Mar 13, 2018

US Trade Wars: Good or Bad?

The financial markets are thrown into turmoil once again, by the implementation of steel tariffs by the Trump administration as a barrier to the cheap China steel. However, instead of targeting just China, the steel tariffs are imposed on a global scale whether they are friends or enemies. The problem is that, US imports 70% of its steel from Canada and Mexico while China only constitutes 2% of its steel imports. After much protests from Canada and Mexico, the Trump administration excluded both countries and went on to impose the tariffs to include every other countries. What are the implications of this action to our investment portfolio? Let me address some of the frequently asked questions:

Feb 13, 2018

Market Correction! 3 Sectors You Can Buy Into

The recent market correction sent the news media into a frenzy, declaring that the stock market has "collapsed" or "crashed". The truth is that the stock market simply has gone way above its valuation and a good 10% correction will do some good to trip the fats down. Prior to this market cycle, it is normal to have a 10% correction on an annual basis, and it is a combination of easy money and low inflation that lead to years such as 2017 which we did not see a single correction despite a tightening monetary environment. However, is it time to throw your entire wealth into this window of opportunity and ride the market right to the stop? 

Once again, I will like to caution my readers that we are at the tail end of the economic cycle and the big crash might come in a year or two. So while it is a good thing to take advantage of this opportunity, investors should be selective in selecting sectors which are not overly expensive and be prepared to take profit when the opportunity is ripe. Here are the 3 sectors that are interesting to watch in the coming year.

Feb 1, 2018

Xeo's Annual Investment Review & Outlook 2018

Dear Friends,

2017 was a good year for the global stock market with the Asian stock market doing the best thanks to a combination of low inflation, low interest rates and a recovering Chinese economy after the hiccups suffered in 2016. The geo-political volatility caused by Brexit and Trump winning the US Presidential election was generally absent in 2017. The greatest geo-political risk of 2017 was the confrontation between North Korea and America, but even that fails to rattle the stock market as few people actually believe that a real military confrontation will ignite from the war of words. The most exciting development of 2017 was probably the rise of cryptocurrency as a potentially new asset class, with the prices of top traded cryptocurrencies such as Bitcoin and Ethereum soaring by a few hundred percent. The worst performing asset was surprising, the US dollar which lost 9% in Singapore dollar. Back in 2016, many analysts predicted that the USD will rise, thanks to the trade protectionism and tax friendly policies of the Trump administration and the rising interest rates. Instead, USD fell, in one of the worst routs seen in recent years. The question is, as the Trump administration policies started to be implemented and interest rates continue to rise, will the USD climb back in value?

Dec 18, 2017

Why Bitcoin is a Bubble in Making

The rise of cryptocurrency and Bitcoin took Wall Street by surprise with many industry leaders stepping forward to give their opinions what they think of this new technology that can potentially disrupt the role of banks.

What is cryptocurrency? It is a form of digital currency that can be used to purchase goods and services and is limited in quantities, much like gold. However, unlike gold, cryptocurrency can be transferred through the internet, across the borders, without the need of going through customs nor banks. This creates a burning problem for governments in the form of illicit money flow which can be used to finance illegal activities and threatens the central banks abilities to control money supply, which is one of the key tool for economy management. Read more about cryptocurrency.

Nov 26, 2017

I Met My Girlfriend Through Kickstarter and She Blew Up My Campaign.

After years of fruitless sessions of speed dating and empty conversations with Tinder, I kinda of gave up on dating for a while. My personal life also underwent major changes which makes it almost impossible for me to focus on dating. First and foremost, my grandma was diagnosis with vascular dementia and she was transformed from a sweet lady, into an irrational angry person, constantly cursing in 4 different languages and accusing me and my dad sleeping and impregnating my helper. None of this is true of course as her delusions were the result of dementia play tricks on her mind. The stress on the caregivers was tremendous as we adapted.

Nov 20, 2017

5 Financial Lessons from Financial Boardgame: Debtzilla

Debtzilla: The Board Game is a superhero co-operative board game that puts players in the role of a secret identity superhero, who has to manage his finances as a common salaryman during the day, and combating villains at night. At the end of the game, the players have to defeat Debtzilla as the final boss in order to win the game. The game is making use of the superhero theme to bring out essential financial lessons and here are 5 of the important ones:

Nov 9, 2017

Tapering? Split-up of Spain? Events in Europe and their Impact

Europe, the continent that has rocked the global financial markets with debt crisis and a Brexit has been relatively quiet on the financial front in the past few months. However, there are 2 significant significant developments that warrant the attention of investors. Here are some of the newsworthy events which we should watch out for:

Implications of EU tapering of QE

The EU central bank initiated their Quantitative Easing (QE) program in 2009 and since than, the EU economy has recovered sufficiently to warrant the EU central bank to start tapering back on the QE program. The tapering involves decreasing the amount of monthly bond purchase until it reaches zero. The last time US Federal Reserves started tapering in 2014, the emerging market currencies and stock markets suffered a major correction. The good news is that the EU tapering will be slow and gradual and expected to end and is expected only to end in Q4 of 2018. Further more, Emerging markets' debt are mainly denominated in USD and the EU tapering will not have an direct impact on their finances. The countries which were badly affected during the last taper tantrum such as Indonesia and Malaysia have clean up a good portion of their foreign debt and are at lower risk right now.

The implications will be much more indirect as the easy money has resulted in governments within the EU region to slow their reforms towards their spending and any tapering will create a strain on governments with weaker balance sheets such as Italy and Spain. Further more, with both US and China tightening their money supply, the likely candidates that will hurt from the tapering will be the weaker EU countries and their weakness may be felt in the global stock market again.

The more obvious impact which we will feel immediately is the strength of the Euro as tighter monetary policies tend to strengthen a nation's currencies. However, the speed of tightening will be slow and probably match the speed of the US counterparts, which will help to maintain an equilibrium among major currencies. Hence Euro is expected to fluctuate around a range, with the trend of a weakening Euro broken, since the outbreak of the EU financial crisis.

Catalonia Independence

One of the richest states in Spain, Catalonia with its capital in Barcelona, has declared independence. The stock market did not react much despite all the negative press. The market has assumed that the independence movement will not succeed and base on the recent developments, seem to be holding true. So, we can discount this political upheaval for now and the bigger issue of Brexit will come back to haunt the European markets again.

What's Next

The tapering of the monetary policies is a signal that the EU zone's recovery is picking up steam and the stock market should benefit over the next few years. However, the European equities have rallied strongly ever since the Brexit crisis last year and hasn't corrected significantly. Furthermore, the prospect of a fragmented EU will still produce geopolitical shocks every now and than, so it may be prudent to pick up some good quality EU equities every time such events occur.

Oct 10, 2017

Implications of Trump Tax Reforms on Your Investment

The failure of repealing and reforming Obamacare has left the Trump administration without any legislative victory. Both the Trump administration and the Republican controlled government are eager to pass a tax reform before the end of the year. The key points of the tax reforms will have the following effects:

Aug 10, 2017

4 Reasons Why USD is Weakening and Possible Future Trends

Shortly after the US Presidential elections, the USD shot up and hitting a multi-year high, with investors expecting that a newly inaugurated President Trump will be able to revitalize the US economy through tax cut, infrastructure building and trade sanctions which all will assist in the strengthening of the USD. 8 months later, the USD has reached a 2 year low and has fallen rapidly by 6% against SGD within this short period of time.

Jul 16, 2017

Debtzilla - Game Design Diary Part II: Money Mechanics

After 1 year of design work and 13 design blueprints later, Debtzilla the board game is finally born. The biggest challenge of designing Debtzilla is the challenge of incorporating various important money concepts such as income statement and compound interest without resorting to players filling out a real balance sheet and whipping out their calculators. The other challenge is to create a game that flows, easy to learn, builds tension gradually to a climax and engaging the players at an intense level making them feel that time flies by quickly.

A Logical Timeline

In Debtzilla, a daily routine is developed which mirrors the working routine of an average working adult. In the morning, players work, earn an income and plan how you want to build their wealth in order to buy gadgets to power up your hero. In the late afternoon, they knock off from their work and head to the shopping street, checking out the latest gadgets that they can use to battle the villains. At night, the villains begin to prowl the streets looking for innocent citizens to scam while the players try to stop them with whatever resources they have accumulated. Once the villains are confronted and the dust has settled, the damage done to the city is tallied and the impact of the hero's actions will be felt in the following day in the form of interference from the final boss: Debtzilla. This flow of events help players get into the game quickly, minimizing their game learning time as it is intuitive and correspond to their daily lives.

Gamification of Balance Sheet

The biggest problem when designing this game is to find an efficient way to represent an income statement without resorting to actually filling in an actual income statement and slowing down game. How do I incorporate expenses such as interest payments, insurance premiums, personal expenses, while at the same time allowing players to build their income via dividends and proving their saving rates by budgeting and re-financing their loan. I borrowed heavily from the deck building mechanics of a famous boardgame named  Dominion whereby players start with a stand deck of cards and they get to pick new cards from a common pool, resulting in each players having different sets of monsters and abilities by the end of the game. However, the huge variety of cards offered by Dominion often result in a steep learning curve for players, which is daunting for non-gamers, which Debtzilla is trying to reach. As a result, a simplified version of the deck building mechanics is designed, with players limited to 8 cards to choose from, rather than hundreds typical in deck building game. The system is designed in such a way that more cards can be added to the Income deck in the future if I am keen to add in more kinds of debts and money instruments, such as medical debt, investment loan and car loans.

Law of Compound Interest

One of the key mechanic that I am trying to design into the game is the idea of an escalation mechanic similar to the boardgame Pandemic where players have to stop viruses from spreading exponentially. The world of finance has its own form of virus, it's called the the law of compounding interest represented by this formula
The actual calculation of compound interest actually requires a financial calculator and the mechanic to represent this formula in an actual game mechanic took some trials and errors before I got it to work elegantly.

The law of compound interest is designed into the health of Debtzilla in the form of the interest rate bar. At the initial stage, Debtzilla grows at a slow pace, often prompting players to be more reckless in their spendings. As the gauge move beyond 60, Debtzilla health starts to jump much faster, often causing panic among the players, who now will be trying to pay back the debt they have borrowed, but more often than not, the accumulated interest payment has grown so much by than that whatever amount thrown at the monster only delays the apocalypse by a turn or two. It translate the feeling of despair of crushing debt very well as players are now forced to work together to as any mis-step will lead to a losing end game.

Other Challenges

There are other challenges in design, such as balancing a 2 player vs a 4 player game and ensuring a good win-lose ratio for a cooperative game. However, these topic I will leave for another day as there are more things to talk about in the game design process.

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