Why Asians Do Not Win Miss Universe Titles More Often

(Miss Indonesia Zivanna Letisha Siregar poses on the runway in the evening gown segment of the 2009 Miss Universe Preliminary Competition in the Bahamas)

Asians had a strong showing in the pageant in 2000, when India's Lara Dutta won. In 2007, Japan's Riyo Mori took the crown, while Korea's Honey Lee came in as third runner-up, and India's Puja Gupta made it to the top 10. The tide began to turn last year in Vietnam, when South Americans dominated the top spots. Still, two Asian faces were in the top 15 - Japan's Hiroko Mima, and Vietnam's Nguyen Thuy Lam.

Despite a strong showing in online voting, Indonesian Miss Universe candidate Zivanna Letisha Siregar didn't figure in the beauty contest's top 15 in the pageant held in Nassau, the Bahamas.

In fact, no Asian faces graced the pageant's top 15 on Monday, though the Miss Congeniality title went to Miss China, Wang Jingyao, 19, while Miss Thailand, Chutima Durongdej, 23, got the Miss Photogenic title.

Miss Venezuela, Stefania Fernandez, 18, was crowned the winner in the 58th annual pageant, which is co-owned by American billionaire Donald Trump. But Venezuela's win has drawn strong reactions among some pageant-watchers. 'Another plastic Venezuelan? Do we really need another one of those women as Miss Universe?'

However, pundits said Miss Venezuela just has the X-factor. Venezuela has won more Miss Universe and Miss World competitions than any other country, noted the Associated Press (AP). Some girls begin training to be contestants from as young as five. Its pageant industry has drawn criticism for pressuring contestants to have cosmetic surgery. Miss Fernandez was crowned by fellow Venezuelan Dayana Mendoza, who was last year's champion. It is the sixth time a Venezuelan has taken the Miss Universe title. 'She evokes the glamour of 1940s screen goddess Rita Hayworth,' enthused Mr Josepeh Vitug, a writer with GlobalBeauties. com, a 10-year-old Internet portal on pageants.

The other top five finalists include runner-up Miss Dominican Republic, Ada Aimee de la Cruz, followed by Miss Kosovo, Droga Ganusha; Miss Australia, Rachael Finch; and Miss Puerto Rico, Mayra Matos Perez.

Miss Zivanna, 20, failed to advance to the swimsuit round, said the Jakarta Globe, even though she was No. 1 in the pageant's Internet poll. The poll saw tens of thousands of observers casting votes for the 84 contestants via the Internet. Thailand's Miss Durongdej came in at No. 5 on the poll, while Miss Vietnam, Hoang Yen Vo, took sixth place. Miss Philippines, Bianca Manalo, was placed at No. 11. Miss Singapore, 24-year-old Rachel Kum, came in at No. 55 in the poll, but did not advance beyond the swimsuit round.- New Paper

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a) Its a beauty pageant, get over yourselves, people! Its a shallow way to determine beauty, we all know it, why get flustered???

b) Its subjective, a large part depends on who is on the judging panel. It helps a lot if the event was hosted in your country.

c) You need to be trained, in particular when answering questions (even if you can do it in your own mother's tongue) - your personality and sincerity should shine through, and that can be honed and trained.

d) Asians are at a disadvantage because most of the judges grew up with the Western beauty framework - you have your Rita Hayworth, Marilyn Monroe, Audrey Hepburn, Liz Taylor, Grace Kelly and the newbies: Ashley Judd, Jennifer Lopez, Charlize Theron, Penelope Cruz, Jessica Alba, Beyonce, Shakira, Megan Fox, Scarlet Johanssen, Angelina Jolie, Thandii Newton, Elle PacPherson, Liv Tyler, Halle Berry ... my argument being, these names roll off our tongues... if we were to ask the judges who they thing are the famous pretty women... they would be very hard pressed to name beyond Gong Li, Zhang Zhiyi, Aishwarya Rai and Maggie Cheung. The entire mindset is slanted already from the start.

Difficult To Account For Chinese Companies' Profits

I would have to qualify the heading as listed Chinese companies would be following generally accepted accounting principle. The issue of difficulty rests mainly when you try to value unlisted businesses, as many companies try their best to minimise taxes paid. Mark Dixon wrote an excellent piece on what things to look for in trying to come up with real profits, and the hazards of being a private equity player in China.

Mark Dixon, a founder of the mergers and acquisitions adviser the1.com, which is active in mainland China, unwittingly unearthed some Chinese accounting tricks while valuing a local company.

What with the world still reeling from the domino effect that Lehman Brothers’ balance sheet had on financial markets, the exposure of accounting frauds like the one at the Madoff fund and the final throes of the expenses scandal in the British Parliament, a trip to China promised to be a breath of fresh air in this atmosphere of fishy finances.

Hired by a client to help with an acquisition in China, I was given the job of deciding how much the buyer should pay for the business. That meant first calculating an accurate profit for the target company, its so-called normalized profit.

In the West, the process involves making a few small adjustments caused by things like no longer having to pay salaries to sellers if they aren’t going to stay at the company and other nonrecurring items. But it shouldn’t mean having to recalculate the entire income statement.

Generally Accepted Accounting Principles are not generally accepted in China. This is partly because the Chinese have their own accounting rules and partly because rules are for breaking. And it’s not just that some company owners are trying to confuse the tax authorities. It’s that, when they do so, they end up also confusing themselves. The gymnastics they do with revenues and costs are so impressive that the Beijing Olympics should have added an event especially for accountants. Markets with developed gray economies, like Italy, are well known for the practice of keeping one set of accounts for the government and another for the owners so they know what’s really going on. Chinese companies often dispense with the second set, hence the confusion. That’s probably true of other “developing gray economies.”

One can hardly call something normal when it doesn’t normally happen. So my quest for normalized profit was really a search for the abnormal — indeed, it might better be called abnormal profit. In fact, it was so elusive it seemed like a search for the abominable snowman.

My Chinese interpreter couldn’t handle the term normalized profit, so I dropped it in favor of true profit. But that only caused offense because it implied the figure before adjustment was a lie, which indeed it was. I then tried the expression official profit, by which I meant “what it officially should be,” but that didn’t work because it got lost in translation with the false profit they were officially reporting. I finally explained it as “the profit you would have received if you had reported everything completely correctly,” at which point I added, “Let’s for simplicity just call it Profit X!”

Now everyone understood what I wanted. But they couldn’t understand why I wanted it. “We’d only pay more taxes,” they explained. The mathematical difficulties of calculating Profit X are compounded by the delicacy of the subject. It’s not only a confidentiality issue — after all, I might be a government spy — but it’s also simply embarrassing to admit what they’ve been up to. Someone who behaves like a traditional, polite accountant will never find out the truth. One needs to use both carrot and stick. The stick is “Your business looks surprisingly unprofitable.” This provokes the Chinese pride, which, once awoken, quickly displaces any embarrassment. It also triggers natural commercial instinct — they instinctively realize the intentionally low profit figure is somehow going to hurt them in the upcoming negotiation. The carrot is “Don’t worry, I’ve seen this many times before.” Said with the bedside manner of a family doctor, it allows the final key to be turned. The scene is now set for a tour of their forbidden city.

At this point, we were ready to dive into the “abnormalization” process itself. Every stone I turned over seemed to reveal not a single spider but countless additional stones, each of which needed to be investigated. While pursuing each line of questioning, I found myself having to note side questions to ask later — my memory isn’t that good. At the most frustrating point I was told, “You can’t expect to understand China — our accounting is different.”

They weren’t trying to derail me from my quest. (Indeed, companies are fairly cooperative once they have bought into the process.) It was rather a way of trying to calm me down — but it only revved me up the more. It seemed as if the project would never end (I was already down to the last clean shirt), but eventually I had exhausted all of my questions: the Profit X figure was there in black and white.

I have invented a formula to get to the truth faster. Of course, it doesn’t help you get your hands on the figures to input, but it does show which ones you’ll need to get and what to do with them. Even if you never need to use it yourself, you may be interested in what it reveals:

Profit X, or normalized after-tax profit =

The amount of after-tax profit actually reported to the government

+ Revenues received off the books to avoid paying revenue tax and to reduce corporation tax

+ Revenues from invoices pushed into the next period in order to delay paying revenue tax in the current period

- Revenues from invoices delayed from the prior period into the current period for the same reason

- Revenue tax the business should have paid on the net effect of these three adjustments

- Employee salaries paid off the books

- A “gross-up” to bring this off-the-books employee cost to a level at which the employees themselves would have received the same amount after tax if they had been paid legally (otherwise, they’ll go and work off the books somewhere else!)

- The extra Social Security cost the business should have paid on these two amounts

- Real expenses the business couldn’t deduct because the supplier couldn’t provide official government receipts, or fapiao, showing the supplier had paid revenue tax

- A gross-up to bring this to a level at which the supplier would have received the same amount if it had declared the income and paid both revenue and company profit taxes

+ The amount of expenses the business declared for fapiao that had nothing to do with its operations but which somehow found its way into the accounts

- The amount of additional corporation tax on the incremental profit resulting from the net effect of the above 10 items

To be fair, some companies need all the adjustments, and others perhaps none. Only in China does a government have the power and desire to control centrally every invoice that a business issues. For an invoice to be tax-deductible, it must be printed on a government-authorized, numbered receipt called fapiao. The government charges service businesses 5 percent of the face value. The payment it receives is thereby an automatically collected revenue tax, also called business tax, levied on the business issuing the receipt rather than on its recipient.

When profitable businesses pay one another, they are economically encouraged to follow this system because the paying entity can’t deduct the expense without receiving the fapiao. Consumers, of course, have little need to show expenses when they go shopping, so they wouldn’t naturally request fapiao, letting retailers off the hook for sales tax collection. (Sales tax, which retailers must charge and remit to the government, is 13 to 17 percent of sales.)

To deal with this motivational loophole, the government, with free-market thinking, has cleverly persuaded consumers to request receipts from businesses — all retail fapiao are printed with scratch-off lottery numbers on forms issued by the government.

The government is thereby marshaling 1.3 billion Chinese as volunteer tax police by harnessing the Chinese people’s well-known love for gambling. I am counting the children among this volunteer tax police figure because they especially love to check the receipts for prizes.

Such ingenious measures don’t stop some Chinese businesses from cooking the books, but they make a dent in the problem. Indeed, one can hardly imagine the state of Chinese accounting in the absence of this totalitarian control of invoicing.

Back to the M.&A. negotiation. It had been a two-day herculean task to get to the truth. On top of the mathematical work itself, I had been through a cultural minefield before we came out the other side in triumph together. The Chinese owners were as satisfied as I was to arrive at this magic number. In fact, they had never known their “true profit” until that moment.

Now, we were ready for the hard part: the price of the business. The chairman was eager to know how I would value his company. Having understood the figures, I was ready with the answer. “We can give you a 10 P/E,” I said. “In other words, 10 times Profit X.”

The mood over the past few days had been everything but calm, but now an eerie silence descended on the room. “That isn’t even close,” he replied. Indeed, it turned out he wanted 10 times his — not my — real profit: the actual cash they got from the business tax-free, or what could politely be called the pragmatic profit. The problem was that pragmatic profit multiplied by 10 came to almost 20 times Profit X. It wasn’t even worth negotiating.

“What was the point of the last two days if you are now going to use a totally different profit number?” I demanded. He needed no time to find his thoughts. “You missed the point. We did that calculation at your request,” he said. “It’s a completely irrelevant number for us. Why would we give up our company for a lower value just because you want to make it legal?”

With reports of fishy finances still blowing in from the West, it wasn’t the right moment to respond with a speech about morality. At times like this, one wishes instead for an Easterly wind.

p/s photos: Linda Chung Kar Yan

Career Switch: From Stock Analyst To Miss HK

Lau, a University of London Economics graduate, was a securities analyst reportedly laid off by a British financial institution when the economic crisis hit. Two days ago, she combined talent and wit and became the toast of the town.If you're one of the few who can switch careers at the drop of a hat, it won't hurt to take a few pointers from Sandy Lau Sin-tin.

In the Miss Hong Kong question- and-answer session, singer Leo Ku Kui- kei asked Lau to use types of stock in describing him and co-host Eric Tsang Chi-wai. She said Ku was "outstanding and reliable" and, therefore, an established stock. Tsang, who's called a celebrity playboy by some, was "unpredictable" and, therefore, a high-risk share.

Velly Important ... Best Food Places Are Relocating!!! Meng Kee & Max Kitchen

Where in the world is the world's best charsiu (barbecue pork)??? Of course its Meng Kee at Tengkat Tong Shin (parallel to Jalan Alor). You would think that HK which probably has the best siulap in the world, would also have the best charsiu... WRONG... HK is the best place for all your roast goose, roast duck, paikuat, yaukai, etc.. but they cannot get the charsiu right. I have brought my friends from overseas to eat charsiu at Meng Kee, and no matter where they are from, they have never tasted such perfection - perfection has to mean that its moist meat, the outer layer is lightly burned, always with at least 1/3 fat, the burnt edges are not burnt really but rather the exquisite carmelisation of sugar/ caramel/ honey (or whatever their secret ingredient is), I suspect from what I see, they do a two-three time barbecue on the outer layer, baste-barbecue-baste again-barbecue-but it has to be swift and the fire controlled so that the inside meat does not get dry.

http://epicurious.wordpress.com/2008/10/07/meng-kee-char-siew-kl/
Get a hold of this picture by Epicurious Girl, go to her blog for more info and photos:

The fact that it is also probably the most expensive charsiu around is only to be expected.

Anyway, Meng Kee will be at their current place till end of this week only. They will be off for two weeks before reopening at a shop lot on Jalan Alor, next to Hotel Nova, or directly opposite Wong Ah Wah famous barbecue chicken wings. More details, please call 017-6388648 or 016-9093721.

Glistening, caramelized pork ... (photo from Motormouth From Ipoh blog, access via:

http://j2kfm.blogspot.com/2008/06/meng-kee-char-siew-tengkat-tong-shin-kl.html )

Is something happening to Tengkat Tongshin, why then are so many eateries moving out of that road ... anyway, another of my favourite Max Kitchen has moved as well. Maybe its the Transformers' effect as it now has a highfalutin name Max@iHaus at Jalan Jati off Jalan Imbi (off Jalan Inai as well, lol). Its a great location, its a refurbished bungalow. The bungalow is actually a showroom / showhaus for iHaus , a German interior / kitchen/ furniture products. The setting is marvelous with lots of parking. Food is still excellent though we don't get to see Max cooking now as the kitchen is hidden away. The fun part is to walk around testing the furniture and marveling at the kitchen design and other products.

Its very difficult to find but thankfully Max was smart enough to put up flags/directions once you turn into Jalan Inai / Jalan Jati.

Max, everything was great except you need a much much better wine list, its too second rate and why the concentration on Margaret River wines? I like the Australian emphasis but its slanted, I am not for paying very high prices but there are certainly better choices for wines in the RM120-200 range: try Rymill, Turkey Flat, Kennedy & Wilson, Michael Hall, even De Bortoli, Knappstein.


p/s: for a much better look at Max@iHaus and the food, please go to: Precious Pea's blog
http://preciouspea.blogspot.com/2009/06/max-ihaus-western-dining-wines-events.html
Max.@ iHaus: Western Dining, Wines and Events is located at:
Lot No. 32 Jalan Jati
Off Jalan Bukit Bintang
55100 Kuala Lumpur
Tel. No: 603 - 2142.9720
Opens daily from 11.00 a.m. till 11.00 p.m.

This Doesn't Sound Right

Read this over the weekend in The Star. Was flabbergasted. The audacity to even think of such a move. Considering the feelings of the general public, this is a pretty silly proposal. My views after the article.
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RM26bil bonds poser on takeover of toll concessions.

LITTLE known Asas Serba Sdn Bhd claims it had submitted a proposal in May to seek approval from the Government to take over all the toll concessionaire companies in the country. That’s 22 toll concessionaires in the country with the cream of the crop being PLUS Expressways Bhd, which is in the UEM Group Bhd stable. It is a clever plan to take over all the highways and their pledge is that they will bring down toll rates by 20% and maintain that rate level for the remaining of the concession period.

But the proposal raises questions – how will it fund the acquisition, has it taken into consideration the RM26bil worth of bonds that have been issued by all the toll concession companies, and what would it offer as a solution to bottlenecks on urban highways?

At this point there are more questions than answers and many wonder why Asas has come up with a plan when the Government also has plans to take PLUS private. Is there a correlation or is this a mere opportunity to buy the assets? Of course the Government and PLUS have denied seeing any proposal from any party. Not many analysts are convinced that it will be easy for Asas to take over all the assets.

It was reported yesterday that Asas, a special purpose vehicle, had submitted a plan to the government, presumably the Finance Ministry, to take over all the toll concessions in the country. It was reported that Asas was represented by Datuk Syed Md Amin Aljeffri, chairman of the Kuala Lumpur Malay Chamber of Commerce (KLMCC), Ibrahim Bidin, the president and chief executive officer of Pinelabs (M) Sdn Bhd and former chief operating officer of PLUS, Wan Kamaruddin Wan Mohamed Ali, a former director of Babcock and Brown and Fieldstone International, and Syed Budriz Putra, chief executive officer of Sepang Aircraft Engineering Sdn Bhd.

Calls to Syed Md Amin went unanswered.

The Government, according to Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop, who also heads the Economic Planning Unit, is looking for the best option to take PLUS private. He said the proposal was in its final stages before it was submitted to the Cabinet. The Government, via its investment agency Khazanah Nasional Bhd, has a 63.87% stake in PLUS, which is said to be worth RM10.5bil at current market value.

Besides that, another 22% of PLUS is held by other Government institutions such as the Employees Provident Fund, PNB/Amanah Saham, which means the government controls 84% of PLUS currently. If the Government is set to take PLUS private, will it consider Asas’ proposal? The Government has to fork out an estimated RM7.7bil if it were to buy the remaining shares in PLUS it does not own.

This is based on PLUS’ closing price yesterday of RM3.32 a share, plus a 30% premium for 1.8 billion shares from the non Khazanah block. That is a lot of money to fork out to buy assets that do not create new jobs nor has any multiplier effects on the Malaysian economy unlike the building of new highways. Those funds could be used to build alternative routes for some of the choked intra-urban highways.

About 10% of the current shareholders of PLUS are foreigners and that means billions of ringgit will flow out of the country if Malaysia’s biggest toll operator is taken private. If there is indeed a proposal from Asas to take over all the highways, then there may also be pressure on the Government to do the same for other companies. All this is going to cost the Government billions, perhaps it would be more cost effective to have a bullet train criss-crossing the country than buying up highways as the bullet train will create more economic activity.

An expert noted that “if the Government takes over PLUS then it can forget about the handsome dividends it gets and all the revenue from toll collection would be used for debt repayment and operations and maintenance of the highway.” The expert believes that instead of the Government buying up highways, it should instead be looking at reviewing and capping toll rates, as well as revisiting the agreements made with the road toll operators. The Government should also look at finding alternative routes to ease congestion, the expert said.

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My views:

a) taking toll roads private should not be encouraged, in particular when PLUS is about the biggest toll road company in Asia, it is a significant and interesting vehicle to foreign funds, it adds to the allure of listed Malaysian stocks ... you don't want to keep taking interesting stocks off the table, first Maxis, now PLUS, what next??? YTL, IOI, Commerce???

b) how can you privatise 22 toll roads and ensure a 20% drop in toll charges ... are you saying you can maintain the same charges forever, of course not, you will have to raise toll rates sometime again in the future, and thats when the public sentiment will come back to bite the government, ... do not create the situation where so many are going to be so pissed off by so few.

c) the only way I can privatise 22 toll roads, drop tolls by 20% and not raise them for 5 years is if I get to privatise these toll operators VERY CHEAPLY, i.e. below market prices.. hell if the purchase price is low enough, I may be buying PLUS that will be yielding me 20% now... of course no need to raise rates then, can even lower them, but that is not an equitable proposal for shareholders, and the only way it will happen is if the government forces its hand and sell cheaply = the public selling these assets cheaply to the few.

d) if the government is really wanting to deal effectively with tolls and pacify the public, then get EPF to privatise, at least it will be owned by the public, and EPF always complaining of not enough decent assets to invest in, this can generate stable dividends, even if you have to raise rates, ppl won't be so mad as it flows back to them via EPF, EPF should target an anual return via dividend of 6%-8%, if it can get that, no toll rate hike, easy peasy...

e) just do the math for PLUS, it has a market cap of RM16.6bn and net profits for first half was RM509m (annualised RM1.018bn). To get a 6% rate of return, net profits need to be RM996m, so taking that line of logic, EPF can take this on, particularly since their debt mgmt exercise dragged down profits a bit which will rework itself to higher profits in future interims. On 16 sen DPS, it it giving a net yield of 4.9%, assume no growth in toll rates after EPF privatisation, the dividend yield will move much higher just on organic traffic growth. Operating cash flow is already past RM1bn, so EPF can and should take this on - isn't it wonderful if EPF takes it over and gives a guideline to PLUS that if they give EPF an annual net dividend of 6%-8%, there will be no toll rate hikes - I think the general public will celebrate this. ... On the same logic, how the new vehicle can drop rates by 20% is beyond me, who will fund such a thing when its netting around 3% for PLUS a year??? Surely they will have hike rates up significantly sometime in the future, and the government will have to come in and guarantee the RM26bn. If the deal is palatable, just do it via local and foreign banks and see if they bite with no guarantee, if they do, then by all means go ahead.

f) IF and its a big IF, IF you can drop toll rates by 20% like what Asas Serba is saying, by taking them private... ALL THE MORE REASON THIS DEAL SHOULD BE DONE BY EPF and not just by a few individuals.



p/s photo: Ziana Zain

When My Jewish Friend Ended Up In Pyongyang

Travel Channel eat your heart out... how about this for a scoop, a Jewish New York fund manager visiting Pyongyang, North Korea. A place I will never ever get to visit, or even want to visit. I am not even going to speculate why, maybe my friend has a secret "internet bride" he was meeting up (but did not tell me)???? ; ) Anyways, it was a very interesting email I got from him. Yea, put this up without his permission, anyway, if he starts bitching about this, then I will have to take it down ... ROFL... till then ... enjoy:

Wednesday I returned from five days in Pyongyang, capital of the DPRK. Despite feeling constant unease while there- it's a military state, foreigners may not bring in cell phones, internet is forbidden, and even the friendliest youngsters believe the United States to be their sworn enemy- it was the most incredible trip I’ve taken.

I visited in a group of 19 Americans, mostly in their early twenties but some older, including a 78-yr-old woman who lived in Pyongyang until she was 15. Visa restrictions are eased during Arirang, the Mass Games Festival, a synchronized dance spectacle with more than 100,000 performers portraying communist/nationalistic themes. (An impressive event with crazy economics: 150,000 total performers/staff to welcome 3,000 attendees, less than a fifth of whom were foreigners paying $150/ticket. So maybe the night brought in revenues of $90k, or 60 cents per worker involved? Ignoring electricity, costumes/props, rental etc.)

DPRK is a perfectly-preserved, living, breathing museum of the Cold War. During five days in the capital city of a nation of 23 million, I once observed someone on a cellphone and I once saw a construction crane, at what appeared to be an abandoned site. Roads in PY were almost empty for four days, until it rained the morning we left and a little traffic built up. Nonetheless, I saw two billboards advertising the national automobile, the only ads I saw while in the country.

Besides those, all signs and billboards are government propaganda, often depicting Kim Il Sung, the founder of the nation who died in 1994, standing amongst farmers and a bounteous harvest or playing with adoring children. A misconception I had going in was the depth of the personality cult around Kim Jong Il. There is a significant one, but it pales compared to his father. Every adult in the country wears Kim Il Sung’s face on a pin. Kim Jong Il also appears in propaganda posters, but never alone, only with his father. (However, readers of Korean script advised me many pure text signs, without images, mentioned Kim Jong Il.)

Things you notice around PY:

-Wide empty streets

-Lack of color in people’s attire and buildings, except for women wearing bright traditional dress

-How clean the streets and buildings are

-How old every building is (1960s/70s)

-Trees and flowers everywhere, well-pruned hedges, flowers on most terraces

-Near total lack of retail

-Long or absurdly long, but orderly lines in front of tram stops

-Trams stuffed to the brim with passengers

-Paintings of Kim Il Sung

- “150 days” written everywhere (a campaign encouraging extra hard work for five months this year, in preparation for 2012, the 100^th anniversary of KIS’s birth)

-Few bicycles, everyone walks

-Little smoking, except by our guides (can the people afford cigarettes?)

We saw small commissary shops in many apt buildings but they seemed empty. (It was tough to see: with no traffic, you’re never stopped long.) We saw many blue-and-white square tents on the sidewalks with one or two shopkeepers. We were advised they sell drinks and ice cream. Winter in PY is like NY: no way those tents last year-round. Maybe, they're only up during Arirang, when there are foreigners in the country; maybe, everything we saw was staged…. Impossible to know, as we had no freedom of movement. I only know the streets I saw were clean. No idea about the rest. We saw two subway stations, as we rode one stop and had to get off. Both were ok. No idea about the rest. (Although it was odd that turnstiles appeared to accept a sort of metrocard yet every single person I saw paid with a paper ticket.)

Reporters freed from North Korea after Bill Clinton mission, which HAD NOTHING to do with my Jewish friend, ... or maybe he did... distracting Pyongyang on what they are likely to see when you have a plethora of Jewish folks walking about in Pyongyang, maybe that scared them to release the reporters!!??

I did not get satisfactory answers about how goods get distributed, groceries and clothing, or especially apartments. For apts, there’s a district government group, but it was unclear after that. Who is eligible, how many to a house, etc.

We visited the De-Militarized Zone, a few hours south of PY on the main highway. The highway was beautifully kept, but we started to see the cracks of hunger. There were dirty, nearly naked children and others lying around by the side of the road. We would come across a few more frequently than once a mile. Once we were in Kaesong, the nearest city, there were tons of children, nearly naked, playing out in the dusty roads or the stream that was almost dry. Of course we weren't allowed to take pictures. Some lying around looked hungry and forlorn, but others appeared ok.

Beside the highway we saw beautifully-kept farmland, all rice or corn. I was impressed with how orderly it was, but two girls with farming experience in our group thought the corn looked unhealthy, shorter than it should have been, than what’s in NE China.

The DMZ was fascinating. Tons of costly infrastructure focused on observing a border; but, a lot less costly than war. When people say North Koreans lack freedom of movement, that isn’t just in-and-out of the country: to visit a different district within PY, you generally need approval from both your district government and your place of work. There are 19 districts in PY. There is no internet in DPRK. We were told they have a national intranet with instant messaging capability. I have no idea how many people have access to it. It would be impossible for anyone outside of the government to organize people.

We never knew what was arranged just for us, versus what was a glimpse of normal daily life. At the mausoleum to Kim Il Sung, a building the size of the Metropolitan Museum of Art, we saw thousands of soldiers, office workers, peasants, girls in traditional clothing, and children traveling on moving walkway through this grand building without wall adornment, finally to enter the chamber of Kim Il Sung’s tomb and bow three times before a wax statue of his body. Our guides told us everyone in the country visits at least once a year. We had priority over all locals. I walked past so many. So many forlorn faces staring. Were they depressed, shocked to see foreigners, or envious and bitter? I looked at people constantly while in the country, trying to tell if they were happy.

I was wearing my replica Kim Jong Il uniform that I had tailored for Halloween two years ago. Wore it three days. At Arirang, locals wanted pictures with me. The richest attend, with their simple digital cameras.

The more they showed us how great things were, the more suspicious it made me. At the “PY Children’s Palace,” an alleged voluntary after-school program, gifted children danced and played music. All I could think of was the contrast with the kids beside the road in Kaesong.

The key aspects of North Koreans’ personal belief systems are adoration of Kim Il Sung and his son Kim Jong Il, and national pride and the desire to reunify with South Korea (and get the American imperialists off the peninsula). We visited a museum where they collected destroyed American fighter planes and other war memorabilia, and we visited the USS Pueblo, captured in 1968. Misinformation stunned us; some notables:

-The US initiated the Korean War, on a Sunday because as a “day of Sabbath in the Christian US, army strategists knew no one would expect them to start a war then”

-The US initiated the Korean War to bolster its depressed economy by selling arms to the South Koreans

-South Koreans have wanted the US out and the reunification to begin since the end of WWII

The rhetoric about wanting to reunify with the south is confusing: North Koreans mention the shared language and thousands of years of history, yet all teachings and discussions focus on the last sixty years, the time without shared history.

My suggestions for Obama and others:

Kim Jong Il is not crazy. North Korea’s economy is in trouble both because of bad decisions, like a planned economy, and bad luck, famine and floods. All while people were being told things are good. Underpinning the whole economy for decades was the Soviet support. So North Korea never learned to allocate capital properly. It was just handed everything. Things grew worse in the early 1980s, just as South Korea really started to take off. Controlling information and making things sound good became more urgent.

Time passed, and the gap between the reality and the stories continued to widen. The image of KJI and his father mustn’t shatter. KJI has a deep Confucian commitment to be the strong hand leading his people just as his father was. The West must approach him in a manner that doesn’t humiliate him. Not only is he proud, but his people have their pride deeply intertwined with him. Any changes, introduction of a market economy, must come from him. If there’s a power grab when he dies, that could lead to the government’s collapse; otherwise, it has a lot of staying power: it is impossible to organize there.

It’s frustrating to play to an egotist, but it’s the only route to constructive engagement. He (and his father) must look good. We should want to help such poor people, and we want to finally stabilize the region. Because from his point of view, when you got nothing, you got nothing to lose!

Ok if you’ve read this far thank you!! Time to rest. Unless someone wants me to go on pages more…. I have hundreds of pictures (as does everyone else from the trip, most of whom are much better photographers).

Cheers, comrades!

p/s photos: North Korean beauties (hey!!! don't blame the uploader, blame the sample source).

Bull & Bear Case For Oil Prices

The Bull & Bear case for oil prices:

Jeffrey Currie, head of energy research at Goldman Sachs, made a very bullish case to investors in a presentation on Wednesday. He sees oil at $95 per barrel by December 2010. Even more interesting though were his views on the market’s current inflation expectations, which went a little like this:

A recovery in EM demand growth will push the market back towards effective production capacity by 2011

The equity markets have primarily been pricing in EM growth over the past three months

It is EM growth expectations that have created the rise in inflation expectations and commodity prices

So it’s all about EM growth rather than real fears of inflation back in mature markets. Accordingly, Curries sees the recovery playing out a little bit like this:

2009H1: Bridging the gap to economic recovery
WTI timespreads strengthened as an inventory dislocation was avoided and as the credit dislocation unwound, which allowed a normalization of the WTI timespread inventory relationship.
2009H2: A cyclical bull market as the economy stabilizes
WTI timespreads to continue to strengthen in a cyclical crude oil rally, but OPEC holds the key in the near-term.
2010H1: Long-term shortages generate near-term surpluses
Rising WTI crude oil prices amidst weakening timespreads as long-dated prices rise to motivate investment in non-OPEC production capacity.
2010H2: From financial crisis back to energy crisis
WTI timespreads strengthen once again as dwindling supply leads to a new cyclical rally.

And he agrees with BP’s Tony Hayward that the energy crisis coming our way is actually more political than geological.

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Edward Morse, director of economic research at LCM Commodities.

In a piece published in the latest edition of Foreign Affairs Magazine Morse makes the point that oil only went to $147 per barrel in 2008 because of the coincidental convergence of a number of supply-related circumstances unlikely to be repeated any time soon.

Most oil industry analysts expect high prices to return soon, along with economic recovery. This is probably a mistaken view; more likely, the prices for oil and other commodities will be range-bound again. This would be a happy development, as it would provide unusual opportunities to tame the volatility in prices.

But actually, he says, the key factor behind soaring prices in 2008 was the disappearance of Opec spare capacity:
… in 2002–3, the overhang in production capacity evaporated rapidly and unexpectedly. Some analysts invoked the so-called peak oil theory and blamed the situation on an unprecedented acceleration in the decline of oil production caused by the gradual exhaustion of underground resources. But there were more reasonable explanations for what put pressure on oil supplies. Even those countries with plenty of oil resources suffered political impediments to production that could not easily be removed. Venezuela’s state oil company went on strike in protest against President Hugo Chávez, civil disorder over living conditions in the Niger Delta crippled Nigeria’s oil sector, Iran failed to put in place an investment regime to attract foreign capital, the United States launched a war to oust Saddam Hussein, and resource nationalism in Russia and other non-opec countries reduced production growth.

In short, he says, the virtual disappearance of surplus oil-production jolted the market and the lost cushion surprised both consumers and producers — not least Saudi Arabia, which depends above all on its ‘producer of last resort’ status political clout both within Opec and the world.

With that in mind, Saudi Arabia had a big incentive to raise production. And it did so, remarkably successfully Morse adds, to 12.5m barrels a day by 2009, with another 1m on standby by 2010. That should bring Opec’s total production capacity to 37m per day in 2010 — more than 10m barrels per day above today’s level. Which is why it stands to reason, as Morse states:

The disappearance of spare Saudi production capacity was the most critical element in driving up prices from 2003 to 2008—and its reemergence should be the most critical element in keeping them low over the next three years (or more, if global demand fails to rebound enough). Saudi Arabia wants spare production capacity for multiple reasons, including, importantly, to give it influence in the g-20 (the group of finance ministers and central-bank governors from the leading economies) and other international forums. Riyadh’s ability to increase production is the key to its being taken seriously.

The bullish argument, of course, also focuses on non-Opec production declines squeezing prices again. But here again, Morse disagrees:

For one thing, these analysts ignore the fact that the lead-times in finding and developing oil are long, sometimes as long as ten years. Investments from the past half decade will start to bear fruit over the next few years, which means that even the price downturn of late 2008 will have little impact on supplies in the years ahead.

The Saudi national giant Saudi Aramco massively increased its investments to develop new resources after 2003. So did oil firms large and small throughout the world. But unlike their Saudi and other Middle Eastern state-controlled counterparts, international oil companies did not have an inventory of discovered but undeveloped fields readily available.

They had to go out and find new ones. Some energy analysts have suggested that these firms’ efforts were hindered by diminishing prospects, hikes in production taxes, or moves by the governments of producing states to reserve increasing shares of potential finds for their state-owned firms. In fact, there were plenty of deep-water resources waiting to be tapped—in the Gulf of Mexico; off the coast of Brazil; in the eastern Mediterranean; in the Gulf of Guinea; in the Caspian Sea; oª the shores of India, China, Indonesia, and Australia; and along the shores of Arctic-bordering states (the United States, Canada, the United Kingdom,Denmark,Norway, and Russia)—and oil companies spent increasing sums to do so.

If there was an obstacle, it was not a lack of hydrocarbon reserves— deep-water resources appear to be even more abundant than was thought a decade ago—but a lack of equipment to discover and produce them. Fewer than two dozen drilling vessels (each costing $1 billion) were available in 2000. But as contracts were put in place at the time of very high oil prices, the fleet of vessels started to expand. By 2012, there should be closer to 150 such units available for finding and developing deep-water resources. Meanwhile, Morse adds, there’s also been major technological advancements allowing for hydrocarbon production in regions previously considered energy deficient — specifically in the form of shale gas out of the United States and Europe. As he explains:
The United States used to be considered a country that would eventually suffer a long-term natural gas deficit and be condemned to import supplies, some piped from Canada, others shipped as liquefied natural gas (lng) from around the world. But high gas prices—as high as $13 per million btus in 2008, some 160 percent more than prices today—have spurred phenomenal developments in technologies to drill for natural gas trapped in shale rock throughout the United States.The Haynesville Shale, in Louisiana, is so large and prolific that even as the use of gas rigs has fallen in other parts of the United States, current activity there makes up for a quarter of the decline elsewhere. Even at today’s lower natural gas prices, total production in Haynesville could increase tenfold by late 2010.What is more, the Marcellus Shale, which stretches from West Virginia through Pennsylvania and into New York,may contain as much natural gas as the North Field in Qatar, the largest field ever discovered. Shale resources in North America are so vast that plans are being made to develop them for export as lng from Canada’s west coast.

Shale resources are also widespread throughout Europe, and in the aftermath of Moscow’s hardball diplomacy vis-à-vis Ukraine in early 2008 and early 2009, interest is growing among European governments to find replacements for Russian supplies.

Finally there’s the demand-side argument. Morse, for example, believes a return to prior growth rates is actually quite unlikely. For one thing, the market is responding to last year’s high prices. Tracking the trend, the International Energy Agency has lowered its estimates for oil demand in 2030: it forecast 106 million barrels a day in its 2008 report, down from 116 million barrels a day in its 2007 report. Projections of future demand will inevitably be cut even further: one extraordinary lesson of the last 60 years is that after every spike in oil prices, demand growth flattens considerably.

p/s photos: Marthasaya Simatupan