Auction Approaching

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Recently I bought a new house at auction and now I am in the process of selling the old house, which will also be by auction. As a result, I have spent a lot of time of late pondering the best way to approach an auction, both as a buyer and a seller.

There are a lot of different types of auction. In a Dutch auction, popular at wholesale fish markets and also known more prosaically as a descending price auction, the auctioneer starts with a high price, which is then reduced in increments until a buyer is prepared to pay that price for the fish (or whatever is being sold). Bond market tenders are closely related to Dutch auctions.

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Pownce and Sandy: RIP

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As is probably evident from past posts about twitter or identica, I am something of a Web 2.0 junkie. Over the last few years I have signed up for countless services and I am sure I have forgotten about far more of them than I actually use. And therein lies a problem. The rate of innovation online of late has been extraordinary, but the result is a proliferation of services that is not sustainable. With the Global FInancial Crisis progressing outside the financial sector to the broader economy, venture capitalists will be tightening their purse-strings and this will inevitably lead to a period of consolidation in the online landscape.

Early signs of this phenomenon appeared today with announcements that the social networking site Pownce, to-do list manager I Want Sandy and virtual Post-It note site Stikkit will all be closing down.

Twitter is a common theme behind these closures. Despite the backing of welebrity Kevin Rose and rich media sharing features, Pownce ultimately failed to grow at the same rate as twitter. When initially launched, the mystique generated by the invitation-only private beta version of the site attracted attention for a while, but interest seemed to wane after the site went public. Personally, I have been using twitter more and more and pownce less and less over the last year, but I will miss the friendly alien (pictured above) who appeared on pownce pages when something went awry. Somehow he is more endearing than twitter’s “fail whale”.

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Blog Comment Spam

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What with buying a new house, going on holiday and now trying to sell the old house, it has been a while since my last post. Here is a quick reflection on blog comment spam to ease myself back into my blogging regimen.

Those who have never written a blog may not be aware of the phenomenon of blog comment spam. The basic idea is the same as email spam: to drive traffic to websites featuring pornography, viagra or worse. Fortunately, spam filtering software works as well, if not better, for blog comment spam as it does for email spam.

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Volkswagen: The Biggest Company in the World?

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One of the more peculiar stories of late in these times of turbulent financial markets is how, briefly, Volkswagen became the biggest company in the world. In the process, hedge funds around the world suffered losses estimated at over US$35 billion.

Over the last few years, Porsche has been building a stake in Volkswagen. By November 2007, the size of their stake had reached 31%, much of which was achieved by means of share options* rather than direct share purchases. Significant increases in the Volkwagen share price meant that these options delivered large profits for Porsche, prompting criticism that the company was acting more like a hedge fund than a car manufacturer.

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To Vote or Not?

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On the eve of the US election, occasional commenter here at the Stubborn Mule, Michael Michael, sent me links to a couple of articles on Slate on the merits of voting. Of course, as an Australian citizen, I don’t have the option of voting in the US election, but the issues raised are relevant to democracies around the world.

In the first, Don’t vote, Steven E. Landsburg argued that the chances of your vote determining the result of the election are so slim that it would make more sense to play the lottery. In the second, Vote!, Jordan Ellenberg responds with a detailed mathematical analysis (including a dose of Bayesian inference) to argue that the odds of affecting the result, while long, are better than winning the lottery.

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Dropbox

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I feel I am due for a break from the GFC* and so will instead return to the subject of Web 2.0.

Whenever I come across a new Web 2.0 site/application/service I cannot help but sign up. A quick search for the phrase “welcome to” in my gmail archives throws up about 100 messages, representing only some of the debris of this obsession: sites I have signed up for, explored briefly and mostly never visited again.

Among these, however, is a recent discovery that has quickly become an indispensable tool. Alongside gmail and google calendar, Dropbox is now one of my favourite examples of “cloud computing”. In a nutshell, it provides synchronised offsite storage in an extraordinarily seamless way. For a new service, still only in beta, it is very impressive.

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Australia and the Global Financial Crisis

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Over the last few months I have written a lot about the global financial crisis. My posts have focused on specific events as news has broken, ranging from a programming bug by Moody’s to the enormous US bailout plan and Government guarantees from Ireland to Australia. Here I will instead take a broader perspective and provide an overview of how the crisis has unfolded and, more specifically, how Australia came to be caught up in the mess.

A year ago, many commentators were extolling the idea that Australia’s economy had “de-coupled” from the United States and Europe, and would continue to be powered by the rapid growth of China and other developing nations. Concerns about inflation meant that interest rates were rising and many felt Australia would escape the incipient economic slowdown in the developing world. Events have instead unfolded differently. The Federal Government has taken the extraordinary step of guaranteeing deposits held in all Australian banks, building societies and credit unions and the Reserve Bank of Australia has delivered an unexpected 1% cut in interest rates, citing heightened instability in financial markets and deteriorating prospects for global growth. This was an extraordinary turnaround. It is, of course, the result of Australia becoming ensnared in the global financial crisis that began in mid-2007 and has intensified ever since. But how and why did Australia get caught up in a mess that started with falling property prices in the US?

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Australian Bank Guarantee on Wholesale Debt

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In a post earlier this week, I wrote

The Government was right to step in with the guarantee and it has doubtless provided some stability for a financial system that remains jittery, but the sooner the details are sorted out, the better.

The main outstanding question I was referring to was how the guarantee would apply to wholesale debt. Uncertainty on this point has been creating significant concern for investors in cash management trust and other managed funds. The amount of money moved from these funds to bank deposits may be over $1 billion.

Finally today, the Government announced the wholesale guarantee fee, which will also apply to retail deposits over $1 million. While there had been speculation that the fee would vary based on the time to maturity of each security, the Government has instead opted for a fixed fee. The fee varies with the credit rating of the bank taking up the guarantee.

Credit Rating	Debt Issues Up to 60 Months
AA	0.70%
A	1.00%
BBB and Unrated	1.50%

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Banks Covered by the Australian Government Guarantee

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Following the shenanigans in parliament earlier this week, the Government has modified their original 12 October media release about the Government guarantee for banks. In the process they no longer list the local and foreign banks covered by the guarantee, so with the help of Google’s cache* I am republishing the original list here. The Government has also (finally) announced the terms of the wholesale guarantee, so stay tuned for another post on that subject. Update: here is that post.

Today the Government announced the fees payable for a guarantee on wholesale debt, which will also apply to retail deposits over $1 million. At the same time they announced that foreign bank branches will be able to access the deposit guarantee but only if they pay the fee, regardless of the size of the balance. The lowest possible fee is 0.70% (it varies with each bank’s credit rating) and the bank is sure to pass that on!

Note that foreign banks not in the list below are now also able to access the wholesale guarantee (for short-term debt only) and the deposit guarantee, but the wholesale guarantee fee will apply even on balances below $1 million.

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Market Capitulation

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Apparently the sky is falling, at least that is what stock markets around the world are suggesting.

The Japanese stock market fell 9.6% today, the Korean market fell 10.6% and while the Australian market “only” fell by 2.6%, the Australian dollar is now down below US$0.65. European markets are already down 6-8%. There were dramatic Government interventions in the financial markets around the world earlier this month, which markets took as good news, but it seems they were unable to sustain the initial optimism and have given in to complete despair. The Korean market once had one of the most liquid stock index futures markets in the world, courtesy of the participation of a very large number of retail investors. Today at one point there was simply no bid on the KOSPI. The term used in financial circles when markets simply give up like this is “capitulation”.

The financial crisis, which started in the US has now well and truly spread to the rest of the world. This week the focus of attention moved to Asian and emerging markets, as Argentina announced plans to seize control of private pension funds in what is seen as a desperate attempt to stave of their second default on their sovereign debt this decade. This has driven the price on credit default swaps of insuring against default by the Argentine Government to over 30%. Even the price of insurance against default by the Australian Government has soared from around 0.02% a few years ago to 0.90% today.

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