December 19, 2011. Happy Birthday Grandma- your gift? The Korea you knew as a child...

Gloria Kim:
one korea? Let's pray for change !
Like Unlike · · Yesterday at 10:31pm via BlackBerry

Comments:
"Idealistically a united korea would be great, realistically south korea would suffer so much economically if they were to unite."
"North Korea has a lot more natural resources that can, in fact, benefit South Korea's economy."
"That may be true but there's so much poverty in the north that trying to help them all would hurt the south"
"I think there are a lot of South Koreans who would prefer not to go through the economic consequences of integrating an entire nation of millions who are living in sub-human conditions. Look at what happened when the wall fell in Germany. Human nature is selfish. Just look to the homeless and destitute in our own streets of Toronto. Sad but true. "

Above are a few comments that were left on my Facebook status momentarily after posting what I hope to see in the future. One Korea. The Korea my grandparents grew up in and subsequently watched as it was torn apart.

What I posted was written out of sheer hope to see change in the land my grandparents left for the future generation of our family. What caught my attention and quite honestly left me feeling quite upset was how quick people commented on the economics of Kim Jong-Il's death.

Yes, North Korea is an impoverished nation that has uncertainty written all over it's future. Yes, there is speculation that Kim Jong-Un could be more radical than his father. Yes, their economy is in complete and utter shambles. Yes, the people of North Korea are severely brainwashed.

But you know what, the world is filled with problems like these and there are proponents to see change. Whole nations are starving just like North Korea, but North Korea's never been able to have a loud audible voice to fight for them because of their leaders.

My heart breaks for that nation because at the end of the day, we are the same people. Economics matter--trust, I'm all for capitalism; bschool education will do that to you--but humanity shouldn't be compromised. It's a terrible notion to think that we shouldn't want a nation to be united because of the potential negative economic impact. What about the human condition? What happens if we don't do anything? Our economy stays the same and grows, but millions of people continue to starve. People who never had a choice to live on the other side of the DMZ.

For a long time today I was contemplating how I was going to write this blog post...As a second generation Korean-Canadian, the emotional impact of what happened in my country is hard to identify with. Until recently, the Japanese occupation and the whole mystery of North Korea, South Korea didn't mean much to me. In fact, I grew up vehemently stating that I was a Canadian. Being Korean was irrelevant.

How ignorant and foolish- my family's history has everything to do with who I am today. My grandmother's life was so intertwined with the happenings of the North and South split, it literally wrecked me when we the 2nd generation learned about her past.
Ironically, today was my grandmother's birthday. The day after Kim Jong-Il passed away, we celebrated her life and never mentioned his. This is her story and why I feel strongly about a united Korea.

Kim Myung-Soon (nee Chang Myung-Soon) was born into Korea's high society. Imagine Gossip Girl, but back in the olden days of Asia.
My grandmother was raised just outside of Seoul on her father's tobacco estate. In fact, he was well-known in Korea as the first individual to graduate with an English degree from Yonsei University (one of Korea's top 3 universities) and a gifted violinist. In their city he financed the development of the first school and to this day it still educates hundreds of students each year.
Being the eldest daughter of one of high-societies wealthiest and well-educated families, her birthright was a blessing and a curse. It sounds cliche, but it is true because of the Asian ancestry. She wasn't a boy therefore the family name could not continue.

She was born and raised with the expectation to be married off to a family of equal or greater status. In fact, because of those unwritten rules, the highest form of education she received was some grade in jr.high. The exact grade? I'm not sure... she's never told me. Come to think of it, my grandmother's never told us much about her past...everything we know is from our great aunts and her kids. My great aunts told us that she was the gem of society. An absolute doll and she use to have servants who would piggy back her to and from school everyday. She never had to worry about anything and was content with her role.
As our great-aunt was telling us all this, I peeked over at our halmoni (grandma in korean) and she had her hand resting against her face and she looked a bit lost in the moment. Almost as though she was thinking back to the times when she was a child. She caught me looking and just grinned at me. I didn't understand how she could laugh about the situation. From having everything, she went to having nothing...

Prior to the occupation and full-out war, my grandmother was formally engaged to a Ph.d scientist who came from a very wealthy family. On paper, her fairytale was about to come true. Her purpose in life was about to be fulfilled.All of that changed quite suddenly when the war came around. As soon as the war began, the North literally dragged all of the well-known educated people to work for them. As you can imagine, my grandmother's fiance was taken. I never got to ask her about him. How she felt, if she got the silly butterflies when she met him, or how long they knew each other before they were engaged. The facts behind her mystery man are only in her memory which she hasn't shared with us. After he was taken away, her high-society life took a turn for the worse and she would only experience hardship until recent years.

The Korean community is ruthless- even though they were never married, my grandmother was considered 'tainted' [for lack of a better word...]. Once society's darling, she was officially ruined. It was by sheer luck that she married my grandfather who came from a wealthy family. I love him to pieces, but he was no ph.d scientist. In fact, he brought with him three children, one with a severe disability and she raised all three as her own along with the other three children they had together. Again, I love my halaboji (korean for grandpa) to pieces, but he did not make life easy for her. He quite successfully ruined their wealth and moved to Canada.

She knew no english, had no education and was raised to be a socialite. She was no broke, raising 6 kids in a foreign country and working in a sewing assembly line in the ghettos of toronto.

She worked endlessly for years and years and lived out of a crappy apartment in a shitty area and never complained. She NEVER complained. I will argue that she has had the hardest life but she doesn't complain about any of it. She watched us, her grandkids, grow up and sacrificed her own happiness to see us succeed.

It pains every part of my being knowing a fraction of her life story. The gaps in between no one has told us about but needless to say her life was great until one domino fell over... the rest followed in rapid sequence. Too many times I catch myself saying "what if i had blah blah blah"... I wonder if or how many times my grandma thought to her self "What if they had never taken him?" "What if my life had worked out the way it was planned?"

The war changed the course of my ancestors' life. It severely impacted the one person in this world that I love the most and can rely on no matter what. So that is why I can say for a split second "Screw economics, help humanity". It's because of my grandmother's silent complaints that I choose to be vocal about hoping for change. She lived through it, the ramifications it had directly on her life and the hardships that followed. I have never in my life met a woman as strong as her and because of her hardwork and courage, my family is where it is today. Most Canadians have immigrant roots, and we all share the same drive. How could we waste everything our families gave up in order to establish a better life for future generations?

Somewhere in North Korea, her former husband-to-be could be alive. Everywhere in Korea (north and south) families were torn apart instantly. I'm sorry economics, but please take a back seat for now as hope and prayer aim to make a difference. At the moment, the economically sound thing to do would be to let N.Korea be; But great change never happened by 'letting things be'.

Today we celebrated my grandma's birthday. I looked at her 4'10 frame and could hardly hold back the tears thinking about the hardships she's been through without complaint. She never mentioned Kim Jong-Il, so that is why today I will say something for her. Korea was one country before and it can be one country again.

Black Swans

Sometimes there are events in history that are game changers. December 17, 2011 was one of these events - Kim Jong-il has died. A former chief US negotiator for North Korean nuclear talks said in an interview "If you asked experts what would be the most likely scenario for North Korea to collapse, the answer everyone would give you is 'if Kim Jong-il died today.' We're in that scenario". Ian Bremmer of the Eurasia group spoke on Bloomberg today and said "This is the worst possible scenario - the one that everyone's been concerned about - a relatively sudden and unexpected transition in one of the most consolidated, totalitarian regimes in the entire world."

Uncertainty has infected the Asian markets at close, with South Korea's Kospi down 3.4%, Japan's Nikkei down 1.2%, Hong Kong's Hang Seng down 1.18% and Taiwan down 2.24%. The uncertainty is unavoidable since there are so many questions in the air concerning the big black box we call North Korea.

It is rumoured that Kim Jong-il's 3rd son will be taking over, however he is young and inexperienced, currently estimated to be 28-29 (not even his age is known to the public). Worries revolve around the younger Kim Jong-un asserting his power by accelerating nuclear weapons programs in order to assert his newly claimed control. Kim Jong-un was educated in Switzerland, so questions remain as to how closely he will follow his father's regime for better or for worse.

Kim Jong-il has wreaked havoc on his own country; The economy measures less than 3% of South Korea's, and has relied on economic handouts since the 1990's. No shy of 2 million people died of famine during Kim Jong-il's 17-year reign. Certain talks were said to be confirmed with respect to food aid, however that's pretty much off the table until some sort of clarity comes out of the settling dust.

With an economy down the tubes, and the death of the dictator, naturally questions start to come to forefront as to whether there will be any protests (maybe unlikely citizens taking to the street - but within the communist party).

It's hard to envision - looking out the window into the distance from my 3rd floor desk in White Rock, how North Koreans in the video posted above could react so emotionally for their "Dear Leader". Without doubt there is propaganda, etc., but still - can you imagine an event like that for Harper? There is a mourning period of TWO WEEKS, as well as mandatory national silence for three minutes (or something like that). At 24.3M people, that would be hard to co-ordinate, but if anyone can do it - leave it to the dictator.

So - the questions persist - how will this Black Swan effect us - will Kim Jong-un stage war/military force to send home the message that he is not a force to be wreckoned with - will there be a protest towards freedom by the people inside the government of North Korea - will Kim Jong-un save the people of his country by moving towards better human rights practices and by co-operating to remove sanctions currently placed on the country?

There's so many what-ifs that I can't really even give you my opinion. The many secrets/unknown are almost synonymous with North Korea - there are so many things we don't know/will ever know about this country. I do know that there is the same kind of twitching fear in my stomach as when I read the news on the sanctioning of Iran. Will any of this miraculously be fixed after so many years of the status-quo? If you ask me, Kim Jong un-likely.

Shout out to those following Russia's "Arab Spring"

It's pretty fitting that TIME magazine's person of the year for 2011 is: The Protester! The magazine searches to look for a person that has/will impact the world significantly, whether good or bad. So what's your take - has the Protester been a good or bad things for the world in 2011? Will the role of the Protester change in 2012?

Fundamentals vs. Crazy Heyday

My dear friend challenged me today; she warned me that she believed in the overall 'basics of business' - essentially that she believes that the markets respond to specific company performance. Performance is based on consumers, who will only spend their dough if they believe in the company/like the products and/or services offered. Therefore, the consumers drive the performance, and in turn the performance drives the market. This is in comparison to high-finance/bankers in 3-piece suits driving the stock market.

Now this was a warning directed at me, because I previously mentioned that the markets are going haywire and are not responding to fundamentals at all. The difference is that I am not arguing that high-finance and bankers are driving the markets, but neither are fundamentals.

Instead of the 3-piece suits driving the wagon, we have a macro picture whom is our courteous (yet very unsafe, speeding, and wreckless) driver. This driver is not merely in a 3-piece suit, but is a mixed breed of only the finest 3-piece suit, political agendas, and cultural woes (a third of each, I envision). Not fundamentals, not suits, but rather every whisper/rumor/telepathic thought from Europe. And after all, what fun is a blog if no one agrees/disagrees/thinks you're foolish?

If you can enlarge the chart above, which was created by Bloomberg on October 19, 2011, it shows that the beta between the S&P 500 and the euro was +0.74. If I can bring you back to 2nd year finance (for those who care for a throwback), beta is a calculation of correlation. A correlation coefficient of +1 means that the two values (in this case the euro and the S&P 500) would move in lockstep, where as a correlation coefficient of -1, would mean that the two values would move in precisely the opposite direction.

A reading of +0.74 is the highest reading since the euro was introduced in 1999. What does this mean? Investors flock to perceived safe havens and out of riskier assets ('flight to quality') when they see inclining risk. The euro has been extremely volatile, as rumors of collapse of the eurozone and the euro as a currency all together have pushed investors to pull out of the euro currency and into USD/treasuries/other 'safe haven assets'. The downward pressure on the euro has been immense, and the US stock market has followed, despite decent economic data echoing throughout the last few months in the US.

I do believe that if the market was responding to company fundamentals, then we wouldn't be in such a volatile market, where even the savviest traders are having a hard time - unless you can predict the news coming out of Europe, you can't predict the market. Hedge funds are on track to post their second worst year on record - aren't these the smart guys? Maybe smart, just not psychic.

The VIX is an index of volatility that gauges three-month historic volatility. On October 31, the VIX was at a record 191.59 vs. a mean of 92.56 over the past decade. December 2008 was the prior peak at 190.44. On August 8, 2011 we saw the US stripped of its highest credit rating, which sent the markets plummeting. Since then, the months following have made for a market that is crafted for only those with steel stomachs. A 2% increase in the entire index, followed by a 2% decrease, CDS sovereigns and bond yields all increasing/decreasing by values that would have been witnessed over an entire year materializing in a day/or within days!

Although, I believe that my dear friend is correct in theory, unfortunately the way things should be and the way things are do not have a beta of +1 (extra bonus for fitting in a beta joke). Comments?? :D

Some historical context

Hey guys-

As important as going forward is, and as we contemplate who should do what in the European debt crisis, it is imperative to understand what's going on, and what has happened to get us to this point.

Let's start with the basics. CBC published an article today which acts as a primer. Some notable points from the article are:

• The euro, a common currency was adopted by 17 of the 27 member states of the European Union ("EU")

• Any country that enters the EU must adopt the euro once it meets the necessary criteria (Denmark and the UK have opted out of the euro completely)

• The "eurozone" refers to the 17 states that have adopted the euro in replacement of their old national currencies

• The Maastricht Treaty in 1993 lays out five main criteria to join the eurozone:

1. Inflation: the rate of inflation may not be more than 1.5 percentage points above the average rate of inflation of the three EU member states with the lowest inflation over the previous year.

2.Budget deficit: national budget deficits must be at or below three per cent of GDP.

3. Public debt: national public debt must not exceed 60 per cent of GDP. A country can still join if its debt exceeds this level provided it is falling steadily.

4. Interest rates: long-term interest rates must not vary by more than two percentage points from the average interest rates of the three EU member states with the lowest inflation over the previous year.

5. Exchange rates: exchange rates must remain within the accepted margin of fluctuation laid out in the Exchange Rate Mechanism (ERM) for two years prior to entry. (The ERM is the mechanism by which EU members linked their currencies in order to prevent large fluctuations prior to the adoption of the euro.)

If you read (highly recommended) - Michael Lewis' Boomerang, or read any news articles, it is apparent that in reality items like budget deficit and public debt are not met by several nations. In fact, in Boomerang, it suggests that Greece never met these criteria, but rather did a little 'cooking of the books' in order to grant access into the eurozone.

The European Commission estimates that the average debt burden for the euro area will be 88% of GDP in 2011 and 90.4% in 2012 (umm... wasn't the limit 60%?) Germany, the eurozone darling is forecasted to have debt of 81.7% of GDP in 2011, with Greece coming in at 150.9% of GDP. In reality deficits for the euro area are expected to be 4.1% of GDP in 2011, and 9-10% in Greece.

• While not all countries in the EU are not part of the eurozone, they are all part of a common market (no trade barriers, custom tariffs, border controls, and other impediments to the movement of goods, capital, labour and services across national borders)

• Today, the EU has common policies beyond trade (has included social and environmental co-ordinated reform), but the economic and core political integration was never structured

The open markets have lead to increased reliance between the EU countries (not only in the eurozone). The problem with just letting a country default, is the contagion impact not only in the EU but around the world. Some economists predict that a serious chain of defaults could spur a deep world wide recession. So as time is ticking, the economy (globally) becomes increasingly more fragile. For example, the China is the EU's 2nd largest trading partner after the US (we'll talk about China another week).

Michael Lewis gave a great interview on Charlie Rose which highlights the ridiculous nature behind the events leading up the debt crisis, and how the debt crisis isn't a singular banking crisis, or corruption of the financial systems. Rather in each country (Greece, Ireland, Iceland etc.), the underlying issues that lead to inflated debt-to-GDP ratios were culturally rooted. This would suggest that since the reasons for the crises were cultural traits and values carried on since... well the Greeks have been around since... forever (if the date has BC in it, I consider it to be forever), and that perhaps the solution won't be solved overnight (heck, my dad's only in his 50's and still he is stubborn as truck - honestly, try to talk him out of doing something once he's already set it in stone in his head. I dare you.)

Anyway, the book not only gives a great background but is funny (yes, actually funny). To give you a little teaser, the word feces appears a lot. If that doesn't get you running out to the bookstore, I don't know what will.

Link below to interview:

http://www.charlierose.com/view/content/11924

I like this guy

The below isn't related to our current topic of Europe, but I think it's pretty applicable anywhere you look. This guy got up in the morning and brought his big guns to work!

Response: Default vs. Inflation

Its tough, you boil down to 3 scenarios:

1) Fiscal Union - you're talking about uncapped and openended cross-border fiscal transfers. Transfering all fiscal authority to a central authority - in this case, Germany. Effectively, you might as well say all Europeans are going to become Germans...

2) Disintegration, and; - A.K.A let's kick out the weakest link and let it be a game of "Survival of the Fittest"

3) Coordinated action - not entirely fiscal union. This would mean an orchestrated and coordinated effort to fix the crisis. A costly solution to both creditors and debtors. this will include pooling funds to provide liquidity to nations and private banks, restructuring plans (as discussed) and measures to prevent private sector banking failures (much like TARP and American Banks but with limits on the bailouts).


Per my opinion, the third scenario is most likely to happen. The first scenario presents too many political hurdles and unrest amongst the people. The second scenario would risk collapsing the credit market in Europe. The third is what I would call the lesser of all evils. However, execution is key in this respect (theoretically sound, but executionally mission impossible), and based on the talent we've seen to date (not that I could do a better job), I will try to remain optimistic.

Barb's Take

Coercion works! Below find Barb's take on the inflation vs. default issue

What this European Debt Crisis has highlighted for the world to see is the need for a massive financial, political and culture restructuring of the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain). Heck, Germany can print all the money it can to support the national debt loads of the PIIGS, but we risk hyperinflation during a recession. For a country with an overleveraged balance sheet, all-out austerity measures are usually ineffective. By cutting back government spending, you risk a deep recession. The best current example would be Greece, where the significant interest rate hike to compensate for the higher sovereign risk has prevented economic growth from keeping pace with the rising cost of servicing its debt. This negative effect is further heightened by government budget cutbacks, which has the result of stagnating innovation and growth, which is crucial factor in bringing about the much desired recovery of the Eurozone nations.

Ultimately, I think the hurdles to the solution are not strictly financial but political and cultural as well. On the surface, each euro zone nation may be facing a sovereign debt crisis. However if we were to take a closer look, the root cause is very different. For instance, we take a look at Greece’s inability to collect on taxes, track record for fudging its numbers to stay in the Eurozone and its history of corruption. All these factors, amongst many others, contributed to the collapse of the Greek economy. What use is there to bail a country out if you risk the same mistakes being repeated because the culprit has not reassessed and resolved the very issues that led to its downfall?

I think the real question here is whether Germany wants the PIIGS to remain as Eurozone nations. I believe the obvious answer is that the public sentiment is that no one wants to work to cover other people’s f-ups. Why would anyone want a budget cut in their home country in order to bailout another nation?

On the other end of the equation, the consequences of a disintegrated eurozone could be costly. The departure of even one nation, raising fears that more would eventually follow, would affect credit conditions across the Continent. The departure of even one nation, raising fears that more would eventually follow, would affect credit conditions across the Continent. Tough call – we have tons of priorities but very little time before we face another mass-market pandemonium.

Post 1: Inflation vs. Default

A friend of mine (who I may try to coerce to post along side me) has challenged me to find articles on current events and opine on them. I hope this is a good start to our series.

The article I chose is from November 17, 2011. Despite the fact that it was my birthday, which throws me back to feelings of euphoria and strawberry shortcake, I can’t help but feel that it is a wee bit dated for today’s discussion.

News/rumors/telepathic thoughts from Europe have been triggering the markets left, right, up and down. Any news is old news as I watch the headlines crowd my Bloomberg terminal. You want to look for news from yesterday? You’ll have to dig through 257 articles, and surely there are at minimum two newly elected technocrats in Europe, Iran will be threatening something, a new country will have an Arab Spring like moment, and Rick Perry will find a new way to make us giggle – and he still won’t be in on the joke.

What is constant, however are the issues that have been facing Europe over the last two years or so. Despite meeting after meeting, we’ve seen nothing but lip-service granted to the underlying issues. I digress- back to the article!

The article argues that there are two options we have on the table:

1)Print money

2) Let the Eurozone crash and burn

The Germans (who run shiz these days), are extremely opposed to the option of printing money. The thought of a printing press classically conditions a stomach ache as a reminder of the hyperinflation in the 1920s of the German Mark.

Normally, printing money isn’t as shock-and-awe as the German 1920’s experience. Bernanke has said it is still in the toolbox to boost the US economy if things go awry with Europe. QE1 and QE2 didn’t send anyone to buy bread with a wheel barrel full of cash. The Bank of England increased their QE program in October. The difference? History has allowed countries to inflate themselves out of debt disasters, paying back the debt with inflated money, then kick-starting the economy once it can get back on its feet. With the Eurozone, if one country needs to inflate, all the neighbours go down with it.

So the question becomes what is more harmful – sinking the whole ship while the Euro flag waves high, or forcing certain exits ending the attempted Euro unity. If inflation does occur and prices rise, the gaps between countries such as Germany where wages are higher than say, Slovakia will no doubt put pressures on income disparity. You’ve solved your debt payment conundrum for a moment in time – now what?

Forcing certain exits will of course cause much shame and embarrassment to Euro leaders. But the countries can undertake monetary policy to fit what is needed in their own economy. Over the 17 nations that share the Euro, each one with veto power entangles the debates further than necessary. Other than shame and embarrassments – oh yeah, the immense fears that defaults will trigger CDS markets off the charts. If sovereigns default (unlike the 50% ‘haircut’) in Greece, who will be the odd man out on those contracts? Most firms hedge their bets, but at some point in the exchange, someone is not going to get paid.

Since firms report net exposure, it is virtually impossible to know where this risk will lie. Enter more contagion fears.

Obviously I don’t have all the answers/considerations. The ECB has been persistent that they are not in the business of purchasing sovereign debt, but rather they take care of monetary policy and the banks, and the individual governments should take care of sovereign/fiscal problems. Essentially the ECB is trying to take the option of printing money off the table.

I think it will be interesting to get in a time machine and fast forward five years. But that's crazy - who wouldn't want to get in a time machine?

Original article:

http://www.cnbc.com/id/45344815/Why_Europe_s_Central_Bank_May_End_Up_Printing_Money