4 posts tagged “finance”

My bet is that foreign MBAs from top US schools are an exceptional bargain this year because they are effectively barred from jobs at most major employers in the finance industry. 

We all know that the best paying industry, finance and Wall Street in particular, is in the middle of an implosion and series of massive layoffs. And just about every big and important firm has received money from the US government as part of its bailout (even if just to show there was no stigma in doing so). But one important side effect of that is that any of these firms that have accepted money from the government, and laid off workers, is being barred by US immigration authorities from getting visas allowing foreigners to work for them.  This just hit the news with the headline that Bank of America has withdrawn all jobs offers from foreign MBAs. Naturally, this means more foreign MBAs trying to get jobs in other industries, increasing competition and driving down wages, especially for foreigners, in those places where they can work.

In the past, immigration authorities had responded to the recession by making some special allowances for recent graduates. The Department of Homeland Security had announced (April 4, 2008) that they would let recent graduates work in the country longer as part of their post-graduation practical training period. Normally, after graduating, students can work for just about anyone, anywhere, with not special paperwork, for up to twelve months. This had been extended to seventeen months.

I have a lot of friends and acquaintances who think I am rather smart, even very smart. And with the exception of this post, I'm even considered rather modest. I have an MA in Economics. I've worked as an economist in the Canadian Ministry of Finance and Statistics Canada. I've been paid more than a million dollars as a business and data analyst at Morgan Stanley in Manhattan. But no one ever listens to my financial advice. 

When I've told friends they should sell at least some of their dot com stock, they've hung on, sure it was going to go up to peaks again, instead of down to nothing. When I've told my friends, at just the right times, they should sell their houses and rent, they just tell me there's one more special deal to do, or it is not the lifestyle they want. When I've told them they should get out of the US economy and enjoy the 80%+ returns in India and China, they've ignored me. And when I told them I was selling everything and holding cash, they've stuck with their portfolios. To be honest, I don't really bother anymore. No one listens. But it irks me.

But I do want to point out one unassailable fact for those who never listened. On January 17th, 2008, I sold all my retirement investments and put it in cash (sometimes diversified into multiple currencies). It is what I told anyone who would listen to do. I wasn't giving radical advice, or risky advice (like shorting). If I had been wrong, all I was going to give up was what was clearly going to be modest growth at best. I actually would have done it sooner, but Fidelity blocked trades for weeks while they processed a request to transfer from a 401k to an IRA. That simple, simple, simple little action put my wealth 82% higher today than it would have been if I had done nothing. 

Avoiding a loss may not be sexy, but the counterfactual return I've just quoted is just as real as a gain. In fact, human psychology is such that we feel a loss far more than a missed gain.

A lot of people read this blog. But I think most of my friends rarely do. I rather hope they're not reading this. I know many are suffering. I don't want them to suffer. I want to protect them, like I protect myself. In fact, I want everyone I come in contact with to be ok. I'm not perfect. I'm often wrong, especially about timing (I expected the economy to collapse years ago). But for their own good, I wish people listened more.

So, is this the bottom? Is it time to get back in? I'm sorry to say, but I think we are not even half way through the tough times. However much you have lost so far, there is more to lose.  Look, I hope I'm wrong; but nothing about our economic situation suggests that. About two thirds of spending in the US economy comes from consumers, and they have only just begun to start feeling the real pain of this recession. I don't think every investor really understands that, especially individual investors. This will become clear to them in time, and this will drive stocks, and the economy, even further into negative growth. 

Look, I'm not a financial advisor. This is just advice from someone who cares. Don't blame me if I'm wrong. But there is no way on earth I would buy now, and that means if you have any equities you could probably cut your losses substantially by selling now too. But I'm all too aware of the old adage, "you can lead a horse to water, but you can't make it drink".

Today's black market rate (in one competitive jewelry store) shows the US dollar falling in value and black market rates moving closer to official rates.

The black bid rate was 17,400 VND/USD. In other words, they will pay you 17,400 Vietnamese Dong for one US dollar.
The black ask rate was 17,520 VND/USD. If you have 17,520 Dong, you can buy a dollar.

Transactions are usually in crisp, unmarked one hundred dollar bills. Rates are less favourable for other denominations or conditions.

Note the very narrow 120 Dong (0.69%) spread.

Compare the black market rate to a 16,845 official bid rate for June 29, on Yahoo Finance.

With the US dollar coming under relentless downward pressure against most major currencies, stock markets being hammered, and interest rates driven down by the Fed, it is not easy to justify keeping assets in the dollar if one has the choice to pull out.

Perhaps it would be wise to buy Vietnamese Dong (VND)? The Vietnamese government has set a fixed exchange rate at a level that is almost universally considered much higher than the medium term rate. So profits are built in. But banks are fighting back and doing everything they can to prevent people from buying at the artificially low VND exchange rate (according to The Financial Times):

In the black market, the dong is already trading at around 15,650 to the dollar, around 2.4 per cent stronger than the official exchange rate of 16,037 to the dollar. Banks are also trying to circumvent the exchange controls – some by levying special fees to change dollars into dong, or by converting dollars into third currencies, then converting that into dong.

The black market rate for the dollar on Ha Trung street in Hanoi is quoted at VND 15,800 compared to an official rate of VND 16,054 by the International Herald Tribune on Feburary 28, 2008.

One must also consider the cost of getting money out of Vietnam. There are generally fees of around 3% for converting Dong back into USD.  The existence of export restrictions has led to significant smuggling of money out of Vietnam.

However, Vietnam has its own monetary problems. Inflation in February 2008 was 15.7 percent.  The communist central government is reportedly trying to restrict the money supply in order to fight these inflationary pressures.  But this should cause even greater pressure for the currency to rise against the dollar.

Monetary policy has caused local currency shortages. Investors have had a hard time getting cash out of banks for their massive investments. Remember, in Vietnam, without cheques, and a cash culture, even massive transactions often take place in even more massive piles of physical cash -- only ten percent of Vietnamese have bank accounts. Even individuals have been hurt by the cash crunch, with at least one local bank this week arbitrarily limiting cash withdrawals to individuals to VND 3 million (USD 187).

The Financial Times cites cases:

In one sign of the currency crunch, last week Hanoi was forced to give special permission to Morgan Stanley to pay $217m in dollars for a 10 per cent stake in PetroVietnam Finance Corp, instead of making the payment in dong, as is normally required by law.

Elsewhere, an accountant for a foreign firm tried to convert $30,000 into local currency to pay staff salaries and office rent but was turned away when the bank said it did not have enough dong.

“It’s outrageous,” said a foreign executive, spurned in a recent attempt to convert dollars to dong. “We are going to have to go to the automatic teller machine and draw money out to pay salaries by hand.

And small change has also become strictly limited. Recently, when making a VND 65 million (USD 4,053) withdrawal at HSBC's head office in Ho Chi Minh City, the bank refused to give me any more than VND 500,000 (USD 31) in small VND 5,000 (USD 0.31) bills citing currency restrictions.  The bank would not even let me place an order for small currency to be delivered at some later date, such as a few weeks in the future.  Can you imagine running a business in the US and having your bank flatly refuse to give you more than $30 in quarters, and completely refusing to give you any stock of nickels or dimes?