Derivatives: A Love Story

May 30, 2018


Not since Mao

March 24, 2018

China’s head honcho, Xi Jinping, can now theoretically remain in power for life, having successfully got rid of the constitution’s pesky maximum term limit of two years earlier this month. None of this, of course, is very good for China’s peculiar brand of Communist Party democracy. But it might augur slightly better for reform of financial markets.

Last year, Beijing announced plans to tackle the country’s vast mountain of debt (which could be as high as three times the size of the economy, according to some estimates), with a particular focus on reigning in shadow banking.

The task is huge, with some estimating the shadow banking economy to be worth as much as $8.5 trillion (the opaque nature of the sector means that precise figures are a little hard to come by).

That is why in recent speeches senior Party officials have conspicuously steered clear of any mention of GDP growth. They know that they have got to tackle the risks in the financial system – and they also know that, in order to do so, the spectacular growth that China has been enjoying over the past couple of decades will have to take a bit of a hit.

Now is a good time. With GDP growth hitting 6.2% in China last year – well above the UK’s measly 1.7%, the eurozone’s valiant 2.2% or the US’s even better 2.3% – Xi and his henchman know that they have a few basis points to play around with.

But the question has always been: how much GDP growth is Beijing willing to sacrifice on the altar of financial reform before saying enough is enough and back-peddling?

The concern from pundits is that the task is so vast that there still isn’t enough room for doing all that needs to be done. Just look at what happened to Japan when it attempted to do the same in the 1990s, following the implosion of its own credit bubble. The country has never been the same since.

The danger that some fear is Beijing may stop much-needed reforms right in the middle – once GDP growth falls too much.

That concern may have lessened slightly now that Xi has made it abundantly clear that he is the man in charge. As one industry source told me during my recent trip to China, “Xi may be willing to take a few more punches than he might have otherwise felt comfortable with”.

Whilst China has come a long way since the days of Mao Zedong, it is still very much run along Communist Party lines. It still has grandiose five year plans. They may not be quite in line with the ill-conceived and ultimately disastrous Great Leap Forward, but there are some similarities in how they are drafted. In particular, the goals they tend to set are often overly-simplistic and benchmarked against something that is easily measurable. GDP performance is a pretty good yardstick to use.

Thus China’s municipal governors have not in the past been rewarded for such mundane goals as stamping out human rights abuses or making sure that people can actually breathe air without becoming ill. They were rewarded for contributing to the economy. If they had to wreck the environment and trample on individual freedoms in order to do so then so be it. At least GDP continued to grow.

Things have just got more complicated – and such complexity needs a strong leader to make sure that things don’t get derailed.

But even that might not be enough.

There are two dangers.

One is that a strong leader can become increasingly autocratic. Look at what happened to Mao. He wasn’t the kind of leader you could just pick up the phone to and chew the ear off of. He might have you shot. That’s why no one told him his collective farming scheme or his Great Leap Forward were both daft ideas. Well they might have done. But then they’d have been shot and we’d never know about it.

There are positive signs from the market that the authorities are still in a listening mode – hungry for outside knowledge and eager to act on the advice that they receive. They should keep this up.

The second danger is that the Chinese authorities may have left things too late. It may be that the task is so vast that Xi, for all his present clout and his new ‘leader for life’ status, just can’t stick the distance. Or gets bored and wants to buy a Ferrari instead.

When I was in Beijing, the official air quality index was well over 200. I could barely see one block in front of me. My eyes were streaming and my throat was hoarse. That’s really unhealthy, man – and a clear reminder that, when it comes to reforms, there is still much that needs to be done.

The problem is the government has focused for so long on GDP growth that it may not know how to do anything else. With or without Strongman Xi at the helm.

The tale of a black-and-white cat

March 15, 2018

I’ve decided to start blogging again, after quite a hiatus, and my first entry in this new blogging phase is going to be about the black-and-white cat that we left behind in The Netherlands when we moved to Hong Kong.

It was a vicious bugger, make no mistake. It would scratch and bite for the slightest transgression – and even on those occasions when it was totally unwarranted.

But we did like that cat and felt hopelessly guilty at leaving it behind in the Netherlands. In fact, we asked the first tenant that moved into our place if she could look out for the cat, and perhaps let it stay in the house if it was raining occasionally. He kindly obliged.

(And before you think too badly of us for abandoning this cat, it wasn’t ours – it just adopted us one day and moved in with us. We never asked to take possession of it. And we couldn’t very well take it to Hong Kong with us.)

Anyway, fast-forward a few years and our previous tenant, who has since moved out, contacted me to say that the original owner of the cat has been found. The cat was chipped, apparently, something that was discovered when she was taken to hospital for treatment of an abscess.

Now this entry doesn’t stop here. During the time when we lived with the cat, I became convinced that she had been abused in the past – possibly by a previous owner. Everytime that we picked up a broom, she would run away in terror.

Apparently our neighbour in the Netherlands had a similar concern, but her attempts to make sure that the cat will be okay has been scuppered by data privacy rules. So neither the cat nor ‘rightful’ can now be traced.

Five years the cat has been living at our house in The Netherlands. Five years she has been missing from her ‘rightful’ owner. I never once saw a poster of this cat. I would have noticed and almost certainly responded.

Five years, perhaps half her life (at a guess), the cat has been living elsewhere.

But she was chipped.

And, what with possession being nine tenth’s of the law, that’s it I guess.

It’s out!

January 28, 2018

Our brand new guidebook to Hong Kong has just been published. We can categorically say, without fear of hyberbole, that it is the best and most up-to-date guidebook about Hong Kong currently on the market. It is also in full colour! You can order direct from our website – free delivery if you are in Hong Kong and in the UK.

So what are you waiting for?

Why are you still on this page?


It can only be Carrie Lam

March 20, 2017

I am probably not going to win many friends from Hong Kong’s pro-democracy supporters by saying this, but on Sunday, when Hong Kong holds its “election” (in heavy quotes) for its next chief executive, only one candidate should be considered: Carrie Lam.

Or CY Leung 2.0 as she is somewhat disparagingly being called (CY Leung being the current chief executive).

A quick note on the election. In a democracy, the normal way of electing a head of state is for each member of the voting population to go to the polling booth and indicate who they would like to run the country.

But – and this is important – Hong Kong’s chief executive is not a head of state. It is the most senior official in Hong Kong’s governing body, which in turn is subservient to Beijing.

Hong Kong’s chief executive is not elected by every member of the voting-age population going to the polls. It is elected by a committee of 1200 members, many of whom have been hand-picked by Beijing.

Beijing have made it clear that they want Carrie Lam to replace CY Leung as chief executive.

And they should get their their way.

If Hong Kong was an independent nation, then one person stands head and shoulders above the others: John Tsang, the former financial secretary of the administration. An eloquent individual with a rational understanding of what needs to be done to improve Hong Kong’s lot. He also has a tough streak that seemingly belies his grandfathery moustache and the fact that in every publicity shot he has to be seen clutching a child.

But Hong Kong is not an independent nation and that is important.

It is part of Beijing, and if Beijing makes it clear that they want somebody as chief executive, then they should get what they want.

Hong Kong is a small and relatively insignificant region along the south coast of China. Very few people – either in or out of the territory – are seriously entertaining the notion of independence. And nor should they.

Much more can be achieved with Beijing as an ally than a foe, and the chief executive position is too important a matter for Beijing not to have their say.

But let this one go, maintain a sort of harmony and other victories can be had along the way.

What if Trump is right?

March 10, 2017

The very idea of reforming financial regulation is a thorny subject. Didn’t we, like, have financial Armageddon less than nine years ago?

And, yet, here is this brazen and brash Yankee president suggesting we now tear up one of the key pillars of legislation that will stop this happening again.

Yet what if he is right?

I have been writing about what has come to be known as the Dodd-Frank Act, and all the other legislation that was conceived in the wake of the GFC (that’s global financial crisis, folks) ever since they first were.

And all I can say is – well, gosh! – it certainly has turned the financial world upside-down.

The capital that banks now need has leapt to astronomical levels. So much so that, unless you are the number one or two in a particular sector or region, you might as well not bother.

The Royal Bank of Scotland is now largely concerned with its British interests, having given up its much-touted worldly aspirations long ago. European legislation similarly claimed the scalp of Barclays, whilst Australian bank ANZ no longer lists Asia as its number one priority. In the US, things have been no less painful, with Morgan Stanley and Bank of America Meryl Lynch visibly retreating from certain areas.

The resulting gaps are filled by those that have the might-of-muscle to move in.

This is not good for competition.


Banks are now much choosier about the business that they involve themselves in, which is to say high-profit and low-capital. Who is to say that this is the best business for them to be in? The regulators and the law-makers are deciding the fate of these business lines, and they don’t even yet comprehend what the consequence of consigning these to an early burial might be; nor, indeed, do they always understand which business lines might be the ones to meet their maker.

I do not wish to be an apologist for the banks’ excesses, which in no small measure led to the collapse of the financial markets in 2008. A former boss of mine revealed what can happen if banks are allowed to run the world, with his excellent 2003 scoop against Goldman’s, the former CEO of which is now a top advisor to the Trump administration.

But banks do also perform an important service. Crucially, they lend money, provide liquidity and oil the cogs in the financial machinery that are right now clogging up with grime.

To repeat my question: what if Trump is right?

Dodd Frank – and other bits of legislation conceived post-GFC – were hastily put together in a sort of panicked and frenzied “ah, what the hell do we do now!?” kind of moment. The public was on the backs of the politicians (they still are) and those in power needed to be seen to be doing something.

There are inconsistencies throughout the legislation that has emerged since the financial crisis.

Here’s a case in point.

Regulator’s no longer trust banks’ internal models – those ingeniously-fabricated algorithms that are supposed to show how much risk a bank is actually taking on, which is then used as a benchmark for how much capital said bank should put aside. Thus for many risks banks now have to use a model ordained by the regulators.

And yet….

Those same regulators want banks to be able to have an internal model in place so that they can “accurately” report their expected future losses for accounting purposes; which, it would seem, regulators are prepared to trust.

I’m not saying we should just scrap all the financial legislation that has been conceived since the financial crisis.

But perhaps a little bit of tinkering wouldn’t go amiss.

Instead of simply dismissing Trump’s forrays into financial reform as mere bafoonery, maybe we should be prepared to reflect a little bit more.

Just… what if… Trump… is right?

Trump madness

January 29, 2017

When we lived in Sudan, we lived a couple of hundred metres from the mosque where Osama bin Laden used to go and worship.

In the 1990s.

He wasn’t actually there when we lived there.

In fact, I’m really hard-pressed to find anything that Sudan has actually done against the United States in – what? – the last 20 years. (Remember, when Osama bin Laden orchestrated the 9-11 attacks, he wasn’t actually living in Sudan and had only limited contact with his former home, his erstwhile sponsor Hassan al-Turabi, being something as a persona non grata with the Khartoum regime at the time.)

So why, then, this Sudan visa ban from the current megalomaniac in the White House?

I’m actually kind of hard-pressed to find any logical rationale to the current action from Donald Trump, other than shameless populism and a bloody-minded determination to live up to his electoral promises (which I had, unfortunately and a trifle naively, dismissed as simple electioneering; err… no, he is actually as crazy as he sounded).

Nothing really makes sense, and Donald Trump is acting far too hastily with his executive orders, and without proper guidance. You only have to look how quickly the courts overturned the visa ban – at least temporarily – to see this.

But anyone following Trump closely knows all of this – or if they don’t they are being disingenuous.

I want to make a point here that is slightly more nuanced.

There is a very good case to be made for an overhaul of immigration regimes in Europe and US. Even if you are not a right-wing fascist nutter, there is a case to be made here; and I have made it in previous entries.

But now is most definitely not the time to be making it. The likes of Donald Trump and UKIP leader Nigel Farrage have been riding on the tides of populism for two long, without the benefit of proper rational analysis.

This took the UK out of Europe – which may in fact turn out to be a good thing, but not for the reasons that the likes of Nigel Farrage so often espoused – but I now fear that populism is taking a far more sinister turn.

How did Donald Trump put it? “It’s time to fight fire with fire”.

Indeed it is. And that means being unreservedly pro-immigration. Irrespective of the consequences.

We have for a long time needed a proper immigration policy in place. And we still do.

But to argue for one now is to play into the hands of those privileged populists that seek to make political mileage out of the strife and suffering of others.

Just don’t plant a bomb, Dear Immigrant: that’s not very nice.

It’s not just the politicians that should rethink things

November 10, 2016

First Brexit. Now Trump. It seems fairly clear who holds the responsibility for this: those smarmy world leaders that are at the heart of the political establishment, which now has been very much shaken and could even be crumbling. They didn’t take Greece’s pain seriously. They chose to bail out the banks rather than let them gracefully unwind. They trounced all over Keynes’ legacy and dogmatically welded themselves to the idea behind austerity and then, when people pointed out that actually curtailing spending might not be the best way to stimulate growth, growled and snarled.

But this initial analysis is simple and unfair. It is certainly true that the politicians have for too many years acted with contempt for a large portion of society, but it seems that they are not alone.

Where are all these Trump supporters? Where are all the Brexit voters? Hidden? Ashamed? Frightened of being seen to rock this cozy establishment?

On social media, the only comments I seem to be reading is that the world is in some sort of crisis and a kind of incredulity that people could actually consider voting for Brexit or electing Trump. I.e, are people really this stupid?

But this misses the fundamental point of what has driven people in this direction, and until people start reflecting on that society is going to have a hard time stitching itself back together. Yes, politicians have acted with arrogance and contempt that beggars belief, but they appear not to be alone.

Suddenly, those who for years have lent their support to the political establishment find themselves in the minority, and that is an uncomfortable feeling.

With Brexit, I was strongly divided. I saw the benefits that staying could bring, but I also see the EU as an undemocratic supranational entity that does things its own way with little regard for due legal process upon which our societies have been built.

Had I been able to vote in the US election, though, there is not a snowball’s chance in Hell that I would have chosen Trump. There was nothing in his rhetoric that endeared me to him and, although Clinton had her baggage, she was the least bad choice of the two.

But recoiling in horror from the outcome and despairing at the stupidity of the supporters of Trump – or for that manner the voters for Brexit, who I do feel some affinity towards – just misses the point.

Something is changing with our societies and people are rocking the boat.

Politicians must start to understand why. We must, too.

New City Trail website

August 1, 2016

City Trail Publishing now has a new website. Much easier to navigate and more professional looking. All our current titles are there – Sudan, South Sudan, The Hague – in both printed and e-book format. Our brand new guidebook to Hong Kong is still in the making, but will be published later this year. Watch this space.


July 4, 2016

The Leave camp are going to have a serious problem. Or maybe they’ve always had one.

One thing that seems to be coming increasingly clear – at least, observing events from afar – is that not only have a lot of Remainers failed to understand the reasons behind the Leave vote, but many of those that voted Leave don’t seem to have fully understood what they were voting for either.

This could be a huge problem for the Leave camp.

You are never going to convince those die-hard Eurosceptics, who have spent all their life campaigning against the EU, that actually being part of this European project might not be that bad of an idea.

But you might just convince those that thought the world would be different when they ticked that Leave box that they made the wrong decision.

I have seen a number of people wavering on this and this is a reflection of the poor work that the Leave campaign did in preparing an exit strategy.

They probably didn’t think they had to.

As Sarah Vine has been repeatedly quoted as saying over the past few days – no doubt because it is such an awesome quote – “you were only supposed to blow the bloody doors off”.

No one expected the Leave campaign to actually work, let alone those that were behind the campaign. Every eurosceptic that I spoke to before the referendum were focusing on getting as close to the Remain vote as possible. Certainly they never thought they’d beat them.

But they should have thought harder.

Because it now appears that we are a country without a plan. And since we do actually live in a parliamentary democracy, folk, in case anyone has forgotten, leaving the EU isn’t simply a question of laying a hand on the Magna Cart and saying, “I solemnly swear to invoke Article 50”. As some that voted Leave thought it would be.

And now Nigel Farrage is gone, having tendered his resignation as UKIP leader today. One might have hoped that he’d stick around to try to… you know… formulate a plan. Or perhaps dust off the one that he’d had all along at the bottom of his sock drawer, but with all the excitement of everything had clean forgotten about.

All of this means that many people are feeling duped.

You might be able to win a battle with false rhetoric, grandiose promises and over-simplification.

But you can’t seal that victory.