Watch your money grow

Watch your money grow
Buying the right timepiece can pay off quickly
Peter McGarrity
SCMP Jan 09, 2011


Buying a new watch is in many ways similar to buying a new car – a premium is paid for the latest models and once you take it out of the dealer’s showroom its value will likely drop by around 30 per cent.

However, in certain circumstances it is possible to make money from buying watches. At the top end of the market, it is easier simply because you can buy more exquisite pieces, the supply of which is strictly limited by the manufacturer.
Continue reading “Watch your money grow”

Hugh Hendry

Maverick fund manager shares his contrarian views, obsession with China

The New York Times in London
Jul 25, 2010

Hugh Hendry has a big mouth, as Hugh Hendry will tell you.

With a sharp wit and a sharper tongue, Hendry, a plain-spoken Scot, has positioned himself as the public contrarian thinker of London’s very private hedge fund community.

The euro? It’s finished. China? Headed for a fall. President Barack Obama? “If there was a way to short Obama, I would,” says the man who runs Eclectica Asset Management.

It is an old-school macroeconomic fund company with a think-big, globe-straddling style more akin to the Quantum Fund, of George Soros fame, than to the hi-tech razzle-dazzle of Wall Street’s math-loving quant analysts.

At 41, Hendry is emerging from the normally secretive world of hedge funds to captivate fans and foes with a surprising level of candour.

Last May, on British television, he verbally sparred with Jeffrey Sachs, director of the Earth Institute at Columbia University, and perhaps the best-known economist writing on developmental issues.

Before that, he took on Joseph Stiglitz, the Nobel laureate, about the future of the euro. “Hello, can I tell you about the real world?” Hendry interjected at one point. It was a huge hit on YouTube.

His verbal pyrotechnics have won Hendry a reputation for challenging the economics establishment. He is regarded and appreciated by many as overly pessimistic about, well, just about everything.

His big worry lately has been China. Like James Chanos, a prominent hedge fund manager in the United States, Hendry says he believes China’s days of heady growth are numbered. A crisis is coming, he insists.

Hendry has made – and sometimes lost – money for his investors. Eclectica’s flagship fund, the Eclectica Fund, is up about 13 per cent this year, besting by far the average 1.3 per cent loss among similar funds.

But returns have been erratic – “too much sex, drugs and rock ‘n roll” for some investors, he concedes. In 2008, the Eclectica Fund was up 50 per cent one month and down 15 per cent another. Hendry plans to change that.

The firm bet correctly that the financial troubles plaguing Greece would eventually ripple through to the market for German bonds, considered the European equivalent of ultra-safe US Treasury securities. But the firm lost money betting on European sovereign debt in the first quarter of last year.

Last week, Hendry was musing about the financial world in his office behind a scruffy shopping mall in the Bayswater section of London. No Savile Row here: He was sporting a white oxford shirt, jeans and blue Converse Chuck Taylor sneakers, along with a three-day stubble and hipster horn-rim glasses.

His latest obsession is China. He likens the country to Starbucks: good at growing quickly but not so good at creating wealth. “The idea is that things would happen today that are commonly thought of as impossible, most notably a significant reversal of China,” Hendry said.

Maps cover the walls of his office. On one, blue magnetic pins plot his recent trip through China. He filmed himself there in front of huge, empty office buildings and giant new bridges in the middle of nowhere – signs, he said, of a credit bubble.

Hendry is devising ways to bet on a spectacular deterioration of China’s economy. He declined to divulge any details.

His outspokenness has won him both fans and detractors.

Marc Faber, the money manager known as Doctor Doom for his bearish views, calls Hendry “a deep thinker”. “He has strong views and expresses them, not to get publicity but because he has a great understanding of the markets,” Faber said.

Some London investors are less charitable. Two declined to comment on Hendry, saying they did not want to “get into a fight” with him.

Hendry certainly does not fit the stereotype of a discreet London moneyman.

The son of a truck driver, he was the first in his family to attend a university – Strathclyde, in Glasgow, not Oxbridge. He studied accounting and joined Baillie Gifford, a large Edinburgh money manager.

Frustrated that he could not challenge the investment strategies of his bosses, he jumped to Credit Suisse Asset Management in London. There, a chance meeting with an equally opinionated hedge fund manager, Crispin Odey, led to a job.

Before long, Hendry struck out on his own.

The inspiration for his investment approach comes from an unlikely source: The Gap in the Curtain, a 1932 novel by John Buchan that is borderline science fiction. The plot centres on five people who are chosen by a scientist to take part in an experiment that will let them glimpse one year into the future.

Hendry calls the novel “the best investment book ever written” because it taught him to envision the future without neglecting what happened leading up to it, a mistake many investors make, he said.

More Ayn Rand


“In the name of the best within you, do not sacrifice this world to those who are its worst. In the name of the values that keep you alive, do not let your vision of man be distorted by the ugly, the cowardly, the mindless in those who have never achieved his title.

Do not lose your knowledge that man’s proper estate is an upright posture, an intransigent mind and a step that travels unlimited roads. Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach.

Check your road and the nature of your battle. The world you desired can be won, it exists, it is real, it is possible, it is yours.”

~ Part Three / Chapter 7 This is John Galt Speaking

TED Spread

The TED spread is the difference between the interest rates on interbank loans and short-term U.S. government debt (“T-bills”). TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract.

Initially, the TED spread was the difference between the interest rates for three-month U.S. Treasuries contracts and the three-month Eurodollars contract as represented by the London Interbank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped T-bill futures, the TED spread is now calculated as the difference between the three-month T-bill interest rate and three-month LIBOR.

The size of the spread is usually denominated in basis points (bps). For example, if the T-bill rate is 5.10% and ED trades at 5.50%, the TED spread is 40 bps. The TED spread fluctuates over time, but historically has often remained within the range of 10 and 50 bps (0.1% and 0.5%), until 2007. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.


The TED spread is an indicator of perceived credit risk in the general economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. When the TED spread increases, that is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. Interbank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of bank defaults is considered to be decreasing, the TED spread decreases.

Historical Levels

The long term average of the TED has been 30 basis points with a maximum of 50 bps.

During 2007, the subprime mortgage crisis ballooned the TED spread to a region of 150-200 bps. On September 17, 2008, the TED spread exceeded 300 bps, breaking the previous record set after the Black Monday crash of 1987. Some higher readings for the spread were due to inability to obtain accurate LIBOR rates in the absence of a liquid unsecured lending market. On October 10, 2008, the TED spread reached another new high of 465 basis points.


Avoid processing more information than you can digest: it is better to know less and understand more.

Data is not information until it has been collected, collated and organized.

Information is not knowledge until it is absorbed and comprehended.

Knowledge is not understanding nor wisdom, until it is associated with life experience and given perspective.


Don't settle


“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle.”

~ Steve Jobs

HK$567 billion floods into HK

HK$567 billion floods into HK
Dennis Eng and Maria Chan
Nov 20, 2009

A total of HK$567.5 billion flowed into Hong Kong from October 1 last year to last Friday in what Hong Kong Monetary Authority chief executive Norman Chan Tak-lam described as an unprecedented situation.

The huge inflow, especially since the beginning of this year, targeted mainly stock and property investments, Chan said. A splurge on stocks has boosted the Hang Seng Index from a low of 11,345 in March to a close of 22,643 yesterday.

Property prices have also risen – about 30 per cent on average – this year, with prices for some luxury properties setting new records despite little evidence that Hong Kong has shrugged off its recessionary woes.

The surge in the stock market is most evident in the gains registered by the Exchange Fund, a reserve that backs the local currency. The fund reported a HK$96.9 billion gain in the first nine months of this year, more than offsetting the HK$75 billion fall last year. In the third quarter alone, the fund recorded a rise of HK$71.9 billion, with equity investment income accounting for 57.7 per cent of the total. The government pocketed HK$25.6 billion in investment gains for the first nine months.

Chan said the fund continued to perform well last month but declined to predict if the full-year figure would top HK$100 billion. The fund’s investment holdings mainly include stocks and bonds. Chan said he would consider further diversifying the fund’s investments, possibly including the mainland currency, to help stabilise the rate of return.

“There are still many uncertainties,” he said. Chan attributed the flood of liquidity to measures introduced to help prop up the ailing economy but warned of ballooning asset prices as a result.

“There are some potential risks, including inflation and an asset bubble,” Chan said.

“I am not worried about governments pulling out too soon, but rather that it will be too late.”

He said it was a matter of time before central banks around the world withdrew those measures. But maintaining the measures for too long risked more fund inflows, further inflating asset prices. Interest rates could also rise if the flood of funds left Hong Kong, posing dangers to economic growth and hurting homebuyers who were enjoying record-low borrowing costs.

The huge funds inflow has dragged down the three-month Hibor – the interest rate banks impose to lend funds to one another – to 0.12 per cent. Chan advised aspiring homebuyers to evaluate their ability to make mortgage repayments if the rate rose.

In an attempt to head off possible risks from an interest rate rise, the authority recently required banks to lend no more than 60 per cent of the value of properties selling for more than HK$20 million. But there were no plans to impose this requirement for mass-market housing, Chan said. Banks can usually lend up to 70 per cent of a property’s value.

The record-low borrowing costs and ample liquidity have seen funds flow from bank deposits to assets like stocks and properties in an attempt to generate higher returns.

Buoyed by the increased activity, the stock and property markets are expected to earn the government more in stamp duty than the HK$25 billion it estimated for this financial year.

KPMG tax partner Jennifer Wong How-yee said the government could reap an additional HK$11 billion in stamp duty paid on stock transactions and an extra HK$5 billion on duties for properties.

Revenue from the sale of land and the payment of land premiums by developers could also exceed expectations. Just HK$4.1 billion of the estimated HK$16.5 billion in land income has been realised, although this does not include HK$9.59 billion in land premium that Henderson Land and New World Development will add to public coffers for their Lok Wo Sha site in Wu Kai Sha.

Two sites in Tai Po will also be auctioned at the end of next month and are expected to fetch up to HK$12.4 billion.

But Agnes Chan Sui-kuen, a tax partner at accounting firm Ernst & Young, said the package of relief measures announced in May that cost the government HK$16.8 billion was expected to largely cancel out any extra revenue flowing in. The government estimated a deficit of HK$39.87 billion in its budget for 2009-10. In the six months to September 30, the administration reported a deficit of HK$64.78 billion.

The financial year runs from April 1 to March 31.

Economic data suggests the impact of the global financial meltdown on Hong Kong was not as severe as the Asian financial crisis more than a decade ago. At that time, the city’s gross domestic product shrank 8.9 per cent from the third quarter of 1997 to the end of 1998. Between the second quarter of last year and the first quarter of this year, GDP contracted 7.8 per cent.