Hedge Trimming – Vietnamese Style

There's a fascinating story coming out of Vietnam at the moment.

Luong Hoai Nam, a senior Vietnamese executive from Jetstar Pacific Airlines, was arrested on January 7th in connection with the loss of $34 million US dollars when some fuel hedging transactions went badly wrong. Qantas subsidary Jetstar Pacific is majority owned by State Capital Investment Corporation (SCIC), an investment arm of the Vietnamese government.

In addition, two Australians, Qantas executives Daniela Marsilli and Tristan Freeman have not been formally charged but were forced to spend Christmas in Vietnam and are still prevented from leaving the country. They apparently were involved in the transactions which are the subject of an enquiry.

It’s doubtful that the story would have made the Australian media if locals hadn't been detained, and the involvement of the Australians doesn’t get a mention in the report in Vietnam Net.

For those of you (like me) who are either bored or disinterested in the shonky carryon that masquerades as high finance these days, this explanation by Henry Blodget writing in Slate might be helpful. It’s interesting that it was written in 2006.

The article is called - Risky Business The real reason for the latest hedge-fund disaster.

An aggressive trader places risky bets, gets lucky, and makes himself and his bosses rich. The bosses, eager to keep the gravy train rolling, let the trader make bigger, riskier bets (and, in this case, give him a reported $75 million to $100 million bonuses nd his own personal trading floor). To head off concerns that they are taking big chances, the bosses extol their risk controls and "multi-strategy" expertise. Then the trader makes some huge, risky bets, gets unlucky, and loses $6 billion in a few weeks.

So basically, extravagant risks are taken with other people’s money, and sometimes it all goes bad.

I love the spin the Australian has put on the Vietnamese story -

But there have been suggestions the arrest may be part of a wider backlash from old-school communists unhappy with the partnership with private enterprise.

If by “private enterprise” they mean the freedom to throw away hundreds of billions of hard-earned Dong*, then I too must be “old-school”.

Having lost a six-figure sum in the last twelve months in my (very cautious) super investments, as a result of the GFC, I’m old-school enough to suggest that it’s not OK to take risks with other people’s money, and when it all goes pear-shaped, to pocket your bonus and skedaddle.

I’m a lot better off than the poor sods who were caught in the Storm Financial scam – but then I wasn’t looking for extravagant profits, nor was I taking much risk. Nevertheless I was caught in the collapse, as were many other self-funded retirees. My balances are heading up again, but I doubt that the shonks (most of them on the other side of the Pacific) have taken any pain.

I’ve flown domestically (Vietnam Airlines) quite often in country. They come across as a very professional outfit, and their fleet is state-of-the-art and pretty new – mostly Airbus A321. The only exception was a trip from Da Nang to Hue on a rather noisy ATR 72. Maybe all ATRs are noisy.

There’s a great deal of money to be made catering to Vietnam’s burgeoning tourist industry. The Vietnamese are easy going, hard working and very entrepreneurial, but they can’t abide shonks.

The action of the “Communist” administration of Vietnam is quite instructive when it comes to dealing with crooks. They could teach a thing or two to governments in this country and the USA as to how to handle “masters of the universe” who lack any form of moral compass.

It’s unfortunatel that a couple of Australians were caught up in it. Having said that, iIf they behaved ethically they won't have anything to worry about.
*1 AUD = 16887.9871 VND - 09.01.10

A Whale of a Time

The current controversy about anti-whaling activity in the Southern Ocean is a great example of interest groups taking a stand on an issue at great cost to reason and logic.

In the first place, we need to look at the position of the Japanese whalers. Note that I use the term “Japanese whalers”, not “Japanese people”. This is because aaccording to an opinion poll conducted in Japan in June 2006, 69% of Japanese people do not support whaling on the high seas and 95% never or rarely eat whale meat.

So there is a distinction, and most Japanese wouldn’t be upset if whaling ceased tomorrow.

I’ve heard it said that slaughtering whales to eat their meat is an important aspect of Japanese culture. It isn’t.

Whaling in Japan began only a few centuries ago. It started at the same time as the whaling traditions of Britain, the Netherlands and other European countries. The industry in Japan is centered on a few coastal communities. Whaling in the southern ocean by Japanese did not begin until the 1930s, and was expanded massively following World War II following encouragement from General Macarthur, as a means of feeding a starving population. There’s no starvation in Japan now.

Japan has more than 4,000 tons of whale meat from its whaling program in cold storage. It can’t be sold because the demand isn’t there. If you asked a young Japanese to eat whale meat you’d get much the same reaction as you would from a young Aussie. My daughter spent some time in Japan the year before last on an exchange, and she reported that most of her Japanese friends regard the whale hunt as embarrassing and don’t like to talk about it. They see it as a stupid anachronism embraced by old people living in the past.

The fact that it is defended by the Japanese government stems from the same vein of Japanese nationalism that continues to deny the atrocities committed by the Japanese military in World War 2.

The Japanese call their whaling activity research. It isn’t.

All the data that needs to be collected about whale populations can be gathered without killing whales. Despite the signage, a glance at the specifications of the vessels they use gives the lie to the “research” myth. They are highly developed fishing vessels with massive storage and butchering capacity.

Most of the western world disapproves of Japanese conduct in maintaining a whaling fleet. Ronald Reagan had something to say on this in reference to the US Exclusive Economic Zone in 1988 -

Given the lack of any evidence that Japan is bringing its whaling activities into conformance with the recommendations of the IWC, I am directing the Secretary of State under the Packwood-Magnuson Amendment to withhold 100 percent of the fishing privileges that would otherwise be available to Japan in the U.S. Exclusive Economic Zone. Japan has requested the opportunity to fish for 3,000 metric tons of sea snails and 5,000 metric tons of Pacific whiting. These requests will be denied. In addition, Japan will be barred from any future allocations of fishing privileges for any other species, including Pacific cod, until the Secretary of Commerce determines that the situation has been corrected.

So in summary, the Japanese don’t need to continue whaling for any reason other than the assertion of national pride. They’re quite prepared to do it in the face of international opinion and in waters a long way from home.

The activists, on the other hand, are quite happy to use every opportunity to spin most aspects of their activity without a great deal of recourse to fact. They claim that the end justifies the means. Their mainpulation of the media on this issue provides a case study.

In this country, both sides of politics have used the issue as a political wedge. Labor has been more successful at this than the coalition, but in recent months, Greg Hunt has sounded very much like he’s a signed-up member of Greenpeace.

The conservative commentators look pretty silly on this issue. They poke fun at activists, which is what conservatives do, irrespective of the issue, because of an ingrained fear of subversion.. Their line of reasoning is difficult to follow, unless it derives from the notion that nothing should be allowed to interfere with the sanctity of commerce so long as something - anything is being bought and sold.

It’s the “Blackwater” defence. Any activity, no matter how despicable, when called "commerce" by definition becomes sacred, and is exempt from moral/ethical principles. Despite their loud protestations that AGW is a religion, this dogma claiming inherent sanctity of the market resembles nothing so much as a fundamentalist strain of religion.

So where do we go from here?

Some naïve suggestions –

Employ the Navy to exercise in amongst the whaling fleet. They wouldn’t/couldn’t be tasked to arrest and detain – just to run interference. With the assets they have at their disposal in terms of state of the art communications, air capability, agile vessels and highly-trained matelots, they could provide such an embuggerance to the Japanese whaling operation that it would make what Sea Shepherd has been able to do look like a Sunday school picnic.

It would be great training for the sailors, would provide them with a real-world challenge. Taxpayers dollars needed to fund fisheries surveillance would be saved. The exercise could be financed out of the training budget. In the absence of a more appropriate name, such an operation could be called “Buggerup 1”. Giving it a number would provide a message that it may be the first of many.

A medal could be issued – the Southern Ocean Buggerup Campaign medal. The matelots could wear it with pride. It would induce more adrenaline than rounding up refugees.

The Japanese couldn’t complain. Any objection from their government could legitimately be met with the response – “The RAN is carrying out training in the Southern ocean”.

This would hold as much water as the Japanese saying “We are carrying out cetacean research in the Southern ocean”.

This strategy would create a swift resolution one way or another and the whalers and the activists could all go somewhere warm. The Japanese would throw a tantrum or two, but in the end the pressure which would be brought by Japanese financiers standing to lose if their government took sanctions against Australia would win the day.

Or we could all stop buying Toyotas.

That would at least decrease the number of household appliances masquerading as motor vehicles on Australian roads.