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Tools for Analysing Shares

Sun, 17 Aug 2008 16:07:30 GMT

There are many methods to assess the fair value of a

share. Before the value of a share can be determined, we

must un-derstand what it is. Shares in general re-fer to

the ordinary shares issued by the company, and they

represent the owner-ship of a part of a company. Suppose a

company has issued a million shares and you own one share,

this means that you own one millionth of that company.

Since shares represent ownership of a company's dividend,

profit, revenue, as-set and cash flow, the ways to value

shares will be based on these five catego-ries of figures.

　Financial ratio analysis is based on these five categories

of data in a com-pany's balance sheet and income state-ment,

and turns them into ratios for com-parison. Besides

comparing between the company's present and historical

ratios, comparisons are also made against other similar

companies, the industry average and the overall stock market

average.

　We will start with the dividend yield, which is defined as

dividend received in a year divided by the share price. For

example, a company pays five cents divi-dend a year and its

share price is a dollar, then the dividend yield is 5%

($0.05 divi-ded by $1 mutliplied by 100). One can find out

the amount of dividends paid by companies from Monday's

Lianhe Zaobao or Teletext. These show the dividend amount

and the ex-dividend date. One only re-ceives the dividend

if the share is bought before the ex-dividend date. In the

newspapers or Teletext, a share with 'cd' behind the company

name indicates cum-dividend and 'xd' means ex-dividend.

　Sometimes, the dividend amount is stated in percentage

rather than cents. One should not confuse the percentage

stated as dividend yield. The percentage is based on the

dividend declared divided by the par value, not the share

price. Most shares have a par value of $1. Those with a

par value other than $1 have their par value printed behind

the com-pany name. For example, 'SingTel 15￠ means that

Singapore Telecom has a par value of 15 cents. Last year,

Singapore Telecom declared a dividend of 5 cents or 33.33%

(i.e. 5 cents divided by 15 cents). Based on share price of

$2.70 then, its di-vidend yield is $0.05/$2.70=0.0185%, not

33.33%.

　A company usually pays dividends twice a year, one

declared during the in-terim results (known as interim

dividend) and the other during the final results (final

dividend). When calculating the dividend yield, one should

add both the interim and final dividends to arrive at the

annual di-vidend. In a particular year, a company might

achieve a very high profit that is unlikely to be repeated,

but it wishes to reward shareholders with a higher di-vidend

without building up expectation that the high dividend will

be repeated. In this situation, the company will declare a

special dividend on top of the usual one. When forecasting a

future dividend, one should take note that the special

dividend is unlikely to occur again.

　The payout ratio refers to the propor-tion of profit paid

to shareholders. For example, a company which earns $1 per

share and pays out a dividend of 30 cents per share, has a

payout ratio of 30%. For a company to pay good dividends,

it must have sufficient profit to be able to pay and it must

be willing to pay. For a gro-wing company, it will have to

keep most of its profit to buy more plants and equip-ment

and thus its dividend payout ratio will be low. There are

also some com-panies which prefer to keep the profits for

rainy days and are therefore reluctant to pay them out as

dividends. A typical company with a high dividend payout

normally owns a mature cash-generating business and it does

not have any worthy expansion plan. A good example is

toba-cco stocks. However, a high payout ratio does not

necessarily lead to a high divi-dend yield because the share

price could be high too.

　The returns obtained from investing in a share can be

broken down into two components - capital gain and dividend

yield. If the share price does not change, then the

investment return is equal to the dividend yield. The risk

of buying a share that offers a high dividend yield is

therefore capital loss, i.e. the share price falls. In the

end, the share price could fall so much that the capital

loss wipes out all the dividend yield. It, however, remains

a loss if the share is not sold. Most invest-ment books

recommend stocks with a high dividend yield for investors

who are retired or need a steady stream of income. If one

invests for yield, the divi-dend yield will have to be

higher than de-posit interest rates in order to be

attrac-tive.

Are you investing in the right industry?

Sun, 17 Aug 2008 15:51:28 GMT

Does the term book-to-bill ratio sound familiar to you?

Do you know the demand and supply numbers of private

condominiums in Singapore for the next year ? If you do, you

must have already performed some sort of industry analysis

on the electronics and property industries (or sectors as

commonly referred to in stockmarket terms).

　Most investment processes include some sort of industry

analysis. This is important because many studies have shown

that over a period of time, some industries have per-formed

better than others. For example, between 1987

and 1996, banking stocks in Singapore have generated better

returns than other industries such as shiprepair. Industry

analyses will uncover these performance differences and help

identify both unprofitable and profitable opportunities

(situations).

　It is also important to note that past performance alone

will not help predict future performance. The factors or

conditions that helped an industry to prosper in the past

will change over time. Identifying and studying these

factors will provide some clues to the entry and exit points

of the investments. Going back to our earlier example,

economic growth is an important criterion for banks'

earnings. Between 1987 and 1996, Singapore enjoyed an

uninterrrupted average GDP growth of 8.9%. This allowed the

banks' earnings to grow at a compound rate of 11.3% when the

broader market generated only 8.5% growth. With GDP growth

decelerating because of the Asian crisis, can we maintain

the same sanguine outlook for the banks?

　Having determined that industry analyses are important for

successful investing, the next step is to find out how we

can go about doing one. There is no generic framework that

is applicable to all industries, but there are commonalities

which we can identify. In a free market economy, demand and

supply are key determinants of price, and price is always an

important contributor to any profit-driven organisation.

Hence, a successful indstry ana-lysis will have to identify

the underlying fac-tors driving demand and supply.

　Factors that drive demand vary across industries, and are

too numerous to list. However, it is important to note that

demand can be categorised as "seasonal", "cyclical" or

"secular". As the word suggests, seasonal fac-tors recur

year after year. Cyclical factors, on the other hand, follow

very closely to the economic cycles of the market. Secular

factors are more long term in nature. Seasonality or

economic cycles will have minimal impact on secular trends.

　Take an airline as an illustration. Most Singaporeans take

their vacation in December. That is why airline seats are

difficult to secure during that time. This is the seasonal

factor because it occurs every year around the same time.

Having said that, Singaporeans usually take vacations more

frequently when the economy is doing well, and less so

during reccessionary times. The rise and fall in demand in

accordance to economic activities is the cyclical factor.

Finally, the middle class population in Singapore has been

rising over the last 20 years. This group is generally more

affluent. Part of the lifestyle usually includes taking

regular vacations to exotic destinations. Such lifestyle

doesn't change annually, nor does it follow the ups and

downs of economic growth. The demand for air travel will

grow so long as the middle class population continues to

increase. This is an example of secular demand.

　Classifying demand factors into these categories is very

useful. As long-term inves-tors, we do not want to be

constantly reacting to signs that are short term and

volatile in nature such as seasonal, and to a lesser extent,

cyclical trends. Buying and selling stocks based on these

short-term trends are not only expensive (brokerage cost)

but difficult to time as well. Instead, we should focus on

long-term trends. They usually have a longer and more

permanent impact on share prices.

　A key factor in identifying an attractive industry is

pricing power. The ability of an industry to price its

product at a profitable level without compromising its

business pros-pect is important, and this is affected by

many factors. Inelastic demand allows the tobacco producers

to maintain good profits despite the rapidly rising tariffs

all these years. Barriers to entry is another factor.

Mobile-phone charges used to be very expensive because there

was only Singapore Telecom providing the ser-vice

(monopoly). With increased competition from M1, rates have

been declining gradually. All things being equal, the more

competitive the industry is, the lower the pricing power,

and hence profits. Competition may be good for the

consumers, but it seldom benefits the shareholders.

　Another factor that will impact the com-petitive

environment of an industry is the cost structure. In

general, indsutries with high fixed costs are more

competitive than those that have high variable costs. We

often hear about coun-tries being accused of 'dumping steel'

onto other countries. Well, this is the case in point. Steel

mills are expensive to construct. But once built, the

investment costs are 'sunked'. On the other hand, the

running cost to produce steel is relatively low. Since there

are so many steel mills around the world (almost every

country has one for strategic reasons), supply is in

abundance. As competition intensifies in the global market,

recovering investment cost of the mills becomes a secondary

objective for management. What is more important is to keep

the production ongoing and sell the steel at a price that

can at least cover the variable cost component. These mills

will definitely be loss-making, but at least they can

continue to operate and not generate serious unemploy-ment

for the economy (steel industry is very labour-intensive).

　Having looked at the fundamental issues, do we always buy

into an industry with positive trends developing? The answer

is 'no'. Con-fused? Here is why. The key to any successful

investments is to stay ahead of what the market is

discounting. Suppose we are bullish on the outlook of the

residential property sector because owning a home is every

Singaporean's dream and the island has limited land supply.

But this view is widely observable. Further-more, most of

the residential property stocks have already outperformed

the market by huge margins. These are signs that the market

has probably discounted the positive conclusion of our

analysis. As such, the investment upside is probably

limited. Conversely, if our conclu-sion unearths new

information from the gene-ral market, we may have discovered

something interesting here.

　To confirm that we have a good find, check out the

valuation to see if it is attractive. There are many

valuation tools, but the commonly used ones are

Price/Earnings (PE), Enterprise Value/EBITDA*,

Price/Book(P/B), and Dis-counted Cash Flow (DCF). Make a

cross-industry comparison as well as historical com-parison.

Going back to our property example. If our conclusion is new

to the market, the industry is trading at the lower end of

its histo-rical PE band, and it is also very attractive on

PE terms versus the other industries in Singapore...bingo!

　In conclusion, I would like to leave you with a brain

teaser. Imagine this is 1996 and you are an investor looking

at the Dynamic Random Access Memory (DRAM) industry:

　DRAM is a semiconductor chip used in most electronic

products such as personal computers. The business is

cyclical in nature because corporate and private consumption

of PCs usually rises when the economy is doing well. There

are, however, two secular trends that underpin the growth in

the industry. First, more and more people are buying PCs for

their home and oiffice. Second, the requirement of DRAM per

PC is also on the rise as processing power of computer

increases exponentially. On the competitive issue, the cost

to build a wafer fab is extremely high (about US$1b), and

the technology is usually state-of-the-art. Besides capital

and technology, there are no other significant barriers to

entry. Margin for the industry had been very good because of

supply shortage. This probably explained why share prices

outperformed the market in 1995. The historical five-year PE

band for selected stocks in the industry between 1991 and

1995 was about 10 to 100. The average PE during the period

was 30. The industry is currently trading at a PE in the low

teens.

　Would you invest in this industry?

Common pitfalls of investors--mistakes investors tend to make

Sat, 16 Aug 2008 16:57:48 GMT

Stock prices have fallen considerably during the current

economic malaise. Although there is the risk that stock

markets may not have bottomed, the current low stock prices

offer an opportunity for retail investors to gradually

invest in selected blue chip stocks that may have previously

been out of reach.

　In the event that you decide to invest, here is a list of

pitfalls you should avoid:

　Inadequate Asset Allocation-- Asset allocation is the

process of dividing your pool of money among different asset

classes, e.g. between income investments such as fixed

deposits and bond funds, and growth investments which will

include riskier investments such as stocks or physical

property. The former is considered the safer option,

however bond funds are riskier than fixed deposits although

they may offer a higher return in the long run. Growth

investments are more volatile and have been very popular in

Singapore because they offer the potential for higher

returns.

　The mistake most investors make is to put most of their

money in one form of investment, say stocks or properties.

As a result, when the property and stock markets decline,

these investors are in an extremely vulnerable position. It

is always prudent to keep aside at least enough cash to

provide a cushion of about 6 months' monthly income as a

safeguard against sharp declines in the stock and property

markets or in the event that you need cash urgently.

　Lack of Diversification--Having decided that you want to

put aside some money in an investment portfolio comprising

say equities, you should always aim to diversify the stocks

within your portfolio so as to minimise your risk exposure

to any one stock. Not only should you diversify between

stocks, you should also diversify between different industry

sectors, and if resources permit, within different

geographical regions. This would reduce your risk exposure

should any one company or sector or region suddenly

experience a sharp decline.

　If you are a first-time investor, you may not have much

funds at your disposal. The purchase of one stock alone

could utilise the bulk of your investible savings. One way

to diversify is to invest in unit trusts which usually cost

about $1 per unit when launched. These unit trusts are

investment portfolios managed by a professional fund

manager. As the fund manager pools the funds from many

investors, he can invest in a diversified portfolio that

offers lower risk. Unit trusts may also enable investors to

diversify across regions, e.g. a European fund paired with

an Asia Pacific Fund, or between assets, e.g. investing

under an umbrella fund in an equity fund, a bond fund and a

money market fund.

　Market timing--Some investors try to "time" the market,

i.e. waiting for the market peak to sell and bottom to buy.

Such strategies are difficult to implement even for the

professional fund managers. You may also incur higher

transaction costs as a result of such a strategy.

　Investments should be made with a long-term view. The ups

and downs in the market can be made to work in your favour.

If you think a stock is good, you can pick it up in small

amounts so that you average out the cost of the investment

over time. For example, buying 1 lot of stock each month

over a 4-month period at say $0.70, $0.80 and $0.90 and

$1.00 would result in an average cost of $0.85.

　Letting Go--If you have made a bad investment decision, do

consider selling the stock even if it results in a loss.

The mistake some investors make is in trying to average down

their losses by buying the stock again at a lower price

without analysing the cause of the decline. The price of

the stock may have fallen due to the deterioration of the

company"s financial position, poor business prospects, or

potential law suits. If the stock is not good, you are

essentially throwing good money after bad.

　Herd Instinct--Some investors buy shares when they see

hectic buying in the market by other investors, i.e. chasing

the price of the stock up. Huge price fluctuations can

occur and fade very quickly leaving naive investors stranded

and holding on to stocks purchased at high prices.

　Inadequate Research --Before you invest in anything, you

should familiarise yourself with the instruments and their

risks. Such information can be obtained from newspapers,

financial magazines or even on the Internet. For example,

in the case of stocks you may wish to ask yourself the

following questions: Does the company have a good

management? What type of business is the company in? Does

the business have growth potential? Does the company have a

good profit track record? What are its prospects? How

volatile is the company's stock price? If the price of the

stock is volatile, will you be able to tolerate the risk if

the price of the stock rise or decline sharply?

The appeal of offshore funds

Fri, 15 Aug 2008 16:52:31 GMT

The subject, for most Singaporean investors , is
actually somewhat "moot", as the availability of "offshore
funds" to them is greatly restricted. Perhaps in reviewing
the subject, it is worth considering taking another look at
funds, as a whole, and then returning to the primary
objective that most investors and savers need to consider:
Is their money safe?

　　"Offshore Funds" as a classification is in itself
incorrect. While it was originally a term used from the UK
to describe funds set up in the Channel Islands of Guernsey
and Jersey, these days the vast majority of such funds are
not actually offshore at all, but very much land-locked.

　　Since the early 1980's, Luxembourg has become the major
centre of cross-border marketed investment funds. In recent
years, Dublin, Ireland, has become quite popular as an
offshore funds centre, and it competes with Luxembourg.

　　What both Luxembourg and Dublin offer, and thus the
central issue for their appeal, is a well-developed set of
regulations to enable the registration of investment funds
with their financial regulator. As a result of this
registration, the sponsoring fund company can then, subject
to furthur local approval, market its funds throughout the
European Union. In addition, many other countries and places
, such as those in Latin America, some in the Middle East,
Hong Kong, Taiwan and South Korea, have also accepted the
validity of Luxembourg or Dublin fund regulation, to allow
these funds to be marketed domestically.

　　What then is Luxembourg or Dublin attractive for funds?
Well in simplicity, the whole of the appeal can be summed up
in one word. TAX. Funds organised in both places have
virtually no tax liability locally, neither on the income
arising nor on capital gains achieved. Thus, for someone say
in Asia, the only tax liability applicable on their
investment into such funds is that applied by their country
of residence. In most parts of Asia this also is nil, and
thus investment into offshore funds becomes very attractive.

　　But care does need to be taken, as while Luxembourg and
Dublin have well-defined regulation and pro-active
regulators, many other of the offshore havens, where funds
can be established, attract the unscrupulous, and thus
dangers exist. To avoid getting caught by perpetrators of
fraud, the prospective investor should abide by a number of
maxims, such as :

　　Size - Identify the size of the fund in which you are
being invited to invest. Small funds are a danger signal.
Also identify the size of the fund company, and how many
funds it offers. A single-fund fund company should be
avoided.

　　Reputation - Luxembourg and Dublin have an excellent
reputation for their regulation. Jersey and Guernsey,
Channel Islands, Bermuda, Bahamas and the Cayman Islands,
are all well regulated as well. Be wary of places such as
Gibraltar, Malta or Cyprus.

　　Offers - Any fund promoter that offers a deal to buy
into their fund that promises returns that seem too good to
be true is probably offering just that, i.e. returns that
are too good to be true.

　　Guarantees - Many are only as good as the institution
offering it. And many funds have been closed or wound up
because they cannot meet the guarantee.

　　Risks - Investment risk is something to be accepted as
part of the deal, values do go down as well as up. Do not
compound your risk by "taking a chance on the manager" as
well.

　　Leverage - An old investment maxim is to not invest more
than you can afford to lose. The danger in many investments
is that you can find you lose more than you invested.

　　Check the "small print" - Established locations require
fund companies to issue a detailed prospectus of the offer
being made. If what you receive is too short or not
detailed, be careful.

　　Regardless of being "offshore" or "onshore", ultimately
the key issue is to know and understand what it is you
invest in, and be patient for the returns.

What Is A Stock Index Futures Contract?

Fri, 15 Aug 2008 16:49:28 GMT

A gold futures contract buys gold for future delivery.

A futures contract on HSBC stock has the HSBC shares as the

underlying commodity. But what does a Stock Index Futures

(SIF) contract buy or sell?

　　In theory, the commodity underlying an SIF contract is a

portfolio of stocks replicating the specified index. The

best way to understand what this means is to see how an SIF

contract can be used by the investor to profit from his

views on broad market movements. In this article, we shall

use the soon-to-be-launched Simex MSCI Singapore Stock Index

Futures (or SiMSCI Futures for short) for illustration.

　　The exact specifications of SiMSCI Futures are yet to be

finalised. What is known at present includes the following.

The contract assigns a $200-per-point value to the

underlying MSCI Singapore Free Index. (This index will be

explained in greater detail in a subsequent article.) There

will be six contract months concurrently listed for trading.

The margin requirements will be approximately 10% of the

contract value. The MSCI Singapore Free Index stood at 190.9

on 8 May 1998. The corresponding SiMSCI Futures would have a

contract value of $38,180, being $200 times 190.9. In this

series, we will assume that the initial margin and the

maintenance margin for this contract are $5,000 and $4,000,

respectively. Note that they are two specified levels of the

same margin account, not two separate sums of money.

　　When two counter-parties trade SIF futures, the buyer is

betting that the index up to a specified point in time will

be above a certain level. The seller, on the contrary, holds

the opposite view. The "specified point in time" is the

maturity date of the futures contract. Futures are

standardised contracts. The standardised maturities of the

SiMSCI Futures will be the last Stock Exchange of Singapore

(SES) trading day of the contract months, being the two

nearest serial months and the nearest March quarterly months

(meaning, in August 98, the following four months: September

98, December 98, March 99, June 99). As a near contract

(say, September 98) matures, a distant contract (i.e.,

September 99) will be added on a rolling basis.

　　Without an SIF futures contract, an investor who is

bullish about the overall market movement and wishes to take

a position accordingly will have to pick the counters to

invest in. To form a portfolio broad enough to represent the

overall market would definitely require millions of dollars,

quite possibly beyond his budget. If he selects just a few

counters, his choices may not move in tandem with the broad

market.

　　On the other hand, a bearish investor who does not hold

shares will have no way of putting his money where his

belief is since shortselling is not allowed. An investor

with shares can sell off the shares before the anticipated

market downturn. However, it is possible that although his

broad market view proves to be correct, some of the shares

he has sold buck the market trend.

　　With SIF contracts, such a dilemma can be easily

resolved.

　　Suppose Mr Tan believes that the MSCI Singapore Free

Index will be above 180 by 30 September (the last SES

trading day for September) and buys a SiMSCI Futures

September contract on 24 August at a price, say, 180.0. Mr

Tan is now "long" in one SiMSCI Futures contract. He must

have $5,000 in his margin account for his long position,

assuming that the initial margin and the maintenance margin

his broker requires of him are $5,000 and $4,000,

respectively. (Tan's broker cannot lower the margins below

the minimum levels set by Simex. The broker, however, has

the discretion to impose higher margin requirements.)

　　At the end of each trading day, the exchange will

determine the settlement price for each contract. Suppose

the settlement price so determined at the close of 24 August

trading is 182.4. Compared with Tan's purchase price of

180.0, this means a 2.4-point gain, or $480 profit (since

each point is worth $200).

　　Unlike holding shares where profits are merely on paper

(i.e., not realised) unless the shares are sold, futures

positions are "marked to market" on a daily basis, with the

settlement price taken as the market price. As such, Mr

Tan's margin account will be credited $480 for the 24 August

settlement, resulting in a $5,480 balance in his margin

account.

Speculating with Stock Index Futures

Fri, 15 Aug 2008 16:46:05 GMT

Suppose the settlement prices for the SiMSCI Futures

September contract over the period from the 24th to the 31st

of August are as shown in Column (3) of the accompanying

table. Since Mr Tan buys one contract at 180.0 on 24 August

and the settlement price at the close of that day's trading

is 182.4, he makes a gain of 2.4 points. The profit of $480

(being $200 x 2.4) will be credited to his margin account.

　Suppose Mr Tan remains bullish on the Singapore stock

market and does not close out his position till 31 August.

Then, his daily gain (or loss) will be determined by the

settlement price at the end of each day. This daily computation

of profits and losses will be carried out until the position is

squared off by an offsetting trade. In the table, Mr Tan's

daily gains (or losses) are shown in Columns (4) and (5).

　After each day's settlement, if the balance of his margin

account is above the "maintenance margin" level of $4,000,

Mr Tan will not get a "margin call". Once the balance

touches $4,000, however, Mr Tan must replenish his margin

account to the initial margin level of $5,000 if he does not

want his position to be forced-closed. As such, in our

example, Tan will need to meet a margin call for $2,240 when

the index falls 6.4 points on 27 August and his margin

account dips to $2,760.

　Suppose Mr Tan finally decides to close out his position

on 31August at a price of 165.2 points. After deducting his

final day's loss of $960, he can withdraw the $4,280 left in

his margin account.

　Over the eight-day period, Tan loses a total of $2,960 (=

$200 x (165.2-180.0)). This can be verified by his cash

flows: Altogether he pays $7,240, the sum of the initial

margin $5,000 and a margin call of $2,240. However, at the

end of the game, he only gets back $4,280.

　On total cash outflows of $7,240, the loss of $2,960

amounts to a 40.9% loss while the index drops by a

relatively small 8.2%. Such is the power of "leverage" or

"gearing", i.e., being able to bet on something worth

$36,000 with only a capital of $7,240.

　When a speculator bets wrongly, gearing blows up the

damage. If the bet is placed on the right side of the table,

the reward will be similarly magnified. If Mr Tan foresees

the market downtrend correctly and sells the contract at

180.0 on 24 August and buys it back at 165.2 on 31 August,

his investment will be just $5,000 (since he will not face

any margin calls). He will have a profit of $2,960, a 59.2%

rate of return.

　First of all, as with all speculative financial

activities, profits are made when the bet is proven right;

losses result if the bet turns out to be wrong. To speculate

on broad market movements using SIF, one must be aware of

the blow-up effect of gearing mentioned above.

　Compared with an actual investment in a basket of shares,

taking a long position in SIF has another shortcoming. When

the market drops, both shares and the long position in SIF

will lose value. However, shares do not "expire" (unless the

company goes bankrupt and is liquidated) and if an investor

with the holding power decides to hold on to the shares, he

can always do so. This however does not apply to SIF. Each

SIF has a "maturity date" when any outstanding position in

that contract must be closed. In other words, one can choose

not to realise paper losses when one invests in shares; but,

one will be forced to realise such losses with SIF

contracts. Of course, investors still bullish or bearish on

the broad market can always place their bets on other SiMSCI

Futures contracts still outstanding.

　First of all, as illustrated above, a bullish investor

needs only a relatively small sum of money to bet on the

broad trend of the 35 stocks included in the MSCI index. For

those who are bearish about the broad market movement, a

short position in SIF allows them to profit from this view

if it turns out to be right.

　Secondly, for investors who have a view on the broad

market, but are not interested in picking specific counters,

SIF is an ideal instrument.

　Thirdly, the transaction costs for trading SIF contracts

will not be proportional to the contract value. Instead, it

will be a flat fee per contract for a round trip. There is

no doubt that the actual cost figure will be significantly

lower than the commissions and clearing fees incurred for

SES stock trading.

　Finally, with the low required capital and transaction

costs, an investor can get in and out of the market easily

and cheaply. If there is good liquidity of SiMSCI Futures to

start with, a virtuous circle can set in to draw in more

hedgers and speculators, leading to even lower transaction

costs and higher liquidity.

The Importance of Distancing

Fri, 15 Aug 2008 16:30:57 GMT

One of the most important principles un-derlying the
conduct of war has to be pro-activeness.

　This is aptly captured by the following saying by Sun Tzi:

　 "In the conduct of war, one must not rely on the enemy's
failure to come, but on one's readiness to engage him;

　One must not rely on the enemy's failure to attack, but on
one's ability to build an in-vincible defence.

　In war, as appropriately pointed out by Sun Tzi, one
cannot rely on the failure of the enemy to attack us.
Instead, one must be ever ready to take on the enemy. In
addi-tion, the defence must be so strong that the enemy
would not even dare to contemplate an attack. This
proactiveness is thus not on-ly in defence, but in offence
as well. This is a principle that is well understood by any
military commander. By being proactive, he is able not only
to gain the initiative, but will also have ample time and
opportunity to deal with the enemy. On the other hand, if
he is placed on the defensive, he is unlikely to come up
with effective strategies. In fact, he will be under severe
pressure, resulting in tension and even disunity within his
rank-and-file.

　While proactiveness is well understood in military
warfare, it tends to be easily over-looked in the context of
business. More of-ten than not, many companies tend to
adopt a "follower" strategy. To begin with, they hope that
by following, they can reduce the risks involved. At the
same time, they can copy the successful strategy of the
leader and avoid his mistakes. There is nothing wrong with
adopting a follower strategy, provided one chooses the right
leader!

　The significance of the above quotation by Sun Tzi would
be better understood in terms of its applications. Let me
illustrate by posing a question. When you are num-ber two
or three in your line of business (whether it is in terms of
market share, profitability, quality standing, etc.), what
would you like to be? I am sure many readers would have
very little problem answering the question -- we all want to
be number one!

　Now, if you are now ranked number one, what would be your
goal or objective? This is where I often get very
interesting answers. Typically, I would get the follo-wing
answers from executives around the world:

　1. Defend the number one position.

　2. Protect the number one position (whe-ther this is in
terms of profits, market share or some other criteria).

　3. Guard against the competitors.

　4. Maintain the leadership position.

　5. Sustain the number one position.

　6. Try to remain as number one.

　7. Stay number one.

　Now if you happen to hold one of the above responses, let
me say that you are only half-right. By saying half-right,
I mean you are half wrong! This is because all the above
answers are passive, defensive and reactive responses! In
actual fact, being number one, you are effectively the
leader. As a leader, your main role is to lead.
Un-fortunately, if you have a passive, defensive and
reactive mindset, you are likely to end up following
instead. This effectively vio-lates the principle of
proactiveness as advo-cated by Sun Tzi.

　What then should the appropriate answer be? Of course, in
war, we can destroy our enemies. In business, however, we
do not go about destroying our competitors. This would
project the company as very ruthless and without moral
principles. However, while we do not go about destroying
our business competitors, it does not mean that they do not
wish that we are out-of-business. Without doubt, many
companies wish that there are fewer and weaker com-petitors
around. In this way, they would not have to work so hard
for their market shares and profits!

　A more appropriate stance would be for the leader to
distance itself from the com-petitors. Note that the key
phrase is to dis-tance from one's competitors, not from
one's own followers! By distancing itself from the rest of
the field, it would be harder and harder for the competitors
to catch up. In fact, if the gap becomes too big, the
com-petitors may even give up chasing! More importantly,
the concept of distancing can be applied to a company which
is not in the number one position. For example, if the
company is in the number two position, its goal would be to
catch up and overtake the leader. However, it is equally
important that it distances itself from the rest of the
competitors. In this way, it is assured of the runner-up
position while going for the champion!

　Interestingly, there are several reasons why it is so
important to distance oneself from the rest. Let me
illustrate through the game of basketball. When the score
is 62 to 60, 64 to 62, 66 to 64, and so on (that is, the
difference between the two teams is only two points apart),
what would your answers be to the following questions:

　1. Which team do you think will be under greater stress?

　2. Which team is more willing to take risks?

　3. Which team will be afraid of making mistakes?

　4. Which team is likely to be more innovative and
creative?

　Think of the answers carefully. Not sur-prisingly, many
of you will say that the team that is behind by only two
points is likely to be more willing to take risks and to
inno-vate. Conversely, the team that is margi-nally ahead
is more afraid to make mistakes, is less willing to take
risks, and is under more stress and tension! The logic is
very simple! The guy behind is too close for comfort! As a
result, the team that is lea-ding is forced to take a more
conservative posture to defend its position.

　This is where the irony lies. To be a lea-der, there is a
need to continue to innovate and be creative. This implies
the necessity to take risks and the ability to tolerate
mis-takes. Only then can the people in the orga-nisation be
willing to experiment, develop new ideas and concepts. All
these can flou-rish much better if the organisation has
enough "capital" and "buffer" to do so. This is where
distancing becomes so crucial. It allows the leading
company to have suffi-cient breathing space to develop new
ideas and innovations, and accomplish them with minimal
tension and stress. It is such a very simple, yet powerful
concept that only the enlightened companies are able to
practise it.

Strategies for investing in the stock market

Fri, 15 Aug 2008 16:28:09 GMT

The primary message for people who are interested to

invest in the stock market is that they should ignore market

timing and buy stocks for the long term. This strategy is

simple and yet effective because stocks give good returns

over a long period of time. This article will highlight

strategies on how to allocate their money which could prove

to be useful for investors between savings and stocks.

　The most simple strategy is the Buy-&-Hold strategy. One

does not need to do anything no matter what happens after

the initial investment is made. For example, you have $100

and you then decide to keep $60 in savings and use the

remaining $40 to buy stocks. Whether the stock market goes

up or down, you do not use your savings to buy more stocks

or sell stocks to put money back into savings.

　If you follow this strategy strictly, it gives you

downside protection because your wealth will not fall below

$60. At the same time, it still gives you unlimited upside

potential because of the $40 that you have invested in

stocks. Given that stocks in general will give you higher

returns than savings in the long run, this is why many fund

managers advise investors to put a significant portion of

their wealth in stocks and hold on to them.

　Another commonly mentioned strategy is the Constant Mix

strategy. In this case, you maintain a constant percentage

of your wealth in stocks. To use the same example, you

initially put $60 in savings (60%) and $40 in stocks (40%).

If the stock market falls by 20%, your initial $40

investment is now worth $32 and your wealth has dropped to

$92, i.e. $60 in savings (65%) and $32 in stocks (35%). Note

that your percentage in stocks has fallen from 40% to 35%.

In order to maintain your initial 40%, you have to use your

savings to buy more stocks. This strategy requires you to

buy stocks when their prices fall and sell stocks when their

prices rise. Put simply, it is a strategy that forces you to

follow, the rule of 'buy low and sell high'.

　While the Constant Mix strategy seems to be the best

strategy to follow, the Buy-and-Hold strategy is better

under certain situations. For example, the market is

oscillating up or down, the Buy-and Hold strategy, rewards

you better. Therefore, if you believe that the stock market

is on a long-term uptrend, the Constant Mix strategy is not

a good one to follow. However, the Constant Mix strategy is

very useful in a flat but oscillating market. For example,

you buy more stocks when the market drops and you sell them

for profits when the prices recover. This strategy takes

advantage of the up and down cycles in a market that is

going nowhere.

　The third strategy is the Constant Proportion strategy.

Basically, the strategy requires the investor to maintain an

exposure to stocks based on a multiple of the amount he is

willing to risk. It follows a formula like this :

Dollars invested in stocks = mX(Present wealth - Floor) 　　

where m >1

　The floor is the level of wealth where the investor cannot

tolerate risky investment and is not willing to put any a

cent in stocks. For example, the investor needs $60 (Floor)

for retirement and is not willing to risk this amount in any

investment. His present wealth is $100., Assume that m=2, he

will invest 2X($100-60) or $80 in stocks and save $20. If

the market drops by 10%, his stock investment will be worth

$72 and his total wealth will be $92 ($72 stocks and $20

savings). Based on the formula, his stock investment should

be reduced to 2X($92-$60)or $64. Thus, he has to sell $8

worth of stocks and put the money into savings.

　In essence, you sell stocks as they fall and buy stocks as

they rise (many like to put it as 'buy high and sell

higher'). While this contradicts the convention of 'buy low

and sell high', it is a strategy that is very suitable for

trending market. The strategy also gives downside protection

because when the investor's wealth drops to the floor, it

requires him to keep all his money in savings.

　Because it forces investors to get out of stocks as the

market falls, investors enjoy some downside protection. The

Constant Mix strategy is a form of 'buy low/sell high'

strategy which is good for a market caught in a trading

range. As the strategy recommends buying more stocks as they

fall, there is no downside protection for investors.

Unfortunately, many investors do not have any idea which

part of the market cycle they are in. Thus the in-between

'Buy & Hold' strategy seems the most appropriate and simple.

It is also the one with the lowest transaction costs.

　There is no reason to believe that any of the strategies

is best without considering the individual's requirements.

For an investor who needs a minimum sum of savings to meet

his mortgage payment next month, it will be inappropriate to

ask him to invest more of his savings in a bear market,

although the strategy might prove profitable in a year's

time.

　It is however not easy to implement any of these

strategies. The money that is supposed to invest in stocks

should be put into a diversified basket of good quality

stocks. This is not possible for an investor with only

$1,000 to invest or one who does not have any expertise in

stock investments. The alternative is to invest in the stock

market through unit trusts. With unit trusts, the investor

can gain exposure to the stock market of his choice without

going through the hassle of researching and constructing a

diversified portfolio of stocks.

How To Pick A Stock?

Fri, 15 Aug 2008 16:26:20 GMT

How do you decide whether to buy the stock of company A

or company B? Or be-tween investing your money in Singapore

or Malaysia? The two commonly used approaches for such

decisions are Technical Analysis and Fundamental Analysis.

This article will introduce you to both approaches and their

principles.

　　When technical analysis is mentioned, people often

think of analysts plotting price movements of stocks,

drawing lines to find trends, support or resistance.

　　Technical analysis is the art of deducing probable

future trend from historical records of stock trading. It

is the study of the stock market itself rather than the

external factors that influence the market. The most

familiar indicators used are the price and volume of a

stock.

　　Advocates of technical analysis believe that information

is not immediately reflected in the market prices of stocks.

For example, when a piece of good news about a company is

available, it is not immediately known to everyone but is

slowly passed from one person to another. This process

takes time and an upward price trend develops for that

company as more and more people hear the good news and want

to buy the stock and fewer and fewer people are willing to

sell the stock. The stock price which has started to move

in an uptrend will continue to do so until something happens

to change the supply-demand balance. For the technical

analyst, he does not need to know what the good news or any

other information that is affecting the stock price is; the

chart will tell him whether the stock price is going to move

up or down. He does not need to know the fundamentals of

the company because if the price is going up, the

fundamentals must be improving.

　　On the other hand, fundamental analysis examines all

relevant factors affecting the stock price in order to

determine an intrinsic value for that stock. If the market

price is below the intrinsic value, then the stock is

undervalued and should be bought. The factors to consider

include balance sheet items, corporate management, business

prospects and earnings outlook. The fundamental analyst

calculates financial ratios based on data available from the

balance sheet and income statement of a company. From these

ratios, he deduces the financial strength and earnings trend

of the company. Then he will meet the company's management

to affirm his deductions, to understand the business and to

learn of any new development of the company and the

industry.

　　A widely used tool in fundamental analysis is the

price-earnings ratio or PE ratio. It is calculated using

the stock price divided by the earnings per share (EPS) of a

company. As a general rule, a stock with a low PE ratio is

considered cheap although there are difficulties in applying

this principle. PE ratios of two companies can only be

compared if the companies are similar. It is believed that

companies in different industries deserve different PE

ratios. For example, Singapore Telecom is believed to

deserve a higher PE ratio than many other stocks because of

its position in the telecommunication business. However,

analysts have not yet agreed on what PE ratio each industry

or company deserves and there is no one way to determine the

right PE ratio.

　　Both approaches attempt to predict the future price

movement of a stock. Fundamentalists study the cause of

market movement while technicians believe that the effect is

all that they need to know. Despite their differences, both

approaches try to increase your probability of picking up

the right stock at a right price. However, these methods

only increase your chances but do not guarantee complete

success. Some believe that fundamental analysis is good for

picking the right stock while technical analysis is

appropriate to decide the right price or time to buy.

　　For the professional investor, he has to take another

step of deciding the sequence of analysis. This will have

an impact on how the investor divides his money among

different countries and stocks. Basically, the investor

decides whether the market as a whole or the company itself

is more important in determining stock prices. Both factors

definitely influence stock prices but the degree of

influence is the issue.

　　The top-down approach or sometimes known as the

Economy-Industry-Company (EIC) model emphasises the market

over the company. It starts with the analysis of different

economies to determine which country could offer the

investor better returns. In the selected economy, it

searches for industries that provide better prospects and it

picks the best companies within these industries. The

top-down approach offers a systematic and structured way to

analyse stocks. It advocates that the economy and industry

effects are significant factors in determining the total

return for stocks.

　　The bottom-up or stock picking approach believes in

finding stocks that are undervalued which can provide

superior returns irrespective of the market and industry

factors. The company effect is the dominant factor in

determining stock return.

　　There is no overwhelming evidence to suggest which

approach offers superior returns to the investors. The most

important thing is that an investor is comfortable with a

particular method, understands its strengths and

limitations, experiments with it, finds that it works for

him and abides by the method.

Lace and psychology(1)

Thu, 14 Aug 2008 20:24:38 GMT

BEIJING, Aug. 7 (Xinhuanet) -- Japan's Midori Matsuo used the fragile inner world of a woman's psyche to win the prestigious Triumph Inspiration Award for innovative lingerie.

Midori beat 31 designers from all over the world to gain the unanimous approval of the celebrity judging panel in Beijing's ultra-hip 798 Art Zone.

A creation by Chinese designer Lu Ye.(Photo Source: China Daily)

Her winning entry Under Skin was a sexy ensemble portraying the face of a crying woman and she explained that her inspiration came from the delicate inner world of Asian women.

"When women feel like crying, they tend to hide it," she said. "What this kind of emotion and lingerie have in common is that both are only revealed to the important person in a woman's life. My lingerie illustrated this."

Female Fascination was the theme of this year's competition and creativeness was the key for the judges.

The panel included the Dutch design duo Viktor & Rolf, Danish top model Helena Christensen, German fashion photography icon Ellen von Unwty Rerth, Colette's chief purchaser and creative director Sarah and Chinese top model and actress Lu Yan.

Runner-up Theresa Bachler from Germany said she had been inspired by the glamour of the 1930s. Her showpiece, named Once Upon a Time, carried a nostalgic touch of romance and elegance.

"I am impressed by 'the little black dress' - back in 1935, Vogue magazine said nothing else in fashion was as new," Bachler said. "Thus I use a lot of high-quality fabric, such as silk and lace, with modern cutting to represent such ideas in my lingerie."

Stine Fagervik-Rosen, 28, from Norway, was third with Desire for Beautiful Trash, fusing innovation with ideas gleaned from second-hand shops.

A model presents a creation for an international lingerie design competition in Beijing July 31, 2008.(Photo source: China Daily/Agencies)

"My inspiration comes from the atmosphere and fascination I experience while shopping," she said. "I love the way the elements - clothes, furniture, art and jewelry with their lively colors - are mixed and keep the balance of the chaos, and the way every element tells me its hidden story."

China's Lu Ye made the top 10 with a feather-inspired collection, and her country earned praise from Jan Rosenberg, the sales and marketing at Triumph International.

"Chinese designers are showing much more creativity than before," he said. "For instance, the graceful material cascade in Lu's design is really touching."

Fashion veteran Victor and Rolf paid tribute to the innovations shown by all the finalists: "What we love most is the fact that the designers freed themselves of the commercial side of things - almost no restraints were put on their creativity. "

Models present creations for an international lingerie design competition in Beijing July 31, 2008. Japan won the competition. (Photo source: China Daily/Agencies)

WWII Retro-tech: USS Pampanito sub with Todd Lappin

Tue, 12 Aug 2008 00:43:18 GMT

Can't see the video? Watch this video now in a browser or download this video now.

Boing Boing tv's retro-tech correspondent Todd Lappin of Telstar Logistics submerges us in WWII history on the supersized submarine USS Pampanito.

This Balao-class ship was built in 1943, and today one of her younger volunteer caretakers schools us on all the gadgets, gizmos, and old-school technology that kept this baby cruising to Pearl Harbor and back.

Did you know that subs like this couldn't submerge for more than 24 hours back then, because they'd run out of battery life? Think of it like this, Gen-Y-ers, that's like when your iPhone 3G slides into "red" mode, because you've been twittering too much. Only with people inside. And big guns to shoot bad guys.

Pampanito trivia: she's named after this little fishie, prized as a seafood delicacy. Wait, a sushi ingredient? Doesn't sound like a great idea for a WWII military ship!

Shot for BBtv by Eddie Codel, during the Long Now Foundation's Mechanicrawl.

Previously on BBtv:

* Multi-millenial Mechanical clocks (Long Now Mechanicrawl pt. 1)
* WWII Boatpunk: Aboard the SS Jeremiah O'Brien, with Todd Lappin (pt. 2)

PS: extra-special thanks to Scott Beale of Laughing Squid for hooking BBtv up with Eddie Codel!

A Robot Army, A Telephone Piano, and a Black Hole That Never Was

Sun, 10 Aug 2008 13:00:25 GMT

CERN - European Organization for Nuclear Research, CERN in 3 minutes, Large Hadron Collider, Large Hadron Collider testing didn’t cause a black hole, Large Hadron Rap (thx, Alphaxion!), The Global Warming Rug Will Last 1000 Years, The US Army Wants to be Nearly One-Third Robotic by 2020, Tetra Vaal Robot Animation, Kid playing video games, [...]

WWII Boatpunk: Aboard the SS Jeremiah O'Brien, with Todd Lappin

Thu, 07 Aug 2008 00:27:29 GMT

Can't see the video? Watch this video now in a browser or download this video now.

BBtv guest correspondent and blog pal Todd Lappin of Telstar Logistics takes us inside a steam-powered World War II "Liberty Ship," the SS Jeremiah O'Brien.

We marvel (!) at the cool old retro-technology that kept this behemoth boat running to and from the beaches of Normandy, and we meet the volunteer caretakers -- obsessive nerds just like us, only with white hair! -- who keep her ship-shape today. Did you know that shipyards in the San Francisco Bay Area once churned out Liberty Ships like this in 4 days or less, during the heat of the war? Watch and learn, li'l skippers.

Todd has a rockin' photoset of images from the ship, too.

Shot for BBtv by Eddie Codel, during the Long Now Foundation's Mechanicrawl.

Previously: Multi-millenial Mechanical clocks - Long Now "Mechanicrawl" pt. 1

WWII Boatpunk: Aboard the SS Jeremiah O'Brien, with Todd Lappin

Thu, 07 Aug 2008 00:27:29 GMT

Can't see the video? Watch this video now in a browser or download this video now.

BBtv guest correspondent and blog pal Todd Lappin of Telstar Logistics takes us inside a steam-powered World War II "Liberty Ship," the SS Jeremiah O'Brien.

Todd has a rockin' photoset of images from the ship, too.

Shot for BBtv by Eddie Codel, during the Long Now Foundation's Mechanicrawl.

Previously: Multi-millenial Mechanical clocks - Long Now "Mechanicrawl" pt. 1

Army Ignored Dangers In Troop Quarters

Wed, 30 Jul 2008 21:00:44 GMT

According to a report released by the House Oversight and Government Reform Committee on Wednesday it appears that the military ignored reports of dangerous conditions in the showers at a military facility in Iraq.

In February of 2007 the contracting firm of Kellogg, Brown and Root found “several safety issues concerning the improper grounding of electrical devices. In July of 2007 Sgt. Justin Hummer filled out a work order that reported “Pipes have voltage”. He told investigators that he sometimes had to use a wooden stick to turn off the water.

But nothing was done to repair the problem and in January 2008 Staff Sgt. Ryan Maseth, a 24 year old Green Beret was electrocuted in the same showers.

As you might imagine we have had the predictable response with the Army blaming the contractors for failing to fix the problem and the contractors blaming the Army for not properly informing them of the problems.

According to Senator Robert Casey the problem persists in many Army bases in Iraq with soldiers being repeatedly shocked. It is hardly surprising that facilities in Iraq might have these problems, in many cases they are using facilities built during the Saddam Hussein era and it is possible they didn’t build them up to code.

In addition some of the newer complexes were built on the fly and in the midst of chaos so there could be problems with that as well. I won’t go into the many reports of outright incompetence on the part of some of these builders.

So there are plenty of possible reasons for the problem.

Frankly at this point I don’t give a (expletive deleted) who is to blame for the incident. That is something for the courts to figure out. But what we need now is for the problem to be solved and solved NOW.

Our troops are over there fighting in a war of dubious wisdom but I think everyone on both sides of that debate would agree that our men and women should not have to wear protective clothing to take a shower.

We need to have real leadership here to resolve this problem. We don’t need investigative committees, we don’t need partisan attacks, we don’t need people trying to score election year points.

We need to protect our troops and we need to protect them NOW.

If the military can’t manage that then it is time to bring everyone home where they can take a voltage free shower.

Toothpaste-Tube Terrorism

Sat, 12 Jul 2008 02:01:38 GMT

Squeeze them out of Iraq, and they squirt into Afghanistan and Pakistan tribal areas. What’s clear is that the Bush-McCain mantra of “fight them there [Iraq] so we don’t have to fight them here” has turned out to be an oversimplification of the war on terror the US will be fighting through the next Administration and beyond.

This week, A US Marines commander reported his troops have killed 400 insurgents in southern Afghanistan since late April, and visiting Congressmen were told the Bush administration is “recalibrating operations in the region because of a 40 percent increase in violent attacks against US-led forces in Afghanistan that have pushed US casualties for the month of June beyond the monthly toll in Iraq.”

Read the rest of this entry.

FROM THE NEZAVISIMAYA GAZETA: Time for Kremlin to ‘Reveal its Asymmetrical Answer’ to U.S. Missile Shield

Wed, 09 Jul 2008 10:18:42 GMT

Now that Russian diplomats appear to have lost their bid to prevent the stationing of America’s anti-missile shield in Europe, what should the Kremlin do next?

This editorial from Russia’s Nezavisimaya Gazeta expresses Russian dissillusionment:

“Washington’s initial readiness to discuss American missile defense plans with Moscow was perceived around the world as a sign of the “post-Cold War era.” Back then, talks were held - at summits, ministerial meetings, including 2+2 events [defense and foreign ministers], and at special consultations with the participation of diplomats and military experts. And the longer the talking went on, the more watered-down the pledges of the Americans became.”

And what should be done? The editorial goes on ominously:

“If an agreement is signed for the stationing of this anti-missile base, Moscow will have to reflect on the usefulness of further consultations. It’s no secret that diplomatic efforts like these have enabled Bush to obscure the policies he has pursued for the past six years, which included the liquidation of agreements on disarmament and arms control. In so doing, the White House has managed to secure Moscow’s support for American policies on a variety of issues. Such help should only be provided on the basis of reciprocity. … now is the time for the Kremlin to reveal to the world and to the Russian public its ‘asymmetrical answer’ to the threat posed by America’s third missile-deployment area.”

EDITORIAL

Translated By Igor Medvedev

July 9, 2008

Russia - Nezavisimaya Gazeta - Original Article (Russian)

On the first day of the Summit of the “Eight” in Hokkaido, the Russian and U.S. Presidents held a very symbolic dialogue. Dmitry Medvedev raised with George W. Bush the issue of U.S. plans to install a base for the so-called anti-missile defense shield in Lithuania. Medvedev said that Russia could not accept American plans for such a base, after Warsaw’s voracious financial appetite prevented it from being built in Poland. After their discussion, the U.S. President didn’t reveal details to the press, limiting his remarks to a compliment typical for Bush: “He’s a smart guy.”

But a direct response to Russian concerns came from Secretary of State Condoleezza Rice. Yesterday in the Czech Republic, she signed an agreement in which that nation agreed to host a radar station for the missile defense shield. The ceremony took place despite the backdrop of massive demonstrations in Prague and the overall disapproval of the Czech population. According to polls which are not disputed by Czech authorities, 70 percent of Czechs oppose the deployment of the radar station in their country. But backed by the pro-Western segment of the Czech elite, Washington rammed through the agreement.

Next on the U.S. agenda is an agreement to deploy the second element of the anti-missile shield. Rice, it seems, will not visit Poland this time, where the missile interceptors were to be placed. But she will visit Bulgaria. This may well be a way of exerting pressure on the Polish leadership, which has refused to scale down the financial and military demands it has made in exchange for hosting the missile interceptors.

Bush obviously couldn’t yield to the charms of his Russian counterpart, especially on a policy that entails major military and political issues. In a case like this, even aggressive negotiation and shuttle diplomacy often fail.

READ ON AT WORLDMEETS.US, along with continuing translated foreign press coverage of the U.S. Missile Shield controversy.

Iran Reportedly Test Fires 9 Missiles And Oil Prices Quickly Rise

Tue, 08 Jul 2008 22:58:18 GMT

The war of words between Iran, Israel and the United States has now reportedly now inched beyond words with news that Tehran sent its foes a pointed show-of-force message by test-firing 9 missiles — which reports say are long-range enough to reach Israel or U.S. bases.

It throws a new monkey wrench into already-heated negotiations and rhetoric over Iran’s nuclear program - and will likely warm up the rhetoric in the U.S. Presidential campaign which already is marked by intense political jockeying on national security issues.

Some international reaction to the tests can be found HERE.

The New York Times reports:

One day after threatening to strike Tel Aviv and United States interests if attacked, Iran’s Revolutionary Guards were reported on Wednesday to have test-fired nine missiles, including one which Tehran claims has the range to reach Israel.

State-run media, quoted by Western news agencies, said the missiles were long- and medium-range projectiles, among them a new version of the Shahab-3 which Tehran maintains can hit targets 1,250 miles away from its firing position.

The reported tests coincide with increasingly tense negotiations over Tehran’s nuclear program, which Iran says is for civilian purposes but which many Western governments suspect is aimed at building nuclear weapons. At the same time, United States and British warships have been conducting naval maneuvers in the Persian Gulf — apparently within range of the launching site of the missiles tested on Wednesday. Israel insisted it did not want war with Iran.

Times Online has a video of the test.

The financial consequences to the world’s increasingly frail economy was felt immediately — in the impact on oil prices — and the prices didn’t go down:

Oil rose $2 to around $138 a barrel on Wednesday, partly recouping a $5 drop in the previous session, after Iran said it had test-fired missiles that could reach Israel and U.S. bases in the region.

U.S. light crude for August delivery was $1.81 up at $137.85 a barrel by 1:50 p.m., off highs of $138.28. London Brent crude was $2.11 up at $138.54.

Oil fell more than $5 on Tuesday on a firmer U.S. dollar and a rally in U.S. shares, which drew cash away from the commodities complex. U.S. crude had slid nearly $10 from last Thursday’s record high of $145.85 a barrel.

Iran’s missile tests at a time of increased tensions over its nuclear programme once again highlighted the geopolitical risks in the oil market.

Meanwhile, in the United States, there was an immediate political response.

Democratic presumptive Presidential nominee Sen. Barack Obama called Iran a “great, great” threat:

Democratic presidential candidate Barack Obama on Wednesday said Iran is a “great threat” and called for tighter sanctions after it test-fired nine missiles.

“Iran is a great threat. We have to make sure we are working with our allies to apply tightened pressure on Iran,” the Illinois senator, who will face Republican John McCain in the November election, said on ABC’s “Good Morning America.”

Iran said it fired the missiles as a warning to the United States and Israel that it was ready to retaliate if they attacked over its disputed nuclear projects.

Obama said that if he were president, he would combine more direct diplomacy with the threat of much tougher economic sanctions.

“I think what this underscores is the need for us to create a kind of policy that is putting the burden on Iran to change behavior, and frankly we just have not been able to do that over the last several years,” Obama said on the CBS “Early Show.”

Republican presumptive Presidential nominee Sen. John McCain said the tests showed the need for a missile shield to counter Iran:

Republican presidential candidate John McCain on Wednesday called for the United States to establish a missile defense shield in Europe to counter Iranian ambitions after that country test-fired nine missiles.

The tests “demonstrate the need for effective missile defense now and in the future, and this includes missile defense in Europe as is planned with the Czech Republic and Poland,” McCain said in a statement.

Iran said it fired the medium- and long-range missiles to warn the United States and Israel that it was ready to retaliate if they attacked over its disputed nuclear projects.

The United States on Tuesday signed a pact to build part of a missile defense shield in the Czech Republic to counter threats from the Middle East. The Bush administration also wants to install missile-defense facilities in Poland, although talks have stalled.

McCain’s rival in the November election, Democrat Barack Obama, called for greater diplomatic engagement with Iran and tighter sanctions — an approach McCain has criticized.

“Working with our European and regional allies is the best way to meet the threat posed by Iran, not unilateral concessions that undermine multilateral diplomacy,” McCain said.

Were ‘Brainwashing’ Techniques Used on US Servicemen in Korea Part of the Training at Guantanamo?

Wed, 02 Jul 2008 06:09:18 GMT

It seems that under the Bush Administration, Chinese interrogation methods designed to elicit false confessions during the Korean War became the basis for the training of interrogators at Guantanamo (NYT).

It seems there was a certain chart used in training the interrogators came to light during June 17 hearings by the Senate Armed Services committee.

The military trainers who came to Guantánamo Bay in December 2002 based an entire interrogation class on a chart showing the effects of “coercive management techniques” for possible use on prisoners, including “sleep deprivation,” “prolonged constraint,” and “exposure.”…

What the trainers did not say, and may not have known, was that their chart had been copied verbatim from a 1957 Air Force
study of Chinese Communist techniques used during the Korean War to obtain confessions, many of them false, from American prisoners…..The only change made in the chart presented at Guantánamo was to drop its original title: “Communist Coercive Methods for Eliciting Individual Compliance.”(NYT)

The chart was derived from a 1957 article called ‘"Communist Attempts to Elicit False Confessions From Air Force Prisoners of War” and written by Albert D. Biderman, a sociologist then working for the Air Force, who died in 2003.’ He got his interviews from American prisoners who had returned from North Korea, some of whom had ‘confessed’ to various atrocities, including germ warfare.(NYT).

Apparently, training sessions for interrogators included ‘an in-depth class’ on what were referred to — not very accurately, it seems — as ‘Biderman’s Principles.’(NYT)

Senator Carl Levin (D-Mich), chairman of the Senate Armed Services Committee, finds this revelation ’stunning.’ He thinks that “every American would be shocked” by the origin of the training document.

“What makes this document doubly stunning is that these were techniques to get false confessions,” Mr. Levin said. “People say we need intelligence, and we do. But we don’t need false intelligence.”.(NYT)

According to the article on which the chart is based, one method that Chinese Communists used to extract false confessions from American personnel was to require soldiers to stand for extremely long periods, sometimes in extreme cold. .(NYT) American military and CIA interrogators have used this method against terrorism suspects.

Of course we all knew about the ‘prolonged standing’ technique. As Dr. Steven Taylor remarks at Poliblog:

Anyone even passingly familiar with the debate over detainee treatment will be aware that those were amongst the public techniques that were used by the United States on those in its power. Indeed, I specifically recall former SecDef Donald Rumsfeld scoffing at the issue of standing for extended periods of time as being problematic because he himself prefers to work standing up (and even has a special desk that allows him to do so).

Other methods included on the chart were: ‘"Semi-Starvation,” “Exploitation of Wounds,” and “Filthy, Infested Surroundings,” and with their effects: “Makes Victim Dependent on Interrogator,” “Weakens Mental and Physical Ability to Resist,” and “Reduces Prisoner to ‘Animal Level’ Concerns.”’(NYT)

Speaking from Guantanamo, Lt. Col. Patrick Ryder said he couldn’t comment on the D.O.D.’s doings prior to current policy. ‘"I can tell you that current D.O.D. policy is clear — we treat all detainees humanely.”(NYT)

There are of course drawbacks to using any sort of coercion to draw out a confession, even from someone you have solid grounds to suspect was probably guilty. For example:

Abd al-Rahim al-Nashiri, a Qaeda member accused of playing a major role in the bombing of the American destroyer Cole in Yemen in 2000, was charged with murder and other crimes on Monday. In previous hearings, Mr. Nashiri, who was subjected to waterboarding, has said he confessed to participating in the bombing falsely only because he was tortured. (NYT)

A number of bloggers have reacted to the New York Times story.

Suzanne, writing for the ACLU blog, asks — and it’s certainly what I am wondering –: ‘Setting aside the ethical arguments against torture, a simple question remains: If the military knew these interrogation tactics elicited false confessions and useless information, then why bother.’

At MoJo Blog, Jonathan Stein points out: ‘We didn’t just copy communist tactics. We copied communist tactics specifically intended to elicit fabulous tales.’

It’s just so odd that no one thought to wonder about the source for all the hot ‘new’ ideas on interrogation. Jonathan Stein is equally bemused: ‘Really? When the military was copying old communist torture tactics verbatim, no one thought, Hey, this doesn’t seem like a very American way of doing things?
.
Andrew Sullivan remarks:

It’s an astonishing story - especially for any anti-Communist conservative who fought the good fight during the Cold War. But they won’t mention it. I guess when a Republican administration copies communists, conservative writers need to copy
Stalinists.

I guess so.

Dr. Steven Taylor at Poliblog says:

If a technique would be considered torture if used on one of our soldiers, that hould be a perfect test to determine if it is torture when we use it on those we have captured.

Americans should be shocked and outraged that our government adopted interrogation techniques used by the Chinese Communist circa 1950 (not to mention ones used on our own soldiers). Yet, I suppose it will be greeted with a yawn. After all, they are just trying to keep us safe, yes? That little sentence seems to cover a multitude of sins.

And no: the fact that we have apparently stopped using these techniques does not make this a non-story. For one thing, we really don’t know what is and is no being done (especially by the CIA, as many of the limitations that have been written into law of late have been focused on the military, not the intelligence apparatus). Second, the very fact that we were blithely using this article in this way until at least 2005 is not a comfort…

At Sic Semper Tyrannis 2008, Retired Senior Officer of Military Intelligence and U.S. Army Special Forces Col.W. Patrick Lang — who actually went through SERE training to learn to resist the use of such techniques — says:

I wrote some years ago in these pages that I thought the methods in use at Gitmo and other places sounded a lot like the resistance to interrogation training that had been done in the ’60s in the US armed forces. The supposedly sophisticated methods of psychological manipulation then said to have been used against French POWs in Indochina and Americans in Korea had inspired a lot of that kind of that training.

SERE training was intended to prepare people for the illegal bestialities that it was expected would be inflicted on American
prisoners if they fell into the hands of the communist enemy.

It was clearly understood that such methods were to be expected of an enemy devoid of decency. I experienced such training and it was no fun at all….

Clearly, some sadist or group of sadists with a vivid imagination took advantage of the national trauma of 9/11 to use the old communist enemies’ methods as a model.

Whoever did that inflicted a grave injury and disgrace on the United States.

The story has, or should have, a major bearing on the choice of candidates in election 2008 for anyone whose conscience is shocked by the story:

At Obsidian Wings, Eric Martin feels ‘profound and bitter shame.’ And he rightly points out:

Anyway, there’s a presidential election this November. One of the candidates, John McCain, wants to continue to permit our government to
engage in a policy of torture gleaned from observing the methods employed by brutal Communist regimes. The other candidate, Barack Obama, doesn’t.

Tough choice.

Cernig at Newshoggers agrees:

The same techniques were used to elicit a false conviction from John McCain when he was incarcerated during the Vietnam War - yet he’s just fine nowadays with accepting the Bush administration’s parsing of such methods as somehow not being, precisely, torture….

…He may have spoken up against waterboarding, but he’s just fine with following the Bush lead in defining other torture techniques as ‘enhanced interrogation"…. Do you really need another reason why he shouldn’t be president?

At The Moderate Voice, Shaun Mullen examines a further whorl in the pattern:

I commented earlier on Christopher Hitchens’ waterboarding epiphany. If waterboarding’s not torture, he concludes, after having voluntarily endured a very little of it himself, then there is no such thing as torture.

Field Marshal Sam Manekshaw (1914-2008)

Tue, 01 Jul 2008 14:25:07 GMT

Field Marshal Sam Manekshaw, a former Chief of Staff of the Indian Army, led India to victory against Pakistan in the 1971 war that resulted in the partition of Pakistan, and the formation of Bangladesh (earlier known as East Pakistan).

The Guardian obituary here…

Manekshaw (April 3, 1914 - June 27, 2008) died aged 94. Silloo, his wife, passed away in 2001. He is survived by his daughters (Sherry and Maja), and was born into a Parsi family.

The Times obituary here…

Senator Barack Obama’s condolence message on his website: “I offer my deep condolences to the people of India, on the passing of Field Marshal Sam Manekshaw. He was a legendary soldier, a patriot, and an inspiration to his fellow citizens. Field Marshal Manekshaw provided an example of personal bravery, self-sacrifice, and steadfast devotion to duty that began before India’s independence, and will deservedly be remembered far into the future.”

Click here to read what some other bloggers have to say…

Photo (above) of the cover page of a book on Sam Manekshaw. To read a review of the book please click here…