Anyone questioning whether financial markets are in a bubble should consider what we witnessed in 2017:
Extracts from The Bonfire Burns On
Toys “R” Us, one of the world’s largest toy store chains, has filed for bankruptcy protection, becoming the latest casualty of the pressures facing brick-and-mortar retailers.
The company made the Chapter 11 bankruptcy filing late Monday night in federal court in Richmond, Va., acknowledging that it needed to revamp its long-term debt totalling more than $5 billion.
The retailer, which also owns Babies “R” Us, has struggled to compete with Amazon and stores like Walmart.
But the financial plight of Toys “R” Us was exacerbated by a heavy debt load that has weighed on the company for years. The private equity firms Kohlberg Kravis Roberts and Bain Capital, as well as the real estate firm Vornado Realty Trust, purchased the company in a leveraged buyout for about $6 billion in 2005.
Toys “R” Us joins a wave of retail bankruptcies this year, including the children’s clothing retailer Gymboree, Payless ShoeSource and rue21, which sells clothing for teenagers. Other retailers have closed thousands of stores and laid off tens of thousands of workers as they try to cut costs and compete with e-commerce.
The company said its roughly 1,600 Toys “R” Us and Babies “R” Us stores around the world would continue to operate “as usual.”
“Today marks the dawn of a new era at Toys “R” Us, where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” Dave Brandon, the company’s cChairman and Chief Executive, said in a statement.
During this challenging time, this is a good reminder to you and your team.
There are always opportunities in crisis. Just keep on looking and most importantly, stop complaining.
What do you think of this company financial performance?
Finally, the truth is revealed in its recently released result for the fourth quarter May 2013. It reported a huge loss of RM208 million. Effectively wiping out all the previous years profit. It has an accumulated loss of RM69 million. See the fourth quarter May 2013 announcement here.
What happened? Possible accounting fraud? The auditor is Ernst & Young (one of the big four audit firms).
This company, Malaysian AE Models Holdings Bhd, was classified as a PN17 company in June 2013. It has been suspended and may be delisted on 2 July 2014.
You can read more about this company in Corporate Governance in Malaysia blog.
Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world.
William Black is an associate professor of economics and law at UMKC. He has held many prestigious positions, including executive director for Fraud Prevention. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management. He is a criminologist and former financial regulator.
He has seen firsthand how banking systems can be used to commit fraud - and how "liar's loans" and other tricky tactics led to the 2008 US banking crisis that threatened the international economy. Black reveals the best way to rob a bank - from the inside.
This "bank robbery" has resulted in USD11 trillion in lost wealth and 10 million in lost jobs.
Check out this movie to have a glimpse of Wall Street. From Academy Award winning director Martin Scorsese comes The Wolf of Wall Street, starring Leonardo DiCaprio.
Money, sex, power, corruption, lavish lifestyle ...
The crash of September 2008 brought the largest bankruptcies in world history, pushing more than 30 million people into unemployment and bringing many countries to the edge of insolvency. Wall Street turned back the clock to 1929.
But how did it all go so wrong?
Lack of government regulation; easy lending in the US housing market meant anyone could qualify for a home loan with no government regulations in place. Also, London was competing with New York as the banking capital of the world. Gordon Brown, the British finance minister at the time, introduced 'light touch regulation' - giving bankers a free hand in the marketplace.
All this, and with key players making the wrong financial decisions, saw the world's biggest financial collapse.
What will happen in 2014 and beyond?
Let's start with the definition:
"When the prices of assets (physical or financial assets) rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely - at which point the bubble bursts"
Is there an asset bubble building up in Malaysia? It is not a bubble until it is officially denied.
Managing a business is full of uncertainty. At times, things may not go according to plan and this will cause numerous problems and challenges to the management. This includes enormous pressure on profitability, growth and restricted opportunities to do business. If the problems persist, it will also cause the company to struggle in servicing its bank loans and eventual collapse of the company.
Under a potential default situation, it is critical for the management to understand and be aware of the basic framework of restructuring banking credit facilities. The potential default situation has necessitated the management to be alert and have access to comprehensive information regarding all aspects of loan restructuring.
With this in mind, this article is primarily aimed at assisting and supporting borrowers in restructuring banking credit facilities. It will introduce some effective strategies in restructuring credit facilities. It will also illustrate the framework of loan restructuring that includes the bank’s internal restructuring procedures, how to prepare loan restructuring proposal and the features of rehabilitation fund.
Insights of Bank’s Internal Restructuring Procedures
In general, banks prefer to restructure bad loans as it offers better recovery rates when the bad loan becomes a performing loan again. In other words, borrower with a “viable” bad loan is usually given the opportunity to restructure the loan in accordance to the bank’s internal restructuring guidelines and procedures.
Different banks may have different attitude towards restructuring bad loan, ranging from highly aggressive and super efficient to greatly generous and pathetically slow. Obviously, to the borrower, the later type of attitude is preferred. This, unfortunately, is no longer a choice to the borrower when the loan has already turned bad.
Whilst different banks have different attitude, their loan restructuring procedures are rather similar. Upon default in payment, the remedial actions that will be taken by the bank include demanding for the following (usually in the following order):
a. Recall the facility immediately
b. Reduce the loan amount gradually (by requesting for accelerated repayment)
c. Request for collateral/additional collateral and/or guarantee (including debenture)
d. Increase the interest rate (in addition to the penalty interest)
e. Impose additional covenants to “tighten” the terms and conditions
If the borrower is able to meet the bank’s demand, then the loan will proceed as normal. However, if the borrower is unable to meet any of the above demand made by the bank, then the bank is left with the following choices:
a. Restructure the loan (i.e. sit down and negotiate)
b. Commence legal action to recover the loan (i.e. refuse to negotiate)
Read Part 2 here.
Born in July 100 years ago, Milton Friedman was one of the most outspoken economists who supported free market economic system with minimal government intervention. His famous quote: "if you put the federal government in charge of the Sahara Desert, in 5 years, there'd be a shortage of sand" clearly summed up his view "against government intervention".
Friedman won the Nobel Prize in Economics in 1976 "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy".
He was an economic adviser to US President Ronald Reagan. The four pillars of Reagan's economic policy were to reduce the growth of government spending, reduce income tax and capital gains tax, reduce government regulation of economy and control money supply to reduce inflation.
To celebrate what would have been a century of Milton Friedman, here are some of Friedman's best quotes:
If you are an employee, hold on to your job. Now is not the time to play "dare or truth" with your boss. Try to supplement your income with a second job or earn some passive income. If you are the boss, conserve as much cash as possible. In all crisis, there are opportunities - only for those with cash.
These are some selected headlines in 2012:
Sharp considering cutting 5000 jobs worldwide
Goldman Sachs Leads Foreign Banks Accelerating Job Cuts in Japan
PepsiCo announces 8700 job cuts
Alcatel-Lucent to Cut 5000 Jobs After Reporting Loss
Deutsche Bank to Cut 1900 Jobs as Part of Savings Plan
Pharma & Biotech Job Cuts Mount in 2012
Hewlett-Packard to cut 27000 jobs
Nokia to Cut 10000 Jobs as Elop Tries to Stanch Losses
Cisco to cut about 1300 jobs
2000 jobs cut at Queensland Department of Transport
Malaysia is one of the most vulnerable Asian economies should a “perfect storm” of a disorderly debt default in Europe, a slowdown in China and the US, and rising tensions in the Middle East materialise, Roubini Global Economics (RGE) has said in a recent report.
Nouriel Roubini, who predicted the collapse of the US housing market and the 2008 global financial crisis, said that Malaysia had the highest exposure to a pullout of capital as its eurozone and US bank claims amount to more than 25 per cent of GDP. Malaysia's domestic debt almost doubled in the space of less than 5 years, from RM247 billion in 2007 to an estimated RM421 billion in 2011, far outpacing its revenues which only grew 31% or from RM140 billion to RM183 billion during the same period.
Signs of trouble ahead. Let's see if Bank Negara will act decisively by reducing interest rate instead merely stating "we are monitoring the situation closely".
In Malaysia, house prices are at all-time high. Shares are artificially manipulated to be expensive. Market is uncertain due to the global financial crisis. Where to invest your money? The best bet is actually investing in farmland. Better still, buy tractors and learn farming.
For RM350,000 (USD100,000), you can only buy a smallish apartment measuring 700 square feet. With the same amount, you can buy a farmland measuring 2 to 3 acres (depending on location). 1 acre is almost 43,000 square feet!
According to Jim Rogers, over the next 20 years, farmers and agricultural investors will be the ones driving Lamborghinis, not bankers. What will bankers drive? Taxis.
China has again unexpectedly cut interest rate today, twice in a month. Deposit and lending rates are reduced to 3% and 6% respectively. Yesterday, ECB cut its deposit rate to record low, exactly ZERO! BOE just printed another GBP50 billion to "stimulate" the economy. 3 central banks acting in concert? Reuters has the news.
What about Malaysia? Bank Negara says "... there continues to be considerable uncertainties in the global economic and financial environment" but rate is maintained at 3%. The music is still on, let's continue dancing.
China has unexpectedly cut interest rate by 25 basis points, possibly to avoid a sharp slowdown feared by many in the market. US has not recovered and Europe is already in recession. The world economy still does not look good since the 2008 global financial crisis. The solutions seems to be printing more money by central banks around the world (calling it under various "policy" such as stimulus plan, quantitative easing etc).
US is expected to print more money soon (ie. QE3). Will the Malaysian government do the same and lead to many "unintended consequences"? Plan for the best and prepare for the worst.
Here is the latest on global economy by Mohamed El-Erian, Co-CIO of PIMCO, a global fund manager which manages more than USD1.8 trillion assets.
I attended a conference on Global Challenges, Local Opportunities organised by Institute of Bankers Malaysia (IBBM) in Kuala Lumpur on 8 - 9 May 2012. The topics presented are global economic crisis, risk management and banking. The keynote address was presented by Graeme Maxton, a thought leader, writer and economist.
Maxton's latest book "The End of Progress - how modern economics has failed us" is a must read if you want to know who is to blame for the current global crisis. What is wrong with the western (US and Europe) economic model and why Asian countries including China, Korea, Singapore and Malaysia enjoy strong economic growth.
You should relate some of the economic lessons to the management of your business. The purpose of an economy is not growth = the purpose of a business is NOT profit. Think about it ...
Business, economy, education and current issues. Providing tips, tricks and tools in managing business.