If you must Prepare a Forecast ...

... do it right!

I have just read a report by the IDB (International Development Bank) on estimates of reparation costs for putting Haiti back together again. The headline figure is that it will cost $13.9 billion to rebuild homes, hospitals, schools, roads and other infrastructural elements. The question is, where did they get that figure from? Well, here's the warning, they did it by using regression analysis.

Using historical data and regression analysis can be fine but in this case I seem to see that historical data is probably not sufficient in the case of Haiti. Secondly, that $13.9 billion is at the top end of the confidence limits for just one of their estimates.

Here's the URL: read it and see if you agree with me ... you might not. Why not give me your comments? Happy to hear them.

http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=35072649

Duncan Williamson

Bankers' Fees

There's a lot of talk about the bonuses that bankers are being paid these days. There's also a question that no one is asking, however, which is: where do these bonuses come from? After all, even if I pay, say, 5% or even 10% on my overdraft, it's going to take a lot of very big overdrafts to finance some of the bonus payments we keep hearing about.

At least part of the answer to the question of where these bonuses come from can be found in recent articles in The Financial Times newspaper:

• Floating: but plain sailing cannot be guaranteed By Jennifer Hughes, Senior Markets Correspondent 2^nd February 2010
• The real deal: Why it still takes courage to go Dutch By Lina Saigol 2^nd February 2010

In these articles we find that in 2009 the total equity raised worldwide amounted to $892.4 billion and in 2008 total equity raised worldwide amounted to $635.1 billion.

Moreover, we are told that the following are the rates that bankers charge their customers to take their company public.

Fees	%
USA	6.7%
Europe	3.2%
Asia	2.5%

The FT provides us with the regional breakdown of where all of this equity was raised and by making some assumptions as to which fee rates apply to which region, I have come up with the following analysis and estimates:

Equity Raised (from the FT)

$bn	2009	2008
North America	294.7	265.7
Europe	274.6	205.4
Northern Asia	115.8	30.8
SE Asia	21.8	14.1
Japan	62.7	15
Caribbean	0	1.2
Latin America	29.1	25.8
Africa	4.4	11.5
Middle East	4.6	13.4
Indian Subcontinent	22.1	14.1
Australasia	62.7	38.1
Total	892.5	635.1

Estimated Fees (my estimates)

$bn	2009	2008
North America	19.74	17.80
Europe	8.79	6.57
Northern Asia	2.90	0.77
SE Asia	0.55	0.35
Japan	1.57	0.38
Caribbean	0.00	0.08
Latin America	1.95	1.73
Africa	0.14	0.37
Middle East	0.15	0.43
Indian Subcontinent	0.55	0.35
Australasia	1.57	0.95
Total	37.90	29.78

There you are: in 2009 I have estimated that the total fees that banks have charged for helping companies to raise their equity by $892.4 billion amounts to $37.9 billion. Of course, the fees do not represent pure profit and they are not the only basis on which bonuses are calculated. However, you now have a better idea of where the bonus calculation begins.

Duncan Williamson

US Double Standards

Remember when there was the US tyre company scandal, just a couple years ago. Goodyear was it? Everyone in the industry knew the problem and knew that many accidents had been caused by some rubbish tyres. There was a cover up initially and many denials.

Now Toyota has found a problem with the accelerator pedal on millions of its cars. Problem identified, solution worked one, repairs scheduled ... No expense spared.

Today I read that the US government has advised Toyota drivers in the USA to stop driving their cars and to demand a repair.

Well, that's one way to boost the image of your own companies: pour rubbish on the competition. Especially when the competition usually runs rings round you.

Very shabby.

Duncan Williamson
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