Eldon-Online

WMD; Weapons Or Words?

The term WMD, in recent history, came to be known as an abbreviation for Weapons of Mass Destruction. Those things that the Americans said existed in Iraq, who dragged the British along with them into a war which rid the world of a dictator, but left a legacy of internal conflict in the country that shows no signs of abating. Oh, and just as an aside there didn't seem to be any WMDs - strange that!

On the other hand we have the North Koreans who most definitely do have WMDs, and a dictator, but nobody seems terribly interested in knocking him on the head and giving that country a chance of escaping from abject poverty and starvation. Where's the justice in that - or did everyone wake up to the idea that invading Iraq under some pretext or other was just wrong? Mind you, Iraq had oil - North Korea doesn't.

But it occurs to me that WMD could just as easily stand for Words of Mass Destruction - at least in Iran most recently where some bloodthirsty cleric is proclaiming that all rioters should be executed.

To re-cap, there can be few people in the world today, civilised or otherwise, who believe that the recent elections in Iran were fair and just. Of course, it is quite possible that both sides were trying to rig the ballot boxes, but there are just too many anomalies in the results to believe that the incumbent President won the election by anything like the claimed majority. He might have won, I cannot comment, but certainly not by the proclaimed majority.

The strength of negative feeling from the opposition within Iran, and from Iranians outside the country, is massive and powerful. They have been giving vent to their feelings, and show little appetite for remaining silent - almost at any cost. Which leads me to ponder on the words of the Islamic Cleric Ahmad Khatami, a known hardliner, who said "I want the judiciary to... punish leading rioters firmly and without showing any mercy to teach everyone a lesson," Khatami, a member of the Assembly of Experts, said the judiciary should charge the leading "rioters" as being "mohareb" or one who wages war against God. "They should be punished ruthlessly and savagely," he said. Under Iran’s Islamic law, punishment for people convicted as "mohareb" is execution.

One must assume that Khatami is equating rioting against a corrupt President Ahmadinejad as waging war against God; surely a dangerous and heretical supposition, but then perhaps he is becoming fearful of his own position and, like a cornered snake, is prepared to come out fighting.

The fact that inflammatory words can be as destructive as weapons is not in doubt. Comments such as these will lead Iran into a bloody domestic conflict that will end in tears. The fact that these words can can come from a man of religion is even more worrying. If religious leaders promote violence, from a religious base that is supposed to preach tolerance - and by religious base I mean all religions - what hope will there ever be for the people of this world to live a life where differences are respected, where freedoms become the right of everybody, and where the ambitions of dictators are not allowed to flourish. I hope that Iran does not descend into more bloodshed on account of the words of mass destruction uttered by its supposed men of peace. 

The Debate Continues: Hong Kong vs. Shanghai

The question that seems to bother Hong Kong journalists much more than their counterparts on the Mainland of China is the one that asks when Hong Kong will lose out to Shanghai as a financial centre. Why this difference in focus exists is something of a puzzle, but suggests to me that Hong Kong has developed a real (even though unnecessary) inferiority complex, especially where China is concerned. In the meantime China - or in this case Shanghai - is openly confident about achieving its goals, and sees little of concern that might hinder its progress.

Hong Kong has been successful as a financial centre. It is something that we in Hong Kong should be proud of, while at the same time making sure that we do not rest on our laurels. But, as I have said before, we do seem to take a perverse pleasure in denigrating ourselves - in allowing our media and even our legislators to "knock" (look at the slang definition) everything in sight; particularly if the Hong Kong Government is involved.

In a meeting of the Institute of International Finance I attended in Beijing last week a highly respected friend Dr Fang Xinghai, now Director General of the Shanghai Municipal Government Financial Services Office, laid out in his usual unambiguous matter of fact style the blueprint for Shanghai's aspirations. They could not be clearer. Shanghai will be the international financial centre for China, in time, and it is even decreed by the State Council that this should be the case. Period. So, what of Hong Kong, he was asked?

"Ah", said Dr. Fang, not at all put out by the question, "in terms of financial affairs Hong Kong is essentially a separate region under one country two systems, and it surely will have its own plans".

As an aside, it has surely been clear from way back that various cities in China have had aspirations to become a financial hub - international or otherwise. Beijing, Tianjin, Dalian amongst them - but the logical place for me anyway has always been Shanghai. It has historical claims, and it remains the hub of China's mercantile trade. It has been similarly evident that Shanghai actually really wants to undertake the role of international finance centre and not merely become the centre for finance in China, although heaven knows there is probably enough business there alone to keep a financial centre busy for ever. 

Okay; ball firmly back in Hong Kong's court. Do we have our own plans?

Well this, perhaps, is where the story starts to get a little blurred. Do we have a clearly articulated vision of Hong Kong as an international financial centre, in the same way that Shanghai is clearly focused? Yes we talk about it, but if you were to ask one of this City's leaders - public or private sector, about the definite plans to keep Hong Kong ahead of the competition what would they say? Would it be? 

"We have a well proven financial infrastructure encompassing the best practices from around the world. We have full support services for the industry with highly professional international and domestic firms in accounting and law. We have a strong, flexible, fair, industry-friendly collaborative regulatory regime. We are open to new ideas, and will always move quickly to implement the necessary changes required to keep us up with or ahead of the competition. We have a business friendly, knowledgeable legislature that understands financial affairs and acts to protect the prominence of Hong Kong. Our relationship with China is such that we can expect to be used as a "toe in the water" for changes that might be implemented more widely in China and internationally, such as Shanghai being allowed to use the RMB as a trading currency?"

If we can say yes to every one of these things then we are at least aware of our surroundings, and are proactively working towards ensuring that we remain as an important global financial centre. If we have gaps - we must close them.

The reputation of a financial centre is as important as its ability to perform, and reputations as we all know are lost in a nano-second, but take years, decades, centuries even, to establish. Look at London, and allow me to quote selectively excerpts from Stephen Inwood's excellent book "A History of London", writing on the period from 1965-2000.

"The City, nevertheless, was a huge and long-established centre of financial services, skills, contacts and institutions...this was London's greatest single advantage" ..."an enormous number of financial institutions offering profitable and tax-efficient investments of every conceivable description" ..."London's size and reputation, along with the skills and resourcefulness of its financial operators, enable it to beat or equal Tokyo, New York and its European rivals".

We have the fundamentals, the reputation, the skills and the abilities to continue to prosper as an international financial centre. It is up to us to keep those skills finely sharpened, to maintain our track record, to be creative (within the realms of decency given global financial scandals that have affected others much more than they have affected us), and make others chase us - instead of us doing the chasing.

We should welcome the competition that will be provided by Shanghai, but I would argue that this is not a heads we lose, tails they win scenario. Can Asia, and the global financial communities indeed, withstand the presence of two major international financial centres based in China - Hong Kong and Shanghai? I would say yes. Shanghai will make it, in time, but provided we do not falter in our own endeavours and ambitions, we will be right there too.

The Rules Of Principles... or How To Labour Under A Misapprehension.

I was brought up to believe that principles were everything. "Intent" was a defining noun. Doing the right thing, even if the "rules" allowed you to go further, was important. It has led to various debates throughout my life where my, at times perhaps, overly conservative/protectionist/reputational shield has come into play. For example, I did not think it "right" that my former employer should open a representative office in Myanmar, even if the rules allowed us, but they went ahead anyway. I closed it as soon as I was in a position senior enough to do so.

The discussion has struggled on. The "rules-based" provisions in the USA did not prevent the likes of Enron and WorldCom from going bust. The introduction of Sarbanes-Oxley "rules" has had some impact, but seemed to be more like using a sledgehammer to crack a nut - or so it became, even if the original intent was much less draconian. Rules, we said, encouraged the nimble-minded to see just how close they could get to the imaginary line created by the rules - or even assess the risk of having one foot on either side of those lines.

Principles, on the other hand were altogether more, shall we say, "lofty". More sort of, well, British. People instinctively knew what was right and what was wrong, and acted accordingly without having to resort to a "rule" book. Today, sadly, one might have to say that to trust in ones fellow human beings to act "properly" is blinkered and naive in the extreme.

Britain's ruling (for the time being anyway) Labour party has been found with an excess of moral turpitude and, to be fair, I suspect there are also a few members of the Conservative Party who have their heads very well below the parapet for fear of being branded the same way. It all started with expenses. There has been so much written in the world-wide media about how these politicians, representatives of the constituents who voted them into power, have blatantly abused the trust placed in them that I will not continue old news. "But", say these disgraced politicians, "it was allowed by the rules"! Forget the principles, people of Britain, it was in the "rule book", so it was okay.

Well, the people of Britain have had an opportunity to have their say. In the local elections held on Thursday and with results almost all in, the Labour Party has - in effect - been kicked out of Parliament, although that actual event is not going to take place until a General Election is called sometime with the next 12 months. The very people who voted for the last Government have already said "we don't want you any more. Leave."

The British Prime Minister, Gordon Brown, is I am sure an honourable man and must be bitterly disappointed at his inheritance from the rather clever Mr Blair, his predecessor, who maybe saw this coming before he left office mid-term. The Cabinet re-shuffle announced yesterday looks awful and surely the only way in which Mr Brown can salvage any dignity whatsoever is by resorting to his own strong  principles.

He is presiding over a Government that lacks credibility and which the people of Britain would like to see changed - now! The message is clear - move on, or run the risk of more indignity. This is nothing to do with the financial crisis, this is all about Governance and Leadership.

Do not stick to the "rules" and hold an election at the last possible day; Do stick to your principles and do the right thing. 

Market Madness.

I am beginning (?) to sound like a stuck CD! Here he goes again, they say, casting a wet blanket over the market euphoria; making Nouriel Roubini look like an optimist. Frankly, as I have said on numerous occasions previously, I have neither been a premature pessimist nor a blind optimist - but I hope, a realist.

In the last few weeks I have watched, with mouth open, as markets around the world have shrugged off the deathly spectre of recession and carried on rising as if it was a whole new dawn. I have read the optimistic commentaries from the analysts who, time after time, have got it wrong. I have been watching the antics of those commercial banking institutions that wrote off more bad loans in the first quarter of this year than they did for the whole of 2008. And listening aghast to the investment banking community crowing about their best quarterly results in recent memory - and heralding the return of bonuses to their "hard done by" executives! 

Knock! Knock! Is anyone at home?

Some years ago, I used to enjoy a writer in the SCMP called Teresa Norton who I think is still here in Hong Kong. She used to start her weekly columns with a phrase something like - "I don't know, maybe I'm nuts...". I wish I had thought of that phrase, because it's how I'm beginning to feel. Have I missed something here?

The stock market recovery has clearly taken its inspiration from the Book of Revelations and if, as I suggested you should, you took up your rights in HSBC at HK$28 per share, you will have done okay! And look, I really don't want to be the grouch, because the recovery will have helped many people - for the time being. But for every piece of front page news extolling the virtues of the market, announcing that the worst is probably over, that the green shoots are beginning to bud, there is "inside page" news about more job losses, more companies folding, more trouble for the airlines and car manufacturers. The job losses themselves adding fuel to the fire, by creating more people who can no longer pay their mortgages, auto loans and credit card debts.

The job losses in the USA last month have been greeted with relief that there were only about 325,000 of them. So, compared to the 700,000+ figures people have been used to it is better but, good grief, since when has the loss of another 300,000 jobs been something to rejoice about - with US unemployment still standing at a record high 9.4%. Not forgetting that in a few months time these latest figures could be subject to "adjustments" which are likely to go largely unnoticed.

In banking terminology when you write a cheque incorrectly, it often gets returned with the comment "words and figures differ". That's how I feel right now. Just like the multi-handed economists who say - on the one hand there is all this good news, and on the other hand there is all this bad news. Which is right?

So, I talk to people I know. People whose opinions I value and respect. I ask them to help me, as an interested observer, decipher my own thoughts and where my "gut feel" is flawed. They listen to my points of view and say they agree. In fact many have said "we've sold most of our shares and are now mostly holding cash, despite the zero interest rates". And if the market goes up any further we'll sell the rest too, they say.

More; I help out a couple of Pension Fund schemes operated for the benefit of some non-financial people. And even the Fund Managers agree with me. 

Well that makes me feel better, but my self-doubt remains highly corrosive. If my mentors are in agreement, why is it that the markets seem to defy the realities of the world around us? Or is this where we came in? Markets ignoring logic, creating speculators who are out for a good time.

In a Blog I wrote in August 2007, I reminded people of the old saying related to the Stock Market - "Sell in May and go away". It would have been a good idea to heed that advice in May 2007. It seems to me it would be a good thing to do in 2009 (even in early June) - but then, maybe I'm nuts!!