Of Games and Theories…

have you ever wondered about the fuel prices

You have no idea how much my pocket danced at the news of a drop in fuel prices. I smiled as I imagined myself queuing at the gas station to fill the rumbling belly of my petite. Eudaimonia! “Tomorrow” is the day I promised self to check the price boards and confirm they reflected the almost $0.10 per litre fall. Doesn’t sound like much for low consumption vehicles (read small engines) but whichever the case a penny saved is always a penny earned.

But have you ever wondered about the fuel prices. Why they keep going up and in the same rhythm come tumbling down? Why is it that sometimes everyone seems to be hurriedly dashing to fuel station and in other times station owners are desperately investing in ‘happy’ franchises to attract more customers? Even the non-car owner, the one who uses public transport is directly affected through fluctuating fares that usually don’t come down after significant upsurges. What exactly is the game? Or is there a plausible theory?

So I brushed through a couple of articles on the volatility of oil prices and whoa! it took me back to the fourth of nine rows of our 20XX macroeconomics class. The demand, supply, price elasticity curves, which really gave me a hard time in that 1st year of campus, suddenly made sense. (looking forward to the day I will say the same for parallelograms!)

The theory. Positive shocks would be as a result of increased production from OPEC (Organization of the Petroleum Exporting Countries) as well as non-export oil producing countries consequently lowering oil prices. However, if any of the quotas of these 13 countries (Nigeria, Algeria, Libya, Angola – just to proudly mention the African member states) are curtailed in the sense of production or political issues, then prices automatically go up. Negative shocks would result from significant decline in demand. Case in point – China. When such a large economy experiences downturn, the world cries. In fact, the current oil pricing is reported as the ‘worst‘ in the past decade.

The games. In a monopoly (one seller/producer for a product), no competition exists and so the company’s wish is the customers command. For duopolies, the two companies have to work in a way that they balance their margins and market share else they can easily find themselves at the mercy of the consumer. The real games lie with oligopolies such as the OPEC cartel because power (pun intended) is at their feet.

In my readings, I came across an interesting view that cartels help regulate the volatility present in every commodity market. Well I don’t know about that, all I remember is that some of us really suffered (and sometimes benefited) from the cartels that happened at the University library. Hoarding of knowledge 🙂 Celebrate, it’s Friday!

Math Class: BONDS

Calculating corporate bond returns

Picking up from my previous article, I must say that I have lost count of the number of corporate bonds that have been available in the Kenyan market in the last +12 months and took a form that was somewhat like this:

13.5% 5 year corporate bond with KES 100,000 minimum to invest

THE MATH…

13.5% x 100,000 = 13,500 is the interest payable annually

This is usually paid out semiannually and so that means 6,750 every half year.

There are 2 deductions to consider in the 6,750 though…

  1. Withholding tax at 5% * 6,750 = 337.50
  2. Underwriting charges (because the bond is offered by the bank on behalf of a corporate organization with a capital intensive project e.g. real estate). I don’t know how much it is but it must be around 1% which would be 67.50

Therefore the net amount that would hit ones account would be 63,450 (i.e. 12,690 each year over a period of 5 years)

O yeah and you would get back 100,000 in the final year

CalcIMAGINE…

If corporate bonds were up for grabs each year… And that an entity (individual or company) invested at least once annually… In deed there would be an endless cycle of positive cash flows!!!

 

 

 

Of Goals and Eurobonds…

“What ze heck is ze Eurobond?”

I am an internet junkie. My brother (younger) always gets surprised how I seem to know more than he does. I wish though it was something brag-worthy. And to add to that, I have a strong liking (okay addiction) for movies and sometimes get completed consumed by just one scene. I am currently watching movies I have seen before. More for the mind of the script writer than entertainment. My current highlight is SAVING MR. BANKS. A 2013 Walt Disney production that has absolutely touched the core of my spirit. Brilliant. Rich. Funny how in 2013 I thought it was a complete waste of time. I plan to watch it a 3rd time.

Mr. Banks doesn’t have anything to do with this post. Okay maybe it does. Because when the clock stroke midnight, my goals for 2016 were not yet ready. Traditionally, I have had it all spelt out but this year I just walked in. But one thing for sure is that I must change the stuff I smoke 😉 And to start with I am now playing a different station after enjoying traffic with the same content for almost 4 years. I miss them already (the presenters) but realize there is more power in allowing harmonious melodies drive the tempo of my spirit. explained here

Ditching my movie guy will be a difficult thing. I plan to see him less and so far its been just one visit in these 1st two weeks of January. A big improvement from the two visits a week. Sadly I will miss my big screen experience of the month. An incentive for not reaching out for them compact discs. Last year I spent so much time carousing in Hollywood; 2016 must be different. I want to be authentically me. Tell a new story. Write a different script. Be the protagonist in the movie God has called me to.

(Oops post longer planned but since it is post numero uno, I will allow it!)

So as I was saying I am an internet junkie and in my frolicking I came across a comment on a post that went like this: “What ze heck is ze Eurobond?” and I promised self that such will not be my portion. The being ignorant of what is happening around me. I must care…

  1. A Eurobond is an international bond issued in a currency other than that of the country in which it is issued usually in dollars or yens hence the Eurodollar or Euroyen bonds
  2. A Eurobond and Eurobonds are 2 different things. Eurobonds are denominated in Euros and only available to governments in the Eurozone bloc. Very clever way to strengthen the Euro!
  3. A Bond (key operating word here) is where an investing entity loans a borrowing entity funds for a defined period of time at an agreed interest rate

And with ALL that said, I hope to be here next week. Celebrate, it’s Friday!