January Trading

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January is the month when most traders start off with a blank space in the P&L account. The previous year is history, the bonus (hopefully) has been paid out and now you have to do it all over again in the next twelve months. Each January you think that the coming year has the potential to be the best ever; you vow to take full advantage of every trading opportunity, promising yourself that this year you will definitely cut your losses and run with your profits and that you’ll avoid all of the stupid mistakes you made the year before. Trading, like marriage, is the ultimate triumph of hope over experience.

Actually, experience is both an advantage and disadvantage when it comes to making money in the markets. You’re less likely to be taken in by the gloss that analysts put on their preferred area of the market but you’re equally likely to be far too cynical for your own good, which means that sometimes you pass by on perfectly good trades because you don’t trust the hype. (Often you’re right not to trust the hype and the perfectly good trade can unravel 6 months down the road but there’s always one that gets away!)

There’s the temptation, too, to look for the next big thing. Last year it was China whose meteoric economic rise has propelled it to a world player in the global marketplace - although not without the necessary accompanying corporate scandals. The problem for outside investors is that there continues to be a lack of transparency with regard to corporate regulation and governance in China, with a particular problem in the area of ‘related party transactions’ where the relationship between subsidiary companies is often complex and difficult to understand. The Chinese seem ambivalent about corporate governance and investors are possibly less protected there than almost anywhere else in the world. Although, of course, having complex regulations on corporate governance doesn’t necessarily mean that investors are any better off if those regulations aren’t enforced. The actions of China Aviation Oil traders wasn’t a whole lot different to those of Enron. And the CAO chief executive was arrested a damn site quicker!

Although China will definitely continue to influence Western economic thinking, attention has already switched to India as the new kid on the block. We are already used to the notion of India as the call centre capital of the world but the country has moved on to payroll and transaction processing and is now looking towards engineering design, technical services and investment management. The Business Processing Outsourcing industry (BPO) is worth over $3.6 billion to India and is continuing to grow. According to some analysts more than 80% of the US Fortune 500 companies are now looking at executing non-strategic work offshore. (In the UK, the trade union Amicus has voiced concerns that over 12,000 jobs will be outsourced in the next year in addition to the 18,000 that have gone since October 2003.  In the US, people talk about being ‘Bangalored’ which means that they’ve lost their jobs because the work has been outsourced to India.) US giant General Electric recently sold 60% of its outsourcing firm to a couple of US private equity firms. The outsourcing company was set up near New Delhi in 1997 and has increased revenues to a projected $420 million last year from $26 million in 1999.

Last year Chinese horoscopes were all the rage for predicting both your personal life and your investment portfolio. Now people are looking at Indian horoscopes and Vedic astrology to answer questions about the year ahead. The astrology site http://www.indastro.com allows you to order your investment portfolio astrology report for a mere $20. This report will tell you, apparently, what kind of investments suit you and which industries you should be looking at and, in fact, whether the stock market is right for you at all!

However back in the Western world the old story of stock markets doing well in years which end in a five is doing the rounds. There does seem to be anecdotal evidence to prove this theory - in 1995 the S&P was up 34.1%. In 1985 growth was 26.3%. And in 1975 it was up 31.5%. Of course, as all investment managers will tell you, past performance isn’t always a good indicator of future growth and so 2005 could be the one year which disappoints. However people want to hold out hope that the lift seen by most equity markets towards the end of 2004 will continue into 2005 and make that prediction come true. Most of the good news came in the technology sector which may have finally shaken off its image as the black hole of investors dreams. My favourite (my only!) tech stock, Apple, managed to triple over the year thanks to the massive sales of the must-have iPod. I’m hoping that Steve Jobs has been looking into his crystal ball for the year ahead and thinking a little bit outside the slimline box for ways to keep the company at the forefront of cutting edge technology. My feeling is that Apple Computer may need to look at another product - I’m longing for the Apple mobile phone! Given that camera phones are now replacing digital cameras with the quality of their pictures, it surely can’t be long before they provision of downloadable music directly to the phone replaces even the most stylish of portable digital music players. The iPod has become so ubiquitous now that a consumer backlash is almost inevitable as people ask for even more features and exciting designs.

The trick for everyone, traders and investors alike, is to try to stay ahead of the curve. But in an era of instant communication and fickle consumerism it becomes harder and harder to identify the long-term winners against those who will shine bright for a time and then disappear without a trace.

Posted by Sheila on 01/24 at 03:15 PM - (0) ADD / VIEW COMMENTS

Outsourcing

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I mentioned recently that having your phone conversations recorded was one of the hazards of being a trader (and of the humiliations involved in hearing them played back to you) but I’ve noticed that more and more companies are now doing this too, ostensibly for ‘training and quality purposes’. I wish they’d record the bit where I’m screaming at the machine to say that I know that all their customer service people are busy and that I know that my call will be answered in rotation - but when the hell will that be? If a company has invested in the technology to answer the phone and allow me to choose from six different options (although none are usually the one that I want) then surely they can also tell me where I am in the queue and for how long more I have to listen to the strangled sounds of Greensleaves or (even worse) their latest advertising jingle.

I feel sorry for people in call centres who undoubtedly take the brunt of customers’ aggravations when they eventually get the opportunity to speak to a human being. But the biggest problem, as a consumer, is that the corporate drive to be lean and mean has meant that the job has probably been outsourced anyway and so the human being we’re finally getting to talk to isn’t actually employed by the company with whom we wish to deal at all! So telling them that you’re never going to buy their product again means absolutely nothing. It is, after all, no skin of their collective noses.

I was thinking a lot about outsourcing thing recently, having been looking at the figures for China and India for the previous week’s Ground Floor and knowing that it is a phenomenon that is here to stay. Of course outsourcing doesn’t necessarily mean employing an overseas workforce - it can just as easily mean contracting out non-core business locally, which is something that many, many companies now do.

Outsourcing areas such as IT support and customer care (although I have to say that the latter is a bit of an oxymoron in many cases) is a reasonable step for some companies to take. After all, it really doesn’t matter where on earth the operator (or agent or representative or any of the many job descriptions that are used now) is located; the key element is to answer the phone and deal with the customer - once he or she has successfully made it to the top of the queue!

But is outsourcing always the right answer? Clearly most companies look at it from a financial viewpoint and the payback is fairly compelling. An initial investment at the beginning followed by cheaper operational costs in the future has to be a recipe for a leaner and meaner corporation going forward. And if there are some teething troubles, well, the consumer has got used to that.

And most of us probably have. The truth is that we ring helplines more in hope than in any real expectation that we will receive the answer to our query from someone who actually knows what the problem is. And it’s fairly pointless in getting frustrated with the person at the end of the line who really can’t help you at all. Apologetic they may be. But they’re working for somebody else.

As a consumer, I would much rather companies didn’t outsource at all, but the question is would I be prepared to pay more for a product on the basis of excellent customer service? Clearly most companies feel that an almost adequate level of service and a cheaper product is sufficient. And, while ex-employees and consumers may be less than happy, we have to assume that the companies themselves, faced with lower costs for the future, are ecstatic.

Apparently not all, though. According to a recent report in Computerworld, there is anecdotal (though not yet scientific) evidence that almost half of the companies which sign an outsourcing contract are dissatisfied at the end of the first year. Even as more and more companies began to use outside contractors in many support areas, a further number reverted back to their original locations. The main reason given was customer dissatisfaction. I do wonder how those customers managed to register their dissatisfaction though - was it an option on the telephone choices?

However there are other reasons for companies to feel less enthusiastic than at first about their decision, and they stem to a certain extent from what the companies themselves are looking for. Many seem to want dramatic cost reduction and increased productivity and they want that to happen immediately. But realistically they should be factoring in a period of time when productivity may be lower, not higher, as the new company gains experience. And that’s probably the time when customer dissatisfaction is highest.

There can also be a lack of team spirit within the company, particularly if the work of a certain group is outsourced but they still need to use company facilities. This is becoming more and more common as the company which has contracted them often wants the same level of commitment that they get from their actual employees. Yet those outsourced workers will often have other contracts too. Why should they care more about one client than another?

As fewer and fewer employees have a direct input into the finished product, and fewer have a sense of ownership of the company itself, the task of motivating them becomes harder yet more important. We all need a sense of pride and achievement in what we do. But that’s a two-way stream. Companies have experience in making direct employees feel motivated and part of a team. There is a challenge still to be met in making their contracted employees feel the same way. And the challenge is doing that in a positive way rather than simply threatening to relocate those jobs to yet another different place.

Posted by Sheila on 01/24 at 03:11 PM - (0) ADD / VIEW COMMENTS

Kilometres & Euros

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Another year another changeover - this time in speed signage for the roads. I never quite understood why we changed the distance signage but not the speeds before now. I’m sure it had something to do with public acceptance and getting us used to the idea, but it has to have been confusing for overseas visitors (to be honest, though, everything about our road signage is surely confusing for overseas visitors; I can’t understand half of it and I’m supposed to have some idea where I’m going).  Anyway, it’s another move to bring us closer to Europe but whether it will result in the old imperial terminology disappearing from our language is another matter. Whatever about the difficulty of understanding the relationship of feet, inches, yards and miles in comparison to the metric system, the words are much more evocative than millimetres, centimetres, metres and kilometres.

It’s surprising, thought, how quickly things can become familiar and right-sounding in conversation, replacing even the most well-worn phrases. The other day I was talking about prices of goods to some friends and the term ‘a couple of quid’ was used. Almost immediately we all agreed that it sounded dated and wrong, even though ‘a couple of euros’ still doesn’t trip as easily of the tongue.

Ireland seems to have shaken off its currency past (if not it’s association with imperial speeds) with an ease not yet matched by our continental neighbours. Nowhere in Ireland do you see the Irish Pound equivalent of the Euro price any more. Yet in many continental shops, both Euro and the home currency price are still displayed. To be sure, the price for the Euro is much more prominent, but the old equivalent is still given. In restaurants you’ll usually find it at the bottom of the bill.

According to our friends in Spain, many of the European ex-pats living there still convert back to their home currency. I can understand it on the part of the English residents (although our Welsh friends think in Euro all the time); but I was astonished to hear that the German and Dutch regularly convert back to deutschemarks and guilders too. Of course, in the case of the Germans, and despite the then government’s enthusiasm for the project, there is a definite nostalgia for the deutschemark and a feeling that the arrival of the euro further eroded Germany’s place at the top of the European pile. But the truth, of course, is that the misguided exchanging of ostmarks to deutschemarks at parity was one of the most destructive economic decisions ever made by a German government trying to be politically popular. Easy short-term political decisions with difficult long-term economic effects always come back to haunt you and that decision has been haunting Germany almost since the day it was taken. A case against the short sharp shock and in favour of a dual system after all?

Before the euro came into common usage, there were dire warnings about massive job losses in financial services as foreign exchange and treasury departments scaled back. But five years on this hasn’t happened to any great degree. There are still plenty of financial instruments to be traded and new markets opening up all the time. European specialists became Eastern European specialists and then new-Asian specialists so that the wheels of finance still kept spinning and the traders kept trading.

A long-standing friend returned from Germany last year where he had been working in the Bundesbank. The arrival of the Euro had meant that staff numbers there were being somewhat depleted, although not by any great amount. In fact there have been a number of analysts questioning staff numbers in European central banks. Apparently the Central Bank of France currently employs 15,000 - a drop of 3.6% since the introduction of the Euro in 2000.

Central Bankers aren’t fools. They had plenty of time to think about the Euro and think about the consequences for their jobs so they set about widening the scope of their financial regulation and research departments even as their power to set interest rates disappeared. The Banque de France operates services for businesses which include company ratings and assessments although its services to consumers seems to be limited to a national hot line to report stolen or irregular cheques (and the numbers of those actually declined from 1999 to 2003 - from 144,037 to 127,824)!

Our own Central Bank was in a similar situation as the euro changeover approached. It coped by restructuring and calling itself the Central Bank and Financial Services Authority which brought the supervision of all financial bodies operating within Ireland under its remit. The result - 716 people were employed by the bank in 1999; now it’s employing 1,005 - an employment coup, I think!

The lean and mean ECB has approximately 1,300 employees, many of whom are on secondment from or previously worked for individual central banks. The bank plans to move from its current location (the imaginatively named Eurotower in Frankfurt) to an impressive new building, the design of which was the subject of an architectural competition. (There’s a vast amount of information on the various designs which leads me to believe that one of the bank’s 58 divisions was entirely given over to the architectural competition.) The building will easily house a few thousand staff so the ECB is obviously planning for the future and keeping its eye on staff numbers as well as interest rates.

There are probably more people (including those in national Central Banks, a natural breeding ground for economists) analysing the ECB’s interest rate policy than actually formulating it. The general view is to expect a tightening in the early part of this year. In a recent press conference the bank stated that ‘the combination of high excess liquidity and strong credit growth could in some countries become a source of unsustainable price increases in the property market’.
All those people telling us things we already know!

Posted by Sheila on 01/24 at 03:09 PM - (0) ADD / VIEW COMMENTS