Interesting Reads 19th December 2009

Last week I received an interesting email about a survey that Allianz Life had conducted. They asked people the following question:

What 2009 movie best represents your financial outlook about 2010?

The top result was: Where the wild things are — at 35.5%. Allianz thinks that this represents people who are uncertain about how 2010 would be financially. There is nothing surprising there, 2008 was devastating for most people, most assets zoomed up like crazy in 2009, so we have faced quite a bit of volatility in a short period of time, and it is no surprise that most people can’t make up their  mind. I will easily fall under this category, although I wouldn’t have selected the movie because I had to go to Wiki to find out what it was about.

The rest of the results are pretty interesting too – at 29.2% – UP – is the next most popular movie, so more people are positive than negative.

Here is a little pie chart with the summary of the results:

Allianz Survey

What about you, are you upbeat for 2010, uncertain or plain negative about it?

Now, on to some other great links for this week:

Make money blogging @ Digerati Life

Secured credit cards @ The Smarter Wallet

5 Reasons your press release sucks @ Cash Money Life

Gmail and Google Apps got hacked @ Digital Inspiration

Wake up Gentlemen @ BaselineScenario

Fat cats to Obama: Stop comparing us to bankers @ Reformed Banker

The ethics of reward card deals at Ask Mr Credit Card

Twenty something finances carnival

Differences in Credit Card Practices in the US and International Markets

Hi, this is Mr Credit Card from www.askmrcreditcard.com. Today, I am going to write about credit card industry practices in different countries and how credit card companies respond to the different international environment. If you are looking to apply for credit card, please check out the section where I recommend the best credit cards.

Firstly, I would like to wish everyone a very Happy Holidays. While I write about credit cards on my blog, the focus is primarily based on US. But I also realize that not everybody is from the US and that different countries have different regulations and industry practices. In this post, I would like to explain how the credit system works in the US and how it differs from other countries. I will also look at how different credit card companies market differently in different countries.

US Credit Card Industry – In the US, an individual’s credit score is extremely important. When one is looking to apply for credit, credit card issuers look at one’s credit score to determine if they will grant that individual credit or not. But for individuals in the US, developing a credit history is a chicken and an egg story. You need a history to apply for credit, and yet financial institutions look at one’s credit history!

Folks in the US have a couple of ways to get around this. Firstly, those who are in college can apply for a student credit card. That is the only time when you have no credit history and get a credit card with no annual fee! Next year, after the CARD Act, students need to get a co-signer or give proof of income.

You do not exactly have to get a credit card to build a credit history. If you have no credit history and take a mortgage, the mortgage banker will request your W2 income statement and probably a list of your liquid assets. You can still get credit, but probably at a slightly higher rate than if you had an excellent credit score.

An individual’s credit history is also important if one wants to get a business credit card. Without a good credit history, you simply cannot get one for your business!

The main flaw in the US credit scoring system is that they do not consider income or your assets as a factor. Hence, even if you have no job, you can technically still get a credit card!

Europe – In the UK, they have a similar model in that there are credit bureaus that record individuals’ credit score (like Experian!). However, in the rest of Europe, credit cards are not as popular and credit bureaus are almost non-existent (check out this post about the French system).

Asia – I’ve been to a few Asian countries and have many friends there. Almost all said that concept of a credit bureau was unheard of! Banks have their own criteria on giving their customers credit. Income is almost always an important factor. Very often, proof of income is very important.

Global Credit Card Issuers

Citi and Amex have their bread and butter cards everywhere – In the US, Citibank, Bank of America, Chase, American Express and Capital One are the main credit card issuers. In the international markets, only Citicards and Amex are really present overseas. For example, I did some research and found that Citi and American Express are present in more countries than any of the other US based issuers. For example, I checked out Citibank India, Citibank Singapore and Citibank Australia. What I found was quite interesting. Essentially, Citi exported a lot of cards that were designed here to other countries, perhaps modifying them with a slight twist. For example, their generic Citi MasterCard is issued all over the world.

American Express too has presence in more countries than other credit card issuers. If you check most of Amex International website, you will find that they issue their standard Green, Gold and Platinum charge cards every where in the world. What differs though is that the Membership Rewards program varies from country to country. For example, a Platinum Card in the US has got very different benefits than from one say in Japan. I still find that the Membership Rewards for US cardholders still have the best benefits.

Partnering with local companies for affinity cards – Another strategy that issuers like Citi and Amex have used is to partner with local companies (especially airlines) and issue local airline credit cards. For example, in Singapore, American Express has the Kris Flyer Credit Card. In Australia, Citi has the Emirates Citi Platinum Card. In India, Citibank partnered with Jet Airways (not JetBlue) and issue the Jet Airways Citi Platinum Card.

Balance Transfer Offers do not exist everywhere – In the US, balance transfer offers are abound everywhere. But this is not the case elsewhere. For example, when I checked Citibank India, I could not find a single balance transfer offer on their site. Guess, not too many Indians have debt to their eyeballs like many of us here in the US. In Australia, many issuers offer balance transfer deals, but they do not offer 0% APR rate. Instead, the rate tends to be about 4% (from my observation).

Terms and Conditions are not listed in every country – If you look at Citibank India’s site, nowhere are a standard terms and conditions page to be found. Here is the US, you get a standard terms and conditions page. But on Citi India’s site, all I could find was the annual fee, nowhere could I find the the APR. On Citibank’s Australia’s site, they did list the APR but is was the monthly APR. On the Citi’s Singapore website, the APR was not listed on the site but it said it will be listed on your statements!

Annual Fees are more common everywhere else – One observation that I have is that in the US, no annual fee credit cards are more the norm. In most other international countries, annual fees are more common.

Ending notes – This is just a very brief look at credit card practices in the US and in the international markets. What I have found is that different countries have different rules and credit card issuers adjust their strategies accordingly. I think the US market is still the most competitive and that folks here still can get the best rewards and deals. Fees and rates seem to be on average lower as well. There are more deals to entice new consumers and these just seem to be lacking in international markets.

India ETF for UK Investors

I got an email on Saturday from a reader who wanted to know whether there were any ETFs that provide exposure to India for a UK investor.

Tony had left a comment on the water ETF post mentioning a water ETF for UK investors, so I asked him if he knew about any India ETFs for UK investors.

He sent me a detailed email about such ETFs, and I am really thankful for him for it. Using his email, here is a list of India ETF for UK investors.

db x-trackers S&P CNX Nifty ETF (India): This is an ETF that tracks the Nifty, which is one of the most popular indices in India. It contains 50 stocks and covers 22 sectors of the Indian economy. Total expense ratio of the fund is 0.85%. The assets under management are 279.54 million.

Lyxor has two India ETFs, both track the S&P CNX Nifty, one has the currency listed as GBP, and the other one as USD. Here are the two links:

Lyxor ETF India S&P CNX Nifty GBP: This one shows a year performance of +79.63%, and has 18.99 million assets under management. It has an expense ratio of 0.85%.

Lyxor ETF India S&P CNX Nifty USD: This one also shows a one year performance, assets under management and expense ratio same as the one above, but the currency is USD.

As you can see from the above comparison, these three funds are quite identical, the db-x trackers India ETF is much bigger in size, and that seems to be the biggest difference between them.

Win a Flip Video Camera at Ask Mr Credit Card Blog

The blog — Ask Mr Credit Card — is hosting a give-away, and if you are in the United States, — you can win a Flip Video Camera by doing some simple things.

Here is what you need to do:

  1. Go to the give-away page.
  2. Subscribe to their newsletter
  3. Leave a comment there answering the following question: “What is the savviest way you have made your money work harder for you this holiday season?”

The winners will be determined by the staff at AskMrCreditCard on Monday, December 21st.

The camera looks pretty cool too, here is a link to Amazon‘s page of the same model. The whole process shouldn’t take more than 5 minutes, so head over there and try out your luck.

Good luck guys!


Book Review – The Greatest Trade Ever: John Paulson

I just finished reading – The Greatest Trade Ever, a book that tells the story of John Paulson’s bets against subprime mortgages, and how he made billions in just about a couple of years or so. It is written by Greg Zuckerman, and has created quite a buzz already.

Overall, it is a good book and is not only about Paulson, but a few other investors scattered across America who made these types of bets, and bagged millions, while the rest of the world was teetering on financial collapse.

It started out slow, with details about subprime mortgages, which have already been reported gazillion times, and I think anyone interested enough to buy the book will know all of that already.

But it gets more interesting as you read through, as it starts narrating the tale of Paulson, and others who bet against subprime.

I liked the fact that the book was not focused on John Paulson alone, and had stories of other people as well. There were snippets about how Pimco’s Bill Gross reworked Pimco’s portfolio to contain safe short term Treasury bonds because he wanted to protect his assets, but at the same time didn’t dabble a lot in derivatives, as many of his clients were not allowed to.

It also touches very briefly on Peter Schiff who had been warning people about subprime for years, but couldn’t really profit from it even though his predictions got right. Peter Schiff moved into foreign currencies, commodities, and emerging markets, but all of these were big losers in 2008.

So, there were people who saw it coming but couldn’t profit from it.

The book places a lot of emphasis on Paolo Pellegrini who was the main architect of the trades that eventually led to Paulson making so much money. Paolo Pellegrini was doing badly in the investment industry and was on the brink, when he joined John Paulson as a research analyst on his team. He did a lot of the research that was required to make these trades happen, and eventually made a lot of money in bonuses through them too.

In fact, there is a nice little story in the book, where Pellegrini’s wife goes to withdraw money from the ATM, and sees that the machine shows a balance of $45 million! That money was from his bonus, which was deposited to their joint account.

This book gives you a window to a few people who made spectacular gains last year, but at the same time doesn’t put them on any sort of pedestal. If anything, it brings up the self-doubts of Paulson and others on several occasions. There were several times when they get worried, and think whether they are making the right trade or not. It shows how difficult it is to go against the tide, and how hard it was for them to remain focused on it.

In fact, another striking thing about all this is that most of these people were average by Wall Street standards, and hadn’t done anything nearly as dramatic ever in their life. After reading the book, I really didn’t think about Paulson and others as hedge fund rock-stars or anything, because their frailties are discussed quite often in the book, and that probably makes it easier for regular people to relate with their stories.

My only complaint with the book is that it starts out slow, and a few pages in the beginning sounded repetitive and had stuff that was covered quite a few times in the mainstream media already. Other than that, — The Greatest Trade Ever is a good read, and I enjoyed it quite a bit.

Disclosure: The two links to Amazon are affiliate links, which means if you buy this book by clicking them, it will net me a small amount.

Now I get it

A few years ago, before the IPO boom really started in India; most companies offered their shares at a discount on IPOs.  I remember the TCS IPO came out at a price range of Rs.775 to Rs.900, and even though it was over-subscribed many times over, the company decided to price it at Rs.850.

At that time I used to wonder why companies are leaving money on the table for investors, why aren’t they maximizing their proceeds, — it didn’t make any sense, and I just didn’t get it.

In the next few years, as the IPO market became hot, a lot of companies started to come out with their issues, and hardly anyone left anything on the table. They priced their issues to the maximum, and then some more. The frenzy was so intense that everything sold. No matter how crappy the company, if they came out with an offer – it sold.

Every IPO was fully priced, and I thought that companies had finally figured out they could make more money out of the IPOs than they were, and there was no need to offer a discount.

That part made sense, but what didn’t make sense was why people were still lining up to invest in these IPOs, — a lot of them had already burned their hands with issues that declined significantly, but there was still enough interest to ensure that every issue that came out got fully subscribed.

In the last couple of months or so, the interest of retail investors in IPOs has really dwindled, and gone are the days when anything and everything was over-subscribed a few times over. Investors have it figured out that if it is a good stock, they can easily buy it after it has listed (without having to block their money by applying for the IPO), and if it is a bad stock, then they can ignore it anyway.

Despite the lack of interest, companies are still pricing their issues fully, and not giving any sort of discount or leaving anything on the table for investors. I think that is about to change because of these three reasons:

  1. Retail investor interest in IPOs is dwindling fast
  2. Interest rates are about to rise
  3. Economy is slowly picking up

A combination of these three events will make it necessary for Indian companies to raise funds from the market, and a lot of times, it will not do to tap the debt market, — they will have to go to the equity market.

If they don’t get their act together, and start giving discounts and leave money on the table for retail investors, they won’t be able to raise money from the equity markets any more. So, in the time to come (I don’t know when), companies will start pricing their IPOs at a discount, and someone somewhere will be left wondering why these fools aren’t taking full advantage of the market. I won’t be that guy a second time though, because now I get it.

Interesting Reads 12th December 2009

The most interesting thing I read this week was Pivot Capital’s research report titled: China’s Investment Boom: The Great Leap into the Unknown. It is the most bearish thing I have read on China, and although just 10 pages,–  it goes in some depth about the reasons on why it is so bearish. It talks about factors like excess capacity and high levels of credit, which will lead to problems in China. The paper is getting increasingly popular and I think you should spare the time to read it.

On to other interesting posts this week:

How to invest online using the Peter Lynch Strategy @ The Digerati Life

Buying the moon and stars and other fun gifts @ Cash Money Life

Get a free PDF book on Office 2010 @ Digital Inspiration

Jamie Dimon has another good year @ BaselineScenario

Tarp 2009: Where are they now? @ Weakonomics

Persistence of poverty and increasing marginal returns @ Rorty Bomb

How to save money on groceries @ The Smarter Wallet

Lastly, I’ll be off for a few days in January, and would welcome guest posts on this site.  If anyone is interested, please contact me through the contact form  (or email if you have that), and we can discuss this in detail.

6 Things to Watch Out For When Choosing a Savings Account

Finding the right savings account these days isn’t as easy as it used to be. It seems the days are gone in which you could just walk into the local bank, tell them you wanted to open a savings account, plunk your money down, and leave happy with a good interest rate and a free toaster.

At most banks, you now you have the choice of a variety of savings account options, must watch for hidden fees lurking around every corner, and can’t even be sure your bank will be around when you wake up the next morning. And while you might try your best to be selective regarding your bank, and read all the forms regarding the account options, you still might not be happy with the account once you’ve chosen it. Therefore, be wary, open a savings account with your eyes open, and consider the following pitfalls when choosing a savings account.

1. Choosing the First Bank You Find

If you’re truly looking for great savings rates from a reliable bank, you’ll likely have to do a bit of shopping around first. By doing your homework online, reading customer reviews, calling the bank directly, and understanding the terms and conditions regarding various accounts before you sign up for anything, you can save time and costly mistakes.

2. Low Interest Rates

Be on the lookout for poor rates offered by your own bank – always shop around! To ensure you are getting the best deal, consider visiting websites like Bankrate in the USA, Money Supermarket (UK) or Money Compare (AUS) and similar sites where you can compare various banks around the country or online. Websites such as these can give you an idea of which banks are most competitive, and what average rates are looking like in and around the area in which you live. Don’t jump the gun just yet though. Avoiding a poor savings rate isn’t the only pitfall to avoid during your search for a great savings account.

3. Minimum Balances

Having a minimum balance can be costly if you aren’t aware of the associated fees or don’t keep a close eye on your savings account. Ensure that you understand the minimum level of money you must keep in your savings account to keep it over the low balance level and avoid fees. Many of the higher limit savings accounts offer better interest rates, but if you go under that minimum balance level, you may be charged a fee or your interest rate could drop dramatically.

4. Fee Structure and Restrictions

Minimum balance fees aren’t the only charges banks might hit you with regarding your savings account. Costs for cashier’s checks, wire transfers, and other special account services like obtaining a paper statement, can eat up any profits you might be making from your bank accounts. In fact, such fees can greatly reduce or completely negate the interest amounts you are earning on your savings account if you aren’t careful. You must also watch out for penalties regarding the number of transactions allowed on your savings account each month.

5. Bank Accessibility

While the location of your bank might not seem like a big deal when considering where to open your savings account, it can make a difference. If you are not comfortable doing your banking online, driving across town to do business with your bank can cost you more in gas than you are making on savings interest. But the physical location of your bank is not the only issue when it comes to accessibility. When banking online or by phone you must also consider the availability of customer service representatives and similar factors. Being tied up on the phone or having issues with a bank’s website can be costly in time as well as money.

6. Security

It is imperative that your investment is protected by the government. This however does not mean it won’t be a pain to try to get the money from your savings account if your bank fails, but placing your hard earned savings in a bank that doesn’t participate in a government backed protection scheme is just silly after what happened in the credit crunch.

About Your Author

Kris works as a writer for Money Compare, an Australian money comparison website that offers a broad selection of products including a choice of online saving accounts and term deposit accounts that help people save some more money. Apart from his work, Kris enjoys sports and reading books and other blogs online.

ETF Water: ETFs that invest in water related companies

There are 4 ETFs that give you exposure to water as an asset class. The ETFs that focus on water invests in stocks of companies that are primarily engaged in the water industry.  Within these 4 ETFs, there are ETFs that give you exposure to global water companies as well.

If you were looking to invest in water, then here is a list of 4 ETFs that can give you that exposure. If you are interested in green ETFs in general, then this page has the list of green ETFs.

Water ETF Type Gross Expense Ratio
Invesco PowerShares Water Resources Portfolio (PHO) This water ETF invests in ADRs and stocks that focus on provision of potable water, treatment of water, and the technology and services that are directly related to consumption of water. 0.64%
Invesco PowerShares Global Water Portfolio (PIO) This water ETF seeks to invest in a group of global technology companies that focus on the provision of the potable water, treatment of water, and the technology and services that are directly related to consumption of water. 0.75%
First Trust ISE Water Index Fund (FIW) This ETF invests in stocks of 36 companies that derive a substantial portion of their revenues from the potable and waste water industries. 0.60%
Claymore S&P Global Water Index ETF (CGW) This fund invests in 50 stocks from the S&P Global Water Index. The index has identified water stocks in two clusters – 25 water utilities and infrastructure companies, and 25 water equipment and materials company. 0.70%

Can I invest in an ETF using a Systematic Investment Plan (SIP)?

This question has popped up in comments and emails a few times now, and I think it is time to write a quick post on it.

Many Indian investors take advantage of Systematic Investment Plans (SIPs), — and regularly invest in mutual funds. This is –  good investing habit — because it lets you invest a portion of your income every month, and builds up your savings.

ETFs are like mutual funds in some ways, so it is natural for investors to wonder whether or not they can invest in them through SIPs.

Generally speaking, you can’t invest in ETFs by setting up SIPs. I say generally because I know that at least Kotak Securities has something called – Auto Invest, which is their attempt at creating something like a SIP for investing in ETFs. I am not sure how it works, so I will not be able to comment on it, but in general, — you can’t invest in ETFs – gold or otherwise, through SIPs.

Even though, there are no ready-made SIPs to invest in ETFs, replicating one should not be too difficult. You already want to invest regularly, so you have overcome the hardest hurdle already. The next question is where, and you obviously have that figured out too, so all that remains is the operational part of it.

If you trade with an offline broker, you can tell him or her to set up a reminder and they will be happy to call you every month that day, and make the trade for you. I’ve heard that Sharekhan has an option where they send you reminders and such, but I haven’t used that, so can’t really comment on it.

If you are online, then you could set up a reminder on Outlook, or Gmail or something else on your pay-day, and invest yourself. This shouldn’t take more 5 or 10 minutes of your time, and should work just as well as an SIP.

I’d be interested to hear your ideas on how this can be done more efficiently, or if there are any particular problems you face doing this.