The Trinidad and Tobago Securities and Exchange Commission is still very concerned about the possibility of illegal insider trading on the local stock market, said Chairman of the SEC, Osborne Nurse.

Nurse was speaking at a seminar on proposed take-over by laws at the Hilton Trinidad, last week. He said as a result of this suspicion, the SEC had issued a statement discouraging selective disclosure and will also be publishing guidelines on the handling of price sensitive information. Nurse said the Commission has been looking closely at transactions that took place between 2001 and 2002, to weed out any possibility of insider trading. If evidence of illegal activity is found, said Nurse, the SEC will have to determine what steps need to be taken to ensure that the appropriate sanctions are applied. “Similarly, we recently advised brokerages that the practice of pooling of trades does not allow for an adequate level of equity and transparency in brokers’ dealing with clients and that therefore, the practice should be terminated,” said Nurse. He said in order to adequately handle this situation, the SEC has advised the TT Stock Exchange to speed up the implementation of automated trading, which is scheduled for 2004. Nurse said the Commission is also concerned with the fact that the regulating of the securities market is shared amongst the Central Bank, the Registrar of Companies and the SEC. He said this allows for regulatory arbitrage. “This is one of the serious deficiencies of the existing legislative framework that we intend to address in the proposed revision of the SIA. Consequently. Our proposed revision will include specific provisions for amending the Companies Act, for bringing all aspects of securities regulation under the TTSEC and for facilitating collaboration with the Central Bank as well as foreign regulators,” said Nurse. He said there was an increasing concern about the availability for the sale of foreign securities which do not come under the jurisdiction of the Commission and about the activities of visiting securities sales persons that are also not regulated.

Nurse also addressed the issues of collective investment schemes/mutual funds; compliance; regulatory ration-alisation/integration and regulatory strategy. Nurse said the issue of regulatory rationalisation and integration was an interest matter. Currently, he said, the Commission, the Central Bank and the Registrar of Companies oversee different aspects of the operations of players in the securities market. “This shared responsibility leaves many gaps in the regulatory process, allowing for the possibility of regulatory arbitrage.” He said this was one of the serious deficiencies of the existing legislative framework that we intend to address in the proposed revision of the Securities and Industry Act (SIA).The Trinidad and Tobago Securities and Exchange Commission (TTSEC) has relatively few tools to lead and encourage market growth and development in the country. Speaking at a seminar on the proposed Take-over By Laws, SEC chairman, Osbourne Nurse said the local and international banking and financial services sectors best practice is defined through standards established by the Basle Committee, while in the securities industry, such best practices standards are established by the International Organisation of Securities Commissions (IOSCO). He said the IOSCO standards are intended to lead to and encourage market growth and development, particularly through instilling confidence, among investors, market participants and issuers of securities alike, that the risks in the market are known and that the playing field is level for all participants, even though it may not be smooth.

Nurse lamented the fact that the  TTSEC has very few “tools” to achieve these broad goals. “The first and most important of these is an appropriate enabling legislative framework that recognises the importance of the goals of market regulation and that empowers the regulator to take the necessary steps to achieve those goals.” He said the TTSEC has been engaged over the past year in a comprehensive exercise to review, modernise and revise the legislation in order to bring it up to international best practice standards.

Of course, it’s really next to impossible to manage a portfolio of mutual funds based on style management. Oh, sure, there’s a lot of newfangled software out there that tracks the investment styles of mutual funds but there are three problems with the whole idea. First, most mutual fund managers are constantly changing the investments that are inside their portfolios. So even if they tend to be a mid-cap growth manager, that doesn’t mean they won’t sometimes invest in a large-cap value stock if they think it represents a good opportunity.

Second, investment managers have been known to change their minds. They are not obligated to stick with one style forever, and if their particular style falls out of favour, you can be pretty sure that their style will change. Because if they don’t change it, the next manager will. After all, fund managers change teams more often than football players. He’s going to do things differently. And that’s the biggest problem of the investment-style tracking software. All it really does is show you how a fund has been managed so far, and like investment performance itself, there’s no assurance that this same investment style will continue into the future. And the third problem is that all mutual funds are misclassified. So you can’t be sure that your “small cap” fund is really buying small growth companies.

But none of these problems really matter. Because your readers don’t know it – and you’re not about to tell them. Instead, your story will focus on this HOT! NEW! Idea called style management. It sounds cool. You’ll have no trouble coming up with fresh stories built around this theme every month. You can focus on a certain asset class, or a certain style within that asset class, or a certain fund within that style within that asset class, or …

STOP LOOKING FOR TIPS. SEEK EDUCATION INSTEAD

Media coverage of personal finance can be grouped into six types. The first, of course, is the personal finance press.The second is the general media, while it’s not their sole focus, they often cover personal finance. The third group is the business press, including The Business Guardian, Business Express and the Business Newsday newspapers; technical and professional newsletters such such as those put out by CMMB, WISE and BOURSE; as well as magazines such as the Executive Times. The fourth group consists of books. These are, shall we say, numerous – and written sometimes for consumers and sometimes for professionals. Is anything from any of these groups any good? Absolutely. Much of what’s produced is outstanding — and like anything else, much of it is not so good, too. How do you know what to read, and what to ignore?

It’s really very simple. Read, watch, and listen to everything you can, but pay attention only to those that educate. When you come upon something that recommends, you must:
1. evaluate the reasoning behind the recommendation,
2. confirm that you understand the reasoning, and then
3. decide if you agree with the reasoning.
Only if you complete all three steps should you act on the recommendation. Often you’ll have to turn to a second, third, or fourth source for help with these steps.
If, for example, a story or news show is explaining interest rate risk, pay attention, because the education will be valuable. But if they start telling you that interest rates are going to drop, you must:
1. Learn why they think interest rates will decline.
Too  often predictors don’t explain themselves. You must dismiss any recommendation that is not supported. If the rationale is provided, then you must …
2. Confirm that their reasoning makes sense.
Don’t merely accept what they say; make sure their position is supportable. Here’s an easy way to tell: After receiving their position, repeat it — in your own words — to a spouse, friend, or co-worker. As you are explaining their position, you’ll quickly decide if you feel like an idiot saying whatever it is you’re saying. If your co-workers don’t laugh you out of the building, then …
3. Decide if you agree with it.

Keep in mind that something isn’t necessarily right simply because it isn’t stupid. Note that when it comes to education and recommendations, most media do a little of both: They have great stories that can teach you a lot, but they also run sensational pieces like “The Best Fund to Buy Now!” and “Retire Before You’re 40!” that have little value other than to attract readers, listeners, or viewers. Of course, people do buy these publications and tune to radio and TV for the hot tips, which has led one prominent figure in the field to accuse some in the media of “financial pornography.” They want to know about the next hot stock. You must make sure you are differentiating the one from the other.

Are the media wrong to offer recommendations? I’ll dodge that bullet, thank you. But I will say this: The media is a business, and their job is to attract readers, listeners, and vieers. Money, for example, does that pretty darn well. But consumers who understand which stories are which are going to be a lot better off than consumers who don’t understand the difference – let alone those who don’t even understand that there is a difference. You’ll discover that it’s an evolutionary process. You start by reading one article. No problem. It’s definitively written clear, and concise, with no chance of a misunderstanding. Its explanation as to why interest rates are about to drop is very convincing. You’re happy, secure in the knowledge that interest rates are headed south. Until you read a second article, which persuasively argues for a hike in interest rates. Now you’re confused. So you turn to a third, hoping it will break the tie.

MARKET TIMING IS DEAD, BEWARE OF STYLE SELECTION

You’re a writer in the personal finance press, and the deadline is looming. You need to write an investment story that will show your readers how to enrich themselves. Market timing stories are always good, but that’s getting pretty stale lately, you need something new.

Diversification is a solid subject. The only problem, though, is that diversification never changes from month to month. So sure, the story will bail you out this issue, but what will you write about next month? Better lay off diversification. No, you need something that’s not only new, but something that changes each month. Something that your readers will like to hear about, but also something that requires updating. Something to bring them back next month. That’s what market timing used to do for you – every month, a different stock pick. In June, it’s get in the market; in July, it’s get out of the market. Readership was really solid in those days. That’s what you need. Something like that. Let’s go back to that diversification thing. Your readers are hearing about it. They’re starting to wonder how to build a portfolio based on it. Trouble is, there’s really not much to it. And now the problem is that all these consumers – your readers – are focusing attention on asset allocation. They’re talking in terms of long-term portfolios, for crying out loud. They used to talk about stock-picking. They used to gobble up stories on “The 10 Stocks to Buy Now!” But this long-term thing is a problem, because it’s leaving you with very little to write about. What you need to figure out is a way to make forest-looking asset allocators act like tree-studying stock-pickers. Wouldn’t it be great if you could somehow integrate stock-picking into their asset allocation modeling?

Hmmm. Pretty good idea. All you need to do is come up with a story that micromanages the asset allocation concept. But to do that, you need an angle. Let’s see. If your readers do this asset allocation thing correctly, their portfolio will look like a pizza pie, and each slice of that pie will consist of a different asset class. Your readers, therefore, are focusing on asset classes, not individual investments. So they really don’t care about stories on a particular company. And for each asset class, they simply choose a mutual fund that invests in that asset class. One mutual fund for the bhaji slice, another for the cheese slice. Because there are lots of kinds of cheeses, the cheese slice will contain samples of every major kind of cheese. For the portion of their portfolio that’s devoted to stocks, for example, they’ll use stock funds, and those stock funds will contain some large companies, some medium-sized companies, and some small companies. Within each of those sizes will be some growth companies and some value companies. They will do this because, on Ajax Street, every dog has its day – so at various times, some types of companies are going to do better than other types of companies. Because the winds change pretty frequently, your readers ought to have all of these types of companies in their portfolio all of the time. That’s about the only way they’ll really be sure they own the right asset at the right time – which is the whole point behind asset allocation, anyway.

Wait! Your readers probably don’t realise any of this. They’ve only recently been introduced to asset allocation itself. They don’t yet realize that stock funds can differ dramatically from each other. They don’t realise that every stock fund’s portfolio manager has his or her own way of picking stocks and of managing a portfolio. That each has a style all his own. What we need, then, is a story about how to build a portfolio based on investment styles. Style management. That’s it. That’s the ticket!

Ireland’s designation as the Celtic Tiger during the 1990’s arose because of its spectacular economic achievements.  Between 1995 and 2001 Ireland’s growth averaged 10 per cent annually. That country is still the most dynamic European Union state despite a decrease in growth to 5 per cent in 2002.

Ireland’s current status emerged from a poor 20th century  record  characterised by chronic unemployment, large emigration flows, dampened entrepreneurial activity and deteriorating living standards. F Desmond McCarthy, in his analysis of the transformation, states that the newly elected Prime Minister introduced large tax cuts, and as GDP growth responded to these cuts and wage moderation, the budget deficit was slashed and the debt to GDP ratio shrank. A social pact — the Programme for National Recovery (1987 – 90) — resulted in stable labour relations. Pertinent factors included granting massive incentives to foreign direct investment (FDI), engaging in technological development, enhancing industrial organisation, recognising the role of information, becoming a member of the European Community in 1973) and adopting the euro in 1999. 

Foreign business recognised the advantages of an English-speaking, well-educated population with ready access to the large European market and the broad institutional stability provided by the European umbrella. In the late 1980’s major changes in industrial structure occurred as multinationals moved away from the mass production model towards greater flexibility and foreign branches of these companies moved away from relatively insulated units to greater  integration with the local economy. Simultaneously, companies of the “new” economy were fundamentally more flexible, in particular, new technology reduced transport and communications costs, sharply reducing the geographic disadvantage of being an island economy. The Industrial Develop-ment Authority (IDA) developed a policy of attracting high-tech foreign firms and quickly took account of  these new trends. It attracted many leading companies enjoying rapid growth at the global level, such as Intel and Microsoft. The Industrial Development Authority also offered a good platform for many of the large chemical and pharmaceutical multinationals.

Foreign companies were more concerned with the tax structure, in particular the 10 per cent corporate tax rate, and relatively low labour costs, than direct subsidies which the IDA had been providing to foreign investors since the early 1980’s.  The above policy initiatives resulted in foreign-owned firms employing 47 per cent of the industrial workforce out of the total workforce of 1.7 million by 1998 with the US accounting for 75 per cent of FDI. In 2001 Ireland attracted 10 per cent of the EU’s foreign direct investment. The new companies were building links with domestic suppliers and employment in locally owned industry has also risen, primarily in the service sector, which is still linked to and dependent on foreign companies. Ireland ranked in 2002 as the world’s third largest world exporter on a per capita basis behind Singapore, Belgium and Luxembourg. For example, one third of all personal computers sold in Europe were made in Ireland. This was achieved through a series of tripartite agreements between the key economic players — government, employers and labour — designed to moderate wage increases with a formula for increases over three years.

In return the unions sought further tax cuts which resulted in a strong increase in after- tax real incomes.  This further enhanced  economic growth and job creation and, in turn, fiscal restraint and wage moderation slashed inflation. The poverty level declined dramatically in the 1990’s as average real household incomes rose rapidly and unemployment fell sharply. Social welfare provisions rose in real terms but not as much as other incomes. In net terms the number of those on social welfare fell, however, their incomes fell further behind the average which is one negative to observe. Progress achieved may not continue indefinitely. In fact the IMF Staff Report on Ireland advised of an interruption in manufacturing performance in 2001 largely due to the global economic slowdown, the bursting of the Internet communications technology bubble and the rapid increase in Irish wage costs. The IMF also noted that some high-tech industries attracted to Ireland in the 1990’s were permanently relocating away from Ireland, despite the high level performance of a handful of sectors mostly dominated by multinational companies. Irish industrial competitiveness also became vulnerable to fluctuations in the exchange rate between the dollar, the euro, and the pound sterling. Ireland was identified as a country against which Trinidad and Tobago can be benchmarked and there are lessons from the Irish experience, as summarised in this article, which we should assess:

The integrating of the foreign companies into the local economy at an optimum level is vital. The role and effectiveness of TIDCO and the business promotion agencies are significant inputs. The development of a service sector, as espoused by Mary King, must be part of the development equation. A social partnership among government business and labour which establishes definite gains for each  partner is critical to industrial competitiveness. In attracting foreign investment, the key determinants are: a skilled work force, tax incentives and administrative capacity. An adequate supervisory and incentive framework  which promotes transparent and responsible behaviour and better monitoring and accountability, especially in the use of public funds. These factors will steadily strengthen the entrepreneurial spirit.

The views expressed in this column are not necessarily those of Guardian Life. You are invited to send your comments to guardianlife@ghl.co.tt

Q. I heard someone say that a good way to get started in the stock market and measure your feelings about risk is to invest on paper. Something about building a portfolio on paper. How does that work?

Danny, Cascade

A: Building a portfolio on paper or paper trading is a very useful way of testing your risk tolerance. Even experienced traders who are entering a new area for the first time adopt this method in order to better understand the risk dynamics of the investments they are considering. Paper trading is essentially hypothetical investing. For example, let’s say you have $20,000 with which you want to invest equally into two companies on the Trinidad and Tobago Stock Exchange. Instead of actually buying the shares you can be hypothetical and assume you bought the shares on a particular day. Then, from that point on you can track the prices of the two shares over time in order to get an idea of how the prices of these particular shares behave.

You can repeat this exercise for a number of companies which you are considering in order to determine their price movements as well. By doing this you get a good feel for the money you would have made or lost over the time that you would have held these shares. By repeating the process you would then get an even better understanding of the risks you can take and the ones which you cannot afford to expose yourself to. So when you actually start putting “real” money into the market you would do so in an informed manner, knowing full well the value at risk in the market. In short, paper trading allows you to learn the pitfalls of investing in the market without actually losing money in the process. It is a “virtual” way of getting into the market and learning by experience.

Q. How important is timing as far as investing in the stock market is concerned?

Azard, Claxton Bay

A: In most stock markets, timing is of the essence. However it is not so much of an issue on the local stock exchange. In the developed markets the price reaction is extremely high because of a large number of buyers and sellers taking positions in the shares. The price of a share would therefore start increasing or decreasing in line with earnings estimates or “what the street says” long before the actual company earnings are released. If the actual earnings, when released, exceed what the projections were, then the price of the share would experience an increase after the announcement to factor the positive variance from projections. Conversely, if the actual earnings were less than projections then the price of the share would fall or “correct” after the announcement of earnings in order to factor the negative variance from projections.

However, in Trinidad and Tobago the price of a share does not react to earnings’ projections, probably because there is no real forecast or consensus from brokers as to what the earnings of a company would be. While some brokers are beginning the process of projecting company earnings there is no real consensus among them for the market to react to. Therefore buyers and sellers wait till the announcement of actual earnings by the companies to start buying or selling. This results in a phenomenon in the stock market referred to as “post earnings announcement drift.”  This occurs whereby the prices of shares start to rise or fall depending on whether the actual earnings increase or decrease respectively over the corresponding prior year period. This gives ample opportunity for investors to come into the market after the earnings are announced and still make money. Investing in the market then becomes a virtual no-brainer, as one does not need to rely on making accurate forecasts of earnings in order to profit. Such is the behavior of stock prices on the local stock exchange.

Q. Last year one of the measures proposed in the budget was a tax break for credit union deposits up to $10,000. Has this actually been implemented? If so, how does it work?

Richard, Tunapuna

A: While we are not qualified tax advisors the information we have is that this measure has been implemented. According to our sources the tax deduction applies to amounts up to a maximum of $10,000 and was made effective January 1, 2003. Therefore deposits made prior to January 1, 2003 will not qualify for deductions on your tax return. According to tax sources, no new forms have been issued to include a new line item for this new tax deduction i.e. in addition to your existing deductions for mortgages and annuities. However, since the deduction applies for deposits held for a full calendar year, incremental deposits made in this year would only start being claimed in next year’s tax return.  Presumably, the new forms for 2004 would be amended to include this item. However, in order to prove ownership of the deposit a certificate must be issued by the credit union, a copy of which must be submitted to the Board of Inland Revenue when filing your claim next year. For further information please contact a qualified tax advisor.

Questions can be sent to PO Box, 1830, Wrightson Road, Port-of-Spain.
E-mail: cmmbsecurities@mycmmb.com

Fifty years ago last weekend, Fidel Castro led a small group of followers on a near-suicidal raid against an army barracks, the precursor of Cuba’s 1959 revolution. Fifty years on, Mr Castro is still there, bearing an increasing resemblance to a Caribbean King Lear. Having outlived many of his enemies, he is busy finding more: his anniversary speech was mainly an angry rant against the European Union. Maybe that was because he has little left to celebrate, except survival.

In April, in its harshest crackdown on dissent in decades, his regime imposed long jail terms on 75 opponents, most of them independent journalists, librarians or democracy activists. Mr Castro justified this as a necessary defence against “regime change” promoted by an American administration he sees as the most aggressive towards Cuba since the 1960s. Outsiders (such as the EU, which withdrew its aid and curbed political ties) believe the crackdown’s real purpose was to silence a small but growing opposition before economic problems amplify the grumbles of discontent. The problems do, indeed, go deep. Many poorer Cubans got some benefit from the radical egalitarianism of Mr Castro’s revolution, especially from its achievements in health and education. The infant mortality rate is the lowest in Latin America, and similar to that in the United States. Yet such gains came at a heavy cost, in lost human freedom and in Soviet subsidies. When the latter disappeared, Mr Castro opted to preserve his regime at the price of its principles. Ten years ago last weekend — a date which will be seen as the beginning of the end of the revolution — he legalised the use of his arch-enemy’s currency, the American dollar. He had earlier invited foreign investors to Cuba to develop a mass tourist industry.

Ironically, the only things that now stand between Mr Castro’s revolution and mass poverty are remittances from the 1.2 million Cubans who live in the United States and investors and tourists from the EU, whose governments he now abhors. They cannot mask the strains on the vaunted health and education services. But they have weakened the regime’s control, exposed the bankruptcy of the communist economy and introduced new inequalities. In Cuba now, a waitress in a tourist hotel or a prostitute earns more in a day than a surgeon or teacher gets in a month. The dollar shops overflow with goods, while in the peso economy of subsidies and rationing, shelves are often bare. To have a family in Miami is more useful than to have a Communist Party card. Given this demonstration of the superiority of market economics, what keeps Mr Castro in power, 14 years after the fall of the Berlin Wall? Repression, and the fact that Cuba is an island from which escape is hard, are part of it. But so too are Cubans’ residual respect for their leader, their fear of the future, and the United States’s futile trade embargo. His successful defiance of the trade embargo and the revolution’s past social achievements still give Mr Castro a certain aura among people such as members of the European Parliament, Hollywood film directors and Latin American students. But like the 1950s American cars and decaying Spanish-colonial tenements, Mr Castro has become part of the island’s time warp. Repression apart, his revolution has come to resemble a Potemkin village of stage scenery. Behind the picturesquely crumbling fa?ades, the dollar is already in charge.(Guest editorial from The Economist).

As difficult as it may seem, Caricom may have to abandon their consistent call for Special and Differential Treatment (S&D) when the 5th World Trade Organisation (WTO) Ministerial Conference is held in Canc?n, Mexico, next month.

Special and differential treatment is a concept, defended most vigorously by Caricom, that argues that developing nations ought to be exempted from implementing many of the trade obligations established by the WTO because of these countries’ special circumstances and vulnerabilities. Aware of the devastating impact the WTO ruling on bananas has had on the mono-crop economies of many Windward Islands, the call for S&D appears to be more compelling. However, Dr Don Marshall, who was part of a four-member top academic team researching the future of S&D for the Association of Caribbean States (ACS), said developed countries find S&D difficult to accept because it is “contrary to the spirit of free trade.”

Furthermore, he argued that countries pushing for S&D should make greater use of the provisions already existing within the WTO for a similar type of exemption treatment but “without the S&D label.” According to Dr Marshall, cases can be put before the WTO on particular sectors, products and industries. However, “trying to win carte blanche removal of an entire sector, like in the case of the Windward Islands for bananas, is not going to work.” What the Barbadian UWI research fellow and his team of Dr Patsy Lewis, Dr Pat Northover and Dr Lucy Eugene of the Mona Campus of the University of the West Indies (UWI) have recommended in their paper, is a push for more compensatory financing and not for special and differential treatment. They have recommended to the ACS that the region should seek some kind of compensatory or adjustment financing to support industries that will come under pressure as a result of trade liberalisation.

Concessional bargaining, the social scientist insisted, is going to be the order of the day at Canc?n. “If you win concessions in one area, you are going to have to give concessions in others.”  However, Nicole Clarke, one of the island’s trade negotiators, said Barbados could not possibly abandon its position on S&D. “I don’t think that any developed country partner would seek to dispute the importance or relevance of special and differential treatment at the level of principle,” she argued. Furthermore, the diplomat stressed that S&D has not become an irrelevant and tired issue. “I don’t think it is an issue that developing countries as a whole or Barbados in particular could ever abandon because, made, at the end of the day, there isn’t a level playing field.

“Once you know there is not a level playing field you have to have some sort of recognition of that inequality and give people mechanisms to overcome those difficulties,” Clarke stated. The Barbadian diplomat disputed any suggestion that developing countries were philosophising on the issue of S&D. The negotiator insisted that it would be denying reality to believe that there is no case for S&D. “It is certainly not a case where we exaggerate or misrepresent the challenges we face. There are real problems that Barbados and the other countries in the region face as a result of our smallness and I don’t think people can dispute that. “I don’t think that because people choose not to make the kind of movement we would like them to make, that we must necessarily accept that our case is not valid. Our case is as valid today as it was yesterday.” “It is not a luxury we are indulging in – it is life or death to us . . .” she said.

Editor: The Chag’s Dilemma article published in Business Day on August 7 is absolutely a fair assessment and is truly not news to most businesses in Chaguaramas. For varied reasons the industry has been in a slow decline for over the past three years and there seems little is being done to address the situation.

In his address at the dedication and launch of the new CrewsInn facilities several years ago by the then Prime Minister, the honorable Basdeo Panday, there was optimism about the success of the industry. At the time, it was stated that Trinidad was realising TT$120 million in foreign currency. But the optimism was nothing but “ole talk.” This industry is a “tourism” product but Tidco provides little support. For example, several oil spills caused severe damage to the visiting boats sustaining high costs for repair. After three years of litigation, a Trinidad business finally agreed to compensate the tourists for the costs of the damages without accepting responsibility for the oil spill, reimbursing a very small percentage of the claim.

Of course the sailors are long gone to receive the compensation offered. Several oil spills later, the word spreads that Trinidad really doesn’t care and “poof”…the yachties pick up their anchors to go where the industry cares more for their business! The “yachties are over-reacting” is being said but if we don’t listen to their “over reacting” then how can we intelligently develop a viable industry? If we have no effective public relations or literal damage control, then we can expect more depression. Quality, fair pricing and meeting job promises are the elements of running a business and I am afraid we are not delivering. It is only until Trinidad takes this industry seriously that it will be a success. The businesses, Tidco and the government have to understand the needs of this market and more importantly, to identify the cruisers traits and what is important to them.

Chaguaramas businessman

When the Food and Drug (FDA) Administration in the US announced its plans to regulate the importation of foreign food and drink entering the country, TT exporters had to undergo a crash course in bio-terrorism to protect themselves and their products.

According to Samaroo Dowlath, CEO of Namdevco, many of the exporters were left in the dark, since the representatives from the USDA were not equipped to answer them. “It went quite well. The target audience was present, which was something we hoped for. But we were disappointed not to have FDA presence there. The information given was useful to the exporters, though and now we need to continue the sensitisation process,” said Dowlath. All exporters will be asked to complete a registration process with the FDA by December 12, 2003.  On this date, the Public Health Security and Bio-terrorism Preparedness and Response Act of 2002, will come into force and will provide the FDA with the authority to protect the US food supply against terrorist acts and other threats. Speaking at the seminar at the Hilton Trinidad, director of the USDA Caribbean Basin, Margie Bauer said every company exporting food or drink items into the US must register the products and the company in order to gain access to the US market from December, 12. “Companies can register themselves online or through their US agent. But the agent must be residing in the US,” said Bauer. The Act will allow the FDA to regulate over 400,000 domestic and foreign facilities that deal with food in the US.

The registration process is extremely tedious for exporters and is still separate from the customs regulations. According to Bauer, this will soon change, since they are working to merge the two systems to improve efficiency. Until then however, TT exporters find themselves swallowed in rules and deadlines in order to have their products on US supermarket shelves. Under FDA jurisdiction, the list of food items is lengthy. It includes food and food additives, dietary supplements and ingredients, infant formula, beverages (including water), fruits and vegetables, fish and seafood, dairy products and shell eggs, canned foods, live food animals and bakery goods, snacks and candy. All facilities must be registered, said Bauer. It is prohibited to not register a facility if you are exporting to the US. Exporters are also obligated to give prior notice, which is to reach the port of entry 2 hours before the actual goods. This is in addition to the notice requested by customs. “Port of entry for customs means the final destination for the goods, but for the FDA it means the port in which the goods enter the US,” said Bauer. The FDA anticipates that an average of 20,000 prior notices for imports in to the US will be submitted daily. If prior notice is not given, goods will be detained in storage until the application is filled out, warned Bauer. TT exporters were also informed of the administrative detention aspect of the Act.

The Act authorises the FDA to detain a product which may pose a threat of “serious adverse health consequences or death to humans or animals”. According to the Act, the detention period cannot exceed 30 days. In order for the product to be released the exporter must file an appeal within two days of the detention if the item is perishable. For non-perishable items, the exporter has four days. A ruling by the FDA will be issued within 10 days. Exporters will also be required to establish and maintain records as part of the Act. Records must be maintained for no longer than two years as long as the exporters manufactures, process, pack, transport, distribute food to the US. According to the Act, this is needed for inspection to allow the FDA to identify the source of the food and packaging in case it is classified as a health risk. But while this may be understandable for the FDA, in light of risks resulting from the September 11 terrorist attacks, it still causes concern for local exporters, said Dowlath. “People are not sure what is going to happen, especially with the detentions. This is a cause for major concern. The exporter has to leave goods in the hands of the shipping agents and this will cause anxiousness. We could not get a clear answer as to what this will mean for the exporting company from the USDA representatives,” said Dowlath. Exporters were also unsure of the penalties if their goods were deemed harmful. While the representatives from the USDA said the goods would be held in detention, they could not say whether or not the goods would be prohibited from entering the country in the future.

The blackouts last week affecting the east coast of the United States and Canada stretching as far as Ottawa must be a signal lesson for all of us. It can happen here in Trinidad and Tobago where we are dependant on one source of supply. In the USA, there is inter-connectivity where power can be sourced from alternative suppliers and should allow for a more reliable service.

The cause of the problem will be the subject of an investigation but whatever is finally determined as the root cause of the system ought not to have suffered from a cascading effect where some 21 power plants simply shut down from overload. One would have thought that such a technological advanced country would be immune from problems more associated with the Third World. Early indications are that they would have to undertake serious investment in the upgrading of their generation and distribution systems, if they are to avoid a recurrence. What is the lesson that can be learnt from the USA/Canada blackouts? Living is a lifelong experience and there are such things as human and equipment failure that lead to accidents or incidences which may in all probability have some financial consequences. This is where the concept of insurance seeks to fill this void and therefore anything that has a financial exposure can be the subject of insurance- risk versus reward or hedging.

The buying of insurance cover and paying a premium to an insurance company is only one mechanism and it is supposed to be a deliberate and conscious decision on the buyer’s part to transfer the risk — ie laying off the risk to an insurer in exchange for the payment of a premium. A deliberate decision not to buy an insurance policy is to say that you will retain the risk yourself — it is recognition that you are prepared to carry the risk and save the premium since the financial consequences do not pose a real threat to your financial position. Big corporations take these decisions all the time since they manage their risk exposures and they have the financial strength to absorb any losses at least up to an agreed limit. The principle that is involved here is that you must always behave as if you had no insurance policy. If this principle guides everything that we do then only the real unforeseen circumstance will not be factored in our action. This is a profound theory but it is simply not practised sufficiently in Trinidad and Tobago. Maybe that is how developed societies generally behave but we cannot claim to be anywhere near achieving developed country status since we do not take responsibility for our actions. Insurance is not seen as a tool in our decision-making process but rather an unnecessary imposition that translates into spending and the only return is in the event of a claim and there is where the “fine-print” kicks in.

Trinidad and Tobago like most Third World countries simply pay little or no attention to safety and therefore risk in everything that we do is higher. This is reflected in the way we cross the street, in the way we recklessly drive on the roads with total disregard for other users and the traffic laws and regulations. Thinking about safety is a culture that we do not appear to have within us — it is not second nature and therefore we have to inculcate this habit by constantly working at it right from birth. It was reported that the financial loss in the blackout was estimated at over US$750 million and counting after two days and power had still not been fully restored to several parts of Canada and worse it could take several days for normalcy to return. All of this might have implications for the insurance industry. Think about what took place. Millions of consumers had blackouts (T & TEC has less than 400,000 customers), some with no power for more than 24 hours, some 48 hours or more. Some policies may carry coverage for deterioration of your stock/contents caused by the failure of the electricity supply but the blackout must affect you for a minimum of 24 or in some cases 48 hours before coverage is activated. It would appear that there must be some insurance claims and that will involve work for loss adjusters, claims personnel and will entail substantiation of the losses from the claimants. Think about the losses suffered by business — some will receive compensation from their insurers once they had the appropriate insurance coverage especially those who have been without power for days. Then there will be the issue of liability in terms of contractual arrangements and again insurance will be in some way involved and this might well end up in the courts for determination.

We in Trinidad and Tobago have been fortunate to have so far escaped from any major event caused by hurricane, flood or earthquake which our neighbours in the Northern Caribbean have experienced. In the aftermath of Hurricane Gilbert in Jamaica some 15 years ago, it took months for some homes to have their power supply restored. Think about the hardship and the financial cost should we suffer an event from any peril of nature! It is only then we would have a better appreciation for insurance and how it works since we take it for granted believing that insurance is an unnecessary evil that we have to put up with! The international insurance and reinsurance communities are accustomed to dealing with all kinds of catastrophes around the world and therefore they supply protection in the unlikely event that we should be hit by a catastrophic event and their costs are rising because of all the catastrophes that are taking place elsewhere — the USA blackout, the unprecedented heat wave in Europe — all having losses to be met. This is also happening at a time when the Stock market is still under-performing and the return on investments is at a low. The USA/Canada blackout has only added to the problem and may reinforce the view that insurance premiums are still too low given all the challenges facing risk-takers worldwide.

E-mail: daquing@cablenett.net

As many expected, the US Federal Open Market Committee announced no change to the short-term rate, leaving it at 1%, the lowest it has been in 45 years. They noted that the rises in productivity was encouraging and that low interest rates had helped to boost economic momentum.

More important however, was the suggestion by the US Federal Reserve that low interest rates would probably be sustained for an extended period. Over two thirds of the panellists believe the Fed funds rate is about right and see the rate holding for the next six months. As a result, every major global equity market rallied on the news, with the Nikkei logging the greatest gain, 6.4%. Most markets saw a pretty solid 3% growth for the week. Coupled with some better than expected earnings reports, the economy and by extension the markets are set for a strong second half of the year. After strong trading on Monday, leaving the DOW over 9400, the year end targets of DOW at 10,000 and S&P at 1150 seem very achievable. In economic news, the United States weekly unemployment report from the Labor Department showed new claims for unemployment benefit remained below 400,000 for the fourth straight week.

The Consumer Price index increased 0.2 in July indicating a pretty stable pricing, supporting the US Fed view that the economy is well positioned. Neither an upward spiral in inflation nor a downward spiral to deflation are of concern now. The government’s producer price index expanded by 0.1% in July, slowing from a 0.5% rise a month earlier. The deceleration was attributed to a significantly smaller increase in the cost of energy and capital equipment. The United Kingdom markets moved forward over the week, helped by a positive performance from some of the largest sectors. Telecommunication service prov-iders and pharmaceutical companies featured prominently in the list of the biggest movers for the week. Forestry & paper, health and steel were the worst performing sectors. Inflation rose in July to 2.9% as a result of higher clothes prices. The Bank of England, however, lowered its inflation forecast for next year for the first time since November 2001. It now predicts inflation will peak at 3% next April but will then drop below the government’s target of 2.5%. The number of people claiming unemployment benefits in July fell for a second month in a row. Claims fell by 8,800 from June figures, but the overall rate of unemployment remained steady at 3.1% for the 19th consecutive month. 

Despite generally negative economic data, European stocks moved forward based in part on the United States momentum. The eurozone economy slowed to a standstill in the second quarter as Germany and Italy slid into recession. German GDP shrank by 0.1% over the period; this followed a 0.2% contraction in the first quarter. French industrial production rose by a monthly 1.2% in June, the biggest jump in two years, as the economy rebounded from widespread strikes the previous month and consumer spending picked up. However, the spike followed a fall of 1.3% in May. France’s July inflation figure was unchanged from June, rising by 1.9% from a year earlier. We note that the financial sector continues to do well with UBS of Switzerland announcing its highest quarterly earnings since 2000 for the second quarter of the calendar year. Net income rose over the period by 23% with revenues rising at all the group’s main businesses. Over the intermediate term, the market has an upward bias as long as the US lead global recovery sees continued economic stimulus from government and it should for many months, the economy continues to show signs of gaining strength like it did this past week, and there are no derailing shocks (always a risk). That said, we are positive towards the future and increasing weighting in ownership positions.

E-mail : darcy@investments-intl.com