Vaporisation of Taiwan's stock market - the MAC effect

After ASE applied for withdrawal from the Taiwan Stock Exchange, today UMC is distributing its cash stash back to the shareholders. More "capital reduction" are on the way.

The fundamental driver is the interference from MAC (mainland affairs committee), which restricts investment in mainland China with a 40% capital cap. As for the case of ASE/Carlyle deal, special approval will be required for any company with over 1% market capitalisation of the Stock Exchange (the "ASE clause").

The reaction from the business is simple.
1) reduce capital
2) withdraw after market cap falls below the 1% threshold
3) delist
4) re-list in HK or Singapore or US
5) Free to invest in mainland as this is no long a "Taiwan" company, (with the money it raises outside Taiwan)

Even without such plan, a capital reduction is a sensible decision, as the cash does not generate any return (interest rate in Taiwan is 1-2%).

As a result, UMC's decision received praise from the market, 11% hike is share price was recorded in the ADR market already.

The dilemma for the Taiwanese business is, if everyone reduces capital, you are still above 1% of the total market. So it become a race to capital reduction. In addition, if the market reward you with higher share price, you end up with a a market capitalization much higher that you originally planned.

All these, thanks to Chen Shui Bian's political driven economic policy.


IPod index? why not a Philipino maid index?

The Chinese saying "东施效颦", telling how "aping a beauty" could embarass oneself.

But there is nothing to stop Macquarie Bank of Sydney, Australia, from doing so, by aping the BigMac index. Why not an index for "Phillipino maid wages" (or the ratio of Maid wage vs average local GDP/cap)? At least that tells us how on one country/city treats foreign workers.

There is a reason why the BigMac was chosen by the Economist, as it includes all the typical transferable and non-transfer costs in a product, a good basket for CPI index and PPP consideration.

Not for the iPod, it is almost exclusively transferrable products, and the small size means transportation cost is low. Ridiculing such uncritical thinking aside, we can still read off some messages from the data

  • The countries that tops the list are those with highest tariff and most protective, Brazil and India!
  • It also reflects the nominal exchange and hides someting about recent changes in nominal rates, as often observed in airline fare discrepancy between countries (remember the Bangkok air fare golden age from 1998-2002? when one could buy a Business class round the world ticket for US$20k!)
  • It may reflect the margin of retail (as Apple only gets the wholesale revenue and there is certain minimum number for its profit requirement). However, given the extreme high retail margin of Japan (just compare the retail price of parallel import to HK vs those in Japan, you know the Japan retailers are making much more than their counterparts in HK - it is 30% cheaper to buy the exactly same product in HK (i.e., with Warranty in Japan). However, Japan ranks fairly low in this table, what it means is that Japanese products are much cooler in general and iPod couldn't differentiate itself!
  • Finally, the price in China is fairly high, despite the fact that there is no transport cost and the highly competitive retail channel in China. -- I will let you guys figure out why this is so. But with the iPod exchange rate, it seems RMB should depreciate:)

Here is the iPod index ranking

  • Brazil $327.712
  • India $222.273
  • Sweden $213.034
  • Denmark $208.255
  • Belgium $205.816
  • France $205.807
  • Finland $205.808
  • Ireland $205.799
  • UK $195.0410
  • Austria $192.8611
  • Netherlands $192.8612
  • Spain $192.8613
  • Italy $192.8614
  • Germany $192.4615
  • China $179.8416
  • South Korea $176.1717
  • Switzerland $175.5918
  • New Zealand $172.5319
  • Australia $172.3620
  • Taiwan $164.8821
  • Singapore $161.2522
  • Mexico $154.4623
  • USA $149.0024
  • Japan $147.6325
  • Hong Kong $147.3526
  • Canada $144.20

Short eBay for its failed Skype acquisition

1. eBay bought Skype at $2.6bn, plus another $1.6bn earn-out, i.e. if some performace target is met in future
2. Skype founder moved on to found video start up
3. Implication: Skype failed to deliver promise, no body cares about tht $1.6bn earn-out, not even the VC who invested in Skype!

No surprise, not the first time eBay's strategy team failed. Those uncritical MBA minds......


ASEAN 10+n?

A while ago I discussed the rationale for ASEAN 10+n.

I have there explained why it is more practical and realistic to add one national each time. The reasoning is quite straightforward: imagine getting 20 people to agree on which restaurant to dine, this is why APEC never accomplished any thing, at all!

Now there are political issues, in that Japan and US is worried that China may be able to influence ASEAN by getting in first. That may be true, but eventually it would be 10+6, and even larger, to China's own interests. So even if it would be 10+1 for a few years, that is only a temporary set up.

From ASEAN's perspective, since it is more practical to add one nation at a time, the question is basically "which nation"? Ideally one would like to add the largest economic body first, because they will be negotiating together to the next new member. Therefore, the US would be the No 1 choice for ASEAN. I can bet that if US comes to ASEAN today and said they would like to establish a 10+1 FTA, with 1=USA, ASEAN would go right ahead, passing China.

Similarly for Japan, if it were 10 years ago. ASEAN would take Japan as the second priority only after US.

The question now for ASEAN, since as we all know US does not want to be "the one", is whether Japan or China will be the "one". So far China has been enthusiastic and Japan has not shown any interest in wanting to be the "one", the best path toward a larger FTA for ASEAN is adding 1, 3, 6 in sequence.

To conclude, there is no other way to an FTA that the current path of 10+1+2+3. Since it is the most practical and reasonable, it is inevitable. Nothing can stop this unless China (or ASEAN) changes its mind. That is very unlikely, and unwise for China or ASEAN .


Iraqi lesson - Fareed Zakaria - gradualism - Great Nation?

If one follows Sun Zi's doctrine (or that of von Klausewicz), military solution is just an extension of politics. So if one does not solve the more fundamental problem, which is political, even the best military solution treats only symptoms, not the cause.

W Bush now follows the second best (or second worse) direction as per Barnett's (sort of), which is a military, by increasing the size of the invading troops. (Barnett may not agree with this, as Bush only did half of what he suggested, by not leveraging on the international effort in the occupation)

We already have a conclusion on what would have worked and what failed, as discussed by Faheed Zakaria in Newsweek, who showed that a poitical problem requires a political solution.

The lesson of Iraq reinforces our believe that sometimes the apparently dumb and risk averse solution to a problem may be the most appropriate one. Here I am referring to the Gradualism (Feeling the stone to cross a river) approach by Deng Xiaoping. There are good reasons that there is probably no better way. Because these problems at the national level are so large and complex, and there are so many ways to get it wrong with so many variables from the beginning situation and as it evolves, that perhaps there is no other way than taking a self-correcting path and walk on it step by step.

Such solution only comes from humble minds. When one becomes over-confident, even a hyperpower like the US suffers its Waterloo. As China's GDP grows and people begin to talk about "Great Nations", "Bush in Iraq" serves as a good remind for President Hu, about Deng's teaching of Tao Guang Yang Hui.


Reading surveys

a couple weeks ago some celebrated columnist (I really forgot who wrote it) in either Apple Daily or Next Weekly commented about an internet survey about the now infamous clock tower on Star Ferry (island side -- my mom still confuse it with the train terminal tower on TST side).

The results said something like this (I do not remember exactly and do not have time to find the old issue of Next)
  • 50% agree it should be preserved
  • 33.33% against
  • 16.67% neutral

The columnist went on to say that this show what the Hong'er think.

The numbers look a bit fishy to me. If you know a bit of number theory or arithmetic, you may have recognized the ratios are exactly 3:2:1. i.e. the number of people answered the internet survey are most likely multiple of six, and that the different categories of answers are also in exactly that ratio.

Here my gut feeling is that the size of the survey is very likely to be EXACTLY 6. Because, people into probability and statistic theory may be able to tell you, it is extreme unlikely and coincidental that survey results turn out ot be exactly that ratio at larger numbers. e.g. if the sample size is sixty, one could generate a Monte Carlo simulation (or go through the trinomial distribution) of the partition is "roughly" ratio of 3:2:1, and would find that the probability that the cases of exactly 30:20:10 will be extremely rare. More likely it will be 29:22:9 or something like that, and there are so many of these combinations that you rarely get the exact case.

I saw too many of these results in the Fast Eastern Economic Review Executive Surveys in the past, they are all "ound factions", in some cases I would safely bet the sample size was 3 or even 2. (e.g., It would be quite likely it is 6 or 9 instead of 3, but extremely unlikely that it would be 12 or larger)

Now, if the Star Ferry CLock Tower survey only has a sample size of 6, how does it tell about what our people think? Remember it is an internet survey, those who feel very strongly about the subject may simple use several IP addresses to vote (home, neighbor through unsecured wi-fi, work, star bucks, airports).

This would be my tip to identify small size samples in a survey

  • .50 multiple of 2
  • .33/.67: most likely mutiples of 3
  • .14/.28/.57/etc, multiples of 7
  • .11/.22/.33... multiples of 9
  • etc.

When I say "multiple", I mean most likely it is just that number, not its multiples. Even if it is, at best 2x , not 3x or 4x.


The phenomenological explanation to the Roland Soong strategy in horse racing

Flipping through the older issues of the Next Weekly I found the story of Roland's trick in gambling over the other side of the estuary (ESWN Dec - scroll to #99). He bet on the foreign jockeys and won.

My hypothesis is that Roland's strategy applies not only to Macau, but also to HK, and more or less everywhere else. If there is a betting combination that allow me to bet on all the foreign jockeys in HK, or even Australia or in UK, I would have done the same as Roland did. Roland was lucky to found that in that particular race the combination (betting on 5) allowed him to pick out those foreigners.

Why? there are a few explanations, let's call them phenomenological, or "Darwinian"/"anthropic" (i.e. what we see is the results of natural selection)

  1. It was said that these foreign jackeys mostly have had some trouble/offence in their own home countries, which are the main reason for them to move to Macau. Therefore, one can assume that they are in general better than their peer (for the same price). i.e. if you go into the shop, a good with defect will usually sell for a discount. If this defect is unrelated to the specific task (e.g. a scratch at the surface for a mobile phone), for the same price, wouldn't you buy one with more advanced functions?
  2. The cost of foreign jockeys are usually higher than local ones. e.g. they need to be provided with housing, travel and other benefits. Otherwise, wouldn't the owner hire some local people instead? If one assume that value correlates to skill, and that capitalists do not overpay on average, these foreign jockeys should have better average results

Do not believe me? look at the soccer fields in Japan and China, and tell me the average goals scored per season of the foreign and local players. Then let's see if the same applies for England and Brazil. My hypothesis is that the same phenomenon applies.

There are some caveats here.

  • e.g. if one looks at racing courses in a city where people would go even if they make less money. e.g. one with good food, entertainment, environment, etc. such as Sydney or Paris. Rule #2 does not really apply. i.e. one does not need to pay a premium to attract foreigner to come. Hong Kong may qualify as such an example for some people,for its entertainment and low tax, etc. i.e. those who do not care about air quality or its dismal living area. But I suspect many people do care. I wonder if someone would provide Roland with such stats

Disclaimer: this is a purely academic discussion. I have never in my life set my feet on the race course in HK. Now I would explain why I wouldn't create a hedge fund to bet on this.

Now, having understand this, does this help us win in the race course?

  1. We know foreing jockeys have an edge, but we do not know what is the % of their edge over the local guys. Such difference might have already been compensated in the odds calculation of the jockey club (i.e. the pay-out rate for the favored jockeys are 1:1.2, while for the less fovored could be 1: 8)
  2. However, let's still assume that most people are less informed, so the odds do not reflect this biase in probability. Then we have another factor to consider (which is why I never gamble in casino or with the HK Jockey Club). For every $100 the gamblers put in, perhaps only $60 or less will be pay-out. As government tax and jockey club expenses and profit have consumed the rest. As a result, one needs an odd of over 100/60=1.67 to average out. So unless I can be sure that these foreign jockeys are more than 67% better than the local guys, I would still say Roland was just lucky

Does this mean you always lose to the house? Not really. I usually would bet when there is jackpot, e.g. Mark 6 or 3T. Because those losers in the previous game are subsidizing the game. Where there are 2+ jackpots in the Mark Six (Lotto in US), the odds (for first prize) is usually higher than 100%. With only one jackpot it might still be under 100% payout. The pay-out rate is usually published, one needs to compare the size of the jackpot with the total gambling amount (not the amount of first prize) in that game, and the pay-out rate.