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Paul Gambles

Recognized as a regional financial expert, Paul is a regular speaker at industry events on market forecasting, financial planning, investing and legal issues for foreigners living or doing business in Asia.  Besides Paul’s blog, Paul previously distributed his ‘almost-daily’ email – “Daily Updates”, where he gave his views on timely issues affecting financial markets, macro economics, micro economics and everything in-between.

Born in South Yorkshire, England, Paul graduated from the University of Warwick with an Honours degree in English and European Studies.  He began his financial career in the early 1980s as a technical inspector at HMIT with Inland Revenue.  Following a successful career change to the Bank of Scotland in 1987, Paul moved to Bangkok in 1994 to help set-up an investment counseling practice, which today is known as MBMG International.

www.mbmg-international.com

  

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1 February 2010

Expect the unexpected II - the sequel! 

A couple of great pieces of journalism by The Nation's Nophakhun Limsamarnphun over the weekend; in the first he picked up the point, better understood in many parts of Asia than by western governments and central banks, that short term pain would have been worth the long term benefits -

Bearish predictions

By Nophakhun Limsamarnphun, The Nation, Published on January 30, 2010

Former Lehman Brothers executive and now an investment consultant, John Sheehan growls about the steps taken to save the US economy. The 'too-big-to-fail' institutions should have been allowed to collapse, he says

Forward-Looking Insights On Topics Related to The World Economic Forum

John Sheehan has one advice: "Expect the unexpected". The Bangkok-based investment consultant has a bearish outlook on the global and US economy for this year.

"Expect sovereign debt crisis, reckless protectionism, short-sighted fiscal decisions, strikes, sudden erratic surges or dips in the capital markets and a whole host of stuff that we haven't even thought of," he writes in a special report recently commissioned by MBMG Group, a specialist in wealth management.

The report is entitled "The Inevitable Demise of Western Democratic Capitalism".

An ex-Lehman Brothers executive, Sheehan is pessimistic as far as the US economic recovery is concerned. In his opinion, Barack Obama's administration has not solved Wall Street's fundamental problems after completing its first year in office this month.

"What they've done is support the inter-bank lending activities [following the Lehman Brothers bankruptcy in order to prevent a systemic breakdown of the financial system]. That's not the solution," Sheehan says.

In effect, US authorities have only put off the problems. The consultant adds that the US government should have let those "too-big-to-fail" financial institutions on Wall Street collapse and auction off their assets so that there could be a genuine recovery.

Instead, the authorities chose to bail out those institutions with a massive amount of public money. As a result, the US government now owns about $5 trillion (Bt165.6 trillion) of mortgage-backed securities out of a market size of $8.9 trillion.

The bail-out was funded by a combination of new cash issuance worth around $1 trillion as well as a balance of asset swaps - mainly in terms of Treasury bills.

This means the US government bought some $5 trillion worth of junk that Sheehan believes is probably not worth much more than $1 trillion.

Previously, Sheehan specialised in the acquisition of distressed assets and debts in which he earned extensive knowledge and intimate understanding of market cycles.

In his opinion, the US government made the mistake of paying 100 cents on the dollar for those mortgage-backed securities, which could now be worth just 20 cents on the dollar.

To keep the financial system going, the US put those assets in a giant freezer so the process of a genuine recovery has not started.

The market's bottom is not yet established as in the case of the US's Savings and Loan crisis back in 1991. Without a genuine market bottoming, any investor confidence will be short-lived. "If I were in charge, I would allow the short-term collapse, rather than facing long-term recessions [which could be as long as those faced by Japan in the past two to three decades]," he says.  

Sheehan also warns that the United States could face a debt payback problem in the next two or three years and will be more vulnerable if interest rates are on the up-trend.

"I'd like people to know the seriousness of this crisis and the big picture [as we tend to learn from the international media that one day the economy is getting better and the next it's not. It's been back and forth like this for some time].

"The problem is that there is a shortage of structural solutions," says Sheehan, who settled down in Bangkok after leaving his former employer back in late 2008."

Couldn't have put it better, Khun Nophakhun!