Tuesday Feb 26, 2013

Big Data - The future is sooner and stranger than you think

The future is sooner and stranger than you think” – Reid Hoffman

We are now at the cusp of the real Digital Age, an age where the network – the Internet today – becomes an organic entity. Various forces are in play that are accelerating the growth of the network – Metcalfe’s Law (economic value), Gilder’s Law (growth in connectivity) and Moore’s Law (growth in processing power) are intersecting to drive rapid connectivity to the network. A common language (TCP/IP), convergence of communications on the Internet and a continuous drive to decomposition and distribution of state and function on the network are making this growth seamless.

Objects are joining the network every second, and each of these objects is generating a digital footprint. These objects are continuously connecting to each other, creating immense mesh graphs of relationships. These relationships are enhancing the digital footprints of the connected objects, growing it at an accelerated pace.

If we look at this network from a consumer-supplier perspective, our current thinking puts the individual consumer at the center of these relationships, the one with the “power” to create (or sever) these relationships. Thus one might view this immense graph as a mesh of star topologies, where each star is centered around an individual. A very different world from even 10 years ago, where the individual was likely a node in a lightly connected mesh.

Lets illustrate this with a retail banking example – 10 years ago a person would likely have had a long term relationship with a bank, where the bank would have dictated the terms for their current account, savings account and mortgage. This person might have had another mature relationship with a discount brokerage, where the brokerage would have controlled the fee structure, the margin requirements and CD rates. The suppliers were at the center of these relationships. Fast forward to today – this individual now likely has multiple transient relationships with a number of banks, a current account at one that charges no fees, savings accounts with banks that offer the highest interest, and a mortgage with a bank offering the lowest interest. The customer is now at the center of the star, with the suppliers being transient nodes.

This change in the power structure is exacerbated by new entrants into the market – institutions that are built around a complete digital footprint. These institutions have raised the expectations of the individual consumer. The consumer now expects to have real-time responses to their queries, and expects to have this discussion in public. The consumer now expects to have full transparency about the product and/or service that the suppliers are offering.

While established suppliers might view this new digital age with uncertainty, this age brings a brand new way of communicating with the consumer, finding out their preferences, offering goods and services supremely optimized to their needs. It brings about new ways of creating efficiencies in existing processes, but more importantly it brings about the means for us to do things that seemed improbable 10 years ago.

The DNA of the digital age is the Data that is created by the digital footprint of the participants. As more objects get digitized and join the network, new data is generated. Think about the requirements being mandated by the SEC and the CFTC to execute and clear swaps electronically. These are new sources of electronic data. The current nodes in the network are generating more new data continuously. Think about market data being generated at the various execution venues, it has been growing at an exponential rate since the cash equities market became electronic. Think about Twitter, Facebook, GPS and RFID enabled devices, SmugMug, Yahoo!, LinkedIn and the blogosphere, data from these sources is being added every second. Current estimates put data generation at 5 trillion bits per second.

This data is the new frontier; it has been called the new Oil. And just like oil, this data needs to be ingested, manipulated, aggregated, cleansed, analyzed and likely persisted. And just like oil, various products can be derived from this data as it goes through the various phases of its refinement. Mid and back-office data management functions are now rapidly evolving to profit centers from traditional cost centers.

Clichés abound about the characteristics and lifecycle of this data – the 4 Vs (Volume, Velocity, Variety, Value), the 5 Ms (Monitoring, Mapping, Management, Middleware, Measurement). Everyone however does agree that we are moving from a world where the business would typically dictate their requirements to IT who would then figure out which data to persist and in which format, to a world where IT now has the ability to store all the data and allow the business to ask random questions later. Advances in storage technologies have made storage nearly free. Advances in compute technologies have enabled cheap powerful processing power to be made available for anyone with a credit card.

So what can we do with this data? We can address today’s problems better – we can report to the regulator faster, with more data supporting each report. We can mine this data to find current trends in the market. But more importantly, if we can successfully merge the various streams of data from different sources, we can attempt to predict the future! Facebook has more knowledge about a consumer than any existing supplier today. Consumers, by choice, share their feelings, changes in their life status, their likes and dislikes, their travel plans, their pictures with tags, their current location – essentially an unlimited amount of information. This when combined with already existing data about that consumer in traditional stores, is a literal gold mine. This is a lot more than targeted advertisements, this enables a business to ask arbitrary questions about a consumer and expect a reliable answer in near realtime. Massive personalization is just the tip of this spear.

We in Oracle’s Financial Services Analytical Applications organization are looking to merge the traditional data with the new data to be able to solve problems like Fraud, Customer Analytics, Relationship Pricing, Realtime offers and Enhanced Risk Management. We have a significantly large portfolio of existing applications that address the analytics needs of banks and insurance firms which we are enhancing to take advantage of the new data and improvements in compute, storage and networking technologies.

Without changing our pattern of thought, we will not be able to solve the problems we created with our current patterns of thought” – Albert Einstein

Monday Oct 24, 2011

"The Sun also rises"

The resurgence of SPARC in its new T4 incarnation, and more importantly, as the heart of the latest engineered machine from Oracle - The SPARC SuperCluster - has amazed most people who have attempted to run an application benchmark on it. While you might think that most companies like Oracle and IBM have folks who specialize in tuning benchmarks right before a product launch - and you would be right in that thinking - I am talking about mere mortals like me and my team who are just shocked - pleasantly - at what the T4 can do, and what engineering various components together can do. I know a bunch of our financial services applications which are transactional in nature, and need wide pipes to storage will do screamingly well with the SuperCluster.

4 server chassis, each with 4 T4 sockets, each with 8 cores, each with 8 threads clocking at 3.0GHz. QDR IB connection to the 7320 NAS storage, QDR IB connection to multiple Exadata Storage nodes for 11gR2, and multiple 10GbE connections to the outside world. Yummy.

Stay tuned for some real world benchmarks soon.

Thursday Sep 08, 2011

A redo of the solutions

My entire org migrated to another part of Oracle. We now are in Oracle's Industry Business Unit, specifically the Financial Services IBU. As a part of this move, some of the solutions have changed names and some have more meat to them.

 The LSDM solution that I wrote about in the last blog is now called the "Financial Services Data Management" solution, and in addition to Reference Data and Risk Analytics, we are now also focusing on Data Warehousing (Capital Markets buyside, Banking and Insurance). The Banking data warehouse is the Oracle's Financial Services Data Warehouse stack, and the Insurance DW is Oracle's Insurance Insight Data Warehouse stack.

 The next solution I want to talk about is the "Extreme Java Trading Platform", based on the Exalogic product. Exalogic was the second engineered machine to be built at Oracle after the Sun acquisition, and it is focused on the Java applications market. While it is generally positioned as the best machine to run Weblogic applications on, my team is aiming it at the Capital Markets industry. We know a large portion of this market writes applications in Java, north of 80%. We know these applications are latency sensitive. So we have built a platform where Java applications that are chatty, will run faster. We are looking to expose the innards of the Infiniband network that is the backplane of the Exalogic (and data) machines, to the Java applications. In phase 1 we will do this via Coherence. In phase 2, likely natively so the programmers can write RDMA in Java.  Some announcements coming up at OOW about this.

 Talking about OOW, the other exciting announcement will be about a new SPARC CPU and an engineered machine built around it. The T4 is in beta test at the moment, clocking at around 2.9GHz with 8 cores and 8 threads/core. We in the FS IBU are starting benchmarks of some key FSI applications on this CPU, and are eagerly awaiting the engineered machine. Stay tuned for more on this.

Wednesday Jul 13, 2011

"Large scale data management" for Financial Services

The problem of managing large amounts of data - structured data for this writeup - is pervasive in the financial industry. Compliance, Risk, Analytics, Pricing etc. all require ingesting, cleansing, transforming, standardizing, aggregating, persisting, analyzing and reporting on very large quantities of data. Given Oracle's pedigree in data management, I don't think it would be a surprise to you that we have a large set of technologies that help our FSI customers with their data management issues. We are also taking these technologies to our partners and helping them achieve enterprise class scale and reliability for their applications using this "large scale data management" platform.

The following diagram shows the relevant technologies that collectively we call the LSDM platform.

The baseline is Exadata or large SPARC systems. Data movement technologies, GoldenGate and ODI are the layer above - the combination allowing users to move data from a database instance to another instance in near realtime (change data capture only) and manipulating it at the destination. The destination instance is 11g, and the Spatial option brings in Semantics into the equation. Semantic data stores are starting to become popular in the FSI, since modeling of complex and continuously morphing relationships is easier using semantics than relational databases. For an industry that builds products that are so intricate that most personnel - and machines - have no clue about the component parts of these products, semantics will likely be mandated by the regulators.

Above the database are the in-memory data technologies that can be used in a variety of ways – Coherence as the in-memory data grid, and TimesTen as the in-memory database. These technologies are essentially performance related technologies. Think of Coherence as a large data cache where the data is dynamically provisioned across memory resources of various servers, and compute can be shipped to these servers – moving the compute to the data which is typically faster than the other way around. TimesTen is a in-memory SQL database, which can be linked with the compute making the two be a part of the same address space, again accelerating performance.

And the BI layer sits above all these technologies, helping with analytics and reporting.

We are positioning this stack with our customers and our ISV partners, in the reference data and risk space. Both these areas need large volumes of data to be processed, and the ISVs that we have spoken with are excited about working with us.


Thursday Jun 30, 2011

The value of money

A dictionary definition of money is "any circulating medium of exchange, including coins, paper money, anddemand deposits". If you ask an economist for a definition of money, you will be introduced to terms like M1, M2, M3, all of which denote tangible assets - currency, and anything that is liquid enough to be used as currency; checks, stamps and now mobile minutes being examples. The macroeconomic theory of money is fascinating - the effect of money supply on exchange rates and interest rates, the concept of the "money multiplier" (if I deposit $10 into a bank, the bank will likely loan $8 of it to someone else, who will then give it to someone else in exchange for goods and services, who will then likely deposit it again, which will result in the bank loaning it again and so on - making that $10 of money supply worth a lot more ($10+$8+$x+...)). 

But all this depends on money supply - in other words, money that is printed by the mint. The Treasury Department spends a lot of time figuring out how much money to print, there is lot being written on QE2 now-a-days, which is intended to increase the money supply.

Money is used to purchase goods and services, and yes it is saved too but that is so one can purchase goods and services later.

Completely unrelated, there is a sea change occurring in the web world, dominated by, I believe, Facebook. With 500M active users and growing, FB has the ability to introduce a "money supply" which is completely unrelated to today's "money". Using today's money, a FB user can buy a certain number of FB$s, and then use the FB$s within FB to purchase goods and services - with the money multiplier kicking in. I remember talking with a colleague about this a few years ago, the true way to monetize the web is to introduce an alternative system to the existing, and FB has the ability to do just that. There is enough momentum, enough mass for FB to start to monetize its user base. And completely screw up the economists at the Treasury, not to mention disintermediating the banks completely.

The only other ubiquitous asset is mobile minutes. People exchanging mobile minutes for tangible goods and services happens today, the big difference however is the demographic. While Safaricom offers this ability in Kenya today, FB has the 15-40 year middle class user as their user. And the next generation is growing up with FB as a standard channel for communicating with their peers.

Virtual flowers when going in for the kill? If your target is an avid FB user, why not? It certainly is a lot more green - no pun intended!

Friday Jun 17, 2011

Technology focussed solutions for Financial Services

Just finished a short trip to London, where I presented our 3 new technology solutions for Financial Services to the Oracle Client Advisors for the top accounts in EMEA. The solutions were well received by all, with opportunities for all 3 in all the top accounts.

The solutions that we are focused on this FY are

- Large Scale Data Management platform

- Extreme Java platform

- Banking Modernization platform, which includes Payments Consolidation (Wholesale and Retail), Core Banking Modernization and Mainframe Offload.

My team's responsibility is to build the resilient platform that our financial customers can run their applications on. If they chose Oracle's applications such as Flexcube or Reveleus, we have done the hard work to tightly integrate these applications with our LSDM and BM platforms. If however a customer decides to run a competitive application, they should rest assured that we have done the best possible integration work with those applications too. And in the case of Capital Markets where Oracle does not have trading or risk assets, our LSDM and EJP solutions work with our partner applications such as GoldenSource, PolarLake, Calypso to name a few.

 I will detail these solutions in subsequent posts.

Tuesday Jun 14, 2011

That which does not kill us makes us stronger?

Been a while since I was here, lots of things to talk about, lot has happened, the biggest of course being the impending Oracle acquisition. While the EC mulls over MySQL, morale within the company continues its precipitous drop. I have no issues with anyone doubting Oracle's intentions with a product that supposedly competes with their core IP, the problem is with the elapsed time. With holidays abutting both sides of the decision making process, employees, customers and partners continue their wait. Customers and partners have the ability to move on, to make decisions that might not involve Sun, but employees don't really have that option. The market is tight, some of us are die-hard Sun fans, some of us do want to work for the combined company. The longer the wait though, the worse it gets for those of us who want to stay.

So I have been doing what I do best - meeting with customers and partners across the globe. As the market starts its rebound - which is a topic in itself - business is picking up. My travels this month and last have taken me to Canada, Toronto specifically, and Singapore. The set of customers and ISVs are different, the market dynamics are different, however there is one common theme between both places - the dominant domestics locals and the ISVs both, are seeing a massive resurgence in business. I met with Scotia, CIBC, Oanda and Algorithmics in Toronto, and with Standard Chartered Bank, CSC, Fundtech, BCSIS and Distra in Singapore. They are all growing, and are looking to make large investments. They are all way beyond asking about the Oracle acquisition and what Oracle will do with our products. I would have expected ISVs like Algo, CSC and Distra to start to push us back, and I was ready with my corporate lines, however was pleasantly surprised that I did not have to use them. They all continue to view Sun as a vibrant platform to sell their stuff on, and continue to look at the SMI sales force as a extension of their sales teams. They all see Dell as irrelevant, HP as missing in FSI, and IBM too complex to do business with.

APAC continues to astound me with its growth. The financial crisis seems to have just glanced by. One lagging indicator of how well an economy is doing is the job market - all the large global banks - Merrill, SCB, Barclays, UBS - have 100s of jobs open in Singapore. We all have known for a while that APAC would be the next market, the difference now is that all the large globals are establishing large physical presence in APAC. They are now installing large datacenters, and are placing executives in APAC. ISVs and our other partners are growing their presence, in particular hiring local talent, replacing the expat personnel that had previously established satellite offices in APAC.

We all the know about the growth rates of China and India, there is a new statistic that came out earlier this week - the World Wealth Report released its annual report which states that the number of millionaires in China now exceeds the number in the UK. The only countries with more millionaires than China today are US, Japan and Germany. The number of high net worth individuals (those with USD1M or more in investable assets) are expected to grow at a rate of 12.3% a year in Singapore, versus 7% in the US. This shift of wealth from "west to east" is likely to continue, with APAC predicted to overtake North America as the largest center of wealth by 2013.

The current problem for the global and regional banks? They don't have enough individuals to satisfy the demand for private banking services. The "back to basics" approach with a renewed focus on long-term client relationships, due diligence, comprehensive assessment and management of risk, a need for transparency and liquidity over "black box" complexities in product offerings is making wealth management a key investment area for all banks.

Final note before I sign off - Goldman Sachs doing "Gods work"... wonder how much capital GS actually generates for the market it purports to support? ummmmm NONE.. it is a glorified hedge fund that generates most of its profits from proprietary trading... "Gods work" indeed.. makes me feel warm and fuzzy all over...

The (anticipated) rise of the Asian consumer

I spent all last week in Singapore. The company, food and weather notwithstanding, it was the crowded malls, restaurants, shopping centers, food marts and streets that grabbed my attention. Will the Asian consumer get us out of this mess?

Lets think about this - the US debt-to-disposable income ration current stands at about 1.3 (from 0.62 in 1975). What that means is that for every $1 of disposable income (income after taxes that is available for spending/saving) a US consumer has, they owe $1.3! Might sound unusual, however we in the US are well used to the highly leveraged model This model has worked well for the globe, the US consumer has kept buying and has kept the global economy chugging.

This phenomenon however has come to a grinding halt, as is evident from lots of recent statistics, or just from store closings around where I live - which BTW is one of the densest living areas in the US. So the cycle continues unabated - consumer stops buying, business stops building etc. etc.

Does the Asian consumer have the wherewithal to kick start the global economy? Just in terms of pure market capitalization, some of the Asian banks are now the largest on the planet - ICBC (China) has a market cap of $183B. Compare this to Citigroup at $18B, Bank of America at $35B. Their lending practices have been a lot more prudent. The Asian consumer tends to save far more than their western counterparts. Savings rates for some countries are below.

US 0.7
UK 2.7
France 12.8
China 24

China is looking to its populus as consumers for its goods. India is doing the same, the banking build-out in the domestic dominants is to address the 1B people, 82% of whom are still un-banked. As the local businesses start to view Asia as a consumer market (as opposed to the low cost manufacturing and service base), the western businesses will not have an option. Their local consumer bases have dried up, they now need to compete with the Asian businesses in their backyard.

The recovery for the US and the western countries will be slow, recovery in Asia on the other hand will be rapid - the region will charge ahead. Can I convince my loved ones to move to Asia for a few years to see this recovery first hand?

"Nations rush to set trade barriers" - Wall Street Journal

"Among the changes just since that finding: Egypt has imposed duties on sugar, and the U.S. has levied new tariffs on Chinese goods it contends are being dumped on the market, including mattress springs and graphite electrodes, used to conduct electricity in factory furnaces."

"The U.S. is planning retaliatory tariffs on Italian water and French cheese to punish the EU for restricting imports of U.S. chicken and beef. India is proposing to increase tariffs on foreign steel at the request of its steel industry."

"The EU is due to decide by March 12 whether to levy duties on U.S. biodiesel imports, in retaliation for a $300-a-ton export subsidy Washington pays to U.S. producers -- roughly half the selling price of a ton of biodiesel in Europe. EU officials say the bloc is likely to vote in favor of the duties."

Not good...

Protectionism vs. Free Trade

With the governments plunging copious amounts into local industries, what will the result on free trade be? Simple example - everyone and their uncle is applying for the US TARP (Troubled Assets Relief Program) funding (there is a form below that even you can use to apply). The US automakers take the cake - they build products that are unappealing, unmarketable, unreliable and anachronistic - and then go for a handout asking for taxpayers $$s so they can continue to build the same products? And they get it!

OK so now think - the government props up a domestic industry which is uncompetitive in the global marketplace. This is the classic definition of Protectionism, without the tariffs/duties on the imports of the same product.

We are faced with a global problem. It will *not* be solved by any one country. There needs to be a coordinated effort - fast, massive and systemic. Protectionism will only slow down this process, and make governments wary of each other. Bad time for this, really bad.

"The occasion is piled high with difficulty and we must rise with the occasion. As our case is new, so must we think anew and act anew" - Abraham Lincoln

And for those of you who want to apply for tarp funding - read on..... and when you do the cheque, don't forget who gave you the pointer!


Junoon, an urdu word, the language of poets, poorly translates to mania. Mania - that of a child who believes that self immolation will solve the problems of his generation, that of a lover who waits for his beloved to come, never to accept that she is forever gone, that of an entire populus towards a single man and his perceived ability to solve all of our woes.

Barack Hussein Obama goes from president-elect to president in 2 days. The junoon of the world must weigh heavy on his shoulders. He walks in with the economy in a complete mess, the current US debt edging towards USD11T (this from a projected surplus of USD10T in 2010 after the Clinton presidency), the Israel-Palestine conflict renewed afresh, the Afghanistan/Pakistan/India mess, Iraq, Iran, instability in Africa, North Korea etc. etc. etc.

The expectations on him are high, the whole world is watching. I actually got a call from my father in India congratulating me on Nov 4, when Obama became the president-elect. The world blames us for the mess we all are in, they all want us to fix it.

Any economist will tell you, fear feeds on itself. In the simplest case, a run-on-the-bank proves the point - if depositors fear that a bank will fail, they will cause an otherwise healthy bank to fail. The same holds true for any economy - if a workforce believes that prices will rise due to perceived inflationary pressures, they will demand higher wages, which will result in the firms raising their prices, which will result in real inflation. If the consumer believes that the economy is bad, they will likely slow down or stop spending, which will result in firms cutting down their output by laying off workers, which now starts a downward spiral.

Governments intervene to stop these spirals - short term interest rates are a tool that they use to discourage (to control inflation) or encourage (to control deflation) borrowing, which results in spending. Hence the near zero interest rates now-a-days, to encourage firms and individuals to borrow and spend, urging an upward spiral to begin.

Another tool, which also we are seeing in use now for a while, is deficit spending. The governments are spending more than they can afford, expecting their spend to result in increased demand and spend by businesses and individuals. Keynes wrote about the income multiplier, whereby deficit spending by the government would increase the GDP by more than the deficit spend. If consumers get more income, they spend more, which results in more goods and services, which results in more income, which results in more spend.... all about expectations.

So President Obama - the expectations on you are high, there is a junoon associated with your ascendency, but not without reason. You usher in a new era for this world, you are the silver light in this otherwise dark cloud - you have the ability to create that upward spiral.

Best wishes and God speed to you.

Goodbye 2008

A sudden fascination with Thoreau - "The mass of men lead lives of quiet desperation", he writes. In these times, rather apropos. As this year comes to an end - atleast for me, I leave for a warmer place in about 12 hrs - I have mixed emotions about this year. Lots of good things happened for me personally, and in my career. A lot of hard work was put in, and it paid off in more than one way.

But then the market correction, which put my - and a lot of others - faith in the power of free markets in question. All of us lost a lot in the last 3 months.

And then the Mumbai tragedy in the midst of it all. It was a sudden shock to the system, a slap in the face, almost as a reminder of what is really important.

As I look forward to 2009, I have hope. I have hope that the world will come together and solve these problems together, as one. Thomas Friedman writes in "The World Is Flat" that the only thing that will break apart the globalization phenomenon is terrorism. I hope the other way holds true - terrorism will bring the globe together to solve this problem.

I have a lot of faith in hope, it has worked for me before. It must again. I wish you and your loved ones a very health, safe and happy new year.

Giving Thanks... its getting tougher

As people in the United States recover from a weekend of gluttony, I watch the coverage of the carnage in Mumbai. Sometimes I stare at it, sometimes I try to avoid it. Sometimes I look at it from the corner of my eye. Depression sets in.

Why? Why do we do this to ourselves? Lest a reader think that this is a problem "over there", I shake my head when I hear about a stampede that killed a guard in Long Island, when people - living in the land of plenty, living in a first world - broke down the doors of a Wal-Mart to shop. And no, this was not for food, this was not because they were starving - this was because they wanted to get to the bargains - LCD televisions and mobile phones. Elsewhere, people were beating each other up in order to grab the deals. Black Friday indeed.

Media is gleefully reporting that Black Friday was a success. How sad. What a state we have reached - should we consider ourselves any better than the mobs that slaughter each other in third world countries? Atleast they do it for the basic necessities - water, food, shelter. And now we do it for washing machines and dryers. Jared Diamond wrote about the Collapse of societies, natural disasters and constrained natural resources being primary factors. But low cost LCD TVs?

I had Thanksgiving at a friend's house, been doing it for 10 years now, a lovely friendly family that has nothing but smiles and hugs for everyone. I have a lot be thankful for this year, a lot of love and and lot of friendship. It was good to be with friends this weekend, else depression would have won.

Happy Halloween!

After China, my team trained our UK sales force in London. I have had an on-and-off love affair with London, there are times that I have never wanted to leave, and times when I never wanted to visit again. I am "on" again, hopefully for a very long time. The urge to go visit Botswana for some reason, seems to be gaining. Perhaps too much McCall Smith?

Some more market updates below (click here to jump there). Going back to my favourite topic of Low Latency, look at what we were able to do with our Blades and Reuters RMDS. Amjad "the machine" Khan did all the work and put these tables together.

1. The table below shows the most recent published RMDS numbers using Blades - SunBlades+Intel+Solaris vs. HPBlades+Intel+Linux. Both use 1GbE. Green cells are world record numbers. For some reason - and you can guess at this - Solaris is the only platform to date that is able to capture RMDS latency at 700,000 messages/sec.

2. This is an interesting comparison - its Solaris using GbE vs. Linux using IBvs. Linux using 10GbE. We did this just to see what we were up against, while we did our 10GbE benchmarks. Again, Linux seems to be missing at high message rates with IB, and good old 1GbE with Solaris beats 10GbE with Linux at high throughput rates.

Oct 13
- Morgan Stanley stock nearly doubles after Japan's Mitsubishi UFJ Financial Group Inc (MUFG) completes its $9 billion investment in the bank on Monday.
- Markets globally up - Europe, Japan, HK, Korea, Thailand, India jump at prospect of Governments intervening.

Oct 14
- President Bush announces a $250 billion plan by the government to directly buy shares in the nation's leading banks, saying the drastic steps are "not intended to take over the free market but to preserve it."
- UK Government announces emergency plan to rescue RBS, HBOS and Lloys TSB by taking a stake in the banks in return for GBP37B in cash. The FTSE-100 climbs 8.26%, Dow Jones 6.89%. Barclays, HSBC and Standard Chartered say "thanks but no thanks", worried about being "hobbled" by the government.
- US government release plan to take equity stakes in 9 banks - Goldman, Morgan Stanley, JPMC, Bank of America, Merrill, Citigroup, Wells Fargo, Bank of New York Mellon and State Street.
- Spain's Banco Santander SA buys US's Soverign Bancorp
- GBP is worth USD1.74, Euro is worth USD1.36

Oct 15
- Fears of a global recession clobber markets globally - UK down 7.2%, US 7.9%, Russia 9.3%, France 6.8%, Gernmany 6.5%, Hong Kong 5%, Shanghai Composite 1.1%.

Oct 16
- Hungary currency and market falls sharply, 5.3% and 11.9% respectively. Similar trends follow in Poland, the Czech Republic, Romania and Ukraine.
- Bank run on Globex, a mid-size retail bank in Russia spans fears of widespread panic. It loses 15% of its deposits, this following 13% in the previous month.
- KBC Group, the only major Belgian Bank not asking for a government rescue, takes E1.6B in write-downs on CDO investments, and warns of E900M loss. Its shares drop 19%, total of 61% for the year.

Oct 17
- Swiss central bank plans to take USD60B of toxic assets off UBS's balance sheet, and to invest USD5.3B for a 9% stake.
- Credit Suisse rejects a capital injection from the Swiss government, instead opts for private equity of USD9B from the Qatar Investment Authority.
- Citi posts a USD2.82B quarterly loss, making it about USD20B for the year so far. Merrill loses USD5.15B for the quarter, for a grand total of USD23.8B this year.
- South Korean currency suffers its worst one-day plunge in a decade, falling 9.7%. This is on the heel of the S&P putting seven Korean banks on its negative watch list, citing growing foreign currency funding pressure.
- Bank of England curbs disclosure of emergency borrowing and reduces the penalty charged on overnight loans in a bid to repair its money-market operations and eliminate the stigma on central bank assistance. The new standing facility, which allows banks to borrow from the central bank overnight, will carry a penalty rate of 25 basis points, down from the previous standard of 100 basis points. A record of each month's average borrowing from the facility will be published the following month, a change from the current policy of publishing the borrowing on a daily basis.
- Oil drops to USD69.85/barrel.
- GBP is worth USD1.72, Euro is worth USD1.34

Oct 20
- The Netherlands inject USD13.4B into ING.
- South Korea announces a USD100B guarantee on foreign currency loans, and a USD30B infusion into the Korean banking system.

Oct 22
- Wachovia announces a $23.9 billion third-quarter loss on Wednesday as it prepares to be taken over by Wells Fargo. Wachovia projected an additional $26.1 billion in mortgage-related losses in 2009. And it only wrote down a tiny portion of its $219 billion commercial real estate and corporate loan portfolio. Analysts expect that to significantly deteriorate as the economy plunges into a recession.

Oct 23
- Once the world's most powerful man, the champion of free markets, Alan Greenspan admits he had put too much faith in the self-correcting power of free markets, admitting to making mistakes during his tenure. Scary stuff.

Oct 24
- PNC Bank buys National City, US Treasury facilitates the deal by providing USD7.7B to PNC in capital. Why? A part of the US bailout package is now being used to eliminate smaller "weaker" players from the market. This is the government trying to reshape the market - while trying to preserve it. They have also created tax incentives to encourage these acquisitions - PNC will be able to write down all losses on the books of National City, amounting to several billion dollars.
- Markets get hammered globally - South Korea down 11%, Japan 9.6%, Hong Kong 8.3%, Singapore 8.3%, India 11%, UK and Germany 5% each, US 3.6%.
- Oil falls to USD64.15/barrel even after OPEC decides to cut production.
- Currencies fall globally, as investors move monies into USD and the Yen. GBP falls to USD1.63, Euro to USD1.26. Yen reaches a 13-year high against the USD, causing headaches for Japanese exporters as a stronger Yen will make their products more expensive overseas.

Oct 28
- Japanese government considers intervening to stop the continued rise of the Yen (a stronger Yen makes Japanese exports more expensive overseas). One reason for the rise is the reversing of the "carry trade", in which investors borrow money from a country with low interest rates (Japan in this case) to invest it in other countries with higher interest rates. Due to the current market volatility, these traders are now unwinding these carry trades, buying Yen to return them, thus making the Yen stronger. If the government does intervene, it will do so by selling Yen thus stabilizing the currency.
- Mitsubishi UFJ, Japan's largest bank, says that it needs to raise USD10.7B in capital. It will do so by issuing preferred and ordinary stock.

Oct 29
- Dow Jones jumps up 10% on hopes of a fed rate cut possibly to 1%.

Oct 30
- Sumitomo Mitsui, Japan's second largest bank, announces a 63% drop in revenues for the current fiscal year.
- The International Monetary Fund announces a USD100B loan pool for countries "that are in trouble but are basically sound". These loans would be for a three month period, and come without the stringent restrictions that the IMF usually imposes on its loans.
- UK government sits on a loss of GBP2.3B, as HBOS and RBS plan to issue new shares based on its underwriting. The market price falls below the issue price, making these shares unattractive in the primary markets.

Oct 31
- Last day of one of the worst month in the global stock market history closes with most markets up. Happy Halloween!

China and the northern lights

I saw the South China Sea, ran a couple miles along the beach. Warm breezes, little fishing boats at dawn, large cargo ships along the horizon. Spent the week on Haikou, a northern city on a island called Hainan.

I saw the most beautiful sunset I have ever seen. How long is the horizon? Shades of red that I did not know existed, layered on top of each other, all along the horizon.

I saw the Aurora Borealis - spooked me out completely for a few seconds. The flight back from Beijing took the polar route, and I was just too disturbed to sleep. Luckily, I was forced onto a window seat and was looking out for hours when I saw these lazily dancing rays of lights, weird shapes, ethereal colors, like ghosts. I thought I was hallucinating, perhaps too much Stephen King in my earlier days, and then I realized that we must be over the north pole. A quick check and indeed. What a sight. I wish I could have shared these moments with some others.

I saw the Grand Canyon earlier this year, was my fourth time there. Its beauty still astounds. The words that both, the GC and the Aurora conjure in my head - magnificent, epic, spectacular. The difference for me though, the GC invokes thoughts of an old lover, reunited. The timing in my life was such, late April this year. Sadly, the Aurora will always remind me of those beautiful days, forever gone. A sense of loneliness, emptiness.

I saw a spectacular sunrise, on the Arctic coast. Miles and miles of nothing but white, and the sunlight creeping up, glinting on ice. And then, sleep for a couple of hours, the body just seemed to fall into total exhaustion after the last week.

My team and I spent the week in Haikou, meeting the Financial Services sales teams from the APAC countries. We had about 100 people there, with representation from China, Taiwan, Korea, Japan, India, Hong Kong, Singapore, Vietnam, Thailand and Australia. Fantastic crowd, responsible for about USD0.5B worth of FS business to Sun. Most very optimistic, irrespective of the financial correction.

Most countries are modernizing at a rapid rate, and as predicted by yours truly, the smaller domestic dominants are viewing this correction as a way to take market share away from the globals. The Indian government is encouraging the local banks to merge, and create larger entities that can compete on a global level. The use of technologies is rampant, how do you expect to reach a 1 billion unbanked, underserved populus? Not by branches, not by ATMs, not by the internet. By mobile phones. Good that my team has been working on our mobile banking solution!

I come back well fed - tripe, pigs feet and shrimp that looked ready to leap out of the dishes they were served in, not withstanding - well educated and a tad tired. My team is enthused, we have a lot of work to do but the enthusiasm of the APAC sales teams have given us a boost of adrenalin.

And I did play some golf, how can one resist golfing in China? Played at theWest Coast Golf Club, where a LPGA tournament kicks off at the end of this month. Hopefully Michelle Wei will not be too upset by the divots I left behind! I am the one in the bright red shirt, with my good friend and irritatingly good golfer, Samad Ali.

Oh, and a quick recap of the markets thus far in October.

Oct 3
- Congress passes USD700B bailout package.
- Citi fights the now proposed Wells buyout of Wachovia.
- US loses 159K jobs in September, 2x that of August, most in the last 5 years
- Mitsubishi UFJ Financial Group Inc. mulls merging its securities unit, Mitsubishi UFJ Securities Co., with Morgan Stanley's Japanese securities unit.

Oct 4, 5
- The German government guarantees all private checking and savings accounts.
- European countries, one after another announce deposit guarantees. Iceland and Denmark issue guarantees on monday after Germany, Ireland, France, Greece and Sweden did the same on sunday.
- Germany's private financial sector promises to put up an additional E15B, in addition to the E35B already pledged, to help Hypo Real Estate bank, one of Germany's largest housing lenders.
- BNP Paribas takes control of the Belgian and Luxembourg businesses of troubled financial group Fortis in a complex rescue that makes Belgium the French bank's biggest shareholder. BNP Paribas buys a 75 percent stake in Fortis' Belgium and 66 percent of the bank's Luxembourg banking activities.
- China's second largest insurer Ping An Insurance reports a loss of about 15.7 billion yuan (USD2.3 billion) on its investment in Fortis. The loss is one of the largest suffered by a Chinese financial institution so far in the turmoil.

Oct 6
- Allianz SE invests USD2.5B in Hartford Financial, a large US based Property and Casualty, and Life insurance carrier, after Hartford announced a USD2B loss for Q3 (most from its investments in the Capital Markets industry).
- On a positive note for us end user consumers, Oil prices drop to USD88/barrel (high was USD147 in July 2008) on concerns that demand would slow globally.
- Bank of America reports a 70% drop in Q3 profits, again as a result of losses stemming from mortages and other debts.

Oct 7
- Saying Iceland was at risk of "national bankruptcy," Prime Minister Geir Haarde prepares to give regulators authority to take over the nation's ailing banks as a worsening financial crisis all but cuts off the island from the global financial system.
- U.S. Treasuries soar as worries about a global credit crisis and a slow economy slam stock markets around the world and sends investors scurrying for shelter in low-risk government debt. US dollar posts a sharp rise against other world currencies.

Oct 8
- Indonesia's markets are suspended after its key index falls 21% after the first hour of trading. They remain closed for the next 3 days.

Oct 9
- Citi backs out of the Wachovia deal. Interestingly, Wells Fargo came back to the table after the IRS introduced a regulatory clause that allowed Wachovia's losses to be taken as a tax write-off. This prevented the feds from buying out these losses, which is what Citi had negotiated (see my previous blog).
- Hong Kong's Hang Seng index hits 3 years low amidst global sell-off.

Oct 10 - Black Friday
- Credit Suisse shares plunge to five-year lows, falling faster than Swiss peers and the European banking sector as investors fret over the impact of the financial crisis on the bank's earnings.
- Dow Jones Industrial Average finishes the worst week in its 112 year history (18% decline). The 1018.77 point swing on Friday October 10th was the largest ever. 11.16B shares traded on the NYSE, the largest ever.
- While in China, I was watching Bloomberg TV and saw every single stock market get pummeled. Nekkei fell 9.6%, Singapore down 7.3%, HK down 7.2%, India down 7.1%, Australia down 8.8%.
- Yamato Life Insurance of Japan files for bankruptcy
- The Group-of-7 (G7) countries, which I believe is an anachronism in this century, gather to try and put together a coordinated response. As expected, no concrete steps are agreed upon.
- US, Germany and UK start to put plans together to nationalize the banking system - "King Henry" Paulson says he will use government power to buy assets - not just the bad ones! - and look to invest in banks. The British government may end up owing as much as 30% of 4 of the largest banks - RBS, Barclays, Lloyds TSB and HBOS. HSBC, Standard Chartered Bank and Abbey National refuse capital infusion from the government.

Oct 11
- The G20 meet, their jointly issued communique is here.
- The International Finance Corporation (IFC), the private-sector lending arm of the World Bank, plans to launch a $3 billion fund to capitalize small banks in poor countries that are battered by the financial crisis.

Oct 12
- The 15 countries that form the Euro zone announce 3 key measures - they agree to guarantee new bank debt issuance until the end of 2009, which should spur interbank lending; permission for governments to shore up banks by buying preferred shares; and a commitment to recapitalize any ``systemically'' critical banks in distress. How much will this cost the taxpayers? Unknown.
- Oil falls to USD77.70 a barrel.
- Morgan Stanley's woes intensify. The infusion of USD9B from Mitsubishi UFG is expected on tuesday (Oct 14), the worry is that MS might not survive that long. Antitrust regulations in the US require a 5 day waiting period.
- IMF says the worldwide economy is heading towards a recession, with global growth falling. The WHO says the rates of depression and suicide globally are expected to rise.

Solvency vs. Liquidity

Lets get this one straight - this is *not* a stock market crisis. The stocks are down because of negative sentiment all around. If I had liquidity - liquid cash I could move around - I would be buying right now, a lot of good stocks are being hammered by association.

Everyone keeps saying that this is a liquidity crisis. That the US government bailout is to inject liquidity into the financial system. Really? Is this really a liquidity problem? I disagree, to a certain extent. I think there is enough liquidity around, banks are actually hoarding cash. Data does seem to suggest that banks have added USD442.5B in new capital, while posting losses and writedowns of USD592B. So there is a liquidity problem however that is not the real issue here. The real issue is the fear that if I loan money to my neighbour, he might never pay it back, that he might be insolvent and even he might not know it! Why is that? Because if he is invested in the original CDO toxic assets, he has no clue what they are worth, and how solvent he actually is. So even though I have money to loan him, I will not do it. So even though there is liquidity, it not really liquid - its not moving around. Fears of solvency are preventing it.

The US government is looking to buy these insolvent assets, using a reverse auction scheme. If there is a large enough sample, reverse auctions work well. That is the hope here, and that seems to be the only way to put a $ amount on the worth of these assets.

I was with friends last night, a couple of whom are in the business. They claimed that the only way to get the credit markets - which are used to make loans - moving is by the governments guaranteeing these loans, especially the short term ones. Not unlike the FDIC insures your bank accounts. Note the entry for Oct 12 above!

The fun continues, and moves eastwards at a rapid rate.


Ambreesh Khanna's Weblog


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