin at a
bushy-bearded Turk who’s viewed me with a guidebook upside down, my quirk and
the normal direction of text flow here.
“No,’ I’m just me,” I reply.
“It’s okay to be Jewish, even here,” he insists. “What do you look for?” He routes a city train tour, and I zip the
town for two hours. This, or bus, is
the proven best overview, and once checking an almanac found I’d explored 60 of
the 100 major cities of the world in this way.
Niederhoffer recalls the inspirational
dinner with Jim Rogers a few years following his 1990 round-world motorcycle
investment tour aptly chronicled in Investment
Biker. His girl friend Tabatha,
“Jim’s my bimbo”, rode her own bike and supper chair, and they held a strong
bond. She became a shade tree mechanic
for the tour’s breakdowns while he had the good nose for speculation. Rogers founded legendary Quantum Fund with
George Soros but had a motorcycle vision.
His expert indicators keyed countries where the driving bureaucrats push
fiscal reform, advocate free trade, and keep currency strong. The
four of us over good food agreed that business meshes with vacation and one
should see a place before investing.
“Thanks for eating with us motorcycle trash,” Rogers quipped on backing
from the table, “May your travels be fair.”
I liked Rogers’ rebel wanderlust, lassie-faire goggles on the world, and
applauded his decision before 40 to trade a millionaire’s Wall Street desk for
a BMW. Much of worth occurred on his
20-month, 51-country, 57,000 mile trip that passed through Istanbul, and I
reflect often on his business and travel acumen during the quite minor Yank Bo
tour.
From
Istanbul, the portrait is an advancing nation but I hear of a gloomier
interior. I spend an hour devising a
probe by train and plane and present the agenda to a broker, who sighs. Tourism is deflated, even impossible in
areas of fighting. Travel east
from the city and the scene deteriorates.
Roads become rougher, people poorer and if you go further still the
cities look like refugee camps full of people fleeing poverty or terrorism,
then near the eastern border it’s civil war.
This explains the stream of youth and enthusiasm into Istanbul. I’ve traveled the country on a previous
excursion, but back off today at the advice of the broker. I learn Turkey’s
history is peppered with neighbor skirmishes that has produced the strong
citizen manner and fitness I’ve been studying.
They remind me of the desert dwellers’ constant vigilance for intruders
and snakes. The country holds past
roots from many directions with resulting branches seeking their own light
irregardless of the others. The roots
cannot be changed, each branch realizes its own direction, but the whole tree
does not. This is still considered a
strong buy among the emerging markets given the risks of political crisis and
fighting.
Summary
Given the slow
start, with meetings squashed into a short few days, and that business English
is laborious, the thrust to investigate and make contacts in the T-bills and
emerging markets is won. High points of
the sum eight meetings occur at two brokers and two banks where English is best
and I’m able to use it to climb the organization ladder to find the
pilots. The scout’s mirror writing
draws attention where individuality is prized and the normal pen goes
right-to-left.
Choice? It’s hard to argue with the giant SurBank –
trader and custodian of T-bills – however I personally wouldn’t do business
with a bevy of stuffy, conservative broads with male chips on their shoulders. Up to you.
I like Guaranti Bank with the vast offices and hyper staff, where the #1
guru speaks little English, but Katy’s the key to make things good. But, what if in mid-trade the solo
interrupter isn’t available? It makes
sense to hire Katy or someone like her - on location – to handle Niedco’s
investments, or put someone in Istanbul from your own office. An international swap here, or in any
country, seems ideal. Eczacibasi is the
most impressive non-bank broker, a slight nod ahead of Global with the
ciggie-smoking genius at helm, but remember the banks trade larger and
apparently as rapidly as the brokers.
So, you pick the grapes.
One day, women
may rule the financial sector including Turkish investment, thus one studies the emerging world of
females. If money rules the government
and government rules the citizens, then women will rule the country. The visit gives birth to the lady executive hypothesis, where the
larger the female:male exeutive ratio, the more desirous the input into the
business. I’m agog at meeting so many
ladies in charge, think it’s healthy and, moreover, feel it should carry to
politics in this and other countries.
No wonder one
sees such amazing things going on in the countryside and city. The outlying areas are traditional and
Islamic, and the city is vibrant and westernized. What would you do if living in the country after generations and
abruptly the sirens of opportunity called from the city? Half hole up in their robes in the bush and
the other half flock to the city.
Today, old meets new, sluggish currents meet accelerated, in a great
experiment I expect to be repeated throughout the world. The moderns, I think here, will win the
experiment that will serve as the template.
Keep eyes on Turkey, and remember the mechanism is fueled by money
generated by capitalism and the emerging market. If one guesses rapidly and rightly, much is to be gained as the
country sheds its inhibitions.
IMPACT
“I once complained
to my father that I didn’t seem to be able to do things the same way other
people did. Dad’s advice? ‘Margo, don’t be a sheep. People hate sheep. They eat sheep.’”
Margo Kaufman
Trails
end. After the return, I enter a Niedco
trading room full of whispers. “Shall
we go with Bo?” A week later, there’s
backslaps. “The firm put millions into
Turkey, in one week doubled!” The next
week, “It’s doubled again!” Some lower
indicators hit the public eye. “Wall
Street gambler Niederhoffer Intuits Millions with Hobo’s Help” headlines The New York Observer (3-21-97).
Soon after,
Niederhoffer sends friend Rip Mackenzie and me to review the Broadway musical Titanic.
Victor’s the ultimate ship buff, with paraphernalia displayed
through the house and a major painting hung in the trading room. “Never think you’re unsinkable,” he
reminds. The production is well-done
but, sadly a few months later, Niederhoffer does it better.
The bottom
rips in his fund as Thailand collapses, and later in a combo - statistical
freak his SP hedge fails in the October ‘97 crash. The trading staff is dismissed and doors shut. Millions are lost all around, and the former
lifestyle diminishes as Victor takes his first hours off in decades to watch an
electric train in the basement circle a track.
Deep down no one hears the screams.
On Oct 27,
’97, most people would recall that Niederhoffer lost his fund in a single
rotation, and would put out of mind its top performance in the preceeding
fifteen years (including 44% gain in ’96).
One man wouldn’t have missed the impression, and that anecdote begins
one warm afternoon twenty years before the black day in Grenich Village. “Let’s duck in here,” Victor says at the
entrance to a basement cafe. “There’s
someone in games I’m dying to meet.”
The room’s vacant save a white-haired gent over a checkerboard. “May I buy a checker lesson?” Eyes
shoot up, “Why not?” A game commences that blossoms into a lifelong match. “The experts make the most of their wins and
draws, and the masters make the most of their wins, draws and losses.” – Tom
Wiswell, undefeated world checkers champion from 1956-1981.
I
realize none of it until a year later, because the emerging market trip leaves
me gripped in travel and I depart immediately after the Titanica play to walk the
lengths of Vermont, Colorado, Death Valley and Baja California, followed by
travels in South America. I am dumb of
Niedco until Mackenzie shocks me in Nov. ’98, after the company has regained
modest success:
I dropped by the Niederhoffer house about three months after
the collapse to complete a goal I’d set for myself a year earlier. Essentially, he was making the best of a bad
situation. The office was empty and he
was playing with a train set in the basement.
Upstairs, he was turning an office into a lab of electric circuitry toys
and kits. He was in a Howard
Hughes-esque bathrobe beyond redemption.
I handed him what I had come to deliver, a piece of the actual Titanic,
a quarter-inch of rusticle taken off the door that was left open, adding to the
decline of the ship. He was grateful
and courteous, but mentioned he’d been abandoned by clients, bankers, friends,
the works. I said to him, “This doesn’t
make sense. Given your thirty-year
track record of success, the collapse was no more than a blip. Everyone who‘d invested with you knew you
and the risks, and they were more than happy to be aboard during the
peaks. Certainly there must be someone
who sees there’s more likelihood of another stretch of unmatched returns.” "Unfortunately,” responded Niederhoffer, “others don't appear to
share your brand of reasoning."
“What collapse?” I write
Niederhoffer. He answers, “The Thailand
massacre brought me to a low level. I
couldn’t adequately defend my SP positions because of it. Eventually, it became a matter as to whether
my clearing firms wished to work with me or not. I can’t discuss the rest because under the terms of settlement I
reached with them I’m prohibited.
Suffice it to say I sued the Merc because of the bad marks and we
settled under mutually satisfactory terms.”
…“Your fair weather scenario in part on Thailand contributed to my
bankruptcy and the loss of hundreds of millions for others. We should have paid more attention to the
unfinished skyscrapers and real estate excess.”…“Bo, this is very deep and
can’t be told in detail except to say I did right for the customers and it will
always be one of the darkest days of my life that I lost for them and their
families, and lost my business and so many of my friends. It will take many years of grief to recover
and will always live as among the darkest handful of things in my life.”
He finishes a cordial letter of 29 Oct. ‘97 to customers, "We took risks. We were successful for a long time. This time we did not succeed, and I regret to say that all of us have suffered some very large losses.” I’m outraged to learn a single client carps much less of the mass abandonment. Niederhoffer’s style and codes are known, laid open in the fish story prompting this report: Go deeper and farther to make gains, take somewhat greater risk for far greater reward, and risk humiliation outside the familiar to earn big. An early signal was in the mid-‘70’s when he gave up a squash racquet as world champ to cross-over and grasp a bigger game of racketball. That approach is how we met. He entered his first St. Louis national tournament, even as I pedaled a bicycle from San Diego to play as the reigning paddleball champ. We witnessed each other for the first time wearing mutually different colored tennis shoes. He sported them, “For individuality”, while I was as much one but had a blown sneaker. Everyone knows the risk. The Niedco patron reaction points fingers back at self-training to react emotionally instead of rationally. Logically, one can dig deeper.
The Niedco
method is about organizing statistics using the scientific method. Perhaps Victor’s greatest gift to the
marketplace is his system of trading as tested and verified by continued
victories. Where Aristotle created a
system of knowledge that pierced most disciplines including astronomy, physics,
biology, psychology, politics, ethics, plus everyday thought and conversation,
Niederhoffer crafted a system of logically thinking about the market based on
statistical quantification and comparison of individual commodity
movements. If this pattern can’t be
found in a trade, he rejects it and waits until another meets the criteria to
give an investment edge. It’s as
though, at certain times, some trades jump through a window of logic, hence
predictability, and in that span the decision to invest is made. Hours may pass
between windows. The Niedco trading room is piled floor to ceiling with books
from the branches of learning wherein Aristotle planted the logic seeds. If nothing’s jumping, a book comes off the
floor into his hands, so the day, and the years go.
“The
speculator is a hero, and has been throughout history, Niederhoffer wrote for Freedom Daily in January, ’93. “Some speculators are discoverers like
Christopher Columbus, creators like Henry Ford, or inventors like Thomas
Edison. Their job is easy to place on a high plane. My role in the grander
order is indirect, relatively invisible and unplanned. The only discoveries I
make are the routes that prices will travel. Like hundreds of thousands of
other traders, I try to predict the prices of common goods a day or two in the
future. If I think the price of an item will go up, I buy today and sell later.
If I think that the price is going down, I'll sell at today's higher price. The
miracle is that in taking care of ourselves, we speculators somehow ensure that
producers all over the world will provide the right quantity and quality of
goods at the proper time, without undue waste, and that this meshes with what
people want and the money they have available.” Our humble addition since the Yankbo tour is the customer is also
a hero.
Niederhoffer
yearly offers fresh grads from top universities the opportunity to work his
trading room, while housed under the same roof as his family. Each understands the labor and reward, and
no one needs to keep pace with the chief but most try out of pride. Early smiles tip as class scholars and
athletes figure to equal the “the old man”, but I tell you none have. By small example, two have been carted by
ambulance after a personal choice of overwork.
I had more sense early on and after a long week of matching Victor’s routine
of trade, exercise and read, I got awfully dizzy and eased back. Everyone can’t measure up, but each owes to
himself to pull up from personal grief to brighter stature.
The train
circled the track and his mind the objective.
He recovered using the original tenets of quantitative analysis and
scientific method developed before starting to trade his own account in ’79.
Niederhoffer’s allure for the
Titanic spins a mysterious web that starts before he himself sinks and comes
full circle after he’s resurfaced. This
is the untold anecdote. Rip Mackenzie
happened to be in the Ct. home about a month before the Thailand butchering
when Victor sent us to review the new Broadway musical Titanic while he was rooted in the trading room in a position. That evening after the play, Rip began to
notice “Titanicana” around the large house – paintings, models, even a picture
on the cover of Education of a
Speculator. A few hours later, we
entered the kitchen and observed the youngest Niederhoffer daughters, Kira and
Artie, had just begun drawing on some papers that looked like documents of some
sort. I calmly replaced them with
tablets and handed them to Rip, “Here, you may be interested.” They were the original telegrams from White
Star Line regarding the Titanic. “Ask
Victor if his Titanic is unsinkable,” I jested. Rip left the next morning, telling me, “I understand the Titanic
mystique a little better – it’s a reminder that in the ocean of life or trading
even the biggest can sink. In
appreciation for the royal hospitality, I’m setting out to find something about
the ship Victor couldn’t possibly know.
It’s no small challenge, since he knows practically everything there
is.” I was to discover the rest of the
story a year after the Niederhoffer ship did sink. Mackenzie wrote then informing me of the collapse, and after an
eerie follow-up:
Once I realized its magnitude, I gave up the challenge and,
as usual, everything fell into place after it.
Within weeks, I’d met virtually every primary scientist and publicist
studying the ship. What had been a
symbol for arrogance and disaster in the 20th century was now in
scientific circles being considered a symbol of learning and hope for the 21st…
It’s like the phoenix rising from the ashes, and the Niederhoffer story
too. Interesting. I heard Niederhoffer sold the Titanic
telegrams for a huge amount at the height of the movie frenzy. I told the whole story to Charles Pellegrino (author of Her
Name, Titanic and the ship paleontologist at the discovery of Titanic’s
location.), including the telegrams on the kitchen table, and suddenly he went
silent – an unusual thing. Pell had
been viewing the telegrams only months earlier with Titanic guru Walter Lord
(author of A Night to Remember) and
they and many others puzzled one thing.
“So THAT’S how that black crayon got on the telegram!’ shouted
Pell. To this day, I credit you for
saving the Titanic telegrams from a worse fate…. Good. And now, with my thanks, Victor has a piece of the real titanic.
His mind sharp,
heart in the right place and account replenished, Niederhoffer takes up life in
Practical Speculation (with Laurel
Kenner), the upcoming follow-up to the autobiography. Risk and survival are strong currents and the story compels as
usual. He discovers a periodic table of
the elements for trading, and the endless quantification
requirements. Expect to be
surprised. Mackenzie adds, ”Now he’s up
and above. He honors the story of
Icarus, and brings in daily returns that would stagger most of his previous
clients’ minds.”
Deeper perhaps
than the emerging markets as they lead to westernization of the business
sectors and country traditions fall to the wayside, is where you choose to
invest can rock the world. Now is one
of the most historic times in business as nations struggle within – old vs.
new. Ponder linking the search for
profit with the globe’s well-being.
That, and be humble of what one doesn’t know because we’re all latent
Titanics. As more markets emerge, so do
you and I.
50 THINGS I LEARNED ON THE EMERGING
MARKET TRAIL
“It would look stupid if your story doesn’t say anything
about how I stumbled and went under in Thailand using some of the same
indicators that made millions elsewhere,” he told me in permitting this story. “What we forgot was the homeless man
indicator – the unfinished building one, where you go into a city and find
abandoned derricks in the sky with the owners gone into oblivion in the cages
playing with the dogs. et al.”
Victor Niederhoffer (to the Yankee Hobo)
1. As the businessman and vacationer
should be one, so add the adventurer.
When in 1897 the steamship Portland
docked at Seattle bringing hard proof and initial news of the Klondike gold
strike, the world was shaken, and thousands uprooted to boom or bust on gold
speculation. Take a chance, I’ve
learned, or take nothing at all.
2. Arrive early for appointment to
see an unrehearsed stage being set.
Much is told from the first and last point of a rackets match, so the
first and last minute on the job.
3. Become excited, but remember
money is as neutral as the jungle.
4. Fly business class or better for flight change priority due to inevitable goofs. The airport business lounge offers computers and other communications, sometimes a health club. You get to board and exit first, everything is less, letting you drive your business upon landing rather than vice versa.
5. The degree of sophistication of some
nations’ business sectors is greater than grasped from their streets or
television. Often there’s a higher tier
of businessmen who are the nation’s champions as in Egypt and India. Less often the contrary applies, the more virtuous
are in the streets, and where it’s so better to judge the long term market by
the common good man.
6. The most significant question to put a
person you interview or may work beside is, “What do you do in your spare
time.” If he replies, “There is no
spare time,” or “My work is my play,” give him the nod.
7. If you’re an executive with a big
plan that requires help, keep your friends close, your enemies closer, but have
one reliable scout. He should think as
you do, spend your money as if his, and answer your questions as if talking to
himself. I was this to Niedco but ignorant
of emerging markets; so the hanged results.
8. Niederhoffer counsels, draw on my forehead
and look in the mirror often. Keep the
big picture in mind and don’t get sidetracked by the entertainment of an
occasion. Can the country, can the
executives earn a profit. Will that
profit suffice to cover the risks, the uncertainties, the costs of collecting,
the chances of fraud… Keep thinking.
9. The second step after the first in
the door is find the business pilot.
Keep asking for the bosses’ boss until someone says the guy under him is
the boss, then you have the pilot.
Information flows from the top of the mountain like water.
10. Money talks, everything else
walks. If there’s one message from this
trip, it’s that it doesn’t matter if one wears different colored gloves, or
none at all, so long as there’s money in it everyone will shake your hand.
11. Nearly all my interview
techniques are from veterinary medicine, sport contests, bar observations
without drinking, and two books, How to
Read a Person like a Book, and The
Art of Negotiation by Gerald Nierenberg – all recommended.
12. The successful business explorer must
be a masterful negotiator, and above all this means speeding initially into a
pattern of cooperation, and falling back there when a meeting’s strained. Failing this, revert to honesty and silence.
13. Don’t bluff, not ever. Though it probably won’t work today, it’ll
ruin tomorrow’s deal because high-level business delivery is read in body
language. Always be shore your story is
wider than its tail.
14. After the pyramid of needs is met, money
and sex drive the world. Beware of
offices where sexuality’s overt.
·
15. Trust implicitly an
all-male or all-female house whatever your gender, because there likely sex is
eliminated from the equation of success with higher results. I’ll be hung for this. Be wary where females occupy positions in
sales but no others; they’re calling cards.
If there’s one pretty girl in the office, gain a rapport to get at the
honcho, her mate. If a girl up front
has better looks than information, suspect a shill. Females trust females more in business than men trust men, or any
other combination.
16. Never sleep in the other camp
until after the treaty's signed. Turn
away even when sensitive as the yen market.
Walk between appointments, carry your own water, and sleep well.
17. My rule is nearly never accept a
dinner invitation with a prospective business partner, despite etiquette. It rarely helps - if all can't be
accomplished at the office, something's wrong - and often hurts.
18. The older and less attractive the
secretaries, the better the business favor.
19. Don’t use a broker whose office plants
have died.
20. Confirm foreign contacts by email, fax or phone with your
sponsor company just before arrival, or plan to suffer greatly. Carry a guide
book in case the contact no-shows at the airport.
21. Pave the way to meetings with literature
and a cover letter to the department chiefs.
Take extra copies for sudden visits.
It’s the business version of sending flowers to a date to relax, provide
legitimacy and give a starting point to conversation.
22. Success is all in the prime
foreign contact. He must speak English,
be knowledgeable, connected, honest, discrete, on hand, and able to outperform
you. I had these men and women on tour
and the returns leaped dramatically before investment.
23. Traders the world over converge
in physiotype and mentality, and it’s hard to tell which came first, the egg or
chicken, or circular. The model I find
is ectomorph, not tall, quick facial features, surprising streak of
introversion, sincere, nervous, smoker, formerly athletic, and family
oriented. That’s not to say these are
the best traders, just the prevalent; the better are exceptions, and the best
is a one-of-a-kind that breaks the mold. Besides, if you lose money with a
non-conventionalist the chances are greater that you’ll learn something.
24. When entering unknown terrain such as a
foreign meeting, treat it like survival by starting with short, slow steps,
gradually expanding with confidence.
25. Jokes distract unless it’s an
artful in a dull crowd that directs a genius barb to deflate egos to get
swiftly down to business. Recall I
played pong with Mr. Ping, one of the most close-faced influential men in
Philippines, to make a gain for the company.
26. Extensive note taking during a
meeting is unprofessional, but jotting important figures is welcomed. After leaving a meeting, I “writerstorm”
before the next. At days end, I type
the reports. At country finish, I mail
them to the home office. Retain a
backup copy plus set of business cards.
27. Take
a knapsack in lieu of briefcase, or carry the brief in it. It’s more secure and expands to hold
literature throughout the day. Figure
on 1-3 pounds per broker.
28. To know the economy learn the people and the best place is among them. Much truth comes from direct questions to barbers, waitresses and during pauses on public transportation, especially when there’s something to conceal or boast. Cinemas are the inroad via America to the world’s minds, and the audiences are fertile with signs.
29. There are more indicators, lower and non-traditional, than one can imagine. They should be catalogued, quantified and a sum index posed to assess a given market. The right signal, grown familiar with over time, gives the edge for slow riches. 30. The smaller and less diverse the market, the more valuable the single indicator, as with dry tea leaves in Sri Lanka where monsoons missed for the first time in a half-century. The corollary is use an index combination of indicators to evaluate a large, diverse market, though it’s less accurate.
31 Pay most attention to what’s underfoot,
real estate, that's always a leading indicator. If you see buildings that
haven’t been occupied, worse buildings where cranes wave in the wind building
has ceased. Why you know
that banks are in trouble, and that the infrastructure is not well. Real
estate is a foundation for your feet and your money.
32.
The true grit of a country is measured when the economy bottoms
out. Look first to the people for
turnaround, next to the natural resources.
These run shallow or deep depending on the location. Examples in this report of the peoples model
are Philippines and Korea where it’s predicted the tough community will effect
a reversal; and a model for natural resources is Indonesia which falls back on
its land.
33.
Character comes out of the cracks when a nation is crushed
economically. Study the genealogy and
customs beforehand to determine resiliency, hence opportunity. Look for tells when it’s hardest to keep
poker faced. Invest in the businessman
who doesn’t beg when his chips are gone.
If you can convince yourself a broker will treat you the same in bad
times and good, hire him.
34. Payola? The horse does the work and the coachman still gets the tip in
some countries, and avoid contributing from a sensible and moral stance.
35. Ask at every meeting: What is the recent past, present and future
economy, and why? Then query for
specific investments. Is later better
than now to put in? End with, “How much
have you invested in this item?” Never
use an autographed baseball mitt until you see the star wearing it.
36. Much is told in, “Can you reveal
the secret for the lowest commission and fee?”
37. Be aware of personal ignorance, warned the
Niedco team. If you ask a direct
question, don’t expect to get a truthful response. Don’t leap to conclusions. Often I ask people what the lowest rate they
can pay is and they reply they can do something off the books. But it turns out
that was the spider saying come into my parlor.
38. In places
where computers are sparse, ask after the day’s last meeting to use theirs to
get the reports out early. The evening
begins with clearer evaluation of the lower indicators.
39. The business card is key, and impressive titles open foreign doors. One day of twenty meetings can go through 100 cards. Don’t carry condoms in the same pocket as I did in Philippines. 40. Be prepared for the worst of scenarios to relax during meetings. The Inner Game of Tennis isn’t a personal favorite, but the maxim is: Imagine the worst thing that can happen in an event. Rehearse it mentally. Now breathe easier.
41. Anyone with a business card of his
own making can get a corporate discount at the better hotels. Explain you’re doing business locally for a
15-30% break. An employer letter or fax
from the company being courted seals the deal.
Word memos to imply you’re meeting companies rather than doing business,
otherwise immigration could press for a business visa instead of tourist.
42. Protracted business swings must
be broken by day outings to guarantee sharp thinking throughout. Blitzkrieg trips should have a big vacation
exclamation point. Try to schedule
morning interviews, afternoon loose ends, and be a tourist the rest of the
day. The businessman and vacationer can
be one.
43. After the final selection for
speculation, send one of your staff to oversee the first couple weeks of
trading or business. Envision having an
employee continually rotate through a number of countries during the first few
months of a launch into emerging markets.
44. If your trading style is intra-day
with fast calls, a mutual language is vital.
It the best country pick offers poor English contacts, retain on
priority basis a translator at the foreign brokerage, or put someone there from
your own office. An international swap
of personnel seems ideal, using the model of the university student exchange
program.
45. Invest in the foibles of people
if you’re broke morally. Right now it’s
make-up in Egypt and gin in Philippines.
Prepare to trade blows in money and blood games. Foreigners know they can’t be sued so don’t
meet their obligations, and see you as ripe to pluck.
46. Free enterprise is not for all races at this time. There’s argument, but I’m firm. Capitalism doesn’t work in areas where people prefer to be shepherded and fathered. One day scientists will claim to discover a laissez-faire gene to abet capitalism seeding ventures. Moreover, some other isolated cultures prefer to be left alone entirely, to not accomplish nor be herded, and we must respect that if we respect our own values.
47. The vacationer can look for business opportunities during travel, and the businessman should take advantage of side trips. Combine business with pleasure for greatest treasure. Alternate but don’t blend, and, as always, business before pleasure.
48. Emerging markets offer sky-high potential but weighty risks including exchange modification, drastic economic transition, standard of living change, population shift and altering of attitude, city reconstruction, political instability, and thieving foreigners protected by unfamiliar laws. Some of this is forced change to many, so money as well as intrigue fly on the trail. This suggests an advance scout armed with an assessment plan to quantify the reward to risk ratio. Also, maybe one day there’ll be a world emerging market index where one invests in the aggregate markets, hence its destiny. 49. Everywhere people cry for freedom. It comes first from the educated, usually the young. Freedom for the people often precedes the emergent market, and here the indicators are smiles.
50. Life is good in whatever nation you travel if your company is in demand. Thanks, Niedco.
QUESTIONS
FOR BROKERS
“What’s money? A man’s a
success if he gets up in the morning and goes to bed at night and in
between does what he wants to.”
Bob Dylan
This is the verbal questionnaire for each firm. I ask brokers early if I may jot figures,
then pull this sheet with spaces below the questions for answers. The scheme works flawlessly.
1. Inspect the physical layout
including computers and software.
2. Staff size, and breakdown in
research, international sales and traders?
3.
Get business cards of contacts.
4.
Rate the best English speakers.
4.
Present broker ranking among all houses.
5.
Does this firm have capability for $2-3M single trades?
6.
Can the house handle intra-day trading with ease?
7.
Explain the trading process, step by step.
8.
What’s the house’s daily volume, yearly volume; the
market’s?
9.
Does a $2-3M trade cause a ripple, and what size rocks the
market?
10.
When did they being trading, and general track record?
11.
Give and get company literature, financials and sample
research.
12.
How is an account opened, and get the forms?
13.
Requirements or licenses required of foreigners?
14.
T-bills trading possible?
List steps and timing.
15.
Margin or leverage allowed?
16.
Commissions and how to get lowest?
17.
Reveal the secret of the cheapest way in-and-out on a trade?
18.
How are trades paid for and in what currency?
19.
Taxes and other fees?
20.
Closing the account, how are dollars recovered, and to what
limit?
21.
Are custodian banks required or advised?
22. IPO list for input.
24.
Other investment
opportunities.
22. Provide high-volume,
high-liquidity stock choices.
23.
Evaluate the recent past, present and future economy.
24.
Currency stability and expectation.
25.
State of the brokerage houses.
26. Arrange tour of exchange. Days and hours? Copy of rules in English.