 This is Think Tech Hawaii, Community Matters here. Good afternoon. This is Ray Tuchiyama in a special edition of Think Tech Asia with my guest Ichiro Sekimitsu. And he's going to be talking about his career and topics in global finance today. Welcome to the show. Thank you very much for having me, Ray. It's a pleasure. Well, let's start from the beginning here. And I know you've done a lot in the global finance industry. And so most recently, where were you? Before moving to Hawaii, I was in Tokyo for about 14 years, a very short stint in New York. But I've been here now for two years. And you were CEO of Asia Pacific Rates and Currencies at what bank? Bank of America, Merrill Lynch. OK, and before you were based in Hong Kong, what were you doing there? I was also in Hong Kong. I was the head of trading for interest rates and actually corporate bonds as well. And those are very arcane topics for our viewers, which we will go back later in the show. And you also worked in my favorite city, London, for a while. How many years there? 10 years in London. And what were you doing and for what bank? Again, it was Bank of America, Merrill Lynch. But all these banks got together. I was working for a bank called Continental Illinois and Bank of America bought them. So a combination of those. But all doing the same thing, pretty much interest rate and currency derivatives. OK, we'll go back to that. And you have an MBA from a business school in Switzerland. Which one? It's called IMD. It was called Imede when I was there. But yeah, in Lausanne, Switzerland. And the courses and programs are in English? They're all in English, pretty much the Harvard case method. And where did you get your bachelor's? In Claremont, California, Harvey Mudd College. And in what field? Engineering. So we go back to the beginning and we'll kind of wind our way to the current times now. And first, where were you born and raised? I was actually born in Kyoto, Japan. I'm Japanese. And grew up in Kobe, Japan. And now, when you say you're Japanese, your parents, when they had you and your grandparents, they were all Japanese citizens, right? Yes, that's right. And they spoke only? Well, Japanese, but they did speaking some English. Yes. And did they ever live abroad, your parents? Well, yes, that's why actually I was born in Kyoto. But I moved to the United States when I was one, and then moved back when I was seven. So those were days, you know, and my parents were obviously with me. And so we were in Evanston, Illinois. Oh, wow. And the words Kikoku Shijo will apply to you. Somebody was returned to Japan after some education in the United States. Exactly. I mean, I went back with very little Japanese as a Kikoku Shijo. And my parents had to make a decision. Do we put them back a year and put them into the Japanese system? Or do we put them into the international school system? And they made the choice of putting me into an international school. And I guess that changed my life. That's in Kobe. Which one was that? It's called Canadian Academy. And when I hear Canadian, it was established by Canadians? Yes, indeed. 100 years ago, let's see, a little over 100 years ago by Canadian missionaries. And so what kind of city is Kobe? I mean, it's in the Kansai region of Japan. And so there's Kyoto, there's Osaka, and Kobe. Each with a distinct culture, I guess. What would you characterize the Kobe culture? Well, I think it's big cities. Tokyo would be sort of like Honolulu. And then Osaka would be the second city. I don't know, right? What would be the second city of Honolulu? It's Hilo. Is it Hilo? Hilo is the second largest city in the state. They're very proud of that. Oh, good. But you make an analogy, say, Chicago to New York City. Yes, Chicago to New York City. But then Kobe, Tokyo, Chicago to New York would be Kobe and Osaka and Tokyo. Kobe is part of Osaka. So when you first entered banking, which bank was that? When you first started a career, what was that? It was called the Continental Illinois National Bank. And so were you in Illinois? I was, Chicago. OK. So you were in the Midwest, which is a very distinct culture in itself compared to San Francisco and New York City. How would you characterize the Chicago culture? No, I would say it is America. No, seriously, you've got the West Coast and the East Coast, and Chicago was very Midwestern. Good values. I liked it. OK. And so in your career, you said that you were doing mostly the same thing, right? What was that? What was that area that you specialized in? Pretty much interest rates and currencies. Most people, when they think about financial markets, think of stocks. They're very, you know, that's very clear to them. But many people aren't very clear with interest rates and currencies, but that's what I did. This was a time when there was a lot of innovation going on. So we started doing these things called derivatives, swaps, options, things like that. And that's what I was involved with for my career. And that's a really mysterious area for non-financial people in the street. I guess you're right, yes. Now, when you talk about, let's separate interest rates and currencies. When you talk about currencies, we talk about the yen, dollar, the euro, many, many currencies in the world. Am I correct? Yes, we are. So how do you make money off of currencies? Really from movement. And there's things being a market maker. So people need to buy and they need to sell. So there's a selling price and a buying price. And the market maker usually tries to make money from having a spread between those. But also, people can take speculative positions. And hopefully they're right. If they're wrong, they lose money instead of making money. But it's fairly simple. Now, interest rates, aren't they kind of set by the federal bank or the central banks of each country, more or less? Or that people can't decide on interest rates by themselves. Am I correct? That's very true, Ray. But there's a thing called the yield curve. And the yield curve is that there's very short-term rates. And then there might be 10-year rates, 30-year rates. And the very short-term rates are pretty much regulated by the central bank. But they don't have that much control over the longer end. And that's pretty much supply and demand between buyers and sellers. So when you say buyers and sellers, who are the buyers and who are the sellers in this area of interest rates? Well, really, anybody that needs an investor who needs to buy, let's say, bonds. Bonds are pretty much the sort of benchmark for interest rates across the yield curve. And so they'll move based on somebody having to buy something, might bring the price up. And somebody needing to sell it might bring the price down. So that would create movement. Now, is it true that when bonds go low, stocks go high? And vice versa? That's, again, sometimes. But sometimes not. There's so many things that, in general, because when bonds are low and interest rates are very high, then people, that can be attractive. So people might say, I'd rather have that than that stock. So you're getting into an area where every day, there are decisions made by people with money. What do you do with, say, $1,000? Do you keep it in cash? Do you keep it in gold? Do you buy stocks? Do you buy a bond? Do you invest in something else, antiques? You're talking about how to make money grow in some way or be stable. Is that the world of what you just talked about, currencies and interest rates? Would that be in that world? I would think so. Yes, it's, I guess, what we call asset classes. Everything that you've mentioned is an asset class. So if you've got some money, then you'll invest. And hopefully, you're going to pick the ones that you think are going to be stable and grow. So we come to your move to Hawaii in Toronto-Lulu. You had never lived here before, am I correct? That's correct. And you've been here how many years? Two years. But again, I do have a connection with Hawaii, where my father was one of the first Japanese after the war to actually be allowed to study in the United States. He was from the Yamaguchi prefecture. There's a lot of Yamaguchi people here in Hawaii. And so he came, looked for distant relatives, and they helped him out. And so I do have a connection to Hawaii. So how long was he here? He was, well, he was here just enough to make enough money. He worked on the field, taught judo, and then he went off to the mainland for the study. So there is a kind of a family connection. You're right. So you've come back to a place where you enjoyed. Yes, yes, I like Hawaii. And so you're here. And now you've kind of seen what Hawaii is about. And I know that you've been talking and making presentations on finance. And so what is your topic that you've been presenting to people here in Hawaii? Essentially, I call it financial shakana, but that's just a catchy phrase. But I pretty much present my career of managing financial risk over many years and in various centers. And just kind of showing what are the characteristics of a financial shock. And we will go deeper into that after our break for Think Tech Asia. Thank you very much. This is Think Tech Hawaii, raising public awareness. Think Tech Hawaii, which streams live on Think Tech Hawaii.com, uploads to YouTube, and broadcasts on cable OC16 and Olelo 54. Great content for Hawaii from Think Tech. We all play a role in keeping our community safe. Every day we move in and out of each other's busy lives. It's easy to take for granted all the little moments that make up our every day. Some are good, others not so much. But that's life. It's when something doesn't seem quite right that it's time to pay attention. Because only you know what's not supposed to be in your everyday. So protect your everyday. If you see something suspicious, say something to local authorities. Welcome back in this really warm afternoon in Honolulu, Hawaii. We're talking on Think Tech Asia to Ichiro Sakimitsu about his career in finance. And just before the break, he was focusing on his career and about this very exciting topic on finance. And I'll let you kind of really summarize it for us. And then you can tell us about why talking to people in Hawaii. Well, again, I initially started putting this presentation together. Because I really want, for me, I wanted to kind of summarize my career and try to get lessons. When I was in the markets, I just didn't have time to think. And this gave me time to put it all together. And I wanted to talk about financial shocks and how they come about. What is the anatomy of a financial shock? And how has it changed? And particularly in Hawaii, I thought it would be helpful. Because Hawaii is an island state. I came from an island nation, Japan. I worked in another island nation, the UK. And we have this thing, something in Japanese that we call Shimaguni Konjou, the island mentality. And so you know. Sometimes good, sometimes bad. Sometimes good, sometimes bad. But you tend to be sort of insular. And you have water borders. And so you think, and you try to, you're happy with the quality. You're happy with what you have. And you don't want things to change sometimes. And I found that similar thing in Hawaii. And my point was that as I looked back over the last 30 years, the interconnections, not just financial, but technological, the interconnections have just grown so much that people in Hawaii are connected, whether you like it or not. Well, we are, yes. And so I was trying to, just from a financial perspective, say, well, have a thought. Have a thought. Because all these things going around the world affect you and me. We live here. Well, one of the biggest actions that happened in the early 80s, the Plaza Courts, that suddenly lowered the value of the US dollar vis-a-vis the yen. And all of a sudden, that had caused an effect of tourists coming to Hawaii, and of course, seeing the yen currency so much more value to acquire assets in Hawaii, real estate companies, and of course, omyage, and the presences of work. And that had an action. And that was a Plaza Courts done in New York between US and Japanese kind of ministries getting together. Yes. And it was actually a global thing, too, right? It wasn't just the Japanese, but the Europeans. Everybody came together and said the dollar is too weak. So it needs to appreciate. And so the yen appreciated 360 yen, as you recall, at a fixed to a much stronger level. And yeah, that kind of thing very much affects the trade between countries. Now, right now, we have tremendous global trade happening in China, Japan, US, and heaven. But as you know, Hawaii is not a trading state. In many ways, we attract people to come and spend money, and that's how the economy is driven. Does trade also have an impact to our lives in Hawaii? Absolutely. Right. Again, it depends on the terms of trade. As you say, Hawaii doesn't really manufacture too much. It's very dependent on, I guess, the real estate investment, tourism, things like that. So it's a special set of circumstances. But in general, global trade has been increasing for many years. But the thing is, it's actually stopped increasing in some ways, right? Because, well, you see, the various political elections, et cetera, means that everybody is starting to say, what am I benefiting from globalization? And so. Because in the past, through the last 20 years, the mantra was globalization equals good, that somehow you're tied to more markets, you're tied to more cheaper manufacturing goods in China, in Walmart. That is all good. So we have more money to spend and get more stops. But you're correct that we have become highly dependent the US on cheaper labor, which is also rising, as you know. Salaries in China, Southeast Asia, rise to becoming their own consumer markets. And they want their own things to buy also. So you're correct that that is a kind of a mantra that's no longer 100% true. I think so. Absolutely right. I mean, I don't think people think that they're benefiting from global trade as much as they used to, or perhaps not. But of course, that is a kind of, you can go back to the last lecture. Also, the presidential election, America First. That is a slogan that is about, if you go back in time, a mercantilist kind of to a bigger-thighed neighbor, you make your own protectionist state, a nation state. And others, you buy very little. But you sell as much as possible to the others. That's very true. I didn't really want to touch on any elections or anything like that. But you're absolutely right. But the reason for some of these elections is that people don't feel particularly benefiting. They don't feel like they're moving on in life. They're moving backwards. So based on your, like you said, you had time to meditate on your career about the corner looking at the anatomy of finance and industry. And then you must have something to say to Hawaii based on your career about what may happen, or what areas do you see as areas that Hawaii should really be concerned about, its own economy and citizens? Well, I don't really focus in on just Hawaii. I try to keep it fairly general. Because what I try to do is just show how much more interconnected the whole world has become. And that's why we, living in Hawaii, need to know what's going on in the world. And as far as the financial aspect, I looked at the shocks. There were things like geopolitical shocks we had, things like the Gulf War. And then we also had things that happened with financial imbalances. Sometimes that too much money went into one direction. And then finally, when everybody decided to come out, then there was a huge reaction. And markets suffered. And because of that, markets went down. And people's quality of life went down. But what you're saying is that something, a shock or an imbalance or something that affects the economy of Hawaii, may come from somewhere that we didn't know would come from there. Something that appears from nowhere or somewhere that we didn't know. But like interest rates, right now they're very low. What would make suddenly it go up again? Well, a few things did happen. When President Trump was elected, the whole market thought that he would be able to increase infrastructure spending and spend a lot of money, a lot of deficit spending. So that would mean more bonds are supplied and take interest rates up. But however, after that initial spurt, right now interest rates are still very, very low. And something that I point out in my talk is that there's actually places, not in the United States. There are places where interest rates are negative. It's minus interest rates. And that's pretty scary in Japan. But in Japan, that's like that. And in Europe. And you know, it's something I can point out is that there's about $100 trillion of bonds in the world. And of that, 10 trillion, 10% are actually trading at negative interest rates. So you give money to buy a bond, but you get less money back at the end of 10 years. You are guaranteed to lose money. So why would anybody do that? Well, that's a very good question. It's like you and I would not do it. But usually the people that have to buy it are the institute, the banks, the big institutions. They need to have it because they have so much. And it's a risk thing. They have to place these bonds with the central bank. There's regulations. And so they figure that also I have a bunch of others that are giving me a very high yield. And if I have a negative yield, my whole portfolio is OK. So there's various reasons. But that's called hedging. Hedging. Well, hedging, yeah. But in a lot of ways, it's just that they do it because they have to in a lot of ways. But coming from a logical financial perspective, it's abnormal. It's abnormal. But the other thing is that, remember, not everybody just holds onto a bond until maturity. They try to sell it. So if I think that I can buy it at a minus interest rate and then sell it to you for an even higher, lower interest rate, then I'm OK. I've made money. But that's being very optimistic here. Exactly. If everybody thinks that, then we might have a problem. So getting back to Hawaii, one of the areas that the government must show up is the pensions. Because you can't have a pension fund that loses money. Exactly. What any thoughts there for the state? Yes, exactly. When I first gave this presentation, in my presentation, I had said that the pension fund shortfall, the amount that the state is short in the public employees benefits, the pension benefits, was about $9.8 billion, I believe. And then right before I went and gave my talk, I read in the Star Advertiser that it had gone up to over $12 billion. That's in one year. And it could be even higher. Because pension funds, they make that estimate based on an assumed interest rate or assumed investment return, which are quite high. It could be 7% of like that. That's very high. It can be, right? So that was my other point was that you should know how interconnected you are. Because if something happens overseas, China, Europe, anywhere, and that slams the market, then those pension benefits, people are getting very low interest rates. And so they're reaching for yield, reaching. They're taking on more risk. They say, I need to take more risk because I have to hit my target. And then if the bond market takes a big hit and then stocks also go down, then your investment returns are even lower. Then your shortfall is even bigger. What happens? Then Hawaii has to raise taxes, cut benefits, or they won't have the money. They have to put it into the pension system so you don't have money to fund rail, for instance, or roads, education. Or to give the pension checks to the retirees. Exactly. That is a community that will be very, very violently upset at this. And so what do you do? It's very. But you have a very good point, judges said, is that usually this balancing out. But what if, as in the trade, there's a black swan? When suddenly everything goes down, currencies, bonds, stocks, everything just goes down. And you hedged everything that something will be up there. But suddenly it's a complete decline in every market. And that's the black swan. And these has those types of actions happened in the past. They have happened. But one thing that I've researched was that there's two types of financial shocks. So as I think I mentioned before, the geopolitical ones, Iraq invades Kuwait. So all of a sudden everybody goes, oh, no, no, no, no. But then there's other ones, like the financial imbalances, like it's like Latin American debt crisis, or even the great financial crisis of 2008, the housing crisis. Now what the difference between those two is that one is the geopolitical ones tend to have a big shock to the system. So the market goes down. But then most of the time, with a short period of time, it comes right back up. Whereas the financial imbalances take a long time to heal. We're still recovering from the great financial crisis of 2008. And that's almost 10 years ago, a decade ago, when you think about it. Yes, that's right. And that's another reason why these interest rates are very, very low. They had to bring interest rates down because they think that's what we need to do to improve the economy. And they're just staying to the time of saying, well, maybe the economy is healthy enough that we can start doing something about it. But who knows what's going to happen? Well, we're going to end on this mysterious note for our viewers. Because I think, H.R., you gave us a very insightful view of the markets based on your 30-year-plus career in many global capitals. And I hope to see you again in a few months to give another insight to what's happening to the economy and whether there's bad things out on the horizon or we're holding steady. Thank you again. This is Think Asia. My name is Ray Tsuchiyama. And thank you very much.