-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- ------------------------------------------------------------------------ Today's Lesson From Mostly on the Edge: an Autobiography by Karl Hess When I was fifteen I already knew the rules of propaganga writing; in fact, I was only of the better propaganda writers around. I had observed what works, in part because I had read a lot of speeches and, in part, because I had read so many boring political platforms and knew, by painful study, what not to write. I knew that speeches, to be good and to work, didn't need a facade of elaboration, flourishes, and long, involved sentences that serve only to show off scholarly pretensions. My rules of good speechwriting--which served me through one presidential campaign and three Republican administrations--were simple: write short sentences; use Anglo-Saxon words, not Latin-rooted ones; and stick to a single idea, and make that idea memorable. I learned quickly that people remember only one thing from a speech--not two, and certainly not three. ===== Your Banker Is a Snitch Swiss Banks Turn in Their Customers And del Ponte turns in Swiss banks Carla del Ponte deserves the gratitude of a world plagued by drug barons, petty dictators and organised crime. She is widely expected to move soon from her job as Switzerland's attorney-general to become chief war crimes prosecutor in The Hague. Under her regime, Switzerland has prosecuted one of Russia's top mafia bosses, provided evidence for the conviction of Raul Salinas, brother of Mexico's former president, raided the offices of Boris Berezovsky, the Russian oligarch, and arrested Pavlo Lazarenko, Ukraine's former prime minister, for money laundering. The Swiss are now looking for the cash of Slobodan Milosevic, Serbia's president. Although some of her money laundering cases failed because local prosecutors fell victim to domestic politics, her investigations have revealed the vast extent of corruption in Russia, Ukraine, Mexico and elsewhere. As a result, Ms del Ponte is a popular heroine in countries of the former Soviet Union, where standards of living have been destroyed by thievery on a macro-economic scale. Mainly because of her efforts, Switzerland can claim to be doing more than many western countries to combat this evil. Britain, for example, should take the cue and force its dependencies in the Caribbean and the Channel Islands to improve financial disclosure and enforcement of anti-money laundering laws. Greece should do the same in Cyprus. But Switzerland can still do more. Officials insist that dirty money in their country reflects their high market share in international banking. Maybe. But Switzerland's one-third share of all offshore banking is to a large extent the consequence of its traditional secrecy laws. The fact that tax evasion is not a crime in Switzerland has also helped the business. The Organisation for Economic Co-operation and Development last week asked Switzerland for better co-operation in pursuing tax evaders. The Swiss should comply. Meanwhile, the Swiss parliament should finally pass a law it has been debating for some time that would make corruption of a foreign public official a crime in Switzerland. This would make it easier for the attorney-general's office to pursue investigations independently of foreign prosecutors. Although the Swiss have pursued foreign money-launderers, they have shown little enthusiasm for taking on their own banks that actually hide the money. A new law passed in April 1998 requires Swiss banks to report suspicious transactions. But no banks have yet been disciplined for non-disclosure. Ms del Ponte's successor will have big shoes to fill, and a big job ahead. The Financial Times, August 9, 1999 Investing Are Hedge Funds the Mutual Funds of the Future? The common man hits the big time Could hedge funds become the mutual funds of tomorrow, a routine part of every investor's portfolio? Given their secrecy, perceived volatility and the bad press they have received over the past two years, that might seem unlikely. In fact, it is already starting to happen. The huge rise in Western stock markets this decade has left investors with a problem, albeit a nice one: where to put their money. In the US alone there are more than 2m high net worth individuals - the principal investors in hedge funds, who have the required $1m in investable assets. Together, they have more than $5 trillion of financial assets. Institutions, including pension funds and insurance companies, are in charge of another $10 trillion. These investors are becoming more sophisticated and thus increasingly willing to put money into "alternative investments" such as hedge funds in their search for market-beating returns. Because hedge funds can sell short, use leverage and take concentrated positions, they can produce those superior returns. Admittedly, they bear higher risks. But demographics is on their side as wealth passes from the conservative post-war generation to more risk-friendly Baby Boomers. These factors have fuelled growth in hedge fund assets from $20bn in 1990 to more than $170bn by 1996, according to a study by KPMG and RR Capital Management, a New York hedge fund. It predicts a further ten fold rise to $1,700bn by 2006. Meanwhile, the number of funds has risen from fewer than 500 to more than 2,500 in five years. But this has done little to modernise the industry. As private investment vehicles, hedge funds are exempt from many basic regulatory requirements, giving their managers broad discretion and little incentive to inform investors, whose money can be locked up for several years. While the top 15 per cent of funds, including George Soros' Quantum group and Julian Robertson's Tiger Management, control 80 per cent of managed assets, many are closed to new investment. Most funds are local, niche players with assets of less than $100m. Yet all carry their own marketing and support structures. This will change, according to Rama Rao, chief executive of RR Capital Management and co-author of the report. He predicts that sophisticated investors will put pressure on hedge funds to transform themselves into a global, institutionalised industry. "Hedge funds are now where mutual funds were in 1980, just before growth and consolidation took off," Dr Rao says. Promisingly, the US Securities and Exchange Commission now allows hedge funds to update investors on their performance over their web sites, more or less in real time, replacing outdated quarterly reports. It has also relaxed its rules to allow 499 investors in a limited partnership, the most common hedge fund structure, up from 99 two years ago. As transparency and accountability increase, however, so will competition, making it harder for small funds to justify their administrative overheads. Dr Rao predicts this will lead to the evolution of "families of hedge funds", where a group of funds with complementary strategies is run by one central operation. These families will look very similar to the big mutual fund houses. A number of caveats spring to mind. The near-collapse of Long-Term Capital Management will have put many people off hedge funds for good and has sparked talk of stricter regulation. It is also questionable how well these funds, many with short track records, would perform in a bear market. Having said that, research by Matthias Becker at St Gallen University in Switzerland suggests long-term performance of hedge funds averages between 17 and 20 per cent - comparable with recent gains by the US stock market but above long-range nominal equity returns of about 10 per cent. The quid pro quo is higher risk of course, though they can actually help diversify an investor's portfolio, thus reducing overall volatility. You may not be comfortable investing in hedge funds, but your children probably will. The Financial Times, August 9, 1999 Latin American Stocks A Tale of Two Regions IFC Latin American index down 25 percent since May A tale of two regions is unfolding in emerging markets. While investors talk up the economic and political stability of Asia, Latin America languishes on worries about elections, recession and US interest rates. The depth of the concerns means most strategists are loath to predict a sudden turnround, despite equity valuations that look cheap compared with Asia. "It's fair to say that the markets in Latin America are struggling to find their own direction," says Jay Pelosky, emerging markets strategist at Morgan Stanley Dean Witter in New York. "If the [US Federal Reserve] is very aggressive on the rate front, it's going to be very difficult for Latin America to make a lot of headway." The US has already had a profound influence on the region's markets. Since the Fed announced in May that it was shifting its policy bias towards a greater readiness to raise interest rates, the IFC Latin America index has fallen by a quarter. The possibility of a series of US rate rises comes at an awkward time for Latin American nations, some of which are trying to recover from a period of economic stagnation or recession, with several aiming to cut their own rates in an attempt to move out of recession. Morgan Stanley is predicting zero gross domestic product growth for the region this year, with Brazil flat and Argentina retreating 3.5 per cent. Efforts to stimulate growth by cutting rates have also been hampered by a rise in sovereign risk premiums, as represented by the spread of benchmark bond yields over those of US Treasuries. Old Mutual Asset Managers (UK) says the spread in Argentina is about 20 per cent higher than its three-month average of 825 basis points. The widening is due in part to fears about the outcome of elections due across the region in the next year, with Argentina, Chile, Mexico and Peru all due to go to the polls. "We are about to enter a fairly intensive period of elections," says Geoffrey Dennis of Salomon Smith Barney in New York. "That is generating a lot of uncertainty." For many strategists, this wealth of negative political and economic sentiment is at odds with their feelings about the corporate sector. Restructuring has been going on since the mid-1990s, putting Latin American companies several years ahead of their Asian counterparts in terms of balance sheet strength and return on equity. Strategists say there are plenty of buying opportunities in Latin America if the mood towards the region changes. "Latin American valuations are much more attractive than Asian valuations," says Rodrigo Pinheiro, portfolio manager for Latin America at Old Mutual. "But it all depends what happens on the political side." The relative strength of the corporate sector has been highlighted by the interest it has attracted from companies in the most developed markets. Salomon Smith Barney says US, European and Japanese companies made total net acquisitions of $69.3bn between the start of 1998 and the end of June this year, compared with purchases of $30.4bn in Asia over the same period. The boards of Chile's three biggest companies by market capitalisation - electricity groups Enersis and Endesa Chile, and CTC, the telecommunications group - are now controlled by Spaniards. Earlier this year, Repsol, the Spanish oil group, bought YPF of Argentina for $13.4bn. Commodity price trends this year have provided further support to the corporate sector. Oil and copper have rallied strongly, lifting producers in countries such as Chile, Peru and Venezuela. For all these positive currents, the tide of retail investor opinion shows no sign of turning, according to a basket of US-based Latin American mutual funds studied by AMG Data Services. The four-week moving average of outflows from these funds was $210m last week, against $156m the previous week and $56m in mid-May. Most strategists think they will have to keep the hatches battened down for a while yet before contemplating calmer times. "The negative news may delay people coming back a little bit further," says Robert Davy, director of Latin American investments at Schroder Investment Management. "But I think that when people look at what's going to do well in the year 2000, Latin America will be on the shopping list." The Financial Times, August 9, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. 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