Many times, I told people not to trust news at face value. The responses were usually I was crazy.

Well I have learned the difference between reading news and using news. The first is to read and believe blindly (which is very irresposible on our own part) and the second is to get an understanding of the underlying market condition at that point in time when the news is reported (which is very resposible on our part).

Many people crave for news. They want explanantion for every price movement. They think by reading news they will find the answers. They are not far from being wrong and acting very irresponsibly.

You get to read many untruth when the news article you read in the newspapers or hear from the radio or TV are done by journalists or reporters who do not bother enough to ascertain the facts before putting out their garbage.

I heard during the live telecast of the Indianpolis Grand Prix on 8TV on 19th July (actually 20th July Singapore time) that Ferrari had objected to adding the chicane that was demanded by Michelin and Michelin-supplied teams because Michelin had supplied tyres that were not suitable for the race.

I have said before that the human mind always grasp at what they hear or read for the first time to be the truth and anything different they hear later that to be untruth. Their mind would then have created a mental block that affect judgement and decisions.

So therefore I am not surprised that lies and untruth continue to be repeated. With this in mind you have to be careful with what you read or hear, including from me.

If you turn to page 35 of today's Sunday Times, there is an article in the middle of the page titled "Tyre fiasco takes air out of F1" by Richard Drew.

The lie and untruth is contained within these paragraphs:

"So to the real villians, the FIA, its president Mosley (who was not even at the event), and a certain team in red.

Ferrarri blocked every attempt by the other nine teams to provide a race that would have delivered some entertainment to the fans in the stands.

The Michelin teams offered to forgo any championship points won and let the Bridgestone teams start at the front of the grid. All they wanted was a chicane put in at the offending corner.

Mosley's reponse was a flat "no". The FIA was well within its rights. But surely, a bit of common sense and a long-term view would have seen wiser heads agreeing.

Ferrari are well known for their self-interest, but even they could surely have seen that the long-term heath of the sport itself was at stake."

To prove this lie, you have to read both side of the story.

Michelin has put out their own one-sided version of the situation on their website. You can read both side of the story in the links below. Yes, quite a lot to read. But when the truth continue to reach you distorted...


19.06.2005 - 2005 United States Grand Prix - Tyre Statement

19.06.2005 - Correspondence Between Michelin Representatives And The FIA Formula One Race Director

19.06.2005 - Further Correspondence Between Michelin Representatives And The FIA Formula One Race Director

20.06.2005 - 2005 United States Grand Prix

June 1 & 2, 2005 - 18 days before the incident

22.06.2005 - 2005 United States Grand Prix - Questions To Max Mosley



From that "certain team in red":




Note: Not related to the market but the proccess is very much the same.

Ha ha, I like the above phrase the most :) .

In fact this is similar to the teaching that has thousand years of history:

Another day, another article, another fact missed. Fact missed, news so reported no longer reliable.

In today's Straits Times Money back page, you see the headline "S'pore ready for return of car assembly operations".

In the fifth paragraph:

"If successful, the EDB push would see a return to a once-flourishing industry that wound down about 1980, killed off in part by the 1970s oil crisis when crude oil prices were much higher in inflation-adjusted terms than current prices."

This is not true. Did the 1970s oil crisis killed (even in part) this industry? Definitely not! It continues to flourish in the rest of the world except Singapore? You see there were a lot of improvement in car designs and gadgets right through that period and even until now. The only part that is true is that this industry died in Singapore but not due to the 1970s oil crisis. The real cause... the real cause...

The real cause is that at that time the Government made a decision that whether locally assembled or imported, all cars will be subjected to import duty. No incentive for local production therefore Ford stopped their Ford Capri and Ford Cortina lines in Singapore, closed down their Bukit Timah plant (where a condo now stand), and went away to set up plants in other countries where they don't have to pay import duty on cars locally assembled in those countries.

This part I especially remember very clearly because at that time at that age I was very much interested in cars. I was a young man. That was the time when there was no CBD, no CBD gantries yet, no CBD charges yet.

Do you still trust news?

Hi CSK,
Couldn't agree with you more,we all learn from our experience and mistakes,we're more older and a bit more wiser each passing day,but some people never learn or admit to their mistakes.

A few weeks ago, a news article in The Straits Times that reported on the SGX's
attempt to revive and re-launch Single Stock Futures (SSF) made some comments
that I find ridiculous. The article started off by barking on the Pan-El crisis and
tried to draw similarity between the forward contracts that was struck between
the fraudsters and stock-broking companies and SSF. The article sounded
extremely negative about the SGX's intention on SSF.

An important difference between the two is that while SSF is regulated and
therfore subject to rules/laws, safeguards, marked-to-market (day-to-day P/L),
and trading limits, privately struck forward contracts are never regulated, not
subjected to rules/laws, no safeguard (if the stock-brokers are reckless don't
blame others), no mark-to-market, no trading limits.

In short, the news article was trying to compare apples with oranges. It also had
the effect of trying to scare unimformed people the hell out of SSF.

A few years ago, I saw on television an ang moh trying to eat a durian by biting
on the pricky shell. I was shocked. If you rely so much on reading news article,
you might just try to eat durian this way too.

The fact:
If you buy or sell futures, you do not know who your counter-party is. When the
trade goes through the clearing house, your counter-party is the clearing house.
So if the original counter-party default (and collapse), your trade will not be
affected. For example Barings. Although this is inNikkei futures and options the
mechanism is the same.

So why all the fuzz?

For those who are knowledgeable about the futures industry they can see how
inaccurate that article, and today's article, can be. Are futures more risky than
stocks? My answer is a big NO. If it is risky it is because of the people's own lack
of risk management. But SSF is more risky than commodity futures. Commoditiy
futures will not be suspended but a SSF can be if the underlying stock is.

What is wrong with the follwoing quote taken from today's The Straits Times Page
H17/Money. What are the many mistakes in this article?

There are a lot of inaccuracies/mistakes in this. Be sure you know what they are.
Perhaps The Straits Times should get someone knowledgeable about the market
and products to write their MONEY articles.

Futures are traded in lots or contracts. In the case of SSF traded on the SGX, the
contract size is 1,000 shares. Meaning 1 lot or 1 contract is 1,000 shares. In
market terminology when you buy "1,000 single-stock futures", it means you buy
1,000 contracts which is 1,000,000 shares (1,000 contract * 1,000 shares/contract).

You can't go buy a one-month contract anytime you want. Contract expiry dates
are fixed. You have to specify the contract month. So you have to buy, say, the
Jan2005 contract. Therefore time to expiry varies depending on when you buy/sell.

The futures price may not be "linked", whatever the meaning the writer tried to
convey. The futures price tracks the price of the underlying stock. They may not
be the same and usually are not the same. the difference between the two is
termed the "basis".

The margin is not a payment, it is a deposit required for trading. It is not a
payment towards paying for the shares. The margin requirement is not necessary
10 pct but usually lower although some brokers may set it at that level. With a
margin requirement of $1,640, the total margin requirement for 1,000 futures
contracts is $1,640,000 ($1,640 * 1,000).

The SSF contract specification as it is right now, the SSF contracts are cash
settlement. This means there is NO physical delivery of shares. So how can "he
pay the rest of the money to get the shares"??? And then how do you come to the
maths of "($16.40 - $1.64 = $14.76)"??? What nonsense is this??? Laughing stock.

Lack of understanding of market mechanism. Lack of market knowledge. Lack of
product knowledge. The contract is marked to market every day at the close of
business. On the day the trade is made, the diffence is between the executed
price and the day's settlement price. On subsequent days that the contract is held,
the difference is between that day's settlement price and the previous day's
settlement price. To say that this "is the difference between the DBS closing
price that day and the contract's open trading price" is absurb.

Maintenance margin is never a pct of the price. Maintenece margin is a dollar
value that may or may not trigger a margin call. And futures brokers do not wait
until it has dropped 50 pct to act. The treshold is usually tighter than that. Even
then, if the customer has cash in his account which is not utilised, he is not
required to top up since he has funds to meet the margin requirement.

Furthermore, it is bad trade strategy and bad risk management to allow a drop of
50 pct in price and yet the stop loss is not triggered (unless the stock and hence
the SSF is suspended).


For reliable information, it is better to read the SGX website than the nonsense in
The Straits Times article.

http://info.sgx.com/SGXWeb_DT.nsf/DOCNAME/SSF_FAQ