Q.  I recently got a small salary increase and want to be sensible with the extra cash. I have 10 years left on my home mortgage. Would it be wise to increase my monthly mortgage payments in order to finish it early, or would it make more sense to invest the extra $300 in a high interest savings account?

Douglas, Caroni

A : It is better to use the extra cash to clear your debt. The reason is that the rate on the highest interest bearing account would be lower than that of the interest rate charged on your mortgage. Therefore the extra interest earned on the additional $300 per month would be less than that of the interest due on the unpaid $300 of your mortgage per month. You would thus be making what is described as a negative spread if you use that extra $300 per month as savings. Nevertheless some people would tend to keep these additional funds and count it as savings. This is merely mental accounting, as these funds should only be considered as part of your net worth after subtracting outstanding liabilities and debt. So from a purely financial point of view the funds should be used to increase your monthly mortgage installment. However, there are other practical considerations. Depending on your situation, an additional $300 per month may be valuable in case of  emergencies. You may thus want to keep it, as the value of having funds to be used when it is really needed cannot be quantified economically. It is always prudent to have money to be used in case of contingencies. So you would have to judge for yourself, considering your overall financial position, which option is more suitable for your particular needs and circumstances.

Q.  You answered a question recently about alternatives to using an overdraft, but can you explain the difference between a banker’s acceptance and a repurchase agreement?

Gary,  St  Madeleine

A banker’s acceptance is a product used by a bank to match borrowers and lenders, giving a bank guarantee to the lender on the funds advanced. For example, if an exporter needs funds to manufacture products the bank can undertake to raise funds directly from an investor who has excess cash flow instead of raising it from depositors’ funds. The investor is given a certificate or Paper with the name of the borrower as the obligor (the one who has pay) of the investment, but the principal invested is secured by a bank guarantee. Hence the name banker’s acceptance. The bank has agreed to accept liability and so the investor has recourse to the bank in case of a default by the borrower. A repurchase agreement is a sale and buy back agreement on existing paper. For example, if a client wants to raise funds on a bond which he has purchased but does not want to sell the bond outright, he can arrange to sell the bond and simultaneously agree to buy it back at some point in the future. The seller/repurchaser pays the buyer a rate of return referred to as the repo rate. However, the interest rate on the bond is still paid to the seller/repurchaser. The difference is that the investor takes the risk of the underlying bond and does not have a bank guarantee as in the case of a banker’s acceptance.

Q.  If I want my money to keep pace with inflation, what sort of interest rates should I be looking to get on my investments?

Anjanie, Diego Martin

A: There are certain instruments, which hedge the effects of inflation while others do not. For example, a fixed deposit with a commercial bank, which has a fixed rate of interest for a fixed term, is not very sensitive to changes in the rate of inflation. However, a Treasury Bill (T-Bills were explained in a previous column) is a good instrument for achieving an inflation-adjusted return, as it is very sensitive to changes in price levels and the money supply. Similarly a money market account is also extremely sensitive to inflationary pressures as the rate floats up or down ever so often depending on the state of market liquidity. However, the rates on T Bills are extremely low right now and so it may be better to invest in a money market account, which pays a higher yield as well as adjusts for inflation. Real Estate is also an investment, which closely tracks the rate of inflation, and so it is a good vehicle for preserving the value of wealth over the long term. If it can be structured where a rental income can also be earned, then you would have a dual benefit.

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

MAYBE it is time for fete promoters to be required by law to provide insurance coverage in the event of injurious accidents at their crowded events. The need for this is a matter that the authorities may want to consider having regard to the apparently inadequate measures taken at these fetes to ensure the safety of patrons.

A case in point is what happened at last Sunday’s recent Alternative Concert fete held at MOBS2, Chaguaramas, when a burst of fireworks, instead of shooting into the sky, arched into the crowd, injuring a number of patrons. We will have to wait until the Fire Services has completed its investigation into this incident but we have been told by Chief Fire Officer Lennox Alfred that the fireworks that went in another direction may have been a defective one or an old type. Whatever the findings of the probe, we are sure that those persons who were injured by the deviant fireworks would want to know who is responsible for the burns they suffered and the medical bills they have incurred as a result.

The worst among the victims was 24-year-old Marissa Lewis of Carenage who sustained second degree burns to her face. Lewis told this newspaper that she has already spent thousands of dollars for treatment to her facial injuries which she described as “too terrible.” She is under the care of a skin specialist and may eventually lose the sight of her left eye. When Newsday spoke to her earlier this week, Lewis said she had not received any compensation from those who conducted the fireworks display but her mother-in-law, Myrtle Sinnette, disclosed that the Montanos had promised to compensate her daughter-in-law.

In his series on Carnival and Insurance, Bernard Aquing, Chartered Insurer Consultant to the Association of Trinidad and Tobago Insurance Companies, gives an interesting, if somewhat gloomy, insight into the state of this issue. “These events,” he writes, “are not cheap to attend and patrons are certainly more aware of their rights and are therefore quick to seek redress and compensation where they believe that the promoters have not paid sufficient attention to their wellbeing resulting in their injury, distress or trauma. “This is the prevailing climate for the insurance industry. On the one hand, insurance companies are being approached to provide public liability insurance cover for these events but this business is considered quite unattractive with many leading companies simply refusing to give cover. “Wherever cover is granted, the stipulations are quite onerous and, in some cases, the promoters have no intention of complying. They may have a piece of paper stating that insurance is in place, but it is quite another matter if the insurance company takes a position that it would invoke the policy conditions and deny claims which it is entitled to do and, in effect, no cover ever existed because promoters did not comply with the policy conditions.

“At the end of the day, it all comes down to attitude and our culture. As a people, we pay too little attention to safety and we take too many risks and pray that nothing will happen. That attitude must change because that is unacceptable behaviour and we must take responsibility for our actions or inaction. Carnival might well be a period when madness reigns, but even in the madness there must be accountability and fete promoters owe a duty to patrons for a safe and secure venue where no harm will come to them and to ensure that they have taken all such precautions that a reasonable person would take in the circumstances.” Aquing sheds light on an important issue of public safety. Clearly it is an area that must be developed to the point where all parties are best served. We agree that this would require a change both in attitude and in our culture of recklessness.

Roslyn Black has built one of the most creative, employee- friendly companies that I know. That fact manifests itself in every crevice of her nine-year-old food and beverage company. You hear it in her receptionist’s voice; her tone always suggests that she’s happy to hear from you. You note it with her delivery people; it’s always their pleasure to serve you. And it can’t help but overwhelm you when you deal with Black directly.

 She tells her secretary to hold all calls when she meets with you and more often than not, you leave a meeting with her feeling that she has given you more than she is supposed to. For a small company with just 20 employees she boasts of over 100 clients most of whom give her repeat business and referrals. “What are your secrets when it comes to your customers,” I questioned, always seeking to understand the principles of success from others. Black was matter-of- fact in her response. “While I care and value my customers tremendously, it’s my employees who are of paramount importance for me.” Black explained.
 What the 38-year-old self-made entrepreneur had tapped into was the yearning of many employees, particularly those who work in small companies, to feel as if they are sharing and shaping the vision of a company.

It certainly wasn’t always like that. “I once had a high employee turn-over and I believe it was because employees felt stifled, that they were not part of the larger picture  so I had to do something,” she explains. So the entrepreneur tapped into her own creative psyche to find a different way of managing and motivating her employees. For a long time Black had believed that some people were born creative and others weren’t. But when she started examining the successes of companies around the world, small and large, she found that this was far from the truth. “I discovered that some companies actually worked hard at creativity.”

They had extremely active suggestion systems, they provided time to examine work processes, and they actively supported the implementation of ideas.  They trained hard for creativity. Black decided to do the same. Her first task was to divide groups of employees into four teams. And on a simple dry-erase board she mandated that each team had to come up two ideas that could be used in the company. Each team had a date to fill their slot on the board. Each team could spend up to $200 with no permission required, but they had to implement their idea, not just think about it.The response was overwhelmingly positive. Many employees couldn’t wait to get their ideas on the board and went out of turn! Teams started talking to each other about things that could be improved they piggy-backed their ideas onto ideas already written on the board.  A couple of teams pooled their $200 allotments to implement a GIANT suggestion.  Most ideas did not require any money to implement. Many directly impacted customer satisfaction. Others dealt with employee safety, facility cleanliness, courtesy and response times.

In two years using this and other systems Black created a company where employees shared the same vision, team members started enjoying their work. Staff turnover was virtually eradicated. The company’s profits and client base grew. These days, pop culture will refer to Roslyn’s actions as “acting, not just thinking out of the box.” Not one for buzzwords, the 38-year-old explained that in her readings she simply discovered the basic principles about creativity. “I used to think that creativity had to do with businesses involved in the arts or to be found in large numbers of people working according to standards and manuals created by a few talented persons. Now I know that creativity must always be employed in every business, that the word is synonymous with innovation and unleashing it, means working together in tandem with others, creating a structure that supports ideas from every source and stimulates its implementation.” Black forms a new generation of female entrepreneurs who create their businesses on the massed strength of many individuals concentrating on solutions and results. “My only weapon for the success I enjoy now was to discover that my employees were my most important asset, and the more I tapped their creativity and made working for my company fun the more they felt part of the process when they saw their ideas implemented.”

No doubt in today’s environment there is recognition that an employer should develop relationship capital with its employees. The more the better.   Black’s good fortune is largely testament to that.

Judette Coward is the principal consultant at Judette Coward & Associates.
She is a Board member of the Association of Female Executives of Trinidad and Tobago (AFETT)  an association that develops the networking and leadership skills of female executives and entrepreneurs.
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

The weeks leading up to the Carnival continue to pose a significant challenge to insurance companies and it would be true to say that the situation is growing worse rather that getting better as new issues confront it from year to year.

There is no Carnival like our Carnival although there are a number of such festivities in other parts of the world but in the final analysis they simply do not compare. Therein lies the problem since we have to learn to cope with our own set of circumstances and are unable to draw on the experiences of other places. Take for example the number of pre-Carnival fetes and events that are promoted. They all have their own particular attractions some catering for the youth, others for a more mature age group while some others in the hope of merely getting a sufficiently large turnout to cover expenses and make a profit.
Many of these events are seen as business ventures and in a virtually unregulated environment insufficient attention is paid to the safety of patrons.

However, owners of venues are quite aware of the responsibility that they carry and the duty to ensure that nothing untoward occurs and so they would usually insist on the promoters buying insurance cover.
These events as we all know are certainly not tea parties or cocktail parties. In fact they are no such events but rather opportunities to unwind and have a good time. While it can be argued that such fetes and events are no different today that they were 10 or 20 years ago, it is clear that the environment has changed and in many ways for the worse. For one thing, overcrowding is a major problem for some events while the absence of adequate and trained security probably remains the source of greatest concern. These events are not cheap to attend and patrons are certainly more aware of their rights and are therefore quick to seek redress and compensation where they believe that the promoters have not paid sufficient attention to their well-being resulting in their injury, distress or trauma. This is the prevailing climate for the insurance industry.

On the one hand, insurance companies are being approached to provide public liability insurance cover for these events but this business is considered quite unattractive with many leading companies simply refusing to give cover. Wherever coverage is granted, the stipulations are quite onerous and in some cases the promoters have no intention of complying. It may have a piece of paper stating that insurance is in place but it is quite another matter if the insurance company takes a position that it would invoke the policy conditions and deny claims which it is entitled to do and in effect no cover ever existed because the promoters did not comply with the policy conditions.

At the end of the day, it all comes down to attitude and our culture. As a people we pay too little attention to safety and we take too many risks and pray that nothing will happen. That attitude must change because that is unacceptable behaviour and we must take responsibility for our actions or inactions.  Carnival might well be a period when madness reigns but even in the madness there must be accountability and fete promoters owe a duty to patrons for a safe and secure venue where no harm will come to them and that they have taken all such precautions that a reasonable person would take in the circumstances. Road accidents at Christmas and Carnival to a greater extent show a marked increase when compared to the rest of the year.
The situation at Carnival is even worse as the season is usually longer and the excessive consumption of alcohol and tiredness probably contribute to the increase in road accidents. Carnival events usually end in the early hours of the morning and otherwise responsible persons seem to lose their sense of sobriety and judgment and become intoxicated but would still drive to their destination. In most countries and in Canada in particular, the police are most visible and active at such holiday periods and motorists are very careful and this is where the designated driver has a role to play.
 
In Trinidad and Tobago, we believe that we are better able to “hold” our drink and that we are better drivers even under the influence of alcohol but the reality is that we must now deal with “drunk” driving seriously. Safety is not embedded in the national psyche and we act too recklessly. The Carnival season is clearly a time when we demonstrate such recklessness in the guise that we are enjoying ourselves and having a good time and it an excuse for a release of the safety valve and let the steam out. There is nothing wrong with enjoying oneself. What is wrong is when it is excessive and leads to the endangerment of others and driving when drunk is unacceptable.

The carnage on the nation’s roads is cause for worry. Too many accidents are clearly as a result of recklessness and can no longer be deemed as “accidental”. Accidents can be avoided by taking care.
The time has come for action and less talk and the authorities must show the way. The situation must not be allowed to continue and it is in this regard that tough laws must be introduced and discipline on the nation’s roads be restored even if draconian measures are taken. Premiums will rise to reflect the claims experience and the only way to arrest the situation is by a reduction in the number and severity of accidents. Enjoy the Carnival. Be safe on the nation’s roads and highways. Let us show restraint and exercise moderation and if you drink, then don’t drive. Don’t add to the road statistics.

E-mail address: daquing@cablenett.net

Although up last week and the week before on positive economic news, markets continued their volatile trading again and in the US, the DOW and NASDAQ indexes gave up all their recent gains early this week. The DOW fell to hit the mid 7700’s on Tuesday. Geopolitical issues continue to play on the markets but a fall in US consumer confidence numbers rattled the equity markets and saw a large shift of money flows into bonds. Japanese equities fell to a two-week low last Friday with the Nikkei 225 closing at 8,513.54. Two of the weakest sectors over the week were banking and the key exporters with the latter suffering from the recent appreciation of the Yen against the US Dollar.

In the United States, the Producers Price Index rose 1.6% and the Consumer Price Index rose 0.3% in January. Higher energy costs were partly offset by cheaper cars and clothing. Heating oil and gasoline prices saw the biggest increases at 8.6% and 6.6% respectively. The CPI 0.3% increase fell short of analyst expectations of a 0.4% jump in prices. In the UK, we note inflation came in at 2.7% in January, this would be the third straight month where it has been above the government’s target of 2.5%. The Pound fell out of bed as well, losing almost 2% against the USD last week.French GDP growth progressed a marginal 0.2% in the 4th quarter, compared to the previous 3 months. 3Q growth was revised upwards from 0.2% to 0.3%. The data puts into doubt the government’s forecast, which predicts growth of 2.5% in 2003. Weak consumer and business confidence, dampened demand and the recent appreciation of the Euro against the Dollar has held back exports. The weak French data together with recent disappointing economic news from Germany has strengthened the case for further monetary easing and the European Central Bank is expected to act and cut Eurozone interest rates by early in the 2nd quarter. Rates are currently 2.75%.

Despite what the technical bears have to say and the stumble early this week, there is a whiff of optimism in the air. Ken Fisher, the American fund manager and son of investing legend Phil Fisher, boldly stated that US equities will rise by 40% this year. As we have said before, it is early days and the economy and thus the markets are very delicate but maybe investors are starting to see through the now inevitable upheaval of war in the Middle East to the brighter economic future beyond. Oil shares have studiously ignored the fact that the oil price has remained above $30, indicating an underlying belief that after a short war the price will fall back as Iraqi supply is secured and the global economy gets back on an even keel.

Overoptimistic? Well, maybe, but it’s an optimism that is starting to be shared by investors who are spotting value. Interestingly the S&P was up on Tuesday almost 1.3% whilst the DOW and NASDAQ were down about the same. This is difficult to do as the S&P is mostly made up of DOW and NASDAQ stocks. But, the Small Cap Stocks and selective companies were definitely moving forward on stand alone valuations vs investor trend and sentiment based in global (top down) factors. CSFB’s recent release holds to the long-term out performance of equities. Despite the emotion in the markets right now, shares have not dipped quite as far below trend as they have done in the past. Although there still may be some boot shaking to happen, anyone taking a reasonably long-term view — say over 10 years — is not going to be disappointed by getting back into the market at this level.

The last decade in which shares did not produce a positive real return was 1910-1920, a period which it would be fair to say experienced some disruption (i.e. war). With the market trading at half the level it started the current decade, the odds are surely on returns over the next seven years being at least reasonable.

e-mail: darcy@investments-intl.com