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The art of capital flight
Lifestyle, 4:01
<p>CAMBRIDGE – What impact will China’s slowdown have on the red-hot contemporary art market? That might not seem like an obvious question, until one considers that, for emerging-market investors, art has become a critical tool for facilitating capital flight and hiding wealth. These investors have become a major factor in the art market’s spectacular price bubble of the last several years. So, with emerging market economies from Russia to Brazil mired in recession, will the bubble burst?</p> <p>Just five months ago, Larry Fink, Chairman and CEO of BlackRock, the world’s largest asset manager, told an audience in Singapore that contemporary art has become one of the two most important stores of wealth internationally, along with apartments in major cities such as New York, London, and Vancouver. Forget gold as an inflation hedge; buy paintings.</p> <p>What made Fink’s elevation of art to investment-grade status so surprising is that no one of his stature had been brave enough to say it before. I am certainly not celebrating the trend. I tend to agree with the philosopher Peter Singer that the obscene sums being spent on premier pieces of modern art are disquieting.</p> <p>We can all agree that these sums are staggering. In May, Pablo Picasso’s “Women of Algiers” sold for $179 million at a Christie’s auction in New York, up from $32 million in 1997. Okay, it’s a Picasso. Yet it is not even the highest sale price paid this year. A Swiss collector reportedly paid close to $300 million in a private sale for Paul Gauguin’s 1892 “When Will You Marry?”</p> <p>Picasso and Gauguin are deceased. The supply of their paintings is known and limited. Nevertheless, the recent price frenzy extends to a significant number of living artists, led by the American Jeff Koons and the German Gerhard Richter, and extending well down the food chain.</p> <p>For economists, the art bubble raises many fascinating questions, but an especially interesting one is exactly who would pay so much for high-end art. The answer is hard to know, because the art world is extremely opaque. Indeed, art is the last great unregulated investment opportunity.</p> <p>Much has been written about the painting collections of hedge fund managers and private equity art funds (where one essentially buys shares in portfolios of art without actually ever taking possession of anything). In fact, emerging-market buyers, including Chinese, have become the swing buyers in many instances, often making purchases anonymously.</p> <p>But doesn’t China have a regime of strict capital controls that limits citizens from taking more than $50,000 per year out of the country? Yes, but there are many ways of moving money in and out of China, including the time-honored method of “under and over invoicing.”</p> <p>For example, to get money out of China, a Chinese seller might report a dollar value far below what she was actually paid by a cooperating Western importer, with the difference being deposited into an overseas bank account. It is extremely difficult to estimate capital flight, both because the data are insufficient and because it is tough to distinguish capital flight from normal diversification. As the late MIT economist Rüdiger Dornbusch liked to quip, identifying capital flight is akin to the old adage about blind men touching an elephant: It is difficult to describe, but you will recognize it when you see it.</p> <p>Many estimates put capital flight from China at about $300 billion annually in recent years, with a marked increase in 2015 as the economy continues to weaken. The ever-vigilant Chinese authorities are cracking down on money laundering; but, given the huge incentives on the other side, this is like playing whack-a-mole.</p> <p>Presumably, the anonymous Chinese buyers at recent Sotheby’s and Christie’s auctions had spirited their money out of the country before bidding, and the pai</p>
Top Ten Investment Scams Ever
Asset Management
<p>Every year, over 31 million purchasers are victimized by investment fraud. The medium loss per investor is roughly $15,000. Individual losses run into hundreds of thousands of dollars. Most remarkable is that financial swindle targets ranked above financial non-victims with percentages of 58% and 41% respectively.</p> <p>Why do many get scammed The #1 rule in fraud is "Don't breed any mistrust." High returns can go overlooked for decades. But, like Bernie Madoff shows, it will all show up at the end of the day. In 2013, the SEC listed over 700 enforcement efforts for investment scams.</p> <p>A look at fraud would have to go back centuries to 300 BC. That’s about the timie a Greek merchant named Hegestratos took out an insurance policy. The merchant would borrow money and pay it back with interest on a ship’s cargo arrived. If the loan isn’t paid back, the lender had the rights to acquire the boat and its freight.</p> <p>Hegestratos conspired with a few friends to empty his boat, sink it, keep the loan and sell the corn. His plan didn’t really work out. The ship’s crew and passengers caught him in the act and he drowned trying to escape.<br /> Investment Scams: The First Insider Trading Scheme<br /> Just a few years after American became a nation, it produced it first fraud. In the late 18th century, American bonds were like junk-bonds are today. Every wind of news about the colonies’ fortunes cause the value of the bonds to fluctuate. The trick for the investor was to be able to anticipate which direction a bond’s value was headed.</p> <p>Alexander Hamilton, Treasury Secretary, worked to restructure American finance by replacing a variety of bonds issued by the colonies with bonds from the new country’s central bank.</p> <p>William Duer, assistant secretary of the Treasury, was in the perfect spot to get in some profitable insider trading. Duer was among the first to know news which would drive up bond prices. He would tip his friends, trade in his portfolio and then leak that information to the public. Then all Duer had to do was set back and sell off bonds and make an easy profit.<br /> Top Ten Investment Scams</p> <p> Charles Ponzi – $20 million lost by investors</p> <p>Everyone has heard of "Ponzi scheme. It is titled after Charles Ponzi's famous scheme where he promised profits of 50% in 45 days. Tenured investors were paid off with money from fresh investors.</p> <p>Lesson: Get an independent 3rd party to write the statements</p> <p> Barry Minkow – Loss calculated at $100 million</p> <p>When he was 19, Minkow saw his rug washing company go public and eventually reach $200 million in capitalization. Using false records and sales slips, it appears Minkow had built a huge and profitable business. Clients who were suspicious about overcharges on their invoices headed to an inquiry which uncovered Minkow's revenue figures. Minkow was sentenced regarding almost 60 felonies.</p> <p>Lesson: Again — Get a reliable 3rd party accountant is reviewing the statements.</p> <p> Jordan Belfort – Loss $200 million</p> <p>Jordan Belfort was the subject of the TK movie "Wolf of Wall Street." Belfort reached the silver screen by running a pump-and-dump scam in the 90s where agents would force up the cost of usually, junk stock and then ca</p>
NexAsia Week Ahead: Chinese inflation, exports, and forex reserves figures coming up
Capital Markets
<p>(Note: all times HKT)<br /> Good morning everyone. China and the Federal Reserve will continue to dominate the headlines this week as the former reports is forex reserves and export data while the latter gears up to decide whether it should lift rates or not. There are other heavies on this week’s docket though, such as the Bank of Canada’s and the Reserve Bank of New Zealand’s interest rate decision, the Bank of England’s PMC minutes, Japan’s GDP growth, and Jean-Claude Juncker’s upcoming State of the Union address.</p> <p>Here’s what else you should look out for:</p> <p>Monday:</p> <p>6:00 am – China August foreign exchange reserves</p> <p>1:00 pm – Japan July preliminary coincident index – Forecast: 112.17 from 112.3</p> <p>1:00 pm – Japan July preliminary leading economic index – Forecast: 106.3 from 106.5</p> <p>2:00pm – Germany July YoY industrial production – Forecast: 1.84% from 0.6%</p> <p>Tuesday:</p> <p>7:50 am – Japan Q2 QoQ final GDP growth rate – Forecast: -0.4% from 1%</p> <p>7:50 am – Japan Q2 annualized final GDP growth rate – Forecast: -1.6% from 3.9%</p> <p>9:30 am – Australia August NAB business confidence – Forecast: 3.75 from 4</p> <p>10:00 am – China August balance of trade – Forecast: $40 billion from $43 billion</p> <p>10:00 am – China August YoY exports</p> <p>10:00 am – China August YoY imports</p> <p>2:00 pm – Germany July balance of trade – Forecast: € 21.8 billion from €24 billion</p> <p>5:00 pm – EU Q2 estimated YoY GDP growth rate – Forecast: 1.2% from 1%</p> <p>Wednesday:</p> <p>8:30 am – Australia September Westpac consumer confidence index – Forecast: 98.58 from 99.5</p> <p>1:00 pm – Japan August consumer confidence – Forecast: 40.22 from 40.33</p> <p>4:30 pm – U.K. July balance of trade – Forecast: unchanged at £ -1.6 billion</p> <p>4:30 pm – U.K. July YoY manufacturing production – Forecast: 0.4% from 0.5%</p> <p>4:30 pm – U.K. July YoY industrial production – Forecast: 1.31% from 1.5%</p> <p>8:15 pm – Canada August housing starts – Forecast: 195,100 from 193,000</p> <p>8:30 pm – Bank of Canada interest rate decision – Forecast: unchanged at 0.5%</p> <p>Thursday:</p> <p>5:00 am – Reserve Bank of New Zealand interest rate decision – Forecast: unchanged at 3%</p> <p>9:30 am – Australia August unemployment change – Forecast: 9,500 from 38,500</p> <p>9:30 am – China August YoY inflation rate – Forecast: 1.7% from 1.6%</p> <p>9:30 am – China August YoY PPI – Forecast: -5.5% from -5.4%</p> <p>7:00 pm – Bank of England interest rate decision – Forecast: unchanged at 0.5%</p> <p>7:00 pm – Bank of England MPC meeting minutes</p> <p>7:00 pm – Bank of England quantitative easing – Forecast: unchanged at £375 billion</p> <p>10:00 pm – Singapore Parliamentary elections</p> <p>Friday: </p> <p>2:00 pm – Germany August YoY inflation rate – Forecast: unchanged at 0.2%</p> <p>8:30 pm – U.S. August MoM core PPI</p> <p>8:30 pm – U.S. August MoM PPI – Forecast: 0.1% from 0.2%</p> <p>10:00 pm – U.S. September preliminary Michigan consumer sentiment – Forecast: 91.5 from 91.9<br /> Photo: nuomi @1280x1024.net</p>
How UBS’s Suki Mann went from top banking strategist to blogger
Lifestyle, 4:01
<p>Last February Suki Mann was the ‘star credit strategist’ at UBS, and now, instead of sending notes to clients, he blogs his financial musings to the entire cyber-world, reports Finbuzz.</p> <p>The blog so far includes three posts that read like very colorful and well-written research notes and a ticker that flashes global indexes and has up to date FOREX trading quotes.</p> <p>Mann’s LinkedIn profile states that he left his position at UBS Investment Bank in February of 2015, just after six months. UBS has not commented on Mr. Mann’s departure or whether he was fired, laid off, or left on his own accord. Before that, he had worked as the Head of European Credit Strategy for Societe Generale for nearly 14 years.</p> <p>So far Mann’s Twitter handle only has 20 followers, but given his robust experience and insights into European debt markets, that number is likely to take off once the City gets wind of his blog. His inaugural tweet was sent into the Twittersphere on August 26, 2015.</p> <p>Several ex-analysts have made careers out of journalism. Joe Weisenthal, now the host of his own TV show at Bloomberg, followed a similar path. After working as an analyst for the money management firm Prentiss Smith &amp; Co., he left finance as Wall Street was crashing into recession and joined Business Insider, just financial news was abundant and in demand.</p> <p>Photo: 3news.co.nz</p>
Barron's Weekend Roundup: Making sense of the market correction
Capital Markets
<p>The bull market isn't over yet. The August 24 stock market correction may have shaken some, but U.S. shares will still see gains for 2015, Barron's writes in this week's cover story. Analysts say the S&amp;P 500 will hit 2150 by the end of the year, a more than 10% increase from Friday's close.</p> <p>ETFs dropped sharply on August 24, during the massive market correction. ETFs should offer investors prices close to the underlying stocks, but that Monday ETFs dropped more than the stocks, writes Barron's. Some of the problems seem to stem reflect the flash crash in 2010. Regulators will need to take a look at how to ensure smooth ETF trading in the event of another such market swing.</p> <p>Leah Zell, head of Lizard Investors, says international small-cap value investing is the way to go. Zell tells Barron's that China's slowdown will be felt unevenly. "International small-cap investing is the last refuge of stock-picking," she says. Lizard looks at investments a year or two out, or even three to five years if possible.</p> <p>&nbsp;<br /> Photo: Jim Bowen <br /> &nbsp;</p>
Chinese team to debut on the Rolex Sydney Hobart race
Lifestyle, 4:01
<p>Much like Gianni Agnelli, Ted Turner, Larry Ellison, and several other gazillionaires before them, a group of Chinese businessmen have taken a liking to the world of high-performance sailing and are now set to flex their muscles in the 71st edition of the Cruising Yacht Club of Australia’s Rolex Sydney Hobart Yacht Race.</p> <p>Taking a page off Larry Ellison, the group has hired a Kiwi to help the team take the glorious-looking, Botin &amp; Carkeek-designed Ark323 to victory. But aside from him, Sail Word reports that it’s a wholly Chinese team – a first, they point out – as Serena Cai, the team’s manager, told the magazine:<br /> “Ark323 is a purely Chinese entry; a Chinese owner, crew and administrators. The yacht is representing Noah Sailing Club in Shanghai, but we do have a coach from New Zealand. The boat is owned by Noah’s Group, which is led by Wilson Lee and sponsored by E-commerce company Nuoego.com.”<br /> Their entry appears to be a source of great pride for Mr. Lee, who told Sail World:<br /> “We made a decision to enter the Rolex Sydney Hobart because of the nature of the prestigious event, the challenge it presents. It is also one of the ultimate platforms to showcase the Chinese team and the Club’s passion to increase a Chinese presence at international yachting events.”<br /> I wish them all the best, though it does appear to be a tough race; Harburg Investments’ Peter Harburg and his champion crew are also in, while Colin Buffin – who may or may not be a senior MD at Candover Partners – has brought along Sydney Hobart vets to help him win the race.<br /> Photo: davekeane</p>
Sequoia, Legend back Baidu’s online education platform
<p>The Chinese internet giant Baidu is about to spin-off its “after school” education platform Zuoyebang, attracting investments from two of the world’s largest venture capital firms.</p> <p>According to TechCrunch, Zuoyebang has just completed a Series A funding round with Sequoia China and Legend Capital, though how much the two invested into the former student Q&amp;A site is currently unclear.</p> <p>It’s probably a lot though. Zuoyebang reportedly boasts 50 million registered users, 3 million of which use it on a daily basis to rifle through the 950 million questions and answers the platform currently has on file. It can also be used within 113 schools around China, a huge plus against Tencent and Alibaba in the current war for control over China’s online education market.</p> <p>This isn’t the first time Baidu spun-off one of its subsidiaries; Baidu Takeout Delivery raised $70 million from the Japanese noodle chain Ajisen Ramen and the Chinese private equity firm The Hina Group earlier this year, while 91 desktop – Baidu’s desktop theme app – was also purged from the mothership in a move widely seen as a promotion of the startup culture.</p> <p>This is what they had to say regarding the spin-offs:<br /> “This strategy aims to promote the independent quality assets, and to foster Baidu’s open ecosystem.”<br /> Photo: 드림포유</p>
Minecraft’s Markus Persson moans about being a billionaire. Yes, really.
Lifestyle, 4:01
<p>For mere mortals the idea of reaching billionaire status by creating a product adored by millions is the stuff dreams are made of. Not for Minecraft creator Markus Persson who sold his insanely popular game platform to Microsoft last year for $2.5 billion - giving him a next worth of $1.3 billion, according to Forbes.</p> <p>He is miserable. For Markus, being in the three comma club is not all that it’s cracked up to be.</p> <p>Channeling the spirit of the term “first world problems”, the self-made swede recently took to twitter for a spate of poor-me postings about how lonely it is at the top.</p> <p>Here are some of his top moans:</p> <p>The problem with getting everything is you run out of reasons to keep trying, and human interaction becomes impossible due to imbalance.<br /> — Markus Persson (@notch) August 29, 2015</p> <p>&nbsp;</p> <p>Found a great girl, but she's afraid of me and my life style and went with a normal person instead.<br /> — Markus Persson (@notch) August 29, 2015</p> <p>&nbsp;<br /> When we sold the company, the biggest effort went into making sure the employees got taken care of, and they all hate me now. — Markus Persson (@notch) August 29, 2015<br /> &nbsp;</p> <p>Needless to say there were a lot replies showing a mixture of sympathy from fans and friends, and bewilderment from others. But my personal favorite is this....<br /> @notch Why are you feeling sorry for yourself? Sell the $75M mansion, stop all the partying. Do what matters to you. Be a real person. — D Webster (@DWebster2008) August 29, 2015</p> <p>Not so much for comment itself but for the reply it got:</p> <p>@DWebster2008 Nah, the mansion has a pool.</p> <p>— Markus Persson (@notch) August 29, 2015</p> <p>Yeah, it is difficult to feel sympathy for a billionaire - really difficult. But then again Persson is not the only example of a brooding billionaire. If it teaches us anything, its that the pursuit of success can often be more enjoyable than lifting up the actual prize.<br /> Photo: MarLeah Cole</p>
Dan Loeb’s books: Recommended reading list
Hedge Funds
<p>Daniel Seth Loeb is the founder of the New York based hedge fund Third Point LLC, which at the end of the third quarter of 2014 reported assets under management of $17.5 billion.</p> <p>The outspoken and prominent value investor founded the hedge fund in 1995 and is currently responsible for the business activities of Third Point. He is also the managing member and chairman of Third Point, LLC.</p> <p>Dan Loeb is known for his explicit public letters regarding the performance and actions of other financial executives. His mocking letters are an entertaining yet the thought-provoking approach of addressing and disapproving a certain serious issue.</p> <p>For more on Dan Loeb, head over to ValueWalk’s Dan Loeb Resource Page, where you can find a detailed rundown of his background, bio, and investment philosophy.<br /> Dan Loeb: Recommended books<br /> Reminiscences of a Stock Operator</p> <p>Edwin Lefevre. Loeb calls the book a classic. The book is the thinly disguised biography of Jesse Livermore, a remarkable character who first started speculating in New England bucket shops at the turn of the century. Livermore, who was banned from these shady operations because of his winning ways, soon moved to Wall Street where he made and lost his fortune several times over. What makes this book so valuable are the observations that Lefèvre records about investing, speculating, and the nature of the market itself.</p> <p>You Can Be a Stock Market Genius</p> <p>Joel Greenblatt. Greenblatt’s book explains how best to invest such as spin-offs, mergers, risk arbitrage, etc. Loeb uses many of the strategies discussed in this book in his own investing strategy. Loeb is now alone in his admiration of the book. Seth Klarman also recommends Greenblatt's book on his list of favorite books as detailed here.</p> <p>Financial Shenanigans</p> <p>Howard Schilit. The author details various tricks that management have used, and will continue to use in the future. They consist of various manipulations of the income statement, and the cash flow statement.</p> <p>The Art of Short Selling</p> <p>Kathryn Staley. A book about finding tricks used by management in financial statements, and using the information to short the company.</p> <p>The Power of Story</p> <p>Jim Loehr. Loeb’s favorite "non-investing" book.  Loeb stated that the book can "change your destiny in business and in life."</p>
Weekend Reads: Star Wars, Tianjin, and brunch with the former ‘King of mining M&A’
Lifestyle, 4:01
<p>From Tianjin conspiracies to the dark side of licensing, here are some great reads for you this weekend:</p> <p>With the release of “Straight to Hell” and “Why I left Goldman Sachs,” is the Michael Lewis classic “Liar’s Poker” still the best trading floor memoir? Gary Sernovitz sure thinks so. The New Yorker</p> <p>Are the top-ranked sell-side analysts all they’re cracked up to be? Yes and no. Social Science Research Network </p> <p>Just three weeks before his glorious Vday parade, President Xi Jinping saw 158 of his countrymen die from the Tianjin Blasts. Were they accidents, or was there something else behind it? The Jamestown Foundation</p> <p>He was JP Morgan’s chairman of global capital markets, and he also killed five people trying to demolish the center of Kano, Nigeria. Meet Ian Hannam, friend to mercenaries, persona non grata to the City, and quite possibly the most interesting man in finance. Financial Times</p> <p>Are the Paul Tudor Jones and the Stanley Druckenmiller’s of the world created in a bull market? No, they cut their teeth in the ridiculous volatility of the 80’s. Here’s a discussion on how to gain a similar edge in this current environment. Medium</p> <p>The upcoming Star Wars movie looks just as awesome as the first three. But what about its merchandise? Here are a few Star Wars products that are as ugly as Jabba crossed with a Sarlacc pit. Gizmodo</p> <p>Can China sustain its current FX policy? All signs have been pointing to no. FT Alphaville<br /> Photo: Marketa</p>