Breakthrough innovation in Risk management Early Warning Systems:


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Breakthrough innovation in Risk management Early Warning Systems:

  1. 1. Breakthrough innovation in Risk management Early Warning Systems: Simulation of Global Macro-economic Control Impact on Strategic Investment Risks Management for Crisis Early Warning Systems Warren Huang, OSA Int’l Operations Analysis, San Francisco, Ca., USA website email: Abstract This paper will share authors over 30 years pioneering experiences in development, implementation of two master hands controlling China/global macro economic control and daily financial capital market asset prices: Thousand proactive structural dynamic simulation of global macro economic , monetary economic policy impact on last 20 years China/global daily capital markets interest rates, currency, bond, commodity, 20 industrial sectors 5000 products demand, prices, profit margin, stock prices market forces mechanism forecast, ) supporting US, China, Taiwan, Asian government, banking, finance, multinational, state enterprises reform, investment banking global financial crisis, Basel II risk management early warning. He wrote thousands Chinese articles on China,, Taiwan, US daily newspapers, securities news, economic, banking, finance investment journals and millions global central banks, banking, finance executives visited his website tracking , forecast month, years ahead of last 20 years daily results He conducted teaching , research in AI based expert systems for Taiwan, Tsinghua, Tunghai university, training over 1000 senior, graduate chemical engineering industrial economics, global strategic management students developing 100 refinery, petrochemical, biotech process, venture capital risks simulation from patents, literatures search and 100 countries macro, economics , currency , import, export pricing simulation and lecturing China Peking, Tsinghua, Fudan, Huazhon Science and Tech university chemical engineering, , economic management, financial engineering senior, graduate students and faculties. He accurately predicted to Wuhan Wanguo, Guotai securities CEO, fund managers, investors, Wuhan securities news, Beijing China Financial Times, Sept. 30, 1994 and offered thousands lectures on China/ Taiwan, US 15 cities 30 million TV, radio investors, fund managers, and executive workshops for China, Taiwan that China macroeconomic control soft landing in 1996, Shanghai traded 600- 800 and again predicted Nov.-Dec. 2003 to Singapore, Shanghai, Beijing QFII and China economists that China, US credit tightening, rate hikes, 2004 through 2005, He has been invited to China Peoples bank, Asian, US, ECB central banks governors conference, hundreds banking, securities, insurance companies ,multinationals, state enterprises senior executives training Keyword: Global Economic, Financial Crisis, Currency, Emerging Market Risks Early Warning, Global Investment Banking,, Banking, Finance Wealth Management Introduction: Breakthrough innovation in China/global strategic banking, finance reform, capital markets asset prices, bubble simulation early warning: Global government, banking, finance reform executives are making the same mistakes on investment and risk management decision , following US style debt restructuring, downsizing, job cuts, resulted millions unemployed, while making decisions based on 30 year old financial monetary economy, macroeconomic control , statistical capital market asset prices models, reacting to one to three month old data, speculation over the daily business, economic news, following the crowd and chasing the markets in government monetary , economic, fiscal policy and finance, capital markets asset prices, financial investment, supply chain, marketing risk management decisions. These reactive decisions fail to cope with the fast changing uncertain futures and global markets competition which resulted trillion dollar financial markets nonperformance loan loss and billions dollar supply chain costs and operating loss, millions job cuts in global economic, financial crisis after one another. 1
  2. 2. This paper will discuss the authors breakthrough innovation of 30 years pioneering experiences in development, implementation of two master hands controlling China/global macro economic control and daily financial capital market asset prices ) supporting US, China, Taiwan, Asian banking, finance reform, risk management: Thousands proactive structural dynamic simulation of global macro economic , monetary economic policy impact on China/global daily capital markets interest rates, currency, bond, commodity, 20 industrial sectors 5000 products demand, prices, profit margin, listed stock prices market forces mechanism forecast, strategic global investment banking and Basel II banking, finance credit, market, operational risks management. This author spend half time in China, Taiwan, US offered thousands lectures/workshops to hundreds banking, securities companies CEO, executives, and thousands lectures tracking, forecast daily China/global markets prices to Beijing, Shanghai, Shenzhen, Wuhan, Guangzhou, Chengdu, Taipei, San Francisco 15 cities TV/ radio station economic program 30 million fund managers, investors , invited to speak to China Peoples Bank governor Dai and US Fed, Asian, ECB central bank governors and financial risk management, wealth management global conferences tracking forecast years ahead last 25 years macro economy, daily capital market asset prices bull/bear market trend and causes, onset, recovery of European, Asian financial crisis , US asset bubble burst , and impact on global/China macro, financial economic, financial markets asset prices bubble simulation for investment strategy, corporate scandals, NPL early warning system, Basel II market, credit, operational risk management. Millions global government, banking, finance, SOE, executives , top universities, securities research executives visited the authors website since 1998 for daily global economy, capital markets tracking, investment, risk management strategy Innovation in global economics and finance teaching, training: He has trained 1000 senor industrial economics, global strategic management students in Taiwan and China’s top universities tracking 50 countries macro/financial economics, currency and emerging market risks simulation and weekly consulting to Taiwan 300,000 import/ exporter members on 100 countries, currencies, export pricing , market shares strategy. He wrote thousands articles on Taiwan, China, US government economic, finance journals, newspapers, investment, trade journals, with 100 million copies in circulation. Over 20 years tracking, simulation , forecasts for China/Global Macroeconomic Control, Finance, daily capital markets asset prices simulation, risks management: Proactive structural, dynamic OSA models development, implementations: Global Economy, Finance, Capital Markets Information Knowledge Base Development. The author has trained hundreds high school, junior college students collecting last 25 year daily, monthly, quarterly data, using models based data mining strategy, with one single equation covering 20 year’s data from China/Taiwan , US daily economic newspapers, U.S, Asian, and European Wall Street Journal, Business Week Economist, IMF, e-commerce daily economic, finance capital market data base; global 20 industrial sectors crude oil, refining products, olefin/ polyolefin, downstream demand, prices data, and monetary, fiscal policy, corporate/ plant design, operating history ( normal, emergency operation profit margin, stocks prices ); market, investors sentiment data, analysis. 2
  3. 3. Global Economy, Finance, Capital Stock Market Asset Prices OSA models Simulation, Integration for global financial crisis, asset bubbles early warning systems: He pioneered integrating APOLLO moon landing guidance and control AI fuzzy logic, neural network, chaos theory based expert systems into global macro, financial, industrial, trade economic , price theory and 5000 products supply, demand, market forces mechanism practice, improve latest monetary economics, asset prices theories. He pioneered two master hands controlling global finance, asset prices through thousands proactive structural, dynamic, cause, response models simulate , forecast last 20 years global central banks’ monetary, economic, fiscal policy impact on macro economy, daily financial stock, bond, currency, commodity futures, derivatives markets asset prices, Basel II credit, market, operational risks loss, 20 industrial sectors 5000 products demand, prices, market forces mechanism with average error below 1.5 %, correlation constant above 0.92. The following simulators tracking, forecast month, year ahead the causes, onset, spread, recovery and early warning systems of last 20 years US stock market 1987 crash, 1992 European currency crisis, 1994 China runaway inflation, 1996 soft landing, 1997 Asian financial , currency crisis, 1980, 1990, 2000, 2004 energy crisis, US 2000 IT asset bubble burst. He accurately predicted on Nov. 2003 Euro-events Asian/China Finance, Capital Market Conferences Singapore, Shanghai, Beijing that China Peoples Bank credit tightening macroeconomic control to cool off overheated housing, auto markets will continue through 2005, stock market entering bear market with Shanghai plunge from 1800 to 1150, US excessive consumer, business demand drive soaring oil, metal price and inflation. Fed will beginning series rate hike June 2004 to 2005 and again on Feb 23, 2005 to 70 global oil, gas, banking executives in Beijing strategic risk management workshop that oil price will break 55 in March and challenge 60 in spring, driving inflation, interest rate up, falling dollar, global stocks following US stocks, bond plunge to this year low. Monetary Policy Impact on Global Macro Economy and Financial Markets Dynamics OSA Inflation rate = F ( Consumer spending %, Commodity index, consumer spending, currency rate) GNP = F (Consumer spending growth rate %, Interest Rate, Export Growth Rate) Property prices = F ( Business , consumer spending growth, interest rate, stock index) Wealth Effect = F( Money Supply, Property prices, Stock Index) Consumer spending = F( money supply growth, interest rate, unemployment rate ) Monetary Policy Impact on interest rate bond yield Simulation Interbank or Fed fund rate =F (Money supply growth rate %, commodity index, inflation ) long term bond yield = F( money supply growth rate %, dollar exchange rate, inflation rate) Monetary Policy, Trade Impact on Global Currency ,RMB market forces prices mechanism . Based on this authors 20 years supporting Taiwan 300,000 import/export members daily 100 countries currency strategy Operations Simulation Analysis indicated that global currency, RMB are only responding to its market forces formula below. Global central banks, G-7 intervention have no significant effect on currency prices movement. Dollar exchange rate = F (US trade deficit, the other country's trade surplus (deficit), interest rate spread) Monetary policy impact on global stock market indices cash futures prices simulation: Stock Index/Bond cash and future price = F ( money supply growth, consumer, business spending, interest rate, dollar exchange rate) 3
  4. 4. US economic, stock market impact on Asian stock index Structural co-integration of US stocks into Asian stocks due to its export market dependence. China, Japan, Hong Kong stocks index = F ( China money supply, consumer spending growth, inflation, US Dow Jones index) This equation accurately predicted 1994 Shanghai rebound from 333 to 888 and currently Shanghai A has support at 1000, by low priced blue chip shares rebound up to 30 % Taiwan , Korea stock index = F ( Taiwan money supply, consumer spending growth, NT exchange rate, interest rate, Nasdaq index) Monetary Policy Impact on Global Commodities, Futures Derivatives prices OSA: Metal, commodities cash, future prices = (current, future oil price, inflation rate, dollar rate Gas, heating oil, gasoline futures, derivatives prices = F (consumer demand, crude oil prices, inflation) raw material, IC chips, product prices = F( Business demand, raw material costs, exchange rate) oil price = F ( gasoline price, heating oil prices, exchange rate, consumer demand) Export /Import Product Prices = F ( market consumer demand, raw material costs, currency ) China Strategic Banking, Finance , Capital Markets Reform, Change management Innovations This author has directed hundreds banking, finance, capital markets reform, reengineering, strategic change management innovation breakthrough , implementing operations review, profit, cost, risks, market shares as goal mission, performance oriented multidisciplinary strategic and execution OSA teams (SBU) to develop, implement the following proactive structural, dynamic simulators , provide the what, why, how, timing of the strategic investment banking ,Basel II risks early warning innovation in strategic change management . A Monetary, Economic , fiscal Policy , WTO impact on Greater China /Asian/ Global Economic Recovery : GDP, Retails, Trade, unemployment, FDI: China Hong Kong Taiwan Singapore US, Western / E. Europe, Russia Japan, Korea B. China/Global Monetary, Economic, Fiscal Policy, WTO Impact on China/global Capital Stock Markets, Fund return , risks: China Hong Kong Taiwan Singapore US, EMU EURO / Eastern Europe, Russia Japan, Korea .China Inflation, Interest rates, government, corporate bond yield and fixed income fund forecasts risk s early warning . China state enterprises reform privatization and IPO performance, stock pricing strategy ·China Strategic Corporate Governance scandals,: Tracking,forecast cost, financial accounting systems, supervision, monitoring , stock prices bubbles, early warning ·China Banking, finance reform, IPO, Securities, Banking, Insurance , regulation, supervision , Corporate governance, Basel II risk early warning . Causes, onset, recovery, early warning of China/Asian financial, currency, asset bubble crisis and NPL loan assets, credit risks simulation. currency, credit, market risk simulation, hedging, plant equipment performance and syndicated loan, securitization · Strategic Global/China QFII/DFII, for domestic and foreign US/ IPO and ADR, global equities markets listing pricing · Equity fund capital markets: Shanghai, Shenzhen A,B ,Henseng , Blue chips, Red chips, H share, Taiwan Japan, US, indices futures, Index fund , ETF , derivatives prices mechanism, 4
  5. 5. . China RMB pricing mechanism , major global currency market futures, derivatives prices market forces mechanism forecast, crisis, risks early warning. .Global biotech products, markets innovation, investors sentiment impact on IPO, stock prices . IT post bubble recovery, housing, auto, steel bubbles demand, prices, earning, stocks, mutual fund performance .Oils, metals commodity futures, derivatives prices, earning, stock prices , mutual fund performance, hedging risks. ·China/Global oils, petrochemical, fiber/textile corporate early, stocks prices, mutual fund performance, investment strategy. China and global mutual fund performance , investment and asset allocation strategy. China /US /Global Strategic pre/post mergers /acquisitions, MBO integration performance, stock prices, investment strategy · Structural Finance innovation Assets ( Auto, credit cards ), Mortgage Backed Asset Securitization prices, defaults risks OSA simulation ·China/US equities and properties housing bubble wealth effect investment strategy simulation and risks management .China /US Debt, equities, money, energy, gold , index mutual fund performance, asset allocation risk management Conclusions and Recommendation: The proactive structural, dynamic strategic simulations systems presented here have been and will provide daily reliable proactive-reactive strategic decision tools for China and global central banks monetary economic policy, banking, finance, insurance, capital markets, SOE , medium enterprises reform; central banks, government economic, fiscal policy planners, securities, banking, insurance supervision, regulations, WTO trade, procurement official and banking, finance, enterprises CEO, executives rational, independent, policy impact simulation forecasts to achieve growth and prices stability, investment , Basal II market, credit, operational , country risks management early warning and supply chain strategy to avoid wealth, assets bubble bursts, excessive investment and inventory built up in financial crisis. It will also support daily banking, finance, insurance reform, supervision, regulation, nonperformance loan and corporate accounting scandals early warning decisions analysis to avoid trillion dollar financial market loss financial markets for on line banking, investing, executives training to predict and prevent future financial market prices instability in internet age due to excessive monetary policy and financial and real estate properties markets decisions based on the current risks models betting on the wrong side, join the crowd. resulted trillions dollar loses Acknowledgement The author is grateful to feedbacks and valuable suggestions from millions China and global government , finance, trade executives, and investment banking, finance, corporate CEO, CFO, fund manager, supply chain, marketing , import, export managers, trader, investors, attended the authors’ thousands workshops and visited and www.osaglobalstrategicmanagement,com website contributed to the development, feedback , implementation of two master hands controlling global economy and financial market prices, and especially to X. M. Ji help in China banking finance application lectures to 14 cities 20 million TV, radio investors during 1994- 98 , later extended to Taipei and US San Francisco radio, TV finance station and hundreds nationwide banking, securities companies CEO, CFO, 5
  6. 6. executives workshops References: 6