Nextnation Again

Blogged last year: Update on NextNation

I wrote the following:

First blogged on Nextnation on 31st May 2007. here

Two points mentioned then..

• Net margins show some weakness but the growth is impressive!
• The biggest concern for me is that NextNation has an issue with its receivables and because of this, one do not really see wealth being generated in the company's cash flows despite its very impressive earnings.
  

Nextnation announced its next earnings on June 29th. Quarterly rpt on consolidated results for the financial period ended 30/4/2007

Sales dropped on a q-q to 21.533 million.
Earnings dropped to a mere 480k.
Receivables is at 67.092 million
There goes the GROWTH stock status!

I wrote a simple posting. http://whereiszemoola.blogspot.com/2007/06/nextnation-ii.html

Well, from an investing perspective, it's pretty ugly.

Nextnation announced its next earnings on Sept 2007. Quarterly rpt on consolidated results for the financial period ended 31/7/2007

Sales dropped on a q-q to 17.797 million
Earnings improved slightly to 611k.
Receivables is at 61.702 million

Nextnation announced its earnings last night. Quarterly rpt on consolidated results for the financial period ended 31/10/2007

Sales were flat at 17.868 million.
Earnings dropped to a mere 145k!!!
Receivables is at 56.702 million.

-------------------

I just saw that Nextnation reported its earnings on Friday. It was not pretty.

Sales were lower 15.636 million
Earnings - Nextnation reported losses of 1.913 million!
Receivables is at 49.290 million!

Nextnation is last traded at 0.085!!!

Know Our Rights!

Published on today's Bizweek: Capital market needs worthy directors. The article is written by Abdul Wahab, who is CEO of Minority Shareholder Watchdog Group.

• INVESTORS do not like seeing their money vanish into thin air. But this is likely to happen if and when they are inactive or fail to watch over their investments in listed companies. Through their activism, investors and shareholders are allowed to have dialogues with management over some aspects of the companies' operations.
  
  Under the law, shareholders are not trustees for one another. They hold no fiduciary position, and have no fiduciary duties like directors. They are responsible for their rights as owners of the company. Their focus should be on the protection of their own money.

Fully agree! Minority shareholders should be fully responsible for their own money.

Our money! So for heaven sake, learn to protect our own money!

• In essence, investor activism centres on the companies' performance and shareholder value. As more and more shareholders attend general meetings, the boards of directors face mounting pressure, not only from shareholders and investors, but also other stakeholders.
  
  For most boards, general meetings can be a chore under the best of circumstances. Nevertheless, today’s directors must take great care in all of their areas of responsibility and in all aspects of their stewardship.

Ever been into a meeting where the director is falling asleep? And just what about them empty seats? Buta Gaji is it?

• They are not only accountable to investors and regulators but also to stakeholder groups. If they do not know well the nature and consequences of their decisions taken in their names, the results and the bad publicity can be painful.

I strongly believe that some don't deserve to be a director!

• Regulators can act only when there has been a transgression of a rule, regulations or statute. At the heart of accountability are the board’s integrity, compliance and performance.
  
  When a company finds itself in trouble, it is often clear that the board did not fully discharge its responsibilities. What is obviously done wrong in hindsight, can be avoided through foresight. After all, the board knows the strengths and weaknesses of the business, and thus should be among the first to spot the red flags.
  
  Directors only have to recognise the interests of shareholders as their touchstone. Rising investor sophistication and activism would have elevated the boards' conscience.

• The following cases illustrate what minority shareholders can do:
  
  1. The minority shareholders refused to stay quiet at a listed issuer’s EGM. In particular, they questioned the wisdom of the board over the proposed acquisition of a piece of property. The vendors are the company's major shareholders. Even though they were outvoted at the EGM, the minority shareholders were not reasonably satisfied. Their concerns raised numerous questions about the rationale for the property purchase.
  
  2. A listed issuer called an EGM to seek the shareholders’ ratification of acquisitions and disposal of shares in another listed company. Even though a company can ratify a particular action of the board, the minority shareholders’ rights to seek clarification and inquire into any possible breach of directors’ duty under the regulatory rules must be respected.
  
  3. Minority shareholders were grossly unhappy with the board of a listed company over the absence of the chairman and his spouse (an executive director) in two consecutive AGMs. The shareholders also queried the directors' excessive remuneration and succeeded in adjourning the meeting.
  
  4. Minority shareholders were disappointed with a company’s performance. The accounts carried an auditors’ qualification with regards to fixed deposits placed in a foreign fund by the managing director. The MD did not attend the AGM and as a result, was not elected to the board. A police report was also lodged against him.
  
  5. The incumbent board of directors proposed to de-list a company. However, they faced strong objections from the minority shareholders, who called an EGM and brought an action against them, rejecting the proposed delisting.
  
  It is often assumed that wise and experienced directors will quickly reach consensus on what is best for all concerned. However, this is not always so. Although the Code on Corporate Governance emphasises the role and responsibility of non-executive directors, there are often conflicts in the boardroom when directors are reluctant to conform to the code's principles and best practices.
  
  Factors such as ambition, greed, egotism and plain obstinacy are assumed to play a major part in shareholders’ grievances. Of course, to naïve investors, some directors are highly impressive because of their sheer elegance and suavity.
  
  As directors pursue their private agenda, the companies could start to drift, with important decisions being shelved. In dramatic cases, directors or companies are not even bothered about being placed under public scrutiny and on the regulators’ watchlists.
  
  On irregularities in accounts, an investigator in Britain once commented that “the most statutory restrictions on directors’ conduct were more evident on their breaches of laws and regulations than their observance”. He added that “the amount of profit in question did not affect the principle; a small profit did not render permissible what would otherwise be improper; a large profit did not make improper what was basically proper”.
  
  Faced with tougher regulations and onerous duties, today’s directors know the trickiest decision between the right and the wrong compromises, and they have learned to tell one from the other.
  
  To restore investor confidence, the capital market needs to have principled directors, market players and participants who are fully aware of what is right and wrong, and not surrender to moral confusion and relativism.
  
  Of greater importance is the need for vigilant and professional boards of directors, and competent and efficient management. These two factors should ensure both the major and minority shareholders get fair and equitable deals from the companies' proposals.
  
  Lastly, underpinning nearly all shareholder activism is the drive to increase shareholder value. Directors must not pay lip service to acting in the best interests of shareholders.
  
  They must understand and recognise their true sentiments, and gain the trust and confidence of investors and stakeholders in seeking their support for the companies' decisions.
  
  The directors have to believe that the shareholders could at times be their customers and staff, who happen to partly own the company.
  
  If the would-be directors do not subscribe to the right priorities or if they think they cannot offer adequate commitment to the shareholders, they should seriously rethink their decision to join the board of a listed company. If they are already on the board, they should help to change it or resign.

Just want to add this. Sometimes, it makes no sense to be a shareholder when the company attempts all kinds of methods possible to screw us and our money. And sometimes, the company simply isn't the wonderful business that we want to own. Perhaps it's much better for our money if we just walk away. Vote with our feet!

Ingress Again!

Posted last July, Regarding Ingress Corporation Again, on that Business Times article posted year, it mentioned the following.

• Ingress expects strong revenue growth for the year ending January 2008 on continued sterling showing by its Thai operations in particular.
  
  "We have done well in terms of revenue growth last year and are confident that this will be sustained in the next few years, despite the global downward trend especially in Southeast Asia.
  
  "There's a drop in the Thai domestic market but this is compensated by its exports," Rameli said.
  
  Ingress' revenue soared to RM358.77 million in the year ended January 2007 from RM289.71 million revenue previously. Net profit stood at RM2.3 million in the last financial year.
  
  Ingress gets slightly over 80 per cent of revenue from automotive parts manufacturing, while the balance comes from the PER division. The Malaysian operations contributed 46.5 per cent to Ingress' ACM turnover last year, Thailand's accounted for 51.3 per cent, while Indonesia made up the balance of 2.2 per cent.
  
  This year, company executives still expect a large part of the revenue pie to come from the Thailand operations, given the consistently strong orders from the likes of Honda, Mazda, Ford and Mitsubishi.

This got me thinking.

Why is the article focusing on revenue growth? Revenue soared it shouted.

If revenue has been soaring, why is the net profit only 2.3 million?

It's like despite all the optimism mentioned in the news article, a net profit of only 2.3 million sounds rather dismal.

So I decided to do some checking. Time to check out Ingress earnings report on Bursa website.

Let's look for year ended Jan 2007. Quarterly rpt on consolidated results for the financial period ended 31/1/2007

Ok. Rvenue was at 358 million BUT did you note the whopping loss of 11 million for the financial quarter?

And if you open up the pdf file attached to the earnings, page 16, the company said the following:

• The Group recorded a 32% decrease in revenue in comparison to the immediate preceding quarter. Loss before tax for the quarter amounted to RM11.34 million in comparison to the profit before tax of RM8.59 million in the immediate preceding quarter.
  
  Overall ACM recorded a flat growth in revenue. ACM Malaysia ecorded a 3% decrease in revenue where most models recorded decreases in volume except for Perodua Myvi model.
  
  ACM Thailand registered a 6% increase in revenue where new models recorded increases in volume.
  
  For PER, revenue decreased by 80% due to a major project which was completed in the immediate preceding quarter.
  
  For units under Others, revenue decreased by 89%.

Err... how come? Why did the earnings notes defer so much than what's published in the media?

That was then. Now, on 21st March 2008, Ingress was focused on Business Times again.

• Ingress zooms in on RM1b mark
  
  By Zurinna Raja Adam Published: 2008/03/21
  
  The auto parts maker may boost its overseas revenue to about 60 per cent in three years if talks with Indian and South Korean firms are successful
  
  AUTO parts maker Ingress Corp Bhd aims to triple its revenue to pass RM1 billion mark in as early as two years, backed by rising orders locally and in new markets such as India, its chief said.
  
  The company, which makes parts such as bonnets and door frames for carmakers like Honda, Perodua and Nissan, wants to make more money from markets abroad.
  
  Ingress made a revenue of some RM360 million for the fiscal year ended January 31 2007. About a third of that came from Thailand and Indonesia.
  
  Executive vice-chairman and group chief executive officer Datuk Rameli Musa said Ingress is in talks with Indian and South Korean firms for possible tie-ups.
  
  "We are in talks with them to extend beyond the technical assistance support that we are now providing.
  
  "Currently, Ingress is there on contract basis. We are in talks to partner them in the manufacturing and other divisions," he told Business Times in an interview recently.
  
  If the talks are successful, Ingress may boost its overseas revenue to about 60 per cent in three years, he said.
  
  Ingress, whose single largest shareholder is Rameli, has been in the industry for almost two decades servicing international and local carmakers.
  
  It already has orders worth RM2 billion for the next five years or an average of RM400 million a year.
  
  "Although China and India are providing the cost competitive edge, we will continue to improve ourselves in terms of expanding our product line and emphasis on quality," he added.
  
  Apart from manufacturing, Ingress also has other businesses such as building power sub-stations, putting up transmission lines and the electrification of railway lines.
  
  However, this makes up less than 20 per cent of the group's total revenue and is likely to stay the next few years, Rameli said.
  
  "We want to stay focused in the automotive sector," stressed Rameli.
  
  Ingress has ventured into the retail side recently by opening up a BMW showroom and service centre in Mutiara Damansara, Petaling Jaya, with an investment of about RM100 million.
  
  The group is among three BMW dealers in the country besides Sime Darby Bhd and Sapura Holdings Bhd.
  
  "Depending on how well we do as their dealers, we are interested to expand our partnership with BMW further in the future," Rameli said.
  
  The group made a net loss of RM2.8 million in 2007 and may also make another loss in 2008. It made a bigger loss of RM5.8 million in the nine months to October 31 2007.
  
  The group is due to release its fourth-quarter results this month.
  
  Nevertheless, Rameli expects Ingress to return to profit in 2009 as it expands its product line.

Yet again, the header was rather perhaps misleading.

Focus was the same, on Ingres zooms in on RM 1 Billion mark! WOW!

And yes, towards the end of the article, the article did state that Ingress was losing money and that it expects to return to profit in 2009.

Well, Ingress reported its earnings last night. It reported losses of over 5.1 million for the current quarter, which accumulated losses to over 10 million for the current fiscal year!

Merger of Main And Second Board?

Said on the Edge: Year-end merger for main and second boards, says Zarinah

• “Today under Mesdaq, we permit high-tech and high-growth companies. But when the new rules come into play, we will allow more emerging companies to come into the market, all types of emerging companies.
  
  “What is important is that it will be sponsor-driven. That means that the gatekeeping role that is currently undertaken by the SC will now be played by the sponsors.
  
  “They will be responsible for assessing the suitability of the company. If they feel they want to sponsor the company for a listing we will leave it to them, the company,” Zarinah told reporters on the sidelines of the Invest Malaysia 2008 conference here yesterday.

Do you like what you are reading at this moment of time?

• we will allow more emerging companies to come into the market, all types of emerging companies

Allow more?

Don't you get the feeling that Bursa Malaysia, as a listed entity, a business oriented company, by allowing more companies, wants more profits?

Seriously is more better?

Or would you prefer better quality?

• “What is important is that it will be sponsor-driven. That means that the gatekeeping role that is currently undertaken by the SC will now be played by the sponsors. “They will be responsible for assessing the suitability of the company.

Sponsors will be responsible for assessing the suitability of the company???

Serious?

Correct me if I am wrong but sponsors main objectivity is to make money. And if this is the case, what if the assessment of the quality of the company is sacrificed to achieve the objectivity?

How my dearest MooMooCow?

End Of Commidities Bull? BDI and Bear.

Blogged last Thursday: Buying Opportunity for Planters?

What was asked is this correction in the commodities market a healthy correction or is this the the end of this massive bull run.

Today, CNBC delivered more clues and it published the following, Commodities Bubble Burst? Big Clue Comes Next Week

• Investors wondering whether the agricultural commodities bubble has burst will get some important clues in next week's annual crop plantings report, considered a bellwether for the direction of farming activity for the year.
  
  Analysts are looking for the Department of Agriculture's March 31 survey to show a decrease in corn acreage over last year's record planting, as well as a pronounced increase in soybeans and more wheat in the ground.
  
  But what those projections will mean for investors remains to be seen. Commodity analysts are expecting volatile planting numbers this year, with the weather and direction from traders to play a major role.
  
  Wet conditions in the heartland, for instance, could depress the amount of corn acreage, raising its price in turn. Soybeans, meanwhile, likely will get more attention this year after losing acreage to corn in 2007 due to a sharp increase in demand for ethanol. Wheat also will be in flux, its price subject to possibly lower demand due to resumption of planting worldwide after a year of a supply-constricting global drought.
  
  How the three major agricultural products fare is of major concern as investors wonder whether the commodity's bullish run of record-setting prices will continue or has run its course.

The article continues by saying.

• "Planting intentions are very important to how our supply and demand balances will look this coming year," said Melvin Brees, an agricultural economist at the University of Missouri's Food and Agricultural Policy Research Institute. "One of a number of factors is the unpredictability of the weather."
  
  Corn takes the biggest hit from bad weather, as it needs to be planted the earliest of the other major crops. It also does not plant well in saturated soil and requires the most fertilizer, which has become more expensive as the United States has lost its place as the world's primary manufacturer.
  
  Continued rainy conditions, or an excessively wet spring, could alter the agricultural commodities market dramatically, sending corn prices well higher on less supply.
  
  "That would create a huge amount of volatility in the markets," Brees said. "With supplies as they are, you would probably see a sharp market reaction."
  
  
  Despite a record corn planting last year, there was only a slight increase in carryover — the amount that's left over from the previous harvest — to the spring. Should corn production drop this year, that could make supplies very tight and become a bullish indicator for prices. The same thing goes for wheat and soybeans, both of which also saw low carryover rates, attributable to surging demand from emerging markets across the world.

But what was most worth noting was the following two statements..

• Other commodities, such as gold, platinum and oil also have seen record runs, but there is sentiment that the end may be near. The commodities run has been fueled by speculators and those cashing in on the weak dollar, the currency in which most commodities are traded.
• "I would not call the long-term trend over by any means. This very recent weakness that we've seen was more a function of speculators getting washed out," Kub said. "The entire market is not a bubble. There was just a part of it that needed to get washed out. The fundamental trends ... they're still in place."

Fundamental trends still intact?

Fundamentals are part of everything but surely what we have seen are bubbles of epic proportions. Or am I delusional?

In another article from CNBC. Oil Extends Slide on Dollar, Demand Worries

• Oil prices fell more than a dollar Monday, extending a slide from last week's record to nearly 10 percent amid a recovery in the U.S. dollar and lingering worries over slowing energy demand.
• "We suspect that the correction in commodities still has some ways to go, and we could push somewhat lower from here," Edward Meir with MF Global said in a research note

Gold last traded at 918.00. On March 17th it traded for 1,032.70 an ounce!

The BDI is now at 7684. Down another 117 points. Down 8 days in a row! Which would means that the BDI has retraced swiftly a massive 1000 pts since it recovered back to a high of 8600 almost 2 weeks ago.

What gives?

In an intersting editorial Pressure on Baltic Dry Index by Manas Chakravarty and Mobis Philipose.

• Strange things have been happening to the Baltic Dry Index, the index covering dry bulk shipping rates and widely seen as a leading indicator of global economic growth. After rising to an all-time high of 11,039 last November, the index nearly halved to 5,615 in January, but has since recovered some lost ground, moving up to more than 8,600 last week. But it has started falling again since then and on 19 March, it was at 7,801

I hold my reservations against the BDI being used as a leading indicator of global economic growth. Yes, there are justifications for it but there are other variables that can have a massive impact this index. Shipping rates depends on the availability of ships. And sometimes ships might not be available or shipping could be halted by severe weather. As seen last month, severe snowstorms caused havoc on this index (see Baltic Dry Index And China Snowstorms? ). And last but not least, epic bubble prices on commodities had a massive impact on the rise of the impact.

Anyway the above editorial made several strong points.

• The answer lies in commodity prices. Industrial commodity prices, too, have started moving up after falling for much of last year. And as commodity prices have risen, so have the freight rates for carrying those commodities.
  
  The demand for commodities depends a lot on Chinese demand and that has so far held up pretty well. For instance, China’s imports of iron ore were up 33% year-on-year in February. But growth may cool off if the Chinese government tries to curb inflation.
  
  More significant is the fact that bulk shipping rates are falling. That, says a Citigroup research report, is “a red flag for the Baltic Dry Index rally and raise questions about the industry’s confidence in its sustainability”. Citi analysts point out that the supply of ships is going to rise substantially in 2009 and 2010. Demand growth, on the other hand, is not likely to keep pace with the supply of ships, although the supply-demand balance this year is, according to the analysts, “debatable, but precarious”.
  
  The upshot: “The bullish argument for bulk shipping is that we’ll see massive ship delays out of China, while the bear arguments are that ship supply growth will still be at all-time highs in 2009–11 and/or commodities will lose their steam as we learn not to underestimate the impact of a slowing US on emerging markets and their seemingly decoupled commodity demand trends.”
  
  The sudden fall in commodity prices over the last couple of days will add to the pressure on the index.

Bear Stearns and JP Morgan?

OMIGOD!

Totally ludicrous!

Do read Rob Kirby's piece on it, Dubious Deliberations

• Do these grotesque proceedings, from start to finish, not reek of a snake-oil-swindling carnie act?

Last but not least, posted on CNN: Don't trust the Wall Street rally

How now Brown Cow?

Incurring Debts to Return to Shareholders

Blogged previously: Litrak may return RM1 per share!

The Great Game said...

• Well, no offence, but at least in overseas market, this is actually very common for mature infrastructure assets which have demonstrated track record to gear up to repatriate the surplus to shareholders. There are some new products like accredited swaps which proliferates this type of transaction. It simply makes no sense for a asset with a says 30 years concession life to have a 15 years debt tenure -- ideally, it should match it with a 30 years tail debt tenure, if there is enough depth in the debt market. After all, this is an asset-based company, not much upside for shareholders can be gained from operational improvement, if not from financial engineering.

Here are some of my thoughts again on this issue.

Firstly, the issue of what's practiced in the overseas market. In my opinion, just because it is practiced in the overseas market does not mean that companies here should follow. For me, companies here should emulate all the good examples set and should discard all the bad practices made!

In this example, one needs to look at the justifications of raising debts just to return to the shareholders.

I am not saying that all debts are negative. Some debts are indeed productive if the company manages to use the debt as a means to finance capital expenditure exercises that creates the opportunity for the company to generate more returns in the future.

However, not all debts are good. And the more debts issued by a firm, the higher the risk premium for the company.

And in this case where debts is incurred to repay shareholders, these debts incurred does not generate any returns for the company for it is GIVEN back to the shareholders. And sooner rather later, these debts would have to be repaid, which means future profits generated by the company would have to be used to repay these debts and not forgetting the interest cost.

Clearly this is but one sure insane and ludicrous manner to manage a company.

• It simply makes no sense for a asset with a says 30 years concession life to have a 15 years debt tenure -- ideally, it should match it with a 30 years tail debt tenure, if there is enough depth in the debt market. After all, this is an asset-based company, not much upside for shareholders can be gained from operational improvement, if not from financial engineering.

Last but not least, I do understand the above rational and if you do read again, I am not against Litrak's sukuk exercise at all. What I am against is returning the excess cash. Surely the company can think of a better way to generate more returns for the company and its shareholders.

Buying Opportunity for Planters?

Highlighted on the Business Times: Commodity Roundup: CPO futures sharply lower

• CPO FUTURES
  
  CRUDE palm oil (CPO) futures prices on Bursa Malaysia Derivatives ended sharply lower on weak demand yesterday, dealers said.
  
  Market sentiment was also subdued ahead of the public holiday today, one of the dealers said.
  
  The fall in soyoil futures on the Chicago Board of Trade also weighed down market sentiment for CPO, he said.
  
  At close, April 2008 declined RM89 to RM3,344 per tonne, May 2008 eased RM105 to RM3,345 per tonne, June 2008 went down RM120 to RM3,330 per tonne and July 2008 dropped RM119 to RM3,320 per tonne.
  
  Turnover was lower at 17,935 lots from 21,356 lots on Tuesday while open interest declined to 41,228 contracts from 43,406 contracts.
  
  On the physical market, March South was lower at RM3,400 per tonne from RM3,450 per tonne previously.

However, highlighted on the Star Business: 2nd-tier planters in for a rebound

• Second-tier plantation stocks on Bursa Malaysia are expected to rebound soon on short-term speculative buying, analysts said.
• The major beneficiaries of the recovery include Sarawak Plantations Bhd, Sarawak Oil Palms Bhd (SOP), Rimbunan Sawit Bhd, TH Plantations Bhd, IJM Plantations Bhd, Tradewinds Plantation Bhd and TSH Resources Bhd.
• The price of crude palm oil (CPO) has retraced by about 30% to RM3,390 per tonne to date from a record RM4,486 per tonne. However, Aseambankers, in a recent report, said it is “not ruling out the possibility of another round of speculative buying stemming from the US Fed interest rate cut.”

Two issues.

1. Does the current sell down creates a buying opportunity, given the fact that despite the current plunge in the CPO futures, based on the current ASP (Average Selling Price) sold by our planters , represents insane profits?

2. If so, why 2nd-tier planters? If this indeed is a buying opportunity, why don't one focus on market leaders? Market leaders lead. 2nd-tier will be 2nd-tier.

How?

Which brings me to this article posted on Singapore Business Times, Can plantation stocks hold out?, which I feel is an excellent second opinion on this issue!

• FIRST came the spillover effect from market fears that the assets of Indonesian oil palm producer First Resources would be auctioned off. Now, plantation stocks - and these include First Resources - have been dealt another blow as the price of crude palm oil (CPO) plunged on Tuesday.
  
  It seems that the earlier optimism surrounding these stocks has quickly dissipated upon a loss of support from CPO prices. But is the selldown really justified, or are short-term fears clouding the good growth stories that these stocks offer?
  
  Though most of these counters have recovered some ground from Tuesday's plunge, it now seems that the earlier knee-jerk reaction has thrown ice on previous propositions that this sector could weather a market downturn well.
  
  Some analysts, however, believe that the valuation of Singapore-listed CPO players has gone down to levels where investors can start to do bargain-hunting. There are good reasons for their optimism. After all, should investors peek through the smoke of market volatility and fear and look at the fundamentals, this sector has some compelling stories.
  
  Before the CPO price shock, some good news appeared to be surfacing at Wilmar, which has submitted a request to the Chinese government to raise its branded cooking oil price. The Chinese government wants to increase supplies after price controls imposed in January cut the retail stockpile and has asked Wilmar, among other companies to increase consumer sales.
  
  For Indofood Agri, the integration with Lonsum, a listed company in Indonesia in which it bought a majority interest, is expected to provide a significant near-term catalyst for the company, given the possibilities for cost savings and the pooling of expertise, according to Macquarie Research.
  
  Things are also looking brighter for First Resources now, after fears of an output cut this year were allayed when it clarified that its founder and former shareholder Martias had fully paid off damages of US$38.3 million and that Indonesia's Corruption Eradication Commission has withdrawn its intention to auction off three of First Resources' plantation and milling assets that were deemed to be related to Martias.
  
  In addition, the earnings growth outlook for these CPO players remains robust. For instance, analysts' mean earnings estimate for First Resources stands at 1.19 trillion rupiah (S$177.7 million) for FY08, up from 431 billion rupiah for FY07. For Wilmar, the estimate is US$870.9 million, up from US$580.4 million for FY07. And for Indofood Agri, it's 1.66 trillion rupiah for FY08 compared to 889.1 billion rupiah a year ago.
  
  But in the face of fears and a loss of market confidence, these prospects can end up being overlooked.
  
  That is the disconnect happening in the plantation sector - even if CPO prices and earnings are still on the rise, fears of heightened risks can continue to choke share prices.
  
  This is reflected in UOB KayHian's view on the sector. Despite higher CPO price assumptions and earnings forecasts, it is keeping an 'underweight' rating on Malaysia's plantation sector, citing political uncertainties, higher sector risks from high CPO prices, huge inventories and government intervention, as well as demand risks from biodiesel losing its shine.
  
  Rising risks in this sector would naturally point to lower PE valuations and hence, further downside. But it remains to be seen if such a lacklustre view of the Malaysian plantation sector will trigger a reassessment of Singapore-listed plantation plays as well.
  
  While earnings visibility remains clear and balance sheets remain fundamentally sound, these factors could pale in the face of further knee-jerk reactions to volatile CPO prices and fears of heightened risks.
  
  And it is unclear if good news from this sector is now enough to make jittery investors take another look. But if analysts' buy calls can still be counted on, it may pay to take a closer look at stocks that are trading below or close to 10 times forward PE - stocks such as First Resources, Indofood and Golden Agri.

More worrying is the immediate weakness in several commodities. Gold Leads Commodities Plunge on Outlook for Dollar, Economy

• March 20 (Bloomberg) -- Gold headed for its biggest weekly drop in 25 years, leading a drop in commodity prices, after the dollar rallied and concern mounted a U.S.-led slowdown in the global economy will reduce consumption of raw materials.
  
  Oil fell below $100 a barrel for the first time since March 5, soybeans dropped for a second day and copper had its biggest two-day decline in seven months. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials is having its worst week since at least 1997, led by declines in soybeans, cocoa and cotton.
  
  There is ``a glaring divergence between escalating commodity prices and waning world economic growth,'' James Steel, an analyst with HSBC Securities in New York, wrote in a report e- mailed today. It is ``no longer assured that commodity price appreciation is a safe one-way bet.''
  
  Gold in London has plunged 12 percent from its record $1,032.70 an ounce on March 17 after the Federal Reserve cut its overnight-lending rate less than expected by 75 basis points to 2.25 percent. The dollar has recovered 2.8 percent from an all- time low against the euro and rallied 4.6 percent from a 12-year low against the yen.
  
  Commodities have advanced in each of the past six years, driven by demand from China seeking to feed its population and power its expanding economy. The dollar's slide has boosted demand for raw materials, which become cheaper for buyers holding other currencies, while some investors are seeking higher returns following a slump in equities

How?

If commodities all over are correcting or plunging in a drastic manner, then perhaps isn't it much better to adopt the side lines approach?

As mentioned in the Bloomberg article.

• `Absolutely Enormous'
  
  The money flowing into commodities is ``absolutely enormous,'' James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference yesterday in Geneva.
  
  There are 361 commodity funds that had $98 billion in assets as of Feb. 28, compared with 345 funds with $80 billion at the end of 2007, he said.
  
  The rally, according to Paul Touradji of the $3.5 billion hedge fund Touradji Capital Management LP, was a ``buying orgy'' that had inflated prices and increased the risks of a collapse.
  
  Commodities ``have all gone parabolically higher on frenzied money flow,'' New York-based Touradji wrote to clients March 10. ``Unless that money flow continues ad infinitum, in which case prices would go to infinity, then the fundamentals had better be improving as quickly as prices have been, otherwise there is nothing else to keep the markets at these levels.''

Which is rather confusing for most. A Falling Dollar Should Contribute More Strength to Commodities

• A falling dollar should also contribute more strength to commodities. But yesterday gold and oil fell quite a bit. What gives?
  
  The dollar had a rare moment of inspiration. It was delusional inspiration, though...it won't last. Besides, commodities have other reasons to go up than dollar weakness. Our French technical and currency guru, Gabriel Andre, explains:
  
  "Commodities are negatively correlated with the US dollar, and in the short-term the US dollar is oversold. Many traders feel the Fed has played its hand fully, and see this as a reason to buy back into the dollar…in the short term, that is.
  
  "But with cheaper commodities, there are likely to be bargain-hunting investors looking for a good entry point into the market. Further down the track, strong demand from Asia for real goods is likely to continue. Tangible assets still have the wood over financial assets…so cheaper commodities will generate more buyers, particularly in gold.
  
  "A fall in gold gives it buying strength, technically…and it will enjoy fundamental demand from those wishing to hedge against an inflation and the long-term dollar weakness."

Posted on cnbc.com, Commodity Market's Roiling Riptides Of Prices

Posted on Reuters. COMMODITIES-Crumble on Global Flight from Risk

And the following posting is worth reading: DELEVERAGING- Gold and Commodities Teetering on the Brink of a Bear Market?

The author, Nadeem Walayat, asks the following.

• Gold and other commodities plunged below key short-term support levels following Tuesdays US Interest rate cut to 2.25%. The consensus seems to see this as a healthy correction or is this a signal for a potential end of the commodities bull market?

He continues.

• Gold and Commodities are NOT immune to the impact of deleveraging, as evident by the sharp drop in Gold yesterday

Are we seeing deleveraging?

What say you?

Regarding RHB's report on Parkson

Was reading the report on Parkson Holdings dated 17th March from RHB Research.

The following are some key issues pointed out in the report.

• Same-store sales (SSS) growth to remain strong. In 2007, Parkson recorded same-store sales growth of 18.4% for its China operations, 8% for Parkson Malaysia and 37% for Parkson Vietnam. Parkson China remained the main income driver, contributing more than 90% to the groupfs operating income in FY07. Its stellar performance was in tandem with the burgeoning retail sales in China, which grew 16.8% in 2007 underpinned by improved consumer confidence and rising rural income. Going forward, we expect China retail sales to remain robust in the advent of the Beijing Olympics. However, we reduce our SSS growth projections for China to 17% (from our earlier projections of 20%) for FY08-10, to be in line with management guidance of 15-18% p.a.. As for Parkson Vietnam, we raise our SSS growth projections to 25-27% (from our earlier projections of 20%) for FY08-10. The compelling SSS growth in Vietnam is mainly attributable to the low-base effect. We maintain our SSS growth projections of 6% for Parkson Malaysia for FY08-10.
  
  Average 10-13 new stores per year to be opened in FY08-10. Over the next three years, Parkson plans to open an average 5-7 new stores per year in China, 2-3 in Malaysia and 4 in Vietnam. This is higher than our original assumptions of 4-5 new stores per year for China and 0-1 for Malaysia for the FY08-10 period. Specifically for 2008, Parkson plans to open 7 new stores in China, 5 in Malaysia and 4 in Vietnam. In China, Parkson and its 53.1%-owned Hong Kong-listed Parkson Retail Group (PRG) could expand its presence via: 1) acquisition of Parkson's managed stores; 2) purchase of minority stake in stores which are not wholly-owned by the group; or 3) acquisition of competitors' stores. Currently, Parkson has 12 managed stores, which could be part of its acquisition targets going forward. According to management, it would consider paying an average of 10x earnings for the managed stores. Alternatively, Parkson could also acquire the minority stakes of the 9 Parkson stores which are not fully owned, to fuel growth. PRG is already in the midst of acquiring the minority 49% stake in Xi'an Chang'an Parkson, pending the procurement of the requisite confirmation letters from all minority shareholders. We expect PRG to conclude this deal in 1H2008. On the domestic front, Parkson plans to open one new store each in Kuching, Kuantan, Melaka, Kuala Terengganu and Kota Baru this year. Given the more aggressive store expansion plans, we now increase our new store assumptions to 5-7 stores per year (from 4-5) for China, and 1-5 stores (from 0-1) for Malaysia for FY08-10. We maintain our assumption of 3-4 new stores per year to be opened in Vietnam in FY08-10.
  
  Margin improvement on the way. Parkson has been adopting an asset-light approach when setting up new stores in China, i.e. leasing the property instead of acquiring. This would allow the company to expand expeditiously without locking up too much capital. Capex for FY08-10 is projected at RM106-182m p.a., which is mainly for new stores and refurbishment. New stores are estimated to break even after 2 years of operation. Parkson has a high operating leverage in which fixed costs (rental and staff costs) account for a significant 29% of the group's total operating expenses. As such, according to management, SSS growth of 18% for its China operations would translate into a higher EBIT growth of more than 30%. Our forecasts have already factored this in, as we have projected higher EBIT growth of 30-50% p.a. over the next three years, compared to revenue growth of 20-40%.
  
  Risks
  
  Risks to our view. A sharp slow down in consumer spending in China, Malaysia and Vietnam.
  
  Mitigating factors. China's retail sales grew by 20.2% per month in January and February 2008, which indicates that consumer spending in China remains robust at the moment. As such, we believe a sharp drop in consumer spending in China is unlikely to occur in the near term. Post-2008, we expect retail sales to moderate slightly and have projected a lower SSS growth for China of 16% for 2009-10 from the estimated 17% in 2008. As for Malaysia, consumer spending in 2008 should remain relatively stable, given that the expectation of a petrolprice hike after the general election could now be delayed. Post-2008, we expect consumer spending to remain resilient, underpinned by increasing consumerism of the relatively young population. As for Vietnam, we expect to see an influx of foreign investments in Vietnam over the next few years, which would create job opportunities,thus boosting consumer spending power.

Their investment justification is reasoned as follows.

• Investment case. We continue to like Parkson for its exposure to fast growing economies, i.e. China and Vietnam. Given its size and extensive network in China, Parkson should appeal to world class brand merchandisers who intend to start retail businesses in China. This is particularly important to Parkson as having the right portfolio of brands is one of the core competencies in setting up a department store in China. Specifically, we believe 2008 will be an exciting year for Chinese retailers like Parkson due to the potential growth in GDP and consumer spending brought about by the Beijing Olympics. According to ArgMax.com's research, "Prior to the Olympics and during the Olympic year, the host countries would experience higher than average GDP growth, maxing out at nearly 1.5% above average GDP in the 3rd year before the Olympics. However, the growth rates are lower in the years after the Olympics". According to the Beijing Municipal Statistics Bureau, the Olympics is expected to add no less than 2 percentage points a year to the nationfs GDP growth for the seven years to 2008 and to create as many as 2.1m new job opportunities. As such, we continue to be positive on the retail industry prospects in China over the next 3 years.
  
  Over in Vietnam, Parkson is one of two foreign retail operators who have been granted a licence to set up department stores in Vietnam before it is opened up to other foreign operators in 2009. This will provide the group the first mover advantage to position itself to enlarge its size and market share to be more competitive against other foreign department store operators in future years. As such, with the first mover advantage and using an identical business model as the one adopted in China, we believe Parkson would be able to reap similar successes in Vietnam within the next few years. Parkson Malaysia, meanwhile, should continue to record stable consistent growth over the three years, underpinned by the increasing consumerism of the relatively young population.

Caught the early morning news on Nike. Nike Profit Tops Forecasts on Strong Overseas Sales

• The company has seen rapid growth in emerging markets for its Nike footwear as it ramps up for the Beijing Olympics and robust demand for its smaller, non-Nike brands. It claims sports items are relatively immune to economic downturns, but has been controlling inventory in a challenging U.S. marketplace as athletic shoe retailers struggling.

Sales in Asia were simply astounding.

Which reflected what's said in the ArgMax.com's research mentioned in the RHB report. "Prior to the Olympics and during the Olympic year, the host countries would experience higher than average GDP growth, maxing out at nearly 1.5% above average GDP in the 3rd year before the Olympics. However, the growth rates are lower in the years after the Olympics".

I believe that one should not discount this issue if one wants to be a long term investor in Parkson. At this moment of time, sales are simply booming in China but would there be a possibility that it could slow down after the Olympics? However, I reckon that most that have actually shopped and witnessed what's happening in Parkson stores in China would very much argue that sales should still continue to boom.

Parkson's potential in Vietnam as first mover as pointed out by RHB is most interesting.

And of course the statement by the management on same store sales is most interesting.

• According to management, SSS is expected to grow at 15-18% in China, 6% in Malaysia and 25-30% in Vietnam in 2008.

As projections tend to be rather optimistic by most management, a same store sales projection of 6% reflects my pessimistic view on Parkson Malaysia.

Anyway, here is a screen shot of how RHB is valuing Parkson Holdings.

Would you be a buyer of Parkson Holdings?

Litrak may return RM1 per share!

Published on The Edge. 18-03-2008: Litrak may return RM1 per share with debt refinancing plan

I find it so amusing!

• KUALA LUMPUR: Lingkaran Trans Kota Holdings Bhd (Litrak) may return RM1 per share through a capital repayment exercise after it refinances existing debts to free up more cash flow for shareholders, analysts said.
  
  Analysts expect Litrak to undertake a capital repayment exercise after it proposed last Friday the issuance of up to RM1.55 billion in Islamic debt papers under a sukuk programme. The new debt issue is meant to refinance the highway concessionaire’s existing borrowings and redeemable unsecured loan stocks of RM1.2 billion and to fund working capital and other operational purposes.
  
  Analysts said the proceeds from the sukuk bond issue would fully retire Litrak’s existing debts that were taken to fund the construction of the Damansara-Puchong Expressway (LDP). Given the strong traffic flow at the LDP, the sukuk bond issue would allow Litrak to extend the repayment tenure of its debts, while freeing up more immediate cash flow for shareholders.
  
  According to a research note by Aseambankers, Litrak has a total debt of RM819 million as at December 2007. Assuming the entire sukuk programme was drawn up, analysts estimated that Litrak would have a cash surplus of RM726 million, which could potentially be returned to shareholders.
  
  “However, we believe that the maximum surplus amount of RM726 million may not be returned to shareholders in full, with some to be kept for future investments. Ultimately, a capital repayment of at least RM1 per share (or RM492 million in total) is more likely,” it said.

Let's see if I can understand this correctly. What this analyst is suggesting that ultimately Litrak would undergo this Sukuk program and borrow 1.55 billion ringgit, so that it could repay shareholders of at least rm1 per share.

________________

WOW!

Incredible!

What a wonderful suggestion! Isn't life simply grand?

However, some would simply find it ludicrous! What's the analyst insinuating?

Which sane company would borrow large lump sump of money to return back to shareholders?

Are we really having a super duper early Christmas?

And if what is speculated here is true, my gosh, this simply is the most pathetic way to run a company!

Some Musings on KNM Reports

Mentioned in RHB research report this morning.

• 
  

Management is giving guidance that FY08-09 net earnings to be around rm450million and rm700 million respectively.

And here is the financial statistics posted by RHB.

This is incredible really.

For its fy 2007, KNM earned a very impressive 188 million. However the management is guiding net earnings of a whopping 450 million.

This as stated in the table above, equates to a growth of a whopping 135.3%!

Yes, KNM has made several acquisitions and was awarded several new projects but for the management to guide that the company net earnings would grow by some 260 million or 135.3% is really amazing!

As it is, based on current or trailing earning, as stated by RHB, KNM trades at 27 times multiples.

Risk is rather obvious if KNM fails to deliver such loft projections!

If you ask me, I better be mighty aware of the lofty guidance made by the company!

Anyway RHB has stated the following risk involved.

• 
  

OSK carried the following comments:

• No cannibalisation from Belgium’s Ellimetal. Early this year, KNM announced an acquisition of a Belgian process equipment manufacturer for €20m (RM96m). Management yesterday clarified that there will be no direct competition against KNM’s current business due to overlapping in product offerings, as 70% of Ellimetal’s sales are directed to European customers for projects in the EU countries. To note, Ellimetal adopts high level of automation in its manufacturing of process columns and reactors, and hence management expect some synergies to improve production method in Malaysia.
  
  Focus on future high demand sector. KNM has also recently entered into an operating agreement with David K Stevens (DKS) to undertake sulphur technology business, which we think is crucial for KNM to enter the environment industry especially when there are very limited players equipped with this technology. To elaborate, sulphur technology is a unique method used for recovering sulphur and energy from acid gases captured during the processing of high sulphur oil and natural gas. DKS, who is a patent holder for sulphur removal and recovery technology for the oil and gas applications, has extensive experience in this field. We foresee additional growth to come from here driven by rising global warming issues going forward.
  
  Potential 2nd biodiesel project. Management yesterday has also announced that it is likely to secure a 2nd biodiesel project from Midwest BD (MBD) Biodiesel Ltd of Australia to do design and EPCC works for a biodiesel plant in Townsville, Queensland. It is estimated to have a capacity of 250,000 tonne p.a., using Algae as feedstock and Axen’s technology. Although the value of the contract was not disclosed, mirroring the previous contract that KNM secured from Mission Biofuels with similar capacity, we believe the 2nd contract could worth about RM120m. We have correspondingly factored this into our projections. Note that, our forecasts already included our earlier expectations of another 3 biodiesel plants from Mission Biofuel. Lower earnings estimates. We are delaying our profit contribution from Borsig by one month and hence lower overall GP margin for the process equipment segment. We also raise our estimates for depreciation slightly while keep our forecast for effective tax rate at 13%. As guided by the management, tax rate could be lower due to reinvestment allowances for its acquisitions of Borsig as well as Ellimetal.
  
  Downgrade to Neutral. The net impact of our earnings adjustment is an 8% drop from our previous forecast. We are taking a prudent stance on KNM’s ability to integrate Borsig, given that it is the biggest ever acquisition thus far. Besides that, considering the current weak market sentiment, we lower our rating to Neutral from Trading Buy. Our revised fundamental fair value is at RM5.25, derived backwards from our fully diluted exrights & bonus based on 16x valuation multiple for the whole O&G sector. For a better comparison with our previous Trading Buy target of RM7.90, lower earnings forecasts reduce the fair value to RM7.20.

Ah, there's a bonus + rights issue being planned.

Here is how OSK made their calculations.

The Market, The Bear and Jim Cramer!

Said on MSNBC news, Stunning collapse of Bear Stearns hasn’t calmed fears of more bad news

• “What we're in here is the closest thing we've seen to a bank panic since the Depression,” said Senate Banking Committee Chairman Charles Schumer, D-N.Y

Market commentator from Finacialsense, Tony Allison, calls it clearly an Election Year Bailout, in his market wrap, The Year of Living Dangerously: Printing Our Economy Back to Prosperity?

• Election Year Bailouts
  
  As this is a presidential election year, the level of questionable decision-making is sure to escalate. The legislature is currently preparing numerous bills to “help out the little guy.” The reality will likely be a bailout of the financial system on the backs of the taxpayer. The problem is finding the hundreds of billions of dollars, if not trillions, necessary for these and other proposed programs. The taxpayer is pretty well tapped out. The US is already borrowing over two billion dollars every day from foreign creditors. The $400 billion federal deficit will likely expand rapidly. Foreign holdings of Federal debt reached 45% in 2007. Will foreigners continue to purchase a depreciating asset at these levels in future years?
  
  As the economy continues to slow, so will income tax receipts. This will only lead to more Fed money creation out of thin air, leading to a still weaker dollar and more commodity inflation.
  
  The theme here is that the more intervention by the Federal Reserve and the government, the worse the situation becomes. Without the checks and balances of a sound money system, the Fed has no limitations on its actions. Watch for the bailouts. They are on the way, and your wallet is the target. And following bailouts, looming on the horizon are new regulations, tax increases and capital controls.
  
  Bailouts in an election year are an entirely predictable response of political self-preservation. The aftermath in 2009 and beyond is not of current concern. Continued dollar destruction and growing inflation are problems for future years. Unfortunately, the Federal Reserve and Congress will make these problems much worse through their “heroic” rescue efforts.

John Mauldin's has a different take in his editorial, Let's Get Real About Bear.

Firstly, it's not a bailout, it's a wipeout!

• But that is not what has happened. This is not a bailout. The shareholders at Bear have been essentially wiped out. Note that a third of the shares of Bear were owned by Bear employees. Many of them have seen a lifetime of work and savings wiped out, and their jobs may be at risk, even if they had no connection with the actual events which caused the crisis at Bear. Don't tell them there was no moral hazard.
  
  For all intents and purposes, Bear would have been bankrupt this morning. The $2 a share offer is simply to keep Bear from having to declare bankruptcy which would mean a long, drawn out process and would have precipitated a crisis of unimaginable proportions. Cue the lawyers.

And John reckons that the markets would have crashed!

Well, a run on the fifth largest bank in the United States would have indeed dire consequences!

• If it was 2005, Bear would have been allowed to collapse, as the system back then could deal with it, as it did with REFCO. But it is not 2005. We are in a credit crisis, a perfect storm, which is of unprecedented proportions. If Bear had not been put into sounds hands and provided solvency and liquidity, the credit markets would simply have frozen this morning. As in ground to a halt. Hit the wall. The end of the world, impossible to fathom how to get out of it type of event.
  
  The stock market would have crashed by 20% or more, maybe a lot more. It would have made Black Monday in 1987 look like a picnic. We would have seen tens of trillions of dollars wiped out in equity holdings all over the world.

And because of the Fed actions, John is actually modestly optimistic!

• As I have been writing, the Fed gets it. Their action today is actually re-assuring. I have been writing for a long time that they would do whatever it takes to keep the system intact. As one of the notes below points out, this was the NY Fed stepping in, not the FOMC. The NY Fed is responsible for market integrity, not monetary policy, and they did their job. And you can count on other actions. They are going to change the rules on how assets can be kept on the books of banks. Mortgage bail-outs? Possibly. The list will grow.
  
  Yes, tax-payers may eventually have to cover a few billion here or there on the Bear action. But the time to worry about moral hazard was two years ago when the various authorities allowed institutions to make subprime loans to people with no jobs and no income and no means to repay and then sold them to institutions all over the world as AAA assets. And we can worry in the near future when we will need to do a complete re-write of the rules to prevent this from happening again.
  
  But for now, we need to bail the water out the boat and see if we can plug the leaks. Allowing the boat to sink is not an option. And get this. You are in the boat, whether you realize it or not. You and your friends and neighbors and families. Whether you are in Europe or in Asia, you would have been hurt by a failure to act by the Fed. Everything is connected in a globalized world. Without the actions taken by the Fed, the soft depression that many have thought would be the eventual outcome of the huge build-up of debt would in fact become a reality. And more quickly than you could imagine.
  
  As I have repeatedly said, recessions are part of the business cycle. There is nothing we can do to prevent them. But depressions are caused by massive policy mistakes on the part of central banks and governments. And it would have been a massive failure indeed to let Bear collapse. I should note that this was not just a Fed action. Both President Bush and Secretary Paulson signed off on this.
  
  The Fed risking a few billion here and there to keep the boat afloat is the best trade possible today. Their action saved trillions in losses for investors all over the world. It is a relatively small price. If you want to be outraged, think about the multiple billions in subsidies for ethanol and the hundreds of billions of so-called earmarks over the past few years to build bridges to nowhere. And think of the billions in lost tax revenue that would result from the ensuing crisis. I repeat, this was a good trade from almost any perspective, unless you are from the hair-shirt, cut-your-nose-off-to-spite-your-face camp of economics.
  
  The Fed is to be applauded for taking the actions they did. And they may have to do it again, as there are rumors that another major investment bank is on the ropes. I hope that is not the case, and will not add to the rumors in print, but I am glad the Fed is there if we need them.
  
  It is precisely because the Fed is willing to take such actions that I am modestly optimistic that we will "only" go through a rather longish recession and slow recovery and not the soft depression that would happen otherwise.

So could what happen to Bear happen to say Citigroup? Here's an interesting editorial featured on FinancialSense. Will Citibank Survive?

• So is Citi solvent? We just don’t know. But there are reasons to be concerned. We are in one of those recurring periods when the solvency of banks is doubted, like the late 1980s when the S&L crisis was brewing. Or perhaps it is more like 1974 when the failure of Herstatt Bank in West Germany set off banking crises throughout the world, culminating with the collapse of Franklin National Bank in New York City. The problem is leverage. Too much debt has been extended on too little capital, so even a small decline in the value of a bank’s assets can significantly erode its capital and make it insolvent.
  
  In any case, it looks like the financial crisis already upon us will get worse before it gets better, and I am not alone in that thinking. David Rubenstein, co-founder of the Carlyle Group told The Wall Street Journal last week: “This is the tip of the iceberg. People are looking at our situation and saying, ‘There but for the grace of God go I.’ There are others out there hanging on by their fingernails.”
  
  He should know. His group managed Carlyle Capital, which recently defaulted on its loans to Citi and other banks, and whose stock price is shown in the above chart.

And the markets incredibley ended the trading day mixed! Stocks Widely Mixed on Bear Stearns News

• The Dow Jones industrials recovered from an initial drop of nearly 200 points to finish up about 21 points. The broader Standard & Poor's 500 and Nasdaq composite indexes ended lower as investors bailed out of investment banks and small-cap stocks and fled instead to large companies apt to be reliable during a weak economy.


• Bear Stearns shares fell 86 percent to $4.10 -- still above the buyout price, implying that some shareholders believe the deal terms might change.


• Some investors worry Lehman Brothers Holdings Inc. might be next to fall. Lehman -- the investment bank considered most similar to Bear Stearns -- and other major investment banks are slated this week to report quarterly results.


• DBS Group Holdings Ltd., Southeast Asia's largest bank, reportedly instructed traders in an e-mail early Monday not to do business with the bank. According to Dow Jones Newswires, DBS Group later told traders to disregard the earlier e-mail. Lehman denied there were any problems with DBS.
  
  Lehman fell $7.51, or 19 percent, to $31.75.

Bear Stearns closed at $4.10!

Now do you know that Jim Cramer actually talked about Bear Stearns last Tuesday, 11th March 2008?

"Bear Stearns is not in trouble!" "Don't move your money from Bear! That's just being silly." "Don't be silly" shouted Jim Cramer. Bear Stearns was trading around $60.00 then.

There are 3 clips you can watch.

The below video clip was posted on youtube from DonHarrold.net. (He feels strongly that Jim Cramer should be held responsible!)

Same video minus the commentaries.







And watch how Jim Cramer tries to back-pedals from his earlier comments on Bear!!!!!!!!!!!!







Seriously any fans of Jim Cramer out here?????!!!!

And what's even more incredible, Cramer is still out there!

I kid you NOT. This time, he's singing Bear Is Only the Beginning !

• The implosion of Bear Stearns over the past week wasn’t just a run on one bank, Cramer said during Monday’s Mad Money, it could be the beginning of a run on all the banks, including the brokerages.

Why some are against this great Bear Bailout!

Here's a great article opposing the Bear bailout! Rescue Me: A Fed Bailout Crosses a Line

• But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.
  
  And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt). It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there.
  
  Bear’s default rates on so-called Alt-A mortgages that it underwrote also indicates that its lending practices were especially lax during the real estate boom. As of February, according to Bloomberg data, 15 percent of these loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4 percent.
  
  Let’s not forget that Bear Stearns lost billions for its clients last summer, when two hedge funds investing heavily in mortgage securities collapsed. And the firm tried to dump toxic mortgage securities it held in its own vaults onto the public last summer in an initial public offering of a financial company called Everquest Financial. Thankfully, that deal never got done.
  
  Recall, too, that back in 1998, when the Long Term Capital Management hedge fund required a Fed-arranged bailout, Bear Stearns refused to join the rescue effort. Jimmy Cayne, then chief executive at the firm, told the Fed to take a hike.
  
  And so, Bear Stearns, a firm that some say is this decade’s version of Drexel Burnham Lambert, the anything-goes, 1980s junk-bond shop dominated by Michael Milken, is rescued. Almost two decades ago, Drexel was left to die.
  
  Bear Stearns and Drexel have a lot in common. And yet their differing outcomes offer proof that we are in a very different and scarier place than in the late 1980s.
  
  “Why not set an example of Bear Stearns, the guys who have this record of dog-eat-dog, we’re brass knuckles, we’re tough?” asked William A. Fleckenstein, president of Fleckenstein Capital in Issaquah, Wash., and co-author with Fred Sheehan of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.” “This is the perfect time to set an example, but they are not interested in setting an example. We are Bailout Nation.”

And what's most interesting was the integrity issue on how the events unfolded. As mentioned in the same article.

• Only last Monday, for example, Bear put out a press release saying, “there is absolutely no truth to the rumors of liquidity problems that circulated today in the market.” The next day, Christopher Cox, the chairman of the Securities and Exchange Commission, said he was comfortable that the major Wall Street firms were resting on satisfactory “capital cushions.”
  
  Three days later, it was bailout time for Bear.

No problems! No truth to the rumours!

Now? On a Sunday evening, Bear Stearns was sold for $2 per share!
( see Some Bear Issues )

Sunday Evening Exercise From The Fed

From CNN: Fed cuts discount rate - Sunday surprise

From Yahoo:

• The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.
  
  The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.

And Asian markets plunge on Bear news

• SEOUL, South Korea (AP) -- Asian stocks plunged Monday after JPMorgan Chase said it would acquire troubled U.S. investment bank Bear Stearns. The U.S. dollar fell sharply against the Japanese yen.
  
  Japan's benchmark Nikkei stock index and Hong Kong' Hang Seng index both fell more than 4%. The Korea Composite Stock Price Index in Seoul declined more than 3%. Markets in Australia and New Zealand also fell.
  
  JPMorgan Chase said Sunday that it would acquire its rival in a deal valued at $236.2 million - or $2 a share and that the Federal Reserve would provide special financing for the deal.
  
  News of the acquisition of Bear Stearns, one of the world's largest and most venerable investment banks, came just before the opening of markets in Tokyo and Seoul.
  
  The buyout was aimed at averting a bankruptcy and a spreading crisis of confidence in the global financial system. The Fed and the U.S. government swiftly approved the all-stock deal.
  
  "We are worried about the next step," Shim Jae-youb, a strategist at Meritz Securities in Seoul, said of nagging concerns in Asia that the trouble in big U.S. banks was unlikely to be contained just to Bear Stearns.

On CNBC Markets Tumble on Shock Fed Rate Cut, Bear Stearns

• The plethora of financial news, coupled by a sinking dollar revived fears that a long-lasting global credit market crunch would claim more financial companies. Banks across the region were battered. Citigroup's Japan listing was down over 7 percent. Japan's Mitsubishi UFJ Financial, Hong Kong's HSBC Holdings, South Korea's Hana Financial, and Australia's Macquarie Group were all plunging.

Golfing? From article posted on Yahoo here

• A bankruptcy protection filing of Bear Stearns could have heightened anxiety in world financial markets amid a deepening credit crunch. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis -- more write-downs could come. Last week, a bond fund controlled by private equity firm Carlyle Group faltered near collapse because of investments linked to mortgage-backed securities.
  
  JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago. It marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29.
  
  "The past week has been an incredibly difficult time for Bear Stearns," Schwartz said in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."
  
  Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of the world's largest investments banks -- it was a prop for the U.S. economy and the global financial system. An outright failure would cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.
  
  After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.
  
  This is not the first time Bear Stearns has earned a place in Wall Street history. A decade ago, Bear Stearns refused to help bail out a hedge fund that was deemed "too big to fail." On Friday, the tables had turned, with the now-struggling investment bank in need of the same kind of aid.
  
  Bear Stearns was founded in 1923 and in recent years was best known for its aggressive investing in mortgage-backed securities -- and what was once a cash cow turned into the investment bank's undoing.
  
  In June, two Bear-managed hedge funds worth billions of dollars collapsed. The funds were heavily invested in securities backed by subprime mortgages. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.
  
  The funds' demise and subsequent problems in the credit markets called into question Bear Stearns' ability to manage its own risk and the leadership ability of then-Chief Executive James Cayne. Critics of the company said Cayne spent too much time away from the office last year playing golf and bridge as the problems unfolded.
  
  Cayne is the same executive who refused to let Bear Stearns provide support as part of a Federal Reserve-led plan to rescue Long-Term Capital Management in 1998. His reticence was said to deeply anger some of his fellow Wall Street CEOs, and the episode came up every time Bear was reported to be in trouble in recent months.
  
  Cayne took over from the legendary Alan "Ace" Greenberg in 1993. Greenberg joined Bear Stearns as a clerk, working his way up through the ranks to eventually take over as CEO in 1978. Greenberg was known for his irreverent style, and his regular memos to employees were turned into a book called "Memos from the Chairman."

Some Bear Issues

Posted on CNBC JP Morgan Agrees to Buy Bear Stearns for $2 a Share

• JPMorgan Chase said Sunday it will acquire rival Bear Stearns in a deal valued at $236.2 million--or $2 a share--a stunning collapse for one of the world's largest and most venerable investment banks. The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system

$2 a share?

Here's an interesting point from Bloomberg news. JPMorgan Chase Buys Bear Stearns for $270 Million

• Joseph Lewis, the second-largest shareholder in Bear Stearns Cos., wasn't planning to reduce his stake, a person close to him said March 11. Lewis, a 71-year-old billionaire, has put in more than $1 billion into the firm since September, paying as much as $150 for a share.

Mr. Lewis isn't going to be happy camper!

And one of the big issue is on the current bailout of Bear Stearns. One of the interesting comments was from John Mauldin's piece, Muddle Through and Your Long Term Returns , posted on the weekend.

• The next crisis? I read a very chilling piece from Michael Lewitt this morning. He speculates on what if the rumors were true that Bear Stearns is basically bankrupt. Bear is in the too big to fail category. They are at the heart of the chain of Credit Default Swaps which run like fault lines throughout the world's financial system. If Bear were allowed to collapse, it would simply cascade throughout the world so fast it would truly make the current level of the credit crisis seem small potatoes.
  
  So, why can I be so sanguine? Because the regulators (the Fed and the SEC) would step in and whatever large bank was failing would be merged or bought very fast. Liquidity and assets would be provided. The Fed and the rest of the world's central banks get that we are in a crisis. They will do what is necessary. Those of us sitting in the cheap seats in the back of the plane may not like it, as it will look like a bailout of the big guys who caused the problem, but you have to maintain the integrity of the system. A hedge fund here or there can go, but not one of the world's premier banks.

And of course the most interesting piece was Who Traded 55,000 Bear $30 Puts Tuesday?

• This past Tuesday, when Bear Stearns(BSC - Cramer's Take - Stockpickr) was trading around $65 a share, there was huge put volume in the March $30 strike. Over 55,000 contracts traded that day at an average price of 15 cents a contract. This is an extremely unusual trade in terms of the number of contracts and how far out-of-the money those options were at the time. This begs the question of why someone would execute such a transaction.

!!!!

• First, it's important to understand that buying a put gives you the right to sell the stock at the strike price. So to buy a put that requires the stock to decline over 50% is essentially a bet that the company is possibly on the brink of going out of business or about to deliver some terrible news.
  
  Remember, these options expire on March 20, so that left only 10 days for some event to occur that would cause these puts to go into the money and have some value. So it appears that as rumors began swirling early in the week that Bear was having liquidity problems and might possibly be bordering on insolvent, someone took that to heart and bought the puts as disaster insurance. And today came news that several banks, including Goldman Sachs (GS - Cramer's Take - Stockpickr), would no longer act as a counterparty to any transactions with Bear. The inability to execute trades would essentially put Bear Stearns out of business.

Incredible!

Yes, some trader just made insane money (easily over 20 million!)... but comeon... surely they 'knew'!!!!!

Btw where is Auntie Martha?

Weekend Reading.

Posted on FinanceAsia: Malaysia rating and outlook:

• A Calyon report released yesterday predicts that although Barisan Nasional has retained its parliamentary majority, the possibility of a loose alliance between the remaining parties may lead to a lengthier decision-making process, as any Barisan Nasional-led legislation will be forcefully challenged in parliament.
  
  The opposition has won five states, four of which will rely on considerable federal government grants which may come under greater scrutiny. However the coalition has announced that it won't block infrastructure projects already approved, continues the Calyon report.
  
  Although political risks have increased, Moody's notes that Malaysia enjoys a relatively strong growth and external payments position as well as a high savings rate and well-developed regulatory and financial institutions. But this has been supported by a pro-cyclical fiscal policy that has maintained key government debt ratios above those of its peers, continues the agency.
  
  But Moody’s also states that, in the medium-term, the election results could engender a more competitive political environment and help develop the political system away from the country’s ethnic-based system. A shift to market mechanisms for the allocation of resources and public goods could then spur the private sector and reduce the government’s role in the economy.
  
  In terms of the impact on spreads, Malaysia’s five-year CDS underperformed Korea’s by about 4bp immediately after the election. Although it’s too early to draw a definitive conclusion, this underperformance against comparable credits could potentially continue if the rise of the opposition begins to have an economic impact, says Calyon.

John Mauldin's piece is worth a read: Muddle Through and Your Long Term Returns (do subscribe to his works!). The following section is worth noting.

• Honey, I Vaporized My Customers
  
  By now, everyone knows that the subprime crisis started with non-existent lending standards which resulted in the large numbers of foreclosures we are seeing today. Those foreclosures will be rising throughout the year. We are not near anything like the top of the rising number of foreclosures. Ben Bernanke said last July that losses from the subprime would be in the $100 billion dollar range. True confession. I think I wrote six months earlier that it would be $200 billion. I point that out to make the point that I am an optimist by nature. The latest "bidding war" number for the amount of total losses is about $500 billion from Goldman Sachs, and a neat $1 trillion from uber-bear Nouriel Roubini.
  
  Add in hundreds of billions from losses which are piling up in other credit markets and you can easily get to $1 trillion in losses which are going to have to be eaten by all sorts of financial institutions, without being all that pessimistic.
  
  Banks are being forced to reduce their loan and margin books in order to get the necessary capital required by regulatory authorities. Plus, credit is now more expensive as risk premiums rise from absurdly low levels in what more than one authority called a "new era of finance." Turns out it was just normal old era greed.
  
  It is not just the mortgage market. It is commercial mortgages, safe municipal bonds, credit card debt, student loans and a host of credit that is under fire and cannot find a buyer at what should be a realistic price.
  
  We should not be surprised at the lack of liquidity in the credit markets. We have essentially vaporized 60% of the buyers of debt in the last six months. The various alphabet of SIVs, CLOs, CDO, ABS, CMBS, and their kin that were the real shadow banking system are either gone or on life support. It took decades to build these structures and it is not realistic to think we can replace them in six months. This is going to take some time.
  
  And time is what the Fed has bought this week by offering to take AAA mortgage paper and swap it for T-bills. They will start with $200 billion on offer. Remember you read it here first that that number will be increased and increased again. From the markets initial euphoric response, you would think the problems have been solved and banks will once again start lending. Sadly, this is probably not true.
  
  This is similar to the action by the bank regulators in 1980, when nearly every major bank had losses that were greater than their capital on Latin American loans which had defaulted. The Fed, with a wink and a nod, allowed the banks to carry these worthless loans on their books at full face value. It took six years before they started to actually write them down. But without that measure, every major bank in the US would have gone bankrupt. And technically, they were for several years. But the Fed action simply bought the banks time to re-liquefy. It was the right thing to do.
  
  This week's action by the Fed is essentially the same thing. It buys time. This 28 day auction will be around for a long time. If the banks had to write down the potential losses on their AAA Fannie Mae paper and other similar assets, it could have brought the banking system to its knees. Eventually, we will get a market clearing price for all this paper, but the key word here is eventually. We are going to see foreclosures and losses for another 18 months. It is going to take a long time to know exactly what the losses will be.
  
  I think the losses on many of the various forms of debt have been marked down way too far by the various derivative markets. (I would hasten to add this does not include the subprime markets, as many of those assets are going to zero.) I doubt the loss in a lot of the debt paper will be nearly as much as the current credit default swaps prices indicate. For instance, some municipal bond debt is priced for 10-15% losses, when losses of less than 0.5% are normal. When there is a buyers strike, prices fall, and sometime to quite low levels. In the fullness of time, the price of these bonds will rise back to "normal" levels. There is a reason Bill Gross is buying municipal bonds by the train car load. Many are simply at the best prices we will see in my lifetime.
  
  But if that debt is now on a bank's capital books, they have to write it down to the latest mark-to-market. The Fed's move simply allows the banks to move what will eventually (or maybe the better word is should eventually) be marked back to reasonable values. It avoids a crisis today.
  
  The next crisis? I read a very chilling piece from Michael Lewitt this morning. He speculates on what if the rumors were true that Bear Stearns is basically bankrupt. Bear is in the too big to fail category. They are at the heart of the chain of Credit Default Swaps which run like fault lines throughout the world's financial system. If Bear were allowed to collapse, it would simply cascade throughout the world so fast it would truly make the current level of the credit crisis seem small potatoes.
  
  So, why can I be so sanguine? Because the regulators (the Fed and the SEC) would step in and whatever large bank was failing would be merged or bought very fast. Liquidity and assets would be provided. The Fed and the rest of the world's central banks get that we are in a crisis. They will do what is necessary. Those of us sitting in the cheap seats in the back of the plane may not like it, as it will look like a bailout of the big guys who caused the problem, but you have to maintain the integrity of the system. A hedge fund here or there can go, but not one of the world's premier banks.
  
  I wrote the above paragraphs on Thursday, and sure enough, the NY Fed and JP Morgan stepped in to bail out Bear. This will not be the only time or bank. The regulators may have been asleep, but the depth of this crisis has awakened them.
  
  But this is a boost for my contention that we will be in a Muddle Through Economy for a long time. This latest Fed actions simply draw out the time over which the market will correct. But that is a good thing, as a too swift, dead drop correction could spawn a very deep recession, destroying vast amounts of capital, which would take much longer to come out of.

I enjoyed reading Dr.Brett's posting, Using Trading Journals to Identify and Change Your Patterns

• 1) Patterns of Negative Self-Talk: These occur during frustrated moments in markets. We miss a trade, a trade blows through our stop, we give back our money on the day: all of these create frustration. This frustration then triggers an anger response that we direct toward ourselves. For example, we might find ourself saying, "Here it goes again! Other people are killing these markets, and I can't get it going." At that point, your frustration is no longer about the specific trade or market event, but is directed to *you as a person*. Trading should be about trading; not about you. After all, you wouldn't be boasting and crowing in the journal if the trade went your way. If you wouldn't like to hear your message coming from someone else (imagine your buddy at the workstation next to yours saying, "Whoa, dude, other people are killing these markets, and you can't get it going!") and if you wouldn't be speaking that way to your trading buddy, then you shouldn't be speaking that way to yourself. Interrupting that negative self-talk and turning your frustration toward a constructive kick in the pants ("C'mon, Brett, you know you shouldn't be trading so large in the chopfest. Let's stick with the rules!") can be very helpful in preventing frustration from snowballing.

PeG suggested the following piece: The Holy Grail of Trading: It’s not your System

• Investors also debate systems within a market such as: trend trading, swing trading, scalping, shorting, day trading, buy and hold, fundamental trading, technical trading, Elliot wave theory, moving average crossovers, etc… They all work if the “person” understands the holy grail of trading. And that is being able to understand YOU and how your mind works.
  
  However, it is not the system that makes one successful. It is YOU that makes the system work properly. What do I mean? Each individual must master their own personal psychological impacts on their trading results. You must work on YOU to become consistently successful!

And How to Create a Successful Stock Watch List

• I encourage all investors in all time frames to evaluate stocks for investment using both fundamental and technical analysis. A day trader and even a swing trader can get away with avoiding fundamental analysis but I highly recommend both methods of analysis for intermediate and longer term trend traders. Both tools are equally important in making serious decisions with your hard earned CASH!
  
  If you wish to invest in stocks, treat it like a business, NOT A HOBBY. You need rules and you need to follow these rules or money WILL be LOST. Once proven rules have been established, they cannot be broke or you will lose money. Everyone loses money in investing but we must learn to cut losses quick and allow gains to develop. Small losses are acceptable because they teach us lessons that allow us to win big. Think of losses as part of doing business and focus on the long term success of the system and not each individual trade. As long as you have a positive expectancy, the winners and losers will equal out over time to make you consistently profitable.

Chris's stock watch method mentioned is pretty darn good, yes?

Last but not least, there's Dali's piece Market timing – fool’s gold, which I thought is rather good too.

• The problem is that there is evidence to show that market timers do not do well.
  
  An annual study by DALBAR, a research firm, showed that the average investor in equity funds has averaged only 4.3% per year in returns over the most recent 20-year period in which the S&P500 averaged 11.8% per year – and DALBAR finds that most of this under-performance of the basic market index is due to attempts to time the market.
  
  There are a host of other studies that show that market timing leads to returns that substantially lag the market.
  
  Even if there were a few funds out of the thousands that have proven to market time successfully and outperform consistently over a 5 or ten-year period, would it be smart to give them your money?
  
  Essentially, you have to bet on these funds' ability to maintain their track record or on the long-term evidence pointing to the low success rate of market timing.
  
  There is a large body of research, which concludes that actively-managed funds that beat the market in some period are not likely to continue to out-perform over any extended period.
  
  In 1975, William Sharpe published a seminal article on this topic: “Likely Gains from Market Timing”.
  
  In this article Sharpe demonstrated statistically that in order to benefit from a market timing strategy you had to guess right 74% of the time. Hence it is possible, but very arduous indeed.
  
  Alpha is a definition only; it may or may not exist. For people to get alpha, they need to be better at market timing and price timing.
  
  Warren Buffett obviously does not believe in market timing or price timing. He sees them as businesses, and for the right price he will buy the business regardless of sentiment.
  
  He may even suffer short-term weakness or short-term losses holding these businesses, but he does not market time or price time his purchases. To him, if the price is cheap relative to future value, then it's good enough.
  
  If market timing and price timing works for only 5% (1 person in 20 is about right) of participants (or even just 1%), all studies would reveal that market timing and price timing does not work as the results are not substantiated – hence the random walk theory.
  
  Suffice to say that even if the 5% or 1% do make it work (which is what I strongly believe), it's just that much harder.
  
  When things are that much harder, many will opt for easier routes such as buy at good price and hold, or buy the business and forget the volatility.
  
  I am not saying I can do this well. I am not saying anyone can do this well. I am suggesting that one can do market timing and price timing well provided they get two things right – the big picture and the catalysts.

Bottom Fishing!

My Dearest MooMooCow,

Yes, stocks have retreated a lot and I can see where you are coming from when you said you wanted to go value investing or bottom fishing for some stocks.

However, do realise that you do not really have to buy stocks at their bottoms to make money. Bottom fishing is dangerous simply because in the markets, bottoms takes much longer time to form than tops. A stock could be cheap at 10.00. It could even be cheaper at 9.00. And it could be much cheaper at 8.00. How? Average down mah, so says the super investing sifu (most kung fu sifu dies in the movies). Since at 10.00 it is cheap, at 8.00 you should average down by buying more! Yeah, and then the stock goes down more to 7.00. Well at 7.00 the stock should now be super cheap. Buy even more? And at 6.00 it could be extremely super cheap. And I could go on and on how cheap this could get. The obvious question is do you have enough capital to buy the stock all the way down?

And what if your stock selection is flawed? By buying the stock at each single step down would ultimately mean that you just had multiplied your flawed stock selection or investing mistake all the way.

Of course, you would argue that how could the great cow could have flawed? Well, stocks are usually deemed attractive based on what it would earn in the future. Hence, you make your earnings guesstimation on how much this business would earn the following five or ten years.

The next five or ten years? So long? Are you kidding man?

Well you wanna be a buy-and-hold long term investor yes?

Value investing, yes?

Here's a simple explanation. Take a stock that I blogged recently. Maybulk. Commonsense would suggest that a higher BDI would indicate higher charter rates and it should ultimately equate to higher profits for Maybulk, yes?

However, this index had been really volatile. Back in Jan 2008 I blogged the following post. Update on the Baltic Index. Look at the Baltic Dry Index chart from 1985 to 2007. On that chart, it indicated that the Baltic Dry Index had been under the 2000 level from 1985 to 2003. Then things really picked up in 2006-2007 when the BDI soared past 11,000. But the index swiftly plunged to 5600 back in Jan 2008. And it had rebounded past 8600 early this weak but the last few days, the index again corrected swiftly, falling back down to 7972.

Mighty confusing?

Now if you want to buy-and-hold this stock for the long term ( or forever) than surely it make sense that you need to have a guesstimate on how much the stock would earn say the next five to ten years.

And for Maybulk, it's future depends so much on the BDI. As mentioned, the index had been so rather volatile the past few months. So the key issue is do you know what the fair value of this index now? Is it 5600? Is it 1100? Is it 8000? or is it 3800?

And how much would you guesstimate the index for the next five or ten years?

If we do not have a reasonable answer then how would you know that whether your investment now in Maybulk is considered cheap? Would it even make sense?

Last but not least, please do not bottom fish based on how high the stock price traded recently! That isn't bottom fishing from an investing perspective!

Remember bottom fishing if practised wrongly could and would cause severe damage to one's personal wealth and health!

Especially when one employs an aggressive average down approach while bottom fishing!

Average down is so rather risky. Well, if the markets are kind, then you would look incredibly smart when the market recovers shortly after you had averaged down. But life is never always kind. Sometimes we could be correct but the markets can be so un-kind. Sometimes we are simply wrong and averaging down simply mean multiplying the mistakes!

Yeah some say, tommorow never die!

Some say die another day!

Some simply say die faster!

Stephen Chow says

or would you prefer Madonna?





ps. any tipsi?

Any more Carlyle?

Looks like they reckon they are more to come. I am not surprised at all.

From a Washington Post article. Anatomy of a Carlyle Collapse

• Many investors think Carlyle Capital is only the tip of the iceberg. Drake Management's three hedge funds, with nearly $5 billion under management, recently suspended investor redemptions as it considers liquidating its assets. Nuveen Investments, purchased last year by Chicago private-equity firm Madison Dearborn Partners, faces lower profits and slower growth because of higher borrowing costs brought on by the credit crunch.
  
  Peloton Partners, a hedge fund based in London, was forced to liquidate its funds recently, and Thornburg Mortgage, a big U.S. lender, failed to meet margin calls by lenders last week. Citigroup is committing $1 billion to shore up its hedge funds.

Less we forget the genius money making strategy stated in this article.

• The company's business was to borrow money to buy mortgage-backed securities, and to make money on the difference between the firm's borrowing costs and what it earned on the interest paid on the bonds.

The Stock Market

Great clip - thanks PeG!

Morning Notes: 14th March 2008

The US Markets finished the day strongly.

Incredible given the Asian Markets were hit by the Carlyle tornado and all the early market indications was another sell down was but inevitable.

Carlyle itself was nonsense.

• It then added the money raised in July 2007 to a private $590 million pool opened in 2006. For every dollar of equity, the pool borrowed $32. ( see yesterday blog posting here )

How was this insane leverage possible?

I seriously wish I could have the skills of persuading folks to lend me $32 for every dollar I have!

Then Treasury Secretary Henry Paulson spoke.

• Paulson said state and local regulators need to toughen oversight of all mortgage originators. Sloppy lending practices including loans made to homeowners with no requirement of proof of income, are widely blamed for a soaring tide of foreclosures, especially among subprime mortgages held by people with the shakiest personal credit.
  
  Paulson said credit rating agencies need to make sure that securitized credit issuers -- like those who issue mortgage-backed securities -- "perform robust due diligence of originators of assets that are securitized or used as collateral for structured credit products."
  
  Paulson said the working group was now ready to push for its recommendations to be put in place and vowed that it will "stay on top of this" while trying not to add to existing stress in markets. ( click here for full article )

And then S&P came in with a report on the subprime crisis. S&P Sees End to Subprime Mortgage Writedowns

• The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation write-downs of subprime asset-backed securities," S&P credit analyst Scott Bugie said in a report.
  
  More write-downs could be in store outside the subprime sector, however, S&P cautioned.

And so the market rallied and finished the day strongly. Stocks Rise After S&P Report

CNBC has an article Market Acting Like a Bear, Even Though It's Not and on Financial Sense, market commentator, Gary Dorsch, talks about Global "Oil Shock" Rattles World Stock Markets. Gary's notes on Japan were most interesting.

• Traders are wondering whether Tokyo has adopted a new stance on the dollar/yen exchange rate, and is ready to live with a stronger yen to hold down the costs of imported food and oil. On Feb 22nd, BoJ chief a Toshihiko Fukui said he was paying close attention to how rising food and gasoline prices could affect personal consumption, which makes up roughly half of Japan’s economy. “A stronger yen will ease any negative effect from rising costs of crude oil and commodities,” he said.
  
  “The yen’s rise, a decline in the dollar, and rises in oil prices are beginning to have a negative effect on corporate profits,” warned Japanese Economics Minister Hiroko Ota on march 11th. The dollar slid as low as 99.77 yen, breaking below the 100 level for the first time since November 1995. Already this year the dollar has tumbled 10% against the yen, and is fast approaching the point at which many Japanese exporters say they won’t be profitable.
  
  The negative impact from a weaker dollar has already knocked the Nikkei-225 index 20% lower to a 2-year low. “The factors we must monitor with utmost caution in guiding monetary policy are stock and exchange rate movements,” said Bank of Japan member Atsushi Mizuno on Feb 28th. “If such high volatility continues, it could hurt the real economy through worsening corporate and consumer sentiment. Given that Japan’s recovery is an external-demand-led one backed by exports, downside risks are heightening on mounting risks to US growth,” he warned.

Back home, the early morning sexy story has got to be Bursa: Foreign buying of shares still strong

• FOREIGN investors are still strong buyers of Malaysian stocks, statistics from Bursa Malaysia show.
  
  In a statement, the local bourse said foreign investors' confidence and market integrity remains intact, and trading is recovering on a positive note following the circuit breaker which was activated on Monday.
  
  Upon resumption of trading after the circuit breaker, the market saw strong buys from foreign funds, accounting for some 51 per cent of total buys on the top 20 counters on KLCI during the final trading period.
  
  Total foreign buying for Monday was at 33 per cent, Bursa Malaysia said in a statement.
  
  Foreign buying improved for Tuesday and Wednesday, accounting for an average of 36 per cent and 53 per cent respectively of total buys on the top 20 KLCI counters.
  
  "Up to February of this year, foreign trading on all counters was at 43 per cent whilst last year, we recorded an average of 37 per cent in foreign trading.
  
  "This indicates that foreign investor activity has not only returned to normal, it is increasing as the market provides choice pickings on strong fundamental stocks," chief executive officer Datuk Yusli Mohamed Yusoff said.
  
  He said while global market situations will have an impact to our market, Malaysia's fundamentals are strong.
  
  "Clearly, foreign investors' confidence in the market remains intact," added Yusli.

And the morning clip comes from PeG

Don't Look At The Rear Mirrors!

Look ahead, look for the next big thing and not look at the rear view mirror! So says Dr. Marc Faber, in the following article, Spotting bargains in bombed-out markets

• The celebrated contrarian Dr. Marc Faber suggests that it is always an error to go looking for bargains in sectors that have recently boomed. His argument is that yesterday's hot pick almost never bounces back far enough for a good investment, and that you should always look for the next big thing.

He explains..

• No, what you really want to find are market anomalies created by the financial crisis in sectors that are on the way up.
  
  For instance, if Wall Street takes another tumble when a US recession is finally and officially declared then you could find an asset sell-off across the board that produces some excellent bargains.
  
  That is what the world's richest private individual Buffett means when he says that shares are not cheap enough yet. So this is a good time to draw up a hit list of stocks that you would like to own and wait for the right moment to buy, most likely when there is a serious slump on Wall Street.
  
  The good will get dragged down with the bad. And probably the best approach will not be to buy former boom stocks like real estate and the financial sector but to try to spot the next big investment opportunity.
  
  These frequently flow from what has gone before. The housing bubble followed the tech crash because interest rates were slashed to support the economy. In turn the tech bubble followed the loosening of liquidity to meet the Asian financial crisis of 1998.
  
  Therefore you might ask: which sectors will benefit from the massive liquidity injections now being administered by the central banks to deal with the financial crisis?

Make sense?

OneRepublic - Apologize!

Another US Fund Sank

And this wasn't good for the Asian markets.

• Asian markets sank Thursday with investors spooked by news that a major U.S. fund, Carlyle Capital, expects its lenders to seize its assets and cause its likely liquidation. Carlyle Capital is an affiliate of private equity firm Carlyle Group.
  
  Carlyle said it has defaulted on around $16.6 billion of its debt and said the only assets held in its portfolio as of Wednesday were U.S. government agency AAA-rated residential mortgage-backed securities. During the last seven business days the company had received margin calls in excess of $400 million. Carlyle was unable to pay the margin calls, so its lenders had proceeded to foreclose on the mortgage-backed securities collateral. ( link here )

In another Bloomberg article, Carlyle Capital Lenders to Seize Assets `Promptly'

• Carlyle Group's mortgage-bond fund, which received more than $400 million in margin calls since March 5, said it was unable to reach an agreement with lenders, who will ``promptly'' take over all of its remaining assets.

And of course there is more to come.

• ``Carlyle won't be the end of it,'' said Greg Bundy, executive chairman of Sydney-based merger advisory firm InterFinancial Ltd. and a former head of Merrill Lynch & Co.'s Australian unit. ``There's more to come. The problem is no one can give you an educated guess about how much.''

What was interesting was the following.

• The blowup is a rare setback for Carlyle Group co-founder David Rubenstein, who created the fund and tapped public markets for $300 million last year to expand the Washington-based firm beyond leveraged buyouts.
  
  The fund originally delayed and then cut the size of its IPO by about 25 percent as the subprime contagion began. It then added the money raised in July 2007 to a private $590 million pool opened in 2006. For every dollar of equity, the pool borrowed $32.
  
  ``It was a poorly conceived fund launched at the worst time,'' said Toby Nangle, a member of the strategic policy group at Baring Asset Management in London, which manages $55 billion.
  
  Carlyle's fund has said its so-called agency debt has an ``implied guarantee'' from the U.S. government.

See also Carlyle Fund's Assets Seized

Doubting The Feds

Asian markets aren't doing well at the moment.

• Asian stocks continued to face heavy selling in the afternoon session Thursday, weighed down by doubts whether the latest effort by the U.S. Federal Reserve to ease credit market problems would provide a lasting solution. The Fed and other central banks teamed up to inject hundreds of billions of dollars in new funds into ailing credit markets. But many investors remain skeptical that the move would solve the fundamental problems faced by credit markets which have rattled financial markets and threatened global economic growth. Those doubts pulled U.S. shares lower on Wednesday, a day after the market posted its best day in five years.
  
  A jump in oil prices to a record above $110 a barrel also raised fears of more strains on consumer spending and corporate profits, further dampening sentiment. ( source: here )

How?

Are the markets worried about the lower-high issue mentioned in Morning Notes: 13th March 2008 or we looking at yet another consolidation day?

Morning Notes: 13th March 2008

My Dearest MooMooCow,

After the massive, massive rally, the stocks in the US consolidated. Stocks can't do 2 in a row

• Stocks tumbled Wednesday, erasing gains at the end of an otherwise upbeat session, as record oil and gas prices countered an attempt to rally for a second session in a row.
  
  The Dow Jones industrial average (INDU) lost 0.4%, the broader Standard & Poor's 500 (SPX) index lost 0.9% and the Nasdaq composite (COMP) lost 0.5%.

Some optimism are noted

• "I think the market is handling itself pretty well, considering that it's managing to hold on to most of yesterday's gains while combating oil at $110 a barrel," said Peter Cardillo, chief market economist at Avalon Partners.

And of course the pessimists are calling one to beware the sucker's rally

On the technical side, here are some comments worth noting. From Trader Mike

• We can chalk today up as just a consolidation day. Volume contracted today, which is just what you’d expect from a consolidation day. However, the failed intraday rally has to be a bit of a disappointment to the bulls. That rally didn’t quite reach the March highs, so, on a daily basis, the market’s still making lower-highs. So it seems to me that the line in the sand is now right around the March highs. The bulls need to break those highs so that yesterday isn’t seen as just a one-day Fed induced buying panic.

Lower highs aren't a good indicator at all. Which is why Kirk is afraid that the S&P would continue its current trend of reverting back to the same old downtrend. Simple chart of S&P posted by Kirk says it all here.

However, Kirk points out the important issue that Uncle Bennie has another performance next week.

• The big question now is whether we'll see the "rally into Ben" trade that has worked so well in the past with the Fed meeting next week. As they say, let's take it one day at a time.

Last but not least, Financial Sense market commentator's piece, Housing Update: Houston, We Have Lift Off is worth a read.

rgds

More Market Comments

Posted on Singapore Business Times:

• Aberdeen Asset Management, which manages more than US$40 billion in Asian ex-Japan stocks, said it continued to overweight Malaysia and favoured financials such as Public Bank.
  
  'It's not as if the government has changed. The mandate is much weaker than previously, but it doesn't change the fundamentals and growth rates,' said Aberdeen investment manager Andrew Gillan, whose other picks included retailer Aeon and food and beverage firm Fraser & Neave Malaysia.
  
  'We think the market overreacted,' said Eubee Ong, a fund manager at Phillip. 'The political situation is still very stable. In 1969, there were riots when the opposition won big, this time it went smoothly.'
  
  Fund managers were, however, less bullish on palm oil producers such as IOI and Sime Darby as valuations remained relatively high despite Monday's selldown.
  
  'Commodity plays are the most attractive sectors, but they are also the most expensive,' said Leslie Phang, head of investments at Schroders Private Clients in Singapore. 'Our preference is to own the underlying physicals rather than stocks.'
  
  Mr Phang and other fund managers said investors will continue to shun developers and construction firms, in particular those with projects in Opposition-controlled states, such as Equine Capital.
  
  'There is ambiguity regarding the actual implementation of previous decisions made by the government,' said David Ng, who helps manage RM6.1 billion (S$2.64 billion) as chief investment officer of HwangDBS Investment Management.
  
  These projects include the Northern Corridor, which will link the Opposition-controlled state of Perak to other northern states and a bridge to link Penang island to the Malaysian mainland.
  
  Mr Ng and other investors also cited possible delays to hikes in electricity tariffs and a reduction in natural gas subsidies that would dent earnings at firms such as power generator Tenaga.
  
  Deutsche Bank said in a note to clients it expects the proposed tariff review to be delayed until 2009.
  
  However, looking further ahead, investors said the election setback may be the catalyst to force badly needed political reform in Malaysia, which would involve modifying policies that discriminated against the country's minority Chinese and Indians.
  
  'Prime Minister (Abdullah) Badawi has acknowledged electoral discontent and how divisive cultural differences have become,' said Stephen Corry, investment strategist at Merrill Lynch's private bank.
  
  'Mr Badawi's priority and emphasis is now to unite Malaysia with a clear objective emphasis to grow the economy and open up further to foreign investment. This, if it happens, has to be a positive,' Mr Corry said.

Macam Mana Ni?

Jim Rogers Would Abolish The Fed And Resign!

The day after the Fed calvary came and the markets having their best day in five years , Jim Rogers is mighty annoyed!

Speaking to CNBC Europe

• Asked what he would do if he were in Bernanke's shoes, Rogers, who slammed the Fed for pouring liquidity in the system and accepting mortgage-backed securities as guarantees, said: "I would abolish the Federal Reserve and I would resign."
  
  If this happened, "we don't have anybody printing money, we don't have inflation in the land, we don't have a collapsing U.S. dollar"

Jim Rogers blasts the Fed by defining its actions as socialism for the rich!

• "No country in the world has ever succeeded by debasing its currency," he said. "That's what this man is trying to do. He's trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term."
  
  The Fed's move to accept risky collateral is not part of the central bank's business, he added.
  
  "What is Bernanke going to do? Get in his helicopter and fly around the world and collect risk? That's absurd," Rogers said.
  
  A recession may be a good way to clean up the economy, while trying to prevent one may cost more and actually worsen the recession, Rogers said. Also, investment banks should be allowed to fail.
  
  "Listen, investment banks have been going bankrupt since the beginning of time. If people make mistakes -- if you bail out every investment bank that gets in trouble, that's not capitalism, that's socialism for the rich," he said.
  
  The weakest financial institution is Fannie Mae, in Rogers' opinion, "but all of them have problems."

Crucialy, he states his vested current interest and makes recommendation on agricultural commodities.

• He said he had a short position on all investment banks and is buying agricultural commodities such as cotton, wheat, coffee and sugar and was also buying the Chinese yuan and the Japanese yen.
  
  "Buy agriculture. Agriculture is one of the few places where you're going to make a fortune in the next years," Rogers said. ( source of article here )

By the way, Slowday asked me, Who Wants To Be A Billionaire!

So what did Credit Suisse said?

Got a copy of Credit Suisse report today. I was interested to read their opinions on our markets.

Here's a snippet of what's said.

• The market appears to have ignored the government.s continued control of parliament, with its 63% majority. Parliament now has an intelligent & eloquent opposition who will get heard.
  
• We believe the opposition success was an .accidental. result due to a coincidence of protest votes by Malaysians of all races.
  
• The opposition is an uncomfortable alliance held together by Anwar Ibrahim. The first act of the PKR controlled Selangor state government has been to declare the state an .NEP-free. zone.
  
• It has so far been a peaceful process. The fighting will begin when opposition state governments interfaced with the coalition controlled federal government, causing transaction delays.
  
• It is possible for the opposition to take control of parliament if it can persuade 30 MPs to defect or if invited back into UMNO.
  
• The ruling coalition must reform to survive, in our opinion. It has, again, been given the mandate to do this. All eyes will be on PM Badawi.s cabinet line-up as to whether he is listening this time.

Market over-reacted
You would have thought there had been a military coup in Malaysia if you had simply observed the one-day 10% drop in equity prices following the general election. The fact that the ruling coalition retains a 63% majority in parliament appears to have been over-looked.

Why did the government do so badly?
In our view, it was an .accidental. result. Malaysia.s politics has historically been race based. The ruling coalition is dominated by Malays who have historically persuaded the Chinese & Indian minorities to support them as a better option to the obvious alternative, which is an Islamic government. In our view, protest votes by all three ethnic groups accidentally coincided to produce meaningful success for the opposition.

The Malays were generally unhappy with the level of obvious corruption (ironically visible due to a more liberal press) and inflation. Anwar Ibrahim was effective at hustings, by asking the crowd .hands up who has received a government contract?. He effectively used this to demonstrate that the government.s policy of affirmative action (NEP) has only served to enrich the political elite. The opposition also made the very safe, but popular, promise that they would reduce the price of petrol.

The Chinese were generally unhappy with the overt racial harassment evident at the UMNO assembly when the UMNO youth leader waived a dagger (kris) in a statement of defence of Malay rights. The Indians were generally unhappy. Having taken to the streets in protest over their economic marginalisation, the government responded with riot police & liberal use of the internal security act.

Who is the opposition?
The opposition is a disparate group comprising three parties, namely Anwar Ibrahim.s multi-racial justice party (PKR) which won 31 seats in parliament, the Chinese dominated DAP which won 28 seats in parliament and PAS, the Islamic party, which won 23 seats in parliament. The opposition won 5 of 13 states, with PKR dominating in Selangor, DAP dominating in Perak & Penang while PAS dominated in Kelantan & Kedah.
PKR, being a multi-racial party has to act as a unifying force within the opposition coalition. PAS has moderated its religious stance significantly due to the infusion of young blood, while DAP has always focused on protecting Chinese rights. While intellectually capable, it will not be an easy task. Indeed, it is fair to say that the opposition is probably not prepared for government.

An end to affirmative action?
The Anwar led PKR has already declared Selangor an .NEP-free. zone. He has long maintained that affirmative action should be for the benefit of all lower income Malaysians, regardless of race. While NEP reform has always been perceived to be an election loser, Anwar appears to have found an appealing angle to it which potentially could unlock Malaysia from this historic economic burden.

Business as usual in parliament, almost The ruling coalition still has control of parliament and therefore over the economy. This includes federal initiatives such as the GLC transformation process and other projects funded and driven at the federal level, such as the IDR in Johor. The main difference is that there is a meaningful, highly educated and eloquent opposition who will provide a check and balance in Malaysian politics that has been absent for years. This should help curb the excesses of the past.

A peaceful revolution, but the fighting has yet to begin All parties have reacted with great restraint folowing the shocking election result, such that there has been no violence. This is partly as a result of each race believing that it has secured election victory.

The real fight begins when opposition state governments have to interface with the coalition controlled federal government. There is real risk that each side may try & thwart the endeavours of the other party, in order to score points. This may cause delays in implementation of certain infrastructure and property projects and transactions given that land and water matters are controlled by the state.

Can the opposition ever gain control of parliament?
The key for control of parliament lies in East Malaysia, where Sabah & Sarawak contribute a whopping 25% of seats in parliament. If Anwar can persuade just 30 MPs to defect, then he would have control. It is always possible that Anwar could be invited to re-join UMNO (for the sake of unity) a possibility denied by all parties, but never say never!

What next for the ruling coalition
The ruling coalition must reform to survive. This election result again gives PM Badawi (or his likely successor Najib) the mandate to do just that. All eyes will be on his cabinet line-up to determine if he is listening. We would expect all .bad news. to be deferred for the moment, such as energy price increases.

Local Spices For the Morning!

Time to spice up our life with some local news.

Spice Girls - Spice up your life


First we have the Puncak Niaga's deal.

• PUNCAK Niaga Holdings Bhd yesterday announced to Bursa Malaysia that it has been appointed to operate and manage the Sungai Sireh water treatment plant operation for 27 years commencing April 1 last year. The operation and maintenance (O&M) agreement was entered with the Selangor state government on March 7 2008, just a day before the national election. Puncak Niaga in its filing also said that it has entered into a novation agreement with the state government and Syarikat Bekalan Air Selangor Sdn Bhd in relation to the assumption of all the state government's rights, benefits, liabilities and obligations under the Sungai Sireh O&M Agreement by Syabas.

How?

And how the morning chatter loves this miracle deal.

• Puncak Niaga (6807.KU) may rise to test MYR3.42 resistance (Monday's peak) vs Tuesday close at MYR2.98 (down 6.2%) on expectation of better earnings prospects, dealer says; follows water utility company saying unit Puncak Niaga (M) secured water concession from Selangor state government to operate, manage and maintain a water treatment plant. The concession, which started April 1, 2007, will expire April 30, 2034. "This 27-year contract basically guarantees Puncak Niaga's earnings in the long-term and increases earnings visibility," says dealer. Adds, announcement may also help alleviate recent fears change in Selangor state government may stall ongoing plans to improve infrastructure and delivery of treated water in Selangor state

And here are some local comments on the market again.

• TA Securities technical analyst Stephen Soo told StarBiz it would be very tough for the KL Composite Index (KLCI) to breach the 1,300-point level over the near term.
  
  “The market has experienced a 'dynamic change' with the possibility of reviews for projects previously awarded, as well as potential for open tenders for pending projects,” he said.
  
  The market would be testing the downside to rebuild its base with the support levels for the KLCI being 1,141 and 1,090 points, which were the significant March and August lows of last year, he said.
  
  Going forward, Soo advises investors to expect market volatility tied to further deterioration in the US economy and financial market.
  
  The US market had not bottomed out yet, which increased the risk of more downside volatility, he said.
  
  “Investors should remain defensive and still stick to oil and gas and commodities-based sectors, as we believe that these will continue to do well this year,” he said.
  
  The construction sector that faced the possibility of review of projects by the new state governments, together with the banking sector which would also be indirectly affected, could see stock re-ratings, he said.
  
  In the medium term, Soo estimates a support level for the KLCI at 1,050 points.
  
  Soo saw yesterday's market rebound as a “relief rebound” in reaction to Monday's sell-down rather than a possible up-trend.
  
  Another chartist at a local bank-backed research outfit concurred, saying the KLCI was experiencing a technical rebound yesterday, but saw the market heading for a long downtrend.
  
  “Though the fall in the market has been drastic following the (unexpected) election result, the index is still trading below the 200-day moving average and the indicators don't point to a quick rebound.”
  
  The analyst feels that external factors will affect Asian markets that are far from being decoupled from the US market.
  
  “With oil prices above US$107 a barrel, and wheat and bread prices rising, the US consumer is facing rising costs together with a weakening economy,” he said, adding that investors were awaiting the outcome of the US Federal Reserve's Federal Open Market Committee meeting on March 18.
  
  The lowering of US' interest rates had not provided much support for its financial markets, he said.
  
  “Since mid-September last year, the market continued to fall after each rate cut,” he said. This meant the problems in the US could be worse than previously thought.
  
  Further uncertainty could be expected when the US holds its presidential elections later this year.
  
  “If the US is experiencing a financial tsunami now, the US market will also see an election tsunami later this year as investors hold back to see if they should continue investing in defence-related stocks or switch to other sectors,” he said

Morning Market Chat: 12th March 2008

The calvary came and it had helped send the stocks sharply higher!

• The Dow Jones Industrial Average closed up 3.6 percent, or 416.66, the index's fourth-largest point gain on record. The Dow and Nasdaq posted their biggest one-day percentage gains since March 2003. For the S&P 500 index, it was the biggest percentage jump since October 2002.

Essentially as mentioned in the earlier blog posting, Here Comes The Calvary!

• The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS.

And what it does essentially can be best described in the following article on CNBC, How the Fed's Move May Affect Your Mortgage

• "This is big," Art Cashin, director of floor operations at UBS, told CNBC. "The [Fed] helicopter is up in the air ... and it's about to rain down money on lots of places." Cashin attributed the market's reaction to short covering.

So how? Here's link to what CNBC's Bob Pisani had to say

• But traders resorted to selling financial stocks midday -- a strategy which has worked for two months -- and the markets briefly dipped before recovering and closing near the highs. For the Dow, it was the biggest percentage gain in five years. The question now is, have we broken the cycle of selling any rally? ( See Has Market Broken 'Sell Any Rally' Cycle? )

Looks like we will have the strong counter trend rally as mentioned by Kirk.

And with the local stocks rallying strongly yesterday, The Day After The Plunge!, what do you say about Taking Chances?

Taking Chances - Music Video Celine Dion



Alone and Taking Chances - Live - Saturday Night Divas

Here Comes The Calvary!

Fed Leads Coordinated Move to Boost Liquidity ( link here )

• The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS.
  
  The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.
  
  In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.

And the reaction so far? Stock Futures Soar on Fed Liquidity News

The Day After The Plunge!

The active stocks.



Top Gainers!

Meat Loaf - It's All Coming Back To Me Now

Some comments from S'pore Business Times

• S&P sees Malaysian deficit widening
  
  This could happen if govt fails to raise fuel prices after poll setbacks, it says
  
  (SINGAPORE) Malaysia's budget deficit may widen if the government fails to raise fuel prices after losing its two-third majority in Parliament in weekend elections, according to Standard & Poor's (S&P).
  
  South-east Asia's third-largest economy also faces the risk that private investors will 'stand aside' amid concerns about the nation's political stability, said Sani Hamid, S&P's director of sovereign ratings on Malaysia.
  
  'This is something really new,' he added.
  
  Malaysia's ruling Barisan National coalition suffered its worst defeat since the nation's independence in 1957, winning 63 per cent of the legislature compared with 91 per cent in 2004. It is also now out of power in five of the country's 12 states.
  
  'We will be watching to see if the government's plans for investments in the northern corridor will fall through now that the states involved there have lost out to the opposition,' Mr Sani said.
  
  Prime Minister Abdullah Ahmad Badawi's government last July said it expects to generate RM177 billion (S$76.8 billion) of investment by 2025 to spur growth in the country's northern states. The northern corridor includes Penang, Perak and Kedah, three states that fell to opposition parties in this election.
  
  'We will be watching closely for any significant policy changes or potential impediments to the policy-making process and passing of legislation,' said Elena Okorotchenko, S&P's senior director for Asian sovereign ratings in Singapore.
  
  Still, Ms Okorotchenko said the weekend election result would have 'no immediate impact' on Malaysia's credit rating.
  
  S&P has an 'A-' rating on the country's long-term foreign currency debt with a positive outlook. Its last revision was in July 2007, when it raised the ratings outlook to positive from stable.
  
  S&P said it will be monitoring Malaysia's budget deficit, especially fuel subsidies.
  
  'If oil prices stay above US$100, the budget deficit will definitely widen if the government can't pass on some of these costs to the public,' Mr Sani said. He warned that Barisan National's reduced majority in Parliament could make it harder for the government to cut fuel subsidies to keep the budget target on track.
  
  Mr Abdullah's government aims to trim the budget shortfall to 3.1 per cent of gross domestic product this year from 3.4 per cent in 2007. The government spent RM35 billion in subsidies to keep fuel prices low last year. A pledge not to increase fuel costs expired at the end of 2007\. \-- Bloomberg

And

• Malaysian economic outlook uncertain after polls shock: analysts
  
  KUALA LUMPUR - Malaysia's shock election results, which have left an untested opposition ruling key states, have raised fears over economic growth and investment prospects, analysts said on Tuesday.
  
  The stock market plunged 9.5 per cent on Monday in a panicky reaction to the gains by the opposition, which on Tuesday moved to reassure investors that it would implement 'business-friendly' policies.
  
  Economists said growth could be affected if the new coalitions running five states clash with the federal government over planned infrastructure mega-projects and funding allocated under a national development blueprint.
  
  But they said that while the stock market will remain under substantial short-term selling pressure, when the political dust settles it could reveal a brighter future under a revitalised government.
  
  In Saturday's watershed elections, the Barisan Nasional coalition failed to secure two-thirds of the vote for the first time in almost 40 years, and conceded four states to the opposition in addition to one it already held.
  
  They include Selangor and Penang - Malaysia's most developed and industrialised states which account for nearly half the national economy.
  
  A funds manager with an insurance firm said the changeover could derail contracts that have already been awarded, and jeopardise the government's stated plans to lure billions of dollars in investment to Malaysia's regions.
  
  'The country's political risk premium has gone up a few notches because of the uncertainties. Land approvals are handled by the states. The fear is that projects could be scrapped,' he told AFP on condition of anonymity.
  
  Credit Suisse analyst Stephen Hagger predicted a bearish mood on the local bourse until questions over beleaguered Prime Minister Abdullah Ahmad Badawi's future are resolved.
  
  'Malaysia will be dead money until there is some political clarity that emerges over the next six to 12 months,' he said.
  
  Foreign research firm Merrill Lynch said the negative reaction on the stock market, which staged a partial recovery on Tuesday, was due to an expected slowdown in the decision-making process with a strong opposition in parliament.
  
  'There will also be some short-term uncertainties with regards to investment growth especially in states which are now held by the opposition parties,' it said.
  
  Anwar Ibrahim, the former deputy premier who rallied three opposition parties to the resounding election result, said on Tuesday that there could be a review of state projects.
  
  'We will have to respect the existing agreements. But where adjustments are required, we have to look at it, especially those that imposed hardship to the people,' he told reporters.
  
  He nevertheless downplayed concerns projects could be cancelled.
  
  'I may be in the opposition but I will not sacrifice the economic performance of this country. I assure that we will be market friendly and implement all the initiatives (of the previous administration),' he said.
  
  'The country should be stable and we should be able to instill confidence among domestic and foreign investors.' -- AFP

Market commentaries from Dow Jones

• KUALA LUMPUR (Dow Jones)--Malaysian stocks staged a mild recovery Tuesday after a 9.5% plunge Monday, helped by a technical rebound and gains in regional markets.
  
  However, analysts said the market's rebound may be short-lived due to prevailing political uncertainty and a slew of downgrades by brokerages and research houses after the ruling coalition Barisan Nasional emerged weaker from a poll Saturday. In an unexpected result, the ruling coalition failed to garner a two-thirds majority for the first time in four decades.
  
  The benchmark Kuala Lumpur Composite Index ended up 2.8% at 1206.54, to close off an intraday high of 1211.75 points at the midday break, led by gains in shares of construction, plantation and government-linked companies.
  
  The modest recovery in equities helped the Malaysian ringgit to close marginally firmer at MYR3.2030 against the U.S. dollar from Monday's two-week low of 3.2020.
  
  Several houses have already slashed their market forecasts. AmResearch lowered its fair value for the KLCI to 1,300 from 1,590; Aseambankers reduced its year-end target to 1,350 from 1,450; OSK shaved its year-end target to 1,340 from 1,650 and CIMB cutting its year-end target to 1,380 from 1,700 previously.
  
  "Investors should avoid getting distracted by taking trading positions until the dust settles," said Citigroup Malaysia's Head Of Research Choong Wai Kee in a report Tuesday. "We advocate a strategy of staying focused, targeting just blue chips. Our picks are Telekom Malaysia, IOI Corp, Public Bank, Malayan Banking and Resorts World."
  
  ING Funds (Malaysia) Head of Investment Wu Yah Ning is less bearish on Malaysian equities.
  
  "We expect some degree of volatility in the near term but there's good value in this market. The KLCI is now trading at a price-to-earnings ratio of around 13 which is close to the lower end of its historical P/E trading band of 12 to 16 times," she said, maintaining a positive stance on plantation stocks and oil and gas related companies for solid earnings growth.
  
  Edward Ong of Macquarie Research also maintained his positive outlook for Malaysian equities.
  
  The ruling coalition's "loss of a two-thirds majority is likely to be perceived as negative in the short-term but this could also mean stronger checks and balances, particularly in terms of constitutional changes, and potentially spur reform in the medium term," Ong said in a note.
  
  "In the larger context, with ongoing global liquidity contraction, we foresee more potential multiple contractions in the short term. This would be amplified by the recent election results, which would also dent market sentiment in the immediate future," he said.
  
  Among the biggest gainers, IOI Corp added 3.8% to close at MYR6.90, Sime Darby rose 4.3% to MYR9.80, Bumiputra-Commerce Holdings gained 6.3% to MYR9.35 and property concern Equine Capital jumped 31.7% to 93.5 sen.

How Now TK?

The market, it rebounded!

Meat Loaf - Alive!


Here is a snippet from Dow Jones.

Mild Recovery? Market at this moment of time is up 24.68 pts! Mild?

• Malaysian stocks staged a mild recovery Tuesday from yesterday's 9.5% plunge, helped by a technical rebound across all sectors, although analysts warned that market uncertainty is likely to continue.
  
  "We see the sharp correction as a buying opportunity. In our view, Malaysia's economic and corporate fundamentals remain intact," said UBS analyst Colber Nocom in a note, adding that near-term uncertainty is likely and the KLCI will test support at 1,170 points in the coming months.
  
  At the midday break, the benchmark Kuala Lumpur Composite Index was 2.1% higher at 1197.90 points, off the intraday high of 1211.75, led by gains in shares of construction, plantation and government-linked companies.
  
  The Malaysian ringgit also staged a slight recovery, recently trading at 3.2000 against the dollar, strengthening from yesterday's intraday two-week low of 3.2090.
  
  Stocks rebounded from yesterday's plunge to a seven-month low of 1173.22 when the market reacted negatively to the weekend's general election results.
  
  Still, dealers remained cautious, warning strong selling pressure may emerge in late afternoon trade as investors sell into strength and stay on the sidelines.
  
  "Investors should avoid getting distracted by taking trading positions until the dust settles," said Citigroup Malaysia's Head Of Research Choong Wai Kee in a report Tuesday. "We advocate a strategy of staying focused, targeting just blue chips. Our picks are Telekom Malaysia, IOI Corp, Public Bank, Malayan Banking and Resorts World."

Other news clip showed that Macquarie Resarch been positive.

• Macquarie Research remains positive on Malaysia equities despite ruling coalition Barisan National failing to win two-thirds majority; analyst Edward Ong says market may impute higher perceived risk factor in immediate term but BN still retains power with simple majority. "Its loss of a two-thirds majority is likely to be perceived as negative in the short term but this could also mean stronger checks and balances, particularly in terms of constitutional changes, and potentially spur reform in the medium term"; elections a victory for democratic process and opposition wins demonstrate election process is transparent and fair. Adds, potentially lower petrol and diesel subsidies could delay public transport infrastructure spending; Northern Corridor Economic Region plan could also be reassessed after loss of 3 states in north, potentially raising perceived risk for construction firms. Likes DiGi.com (6947.KU), Maybank (1155.KU), Genting (3182.KU), KL Kepong (2445.KU), AMMB (1015.KU) Telekom (4863.KU) Mah Sing (8583.KU) and Berjaya Sports Toto (1562.KU).(VGB)

From UBS:

• UBS tips Malaysian market's sharp selloff yesterday following election results as buying opportunity. "In our view, Malaysia's economic and corporate fundamentals remain intact. Barisan Nasional (BN) still controls 62% of Parliament and opposition parties have declared they will pursue market-friendly policies on states they control." Says post-selloff, Bumi-Commerce (1023.KU), IJM (3336.KU), UEM World (1775.KU) offer good value. Says in plantation space, Asiatic (2291.KU), IJM Plantations (2216.KU) look attractive. Says after revisiting EPS estimates, believes these companies should not be materially affected by political uncertainty.
• UBS says Malaysian market de-rating offers bargains. Says post-correction, three lowest-P/E stocks under coverage are Kinsteel (5060.KU) at 5.8X, Sunway Holdings (4308.KU) at 6X, and Sunway City (6289.KU) at 6.5X. "We think the sell-down on Kinsteel and Sunway Holdings have more than priced in earnings risk from potential delays in infrastructure spending." Notes highest dividend yield stocks under coverage now Gamuda (5398.KU) at 7.8%, Bursa (1818.KU) at 7.1%, Public Bank (1295.KU) at 7%. "Clarity on politics could trigger a rebound for the KLCI. While it is difficult to second-guess the political news flow, we think both BN and the opposition parties will unlikely want to see a sharp slowdown in economic activity in the near-term. Thus, we believe the political posturing on both sides could be short-lived." Says UMNO elections next key event to watch. KLCI up 2%.

Finally we are seeing more bullish statements on the planters (see HwangDBS goes Overweight on Planters) ! (Where were they when the CPO were above 4400?)

• UBS reiterates Buy ratings on Malaysian plantation stocks despite recent consolidation of vegetable oil prices. Notes palm, soybean oil prices have corrected sharply after hitting March 3 high, with consolidation initially sparked off by upward revision of Brazil soybean crop, news of Chinese canceling contracts; adds, unwinding of speculative long trades since then driving momentum. "While the current newsflow is negative, we think the demand-supply fundamentals remain supportive of price;" notes 2008 opening world inventory of soybeans down 15.4 million tonnes, or 25%, vs 2007. "The revision of 1.2 million-1.6 million tonnes in Brazilian soybeans does not in our view change a fundamental tightness in vegetable oil supplies globally in 2008." Tips attractive valuations on stocks; says Hap Seng Plantations (5138.KU) offers 6.9% net yield on FY2009 estimates, Sime Darby (4197.KU) trades at 12X FY09 earnings after falling 30%, IOI Corp. (1961.KU) trading at 22X earnings after falling 23%

Note how the planters fared this morning: Market firmer at midday, CPO surges

• Plantations were higher, led by Asiatic, which gained 50 sen to RM7.75, Sime Darby 35 sen higher to RM9.75 while United Plantations, Chin Teck and KL Kepong gained 30 sen each to RM13.60, RM7.30 and RM15.20 respectively. IOI Corp added 15 sen to RM6.80.

And the folks at Kuwait Finance House is rather positive with the market according to Business Times. ( see KFH maintains KLCI can hit 1,500 by year-end )

• Its optimism was based on Malaysia’s firm macro fundamentals, take-off of Ninth Malaysia Plan infrastructure projects, sustained corporate profit growth of 13 per cent and the stronger ringgit, KFH said in a review of the results of the election today.
  
  Despite the knee-jerk selling on the market, “we foresee strong fundamental support backed by the resilient economy,” the investment banker said.
  
  “We do not expect any change in the current macroeconomic policies such as monetary and fiscal policies as the Barisan Nasional remains the federal government despite the reduced majority,” KFH said.
  
  However, it reiterated its optimism that the 9MP infrastructure projects would be implemented as planned.
  
  Among them are the Iskandar Development Region, Eastern Corridor Economic Region, Sabah Economic Corridor and the Sarawak Corridor of renewable energy.
  
  “The victory for BN would also mean that the Prime Minister can continue with efforts on clamping down on corruption, improve the efficiency of public services, provide an enabling business environment for local and foreign investors and government-linked companies (GLC) restructuring,” it said.
  
  The ringgit is expected to hover at 3.16 this week at the expense of the dollar as the US Federal Reserve is widely expected to cut interest rates further.
  
  KFH said its sector pick included construction, infrastructure-related namely steel, cement and aluminium, property and real estate as well as GLCs.
  
  “We expect the economy to continue on a steady growth path, maintaining our gross domestic product growth of 5.7 per cent this year.” “Government initiatives to develop new economic growth areas will help to revitalise the economy and further raise domestic demand,” KFH said

However, RHB suggests one should go defensive in their strategy report this morning. Here are two screen shots.

Some interesting sector downgrades!

Meat Loaf - Couldn't have said it better!

HwangDBS goes Overweight on Planters

Got this copy of report on HwangDBS commentary on the plantation sector from a pal.

• OVERWEIGHT KLCI : 1,173.2
  
  A dichotomy in the making
  Trading at a deep discount. Plantation stock movements have recently been more akin to the broad market indices rather than their intrinsic values. This, we believe, might be due to reassessment of market risks and to a certain extent, fears that a weak US economy could translate into a correction in commodity prices. The fact is palm oil price momentum had remained strong relative to our assumptions. YTD CPO futures prices for March 2008 delivery averaged RM3,471/ton, even after accounting for the sharp correction in the past week. CPO prices may need to drop further to around RM2,800 to match our full year average of RM3,100/ton. But even based on these assumptions, plantation stocks are still trading at a deep discount. While it is true that most of the other stocks are also trading at attractive levels relative to our target prices, we believe that the gap for plantation stocks is too big to ignore.
  
  Well timed correction in CPO prices. We believe CPO futures’ recent surge past the RM4,200/ton mark had more to do with speculation of a jump in Chinese demand – largely following the soybean complex – rather than a significant jump in demand. Indeed, over the past six months, protests against rising food prices in several countries meant two things:
  
  1. The governments of consuming countries would have to better manage supplies of oilseeds and vegetable oils to cushion the external price shocks (refer to our Plantation Sector report dated 14 February 2008); and
  
  2. Excessive price drops are unlikely, since demand should pick up again as soon as that happens. In the near term, CPO and soybean oil prices may have some more room to correct because their prices have moved ahead of other vegetable oils. But to the same level of YTD appreciation of competing oils, primarily rapeseed oil.
  
  IOI Corporation is an integrated plantation with one of the highest yields in Malaysia, one of the largest oleochemical manufacturing capacities in the world, and recently expanded into Indonesia. IOI is favored for its active capital management and ROE in excess of 20%
  
  IJM Plantations is a large-cap pure plantation play operating in Sabah. It has 57,472 hectares of plantation landbank – around 26,500 hectares of which are located in Kalimantan, Indonesia.
  
  KL Kepong’s management is known to be conservative. Growth for this stock had been gradual but steady. KLK has a strong balance sheet and is expected to have net cash of RM720m (67 sen per share) by end FY08F for future expansion.
  
  Sime Darby is a GLC conglomerate with businesses in plantations, property, heavy equipment, motor vehicle, energy and utilities. It is the largest listed by planted area, largest property by landbank and potentially the owner of Bakun Hydroelectric Plant
  
  TSH Resources is a small cap play benefiting from aggressive acquisitions in Indonesia since 2004 that provided immediate volume growth. TSH earnings are also from wood flooring, cocoa processing, carbon credits, and a 800k MT p.a. refinery (50:50 JV with Wilmar).

Here is a snapshot their price targets.

• Reiterate Overweight call. We are keeping our CPO price forecast of RM3,100/ton for this year, RM2,800/ton for next year and RM2,650/ton for 2010. Bear in mind that our valuations are based on DCF from FY09F onwards. This means that the current share prices are implying bleak CPO price outlook and ignores long-term earnings expectations from volume growth.
  
  We maintain our Overweight rating for the sector, as we do not expect plantation operations to be affected by the outcome of the election; the main drivers remain global pricing and export-driven volume growth.
  
  Following the recent drop in share prices, all the plantation stocks under our coverage are trading at deep discounts to their respective fair values. IOI Corporation’s valuations are undemanding, while KL Kepong and IJM Plantations look attractive given that they should book good earnings over the next four quarters. We also upgrade Sime Darby to Buy (from Hold) as the share price has dropped by 21.7% since we downgraded the stock to Hold on 28 February. Our price target is now adjusted to RM12.40 from RM12.60, after factoring in lower multiples for property (down to 10x from 13x) due to potential delays in project launches and the impact of its current litigation case in Indonesia, which we estimate could cost the company RM122m (c. 4% of FY08F earnings). We believe the discount that Sime Darby is trading at now is too large to ignore. For small caps, we still like TSH Resources.
  
  For Singapore, we are reiterating our Buy call for Wilmar International; and for Indonesia, we recommend Bakrie Sumatra Plantation and London Sumatra Indonesia for significant upsides to our target prices

Game of Love - Santana featuring Tina Turner!

Morning Market Notes: 11th March 2008

Santana Featuring Chad Kroeger - Into The Night
The US Markets closed much lower again: Stocks stumble on recession fears

• NEW YORK (CNNMoney.com) -- Stocks closed lower Monday, the third day in a row, amid signs that the financial services sector could see more writedowns and concern that upcoming economic reports will point to recession.
  
  The Dow Jones industrial average (INDU) fell nearly 1.3%, falling to its lowest level since Oct. 3, 2006.
  
  The broader Standard & Poor's 500 (SPX) index lost 1.55%, putting it at its lowest level since Aug. 14, 2006. The Nasdaq composite (COMP) was nearly 2% lower, its worst level since Sept. 8, 2006.
  
  Stock losses were broad based Monday with 26 of the Dow 30 declining. McDonald's Corp led gainers while banking giant Citigroup (C, Fortune 500) led decliners.
  
  Meanwhile, oil prices surged Monday setting a new closing record of $107.90 a barrel and gas prices appeared set to break their previous record of $3.227 a gallon at the pump.

And market strategist doesn't reckon the bottom as been seen yet. Here are some reasons posted in a CNBC article.

• "Even statistically, we're knocking on the door of a bear market," Putnam's Jeff Knight said. "I think that's probably the right frame of mind, frankly, to approach portfolio strategy for the near term."
  
  "We're in a bear market, you bet, because the credit markets are in disarray, and until the credit markets get some smblance of normalcy, I don't see how the stock market can have any kind of sustained rally," Rich Bern of Performance Trust Capital said.
  
  "My biggest fear is that credit is not going to be available to worthy borrowers," Scott Wren of A.G. Edwards told CNBC.
  
  James Paulsen of Wells Capital Management is already looking past the near term.
  
  "I just think the downside from here is getting more and more limited," he said. "We've had a lot of discounting already in the price of the stock market."
  
  He encouraged investors to look ahead 12 to 18 months.
  
  Berg indicated that's not a popular view, especially among the experts.
  "The major risk takers don't want to take risks," he said. "You can throw all your rational market strategy out the window right now."
  
  Wren doesn't expect to have to wait a year or a year and a half.
  
  "We're expecting some easing in the tightness of this credit over the next four to six months," he said. "We're expecting the market to anticipate growth in the second half and a better `09. The market's going to turn higher long before this slowdown...is over, and I think you're going to see the results of that in a pretty big way by the end of 2008."
  
  He urged investors to change their portfolios to a more cyclical orientation over the next few months.
  
  Knight doesn't even see conditions right for investors to go "bottom fishing."
  
  "There's a lot of capitulation to go," he said.
  
  He encouraged investors to be diversified, even if it means "defying the normal cyclical playbook."
  
  "In the really big picture, we've had wealth in terms of real estate and financial markets outpace GDP for a long time, and I think those things are coming together," Knight said. "It's not necessarily `buy the dips,' it's more `construct a wealth-building strategy around the broadest array of asset classes, including active strategy as well as market exposure."
  
  And in the midst of all the bearishness, Barry James of James Advantage Funds sees the prospect of a rally.
  
  "Within every bear market, there are rallies," he said. "They kind of come out of the blue."
  
  He said his research is "4-to-1 positive" for the short term, but he warned that it's not a time to be loading a portfolio with stocks.
  
  "Within that phase, it probably will be pretty smart for folks to start cutting back on equities," he advised. (hsource of article )

In the blog sphere, Dr.Brett has posted his indicators for the day here: Indicator Update for March 10th. Trader Mike notes the relative mild volume and the lack of fear. hmmm..

• We had another meltdown on mild volume today. The Nasdaq made a new 18-month low today and the S&P is just a few points from doing the same. Despite the ugly price action I’m not seeing much fear. The VIX is about 20% beneath its January peak and volume shows no sign of panic.

No panic? Well over at Bespoke Investment it's noted that the amount of shorts has increased.

• As reported last week, short interest on the New York Stock Exchange rose to a record high last month to 14.4 billion shares. Looking at the S&P 500 and its ten sectors, we calculated the percentage of each stock's float that was sold short. For the S&P 500 as a whole, the average stock in the index has 5% of its float sold short. Not surprisingly, the Consumer Discretionary and Financials have the highest percentage of their floats sold short (8.12% and 6.11% respectively). ( link )

And blogger Kirk reckons that there's even a chance for a counter rally ( see here )

Market commentator, Rob Kirby, piece for Financial Sense market wrap is definately worth a read, The World's Worst Kept Secret. Well the part where he speaks about how the Silver market traded was certainly most enlightening.

• So, when we see market movements like this one in the silver market – with no discernable reason – that we were ‘treated to’ this morning:
  
  
  
  Odds are, we’ve been witness [or victims, perhaps?] to what Bill Gross terms “a crafty dodge” or worse.
  
  What folks would be well advised to remember is this: market moves like the one depicted above are “paper plays,” achieved through selling futures [derivatives] in a thin market. We are given further evidence that these “paper plays” are orchestrated manipulations due to the fact that the market for ‘physical tangible silver’ remains tight and in short supply, evidenced by the stiff price premiums of physical metal over the futures price.
  
  Price manipulations, like the one above, involving “selling down” the paper price of a commodity have historically failed when manipulators run-out-of or are unwilling to part with dwindling physical supply.
  
  There are many who follow the metals markets closely who feel that time is now close at hand.

And finally for investors who uses low PE as their sole guide, here's another article for you: Are Low P/Es A Valid Reason To Buy Stocks?

How?

Doesn't look good for today's market given yesterday's plunge, yes?

And the following comments were made in today's Business Times article.

• "Fears of a US recession, coupled with uncertainties arising from the ruling coalition's worst-ever performance in the recent general election, triggered the steep fall," said Choo Swee Kee, chief investment officer at TA Investment Management Bhd. ( link here )

And as expected, everyone seemed contended to downgrade KLCI fair value

• The intensive selling activated the circuit breaker at around 3pm. Trading was halted for an hour when the benchmark index plunged 130 points, or 10%, to 1,166. This was the first time the market-wide circuit breaker was activated on Bursa Malaysia.
  
  “The magnitude of the fall was bigger than expected,” said Kenanga Asset Management Sdn Bhd chief investment officer Chen Fan Fai.
  
  Chen described the market as currently in “uncharted territory”.
  He said the direction of public policy and economic measures had become a big unknown after the ruling Barisan Nasional lost its two-third majority in parliament and the opposition parties took control of Kedah, Penang, Perak and Selangor.......
  
  AmResearch has cut its fair value to 1,300 from 1,590, while Aseambankers Malaysia Equity Research reduced its year-end target for the KLCI to 1,350 points.
  
  HwangDBS Vickers Research also trimmed the KLCI's year-end target to 1,360 yesterday.
  
  Despite the expected sell-down, Citi Equity Investment urged investors to pick up “fundamentally good” plantation and telecommunication stocks. It warned clients to avoid the cyclical property and construction stocks.
  
  Credit Suisse said Malaysia would not be attractive until political clarity emerged over the next six or 12 months.
  
  One main concern is whether the roll out of infrastructure projects under the Ninth Malaysia Plan would be affected since these involved both federal and state governments.
  
  Also, there are worries over the possible delay in contracts that have already been awarded should the newly formed state governments review them.
  
  Analysts said scrapping certain public projects would certainly hurt companies' earnings.
  
  However, they said it would be good for the economy in the long term if those projects were not justifiable in terms of social benefits, and the money could be channelled for better use.
  
  “The new political equilibrium will, hopefully, bring with it the checks and balances, which should in the future, curb the excesses of the past,” Credit Suisse's report said.
  
  Stocks perceived to be politically linked and heavyweights were among the worst hit.
  
  Kumpulan Perangsang Selangor Bhd, Equine Capital Bhd and Malaysian Resources Corp Bhd hit limit-down amid fears that these companies might not win certain public projects as expected.

Other worth reading links.

• Market bogged down by concerns
• Foreign funds jolted by uncertainties
• Integrity intact despite trading halt
• Selling by funds cited for rising bond yields
• Players seek business-friendly policies

Worries over water-related stocks

• Investors are uncertain over the prospects of companies with water-related projects, especially in Selangor, where a new government would be formed following Saturday's election results.
  
  The opposition parties garnered a majority of state seats to enable them to form the new government.
  
  This has raised concerns over the Pahang-Selangor interstate water transfer project that has already been awarded. There are also worries that the expected consolidation of water supply and distribution in Selangor might be reviewed.
  
  Water stocks suffered the biggest losses when the market opened for trading yesterday.
  
  Kumpulan Perangsang Selangor Bhd (KPS), a subsidiary of Selangor investment arm Kumpulan Darul Ehsan Bhd, was severely sold down, falling almost 51% to RM1.68.
  
  Also affected was KPS' associate JAKS Resources Bhd, which fell to an intra-day low of 56 sen before recovering to close 38% lower at 62 sen.
  
  Shares in Selangor water concessionaire Puncak Niaga Holdings Bhd lost almost 30% in value, ending at RM3.18, off its intra-day low of RM3.
  
  An industry source said the fundamentals of JAKS were intact as most of the contracts were currently being negotiated with the Federal Government, hence the change in the Selangor government would have little impact.
  
  “Besides, the Langat 2 project is driven by demand and supply. With Selangor expected to face water shortage next year, the contract would have to proceed,” he said.
  
  He also pointed out that JAKS was one of few players with the capability and capacity to undertake such a huge contract.
  
  An analyst with a local brokerage noted that the sell-down in water stocks was driven by fears that the award and implementation of contracts would be reviewed by the new government.
  
  “The bargaining level has changed. The water sector consolidation process might take on new perspective given the new government,” he said.
  
  While the new administration was likely to honour the sanctity of Langat 2, the concern now was how they would implement the project, he added.
  
  In the long term, the state government will still need to address the water shortage issue as it affects the masses.
  
  The analyst noted that Puncak Niaga was scheduled to granted a tariff hike next year, estimated at about 37%, for the supply and distribution of water in Selangor and the Federal Territory.
  
  “Through the proposed consolidation, the Federal Government would take over the assets and, as a result, there would be no tariff hike,” he said.
  
  The Japanese government, which is funding the Pahang portion, is also expected to add pressure for the implementation of Langat 2.
  
  The analyst said the selling of water stocks was a knee-jerk reaction, noting that Puncak Niaga and KPS were backed by assets.
  
  Besides JAKS, KPS also has stakes in Konsortium Abbas Sdn Bhd and Syarikat Pengeluar Air Sungai Selangor Sdn Bhd.
  
  “It is short-term pain for long-term gain as there could be more cost-control efforts, and the benefits passed on to users,” the analyst added.
  
  Another analyst with a local research house said the Selangor government would play a vital role in the consolidation process as well as the implementation of Langat 2.
  
  “Previously, KPS was given the green light to helm the restructuring but it is now uncertain as to who will be driving the consolidation and who will benefit,” he said.
  
  If these were resolved by the year-end, Puncak Niaga would demand for its scheduled hike next year and the state government would have to compensate if the concession agreement was not honoured, he added.

Firms with overseas jobs more resilient

• Construction firms that rely mostly on government jobs would be the most vulnerable to political changes but some companies will be better positioned to weather the uncertainties.
  
  OSK Research analyst Jeremy Goh said earnings of companies such as Hock Seng Lee Bhd, whose projects are mainly in Sarawak, should remain resilient.
  
  “We also remain positive on companies like IJM Corp Bhd and Zelan Bhd, whose operations are focused mainly in the oil-rich Middle East.” he said.
  
  When contacted by StarBiz, Zelan chief executive officer Albert Chang said: “Almost all of our projects are foreign-based. In fact, we have not had any direct government projects for the past 20 years.
  
  “The current uncertainty in the local scene does not have any bearing on us as we’re mainly focused on the Middle East.” he said.
  
  IJM Corp is another construction player that has the bulk of its order book from overseas.
  
  Chief executive officer and managing director Datuk Krishnan Tan told Reuters yesterday that the company had an order book of RM6bil, of which 40% was from overseas.
  
  Tan said notwithstanding some erosion in margin, he saw a steady flow of work from India and the Middle East.
  
  TSR Capital Bhd, whose core business is in construction, remains quite unfazed by the looming uncertainties as most of its projects are in the Federal Territory.
  
  Managing director Tengku Datuk Mustapha Tengku Mohamed said: “We are still confident of prospects as most of our projects are Federal projects.”
  
  The construction sector is poised to be a key driver of the country’s economic growth as projects worth billions of ringgit are being planned for implementation under the Ninth Malaysia Plan.
  
  However, the impending change in administration in Penang, Perak, Kedah and Selangor, which have come under opposition control, has given rise to uncertainties in the award of public contracts.
  
  There are also concerns whether the implementation of projects that have already been awarded would be delayed as the newly-elected state governments have said projects would be reviewed.

Oh, and the BDI closed at 8624. Up another 88 points. However, given all the negative issues in the market, it looks like a non-issue for now.

How now my dearest Brown Cow?

2008 Malaysia Post-Election Market Notes - The Day Bursa Stocks Plunged!

The following screen shots showed how the Malaysia stocks performed today.



The Big LOSERS today!



How the sectors fared!



The drastic plunge in the index that triggered the curcuit breaker!

Free Falling - Tom Petty!

Some closing market notes:

• KUALA LUMPUR (Dow Jones)--Malaysian stocks plunged Monday after the weekend's election upset, on concerns that a weakening of the ruling coalition's grip on power will create policy uncertainty and could lead to a delay in infrastructure projects.
  
  The benchmark Kuala Lumpur Composite Index saw trade halted mid-afternoon for an hour after the index went limit-down 10%, the first time the limit-down rules have been triggered since their introduction in the wake of the Asian financial crisis more than a decade ago. The index ended the day 9.5% lower at 1173.22, while the Malaysian ringgit also slid against the dollar.
  Already weak sentiment was further hurt by a country downgrade from CIMB Research, with so-called government-linked construction and property firms bearing the brunt of the selling.
  
  Talk that state-owned funds, such as the Employees Provident Fund and Valuecap Sdn Bhd, had been instructed by the government not to support the market also weighed on sentiment, although a person familiar with the funds later said that the rumor was unfounded.
  
  Some dealers said the market's marginal recovery from its intraday lows was due to technical delays in matching trades given the sheer weight of sell orders, rather than an uptick in sentiment.
  
  In a shock result Saturday, the ruling Barisan Nasional or National Front failed to hold an expected two-thirds parliamentary majority, ceding five of the country's 13 states and 82 of its 222 parliamentary seats to opposition parties. The opposition had controlled just one state and 20 seats going into the election. The vote means that the coalition has lost the majority needed to pass legislation for the first time since 1969.
  
  CIMB Research said Monday it has downgraded Malaysia to Neutral from Overweight, and cut its end-2008 KLCI target from 1700 points to 1380 points, noting that much now is up in the air with regard to the government's economic policies.
  
  "Stock markets don't like uncertainty, especially in a country like this where one party has been controlling the political scene for so long," said Marshall Gittler, chief Asian strategist at Deutsche Bank Private Wealth Management in Singapore.
  
  "Malaysia has been seen as a defensive market that tends to do well when others do badly. Exposure to subprime is zero and reliance on foreign trade is less than in many other countries in the region. But now that there is political risk, the defensive aspect tends to melt away," he said.
  
  Joseph Tan, a strategist at Fortis Bank in Singapore agreed: "People are selling because they are concerned about policy uncertainty, project stagnation," he said.
  
  "With the opposition being so much stronger this round, there is also concern that there may be a lot of government indecision and horse-trading with the opposition," Tan said.
  
  Saturday's showing from Barisan Nasional, a 14-party coalition led by the United Malay National Organization, was a far cry from the 90% majority it garnered at the last election in 2004. More than this, the four states that it lost - Penang, Kedah, Selangor and Perak - were considered traditional strongholds.
  
  The KLCI had rallied some 9% between December and a peak Jan 14 of 1524.79, in part on government infrastructure promises contained in the government's Ninth Malaysia Plan, and the launch of five economic development corridors.
  
  "Now these projects...are being questioned," particularly in richer states such as Perak and Selangor now controlled by the opposition, said one head of research at a local bank.
  
  "The government may also hold back fuel price hikes for fear of losing votes in the next elections and that will a have negative impact on government finances," he said. "With so much uncertainty, we are asking investors to sell."
  
  Still, others are taking a longer view.
  
  Malaysia-based fund manager Gerald Ambrose of Aberdeen Asset Management, which has $2.2 billion invested in Malaysian stocks, said greater political pluralism and improved checks and balances on government can only be beneficial to the country and by extension its investment case.
  
  "People who don't know much about Malaysia might see this as a time to get out with the ringgit weakening...I don't see a reason for this as the country needs a decent number of minorities to provide the check and balances," he said. "I don't see the news as being negative...in fact we are looking to buy from the bottom-up," he said.
  
  Deutsche Bank's Gittler said he reckons plantation and banking stocks, which make up about 40% of the Malaysian market, won't see a direct impact from the political uncertainty. "If these stocks decline, it might be a good buying opportunity," he said.
  
  CIMB Research said construction and property stocks are particularly vulnerable in the new political landscape.
  
  Those companies said to have government links and which are recipients of government contracts include construction and property firm Malaysian Resources Corp. Bhd. (1651.KU), which closed Monday down 34%; property developer Equine Capital Bhd. (1147.KU), which was down 51%; and Selangor infrastructure and utility firm Kumpulan Perangsang Selangor (5843.KU), also down 51%.
  
  Rating agencies Standard & Poor's, Moody's and Fitch said they are keeping Malaysia's sovereign credit ratings and outlook unchanged despite the stunning election result.
  
  "Going forward, there could be some policy uncertainties or political uncertainties and therefore we are keeping a close eye on them, but we do not see any change in the fundamental trend of the economy," said Franklin Poon, lead analyst for Malaysia at Fitch.
  
  Both Standard & Poor's and Fitch have A- ratings with a positive outlook on Malaysia, while Moody's rates its sovereign debt A3 with a stable outlook.
  
  The ringgit, meanwhile, had weakened to $3.2020 by Monday's close, against Friday's close of $3.1670. Malaysia government bonds were also lower and yields up as much as 12 basis points, as some foreign investors liquidated positions.
  
  

2008 Post Elections Market Notes & Strategies Mentioned

Eric Clapton - Change the World

Posted on Sunday, 9th March 2008. Malaysia markets tipped to slide after poll drama

• A sales broker said he expected Malaysia's benchmark stock index, the Kuala Lumpur Composite Index (KLCI) .KLSE to fall around 50 to 100 points, or up to around 8 percent, on Monday as investors tried to answer that question.

From Kenanga Research

• Short term sell down creates opportunities for equities. Given the uncertainties, we expect foreign funds to sell down their portfolio in Malaysia. We recommend investors to accumulate fundamentally sound companies with strong recurring income that would largely be unaffected by the change in political composition in the government. The sectors to focus on are plantations, banks, oil and gas, consumer and construction companies with significant overseas order book. IOI (HOLD; TP: RM8.45), Sime Darby (TRADING BUY; TP: RM12.90), KLK (BUY; TP: RM22.00), Hap Seng Plantations (BUY; TP: RM4.38), Coastal Contracts (BU Y; TP: RM3.48), Alam Maritim (BUY; TP: RM3.32), RCE Capital (BUY; TP: RM1.15), Parkson Holdings (BUY; TP: RM11.60), Pelikan (BUY; TP: RM4.70), Muhibbah Engineering (BUY; TP: RM4.78), Malayan Bank ing (BUY; TP: RM14.20), Bumiputra Commerce (BUY; TP: RM12.60) , Resorts World (BUY; TP: RM4.84) and Genting (BUY; TP: RM9.90).

I have loaded the following screenshots from RHB report today.

Some notes from Aseambankers

• The construction sector will be most affected by the changing political landscape. We are concerned over implementation delays for yet-to-be awarded 9MP mega projects, as resources could be geared towards: (i) an overhaul of the government’s machinery and delivery system, rather than project implementation, and (ii) socioeconomic causes such as maintaining subsidies. Likewise, some state projects now under opposition rule could be sieged by concerns on land alignment and transparency of project awards. The implementation of the NCER development initiative may also see some setback. We expect near-term prospects to be unexciting and challenging in terms of margins compression. With sweeping changes anticipated at the Federal Cabinet level, we also expect planned major water infrastructure projects to take a back seat in implementations. Major stock downgrades are on Gamuda (to Fully Valued), and IJM Corp (to Fully Valued). Buy still on WCT Eng, and Sunway Holdings.
  
  Downgrading KLCI target
  Market could significantly weaken on opening. The last time we had a similarly unexpected – though less shocking – General Election result was in 1999, when in addition to the continued failure to win back Kelantan, BN was defeated in Terengganu and almost lost its 2/3 control of Kedah. We noted that the KLCI reacted negatively in the first week after the 1999 General Election but rebounded strongly thereafter. However, this time around, we foresee a more profound reaction as external concerns compound the uncertainty over the country’s political and legislative climate. As it is, KLCI is already down 10.3% so far this year, reversing the 32% gain last year amid turmoil in the global financial markets following the worsening of the US subprime crisis and its impact on US and global economic outlook.
  
  We are reducing our YE KLCI target to 1,350 points (previously 1,450) after lowering our 1-year forward target PE multiple to 14.0x (previously 15.0x). We anticipate further foreign selling, as what appears to be renewed selling in the S&P500 last Friday compounds concerns of a potential review of some 9MP projects (as the Government is likely to increase allocation of resources to social programs – details in ensuing paragraphs), and producers’ inability to swiftly raise prices on controlled or monitored items.
  
  Downgrading construction, water, building materials, property and power sectors. Our downgrades on the latter three sectors to Neutral reflect our expectations for foreign investors to hold back on en bloc purchases, and for a slower future tariff adjustment for Tenaga (like other companies which are or may be seeking price hikes). We downgrade Tenaga to Hold with a RM9.80 target price (see today’s separate writeup). Our downgrade on the property sector also takes into consideration that most property companies are mid-cap stocks, and mid-caps could trade at modest valuations (<10x>

Some technical notes from Aseambankers

• … but less excitement for the equity market. Technically, although the feel good factor could lead to a potential rebound over the next few days, we believe the broader market will remain challenging, as sustainability is in doubt. The “Head and Shoulder” pattern, which had materialized since mid February, triggered the steep selldown in the local bourses, pushing the KLCI below the 1,300 psychological level. Current market breadth is relatively weak as we always find momentum easing on strong upticks. While the indicators are becoming more appealing, our main concern remains very much on the drying market liquidity. We believe the KLCI will need to overcome the 1,350 level before we can conclude the recent downward trend.
  
  Technical pullbacks towards 1,150? Though unlikely in the near term, we wish to highlight that the weekly chart reflects that the KLCI is still riding on a bearish trend. The MACD signal line, after staging a negative crossover, is plunging towards the oversold zone. Meanwhile, the long black Japanese candlesticks also suggest that any attempts for recovery could be short-lived. As such, should the KLCI falls below the 1,250 level, investors should stay sidelined as the consolidation phase could last for months.

And some commentaries from Dali.

• http://malaysiafinance.blogspot.com/2008/03/next-moves-impact-shadow-cabinet-you.html
• http://malaysiafinance.blogspot.com/2008/03/chatting-with-seng-9-mar-08-1717-dali.html

*** update 1:00 pm ***

From Credit Suisse

• 0401 GMT [Dow Jones] The Malaysian election results are a "surprise to everybody so we have to reassess what's going to happen" on some of the country's major investment themes, says Arjuna Mahendran, head of research at Credit Suisse. Palm oil and property plays are not likely to be affected very much, he says, but utilities and airlines could be in for some turmoil now that planned industry restructurings are up in the air. Uncertainty makes it hard to decide what to do over the next 2-3 months, Mahendran says, but if share prices drop enough, it could be a good buying opportunity. With Malaysia, domestic factors matter less than international factors, he says. "Lots of money in Malaysia is foreign and to the extent fund managers in NY are pulling out or putting money in has more impact than what locals are doing." (EGS)

from Duetshe Bank

• 0409 GMT [Dow Jones] Deutsche Bank says Malaysia's surprise election outcome, with ruling coalition Barisan Nasional losing two-thirds majority and four key states, marks short-term negative, long-term positive for country's stock market. "BN's poor showing will certainly spook the market, not due to the potential risk of riots, a sudden change in economic policy or a backlash by the incumbents but more because of the political uncertainties which lie ahead," report says. However, says result "could well be the catalyst required to force the government to push through with much needed structural reforms to improve Malaysia's competitiveness, regain confidence amongst the non-Malays and to bridge the divide between the Malay elite and grass-root supporters." Says market valuation remains attractive at 14.6X PER, 19% EPS growth for 2008, 4% net yield, but adds lack of short-term catalysts, political uncertainty/risks will probably cause market to give back 1Q's relative outperformance. (LES)

From Fitch and S&P

• 0453 GMT [Dow Jones] Malaysia's sovereign credit ratings, outlook unlikely to change despite stunning election results, with ratings firms citing intact credit trajectory; "Going forward, there could be some policy uncertainties or political uncertainties and therefore we are keeping a close eye on them, but we do not see any change in the fundamental trend of the economy," says Franklin Poon, lead analyst for Malaysia at Fitch. Both Standard & Poor's and Fitch have A- rating with positive outlook on Malaysia while Moody's rates sovereign A3 with stable outlook; Moody's vice president Aninda Mitra says election results don't necessarily mean government's power now clipped; "If the government responds to the verdict of the poll by making more headway against corruption and other scandals that have been plaguing the government, that would obviously help," says Mitra. "The election results were a bit of a negative surprise, but it's far from writing off the abilities of the Malaysian government at this stage," he adds. (DLZ)

From HwangDBS

• 0459 GMT [Dow Jones] Hwang DBS Vickers Research cuts KLCI year-end target to 1360 from 1570 after ruling Barisan Nasional coalition had its worst-ever general election performance; year-end target implies P/E multiple of 13X CY09 earnings, at lower end of historical 5-year P/E band of 12X-18X; says stock market likely to be clouded by sense of insecurity in near-term; "nevertheless, once the dust settles, the defensive trait of our local bourse -- on the back of fairly resilient domestic consumption, buoyant commodities prices and a rising ringgit -- would appeal to investors wanting to seek shelter amid the prevailing volatility in the global financial markets," Hwang DBS says; cites Public Bank (1295.KU), YTL Power (6742.KU), KNM (7164.KU) as top picks among big caps. (BEL)

From CIMB

• Malaysian investment bank CIMB cut its recommendation on Malaysian shares to neutral from overweight, citing the political uncertainty. It also cut its year-end target for the KLCI index to 1,380 points from 1,700 points perviously. The index was down 6.4 percent at 1,213.74 at 0304 GMT.

Commens posted on Edge ( here )

• But despite the strong mandate, the changes as expected by the people did not really come through, said Scott Lim, chief investment officer of CMS Dresdner Asset Management.
  
  “The results of the latest general election can be viewed as a silver lining. Malaysians have voted in several new state governments to institute the changes. The BN coalition will now be forced to make changes as per the aspirations of the people.
  
  “What investors don’t want to see is parties fighting each other at the expense of the people and the country. Decisions have to be made as to how they want to bring development irrespective of their differences. It must not be at a stalemate. Now, all decisions made have to be truly in the interest of the people regardless of racial and religious lines,” said Lim.
  
  Among the changes that investors generally want to see are more transparency in the award of contracts, the government making difficult decisions to reduce its excesses and taking serious efforts to stamp out corruption. There were some measures taken in all three fronts but the election results indicated that the people wanted more.
  
  Kaladher Govindan, the head of research at TA Securities, felt that the results could be viewed positively as foreign investors note that Malaysia does not have a strong opposition to provide checks and balances.
  
  “They complain that there is no real opposition here to provide the checks. Now, we have a strong opposition,” he said.
  
  But a fund manager who concurs with Kaladher’s view stated that the general election showed that BN was not “untouchable”, and that the foreign funds would not be eager to put their money in just yet.
  
  “All along the KLCI is traded at a premium to the regional markets largely because of the political stability. This will no longer be the case, we will have to forgo the premium, maybe cut a hundred points off the CI or more,” said the fund manager.
  
  Singapore-based Tai Hui, Stanchart regional head of research for Southeast Asia does not think that the results of elections have incorporated a political risk to the Malaysian market in the immediate term.
  
  “Investors will be watching more closely than ever. I don’t think Malaysia is going through the same route as Thailand and other countries where there was political instability. There are conflicts between parties but not to the extent of social instability,” said Tai.
  
  Moreover, Tai said that Malaysia had well established institutions such as Bank Negara to manage the economy, while the BN still had a majority in parliament.
  
  “The majority will ensure that operations will not be an issue. As long as there are such institutions, Malaysia will always be different,” he said.
  
  The market is expected to see some heavy selling following the BN’s significant reduction in parliament and also the loss of Penang, Kedah, Selangor and Perak. Some dealers are expecting a correction of between 30 points to 100 points from KLCI’s close of 1,296.3 points last Friday.
  
  Lim of CMS said that there would be some knee-jerk reaction but it could also provide an opportunity.
  
  “There will be some panic selling. Some people will be irrational enough to dump the baby with the bath tub. If it becomes a crisis, there will be an opportunity,” he said.
  
  On Malaysia’s losing out on its political risk premium, Lim said the system had matured now that it enjoyed a two-party political system.
  
  “The risk will rise as Malaysia has never had a two-party political system. But the checks and balances will be obvious,” he said.
  
  Tai said that the latest development would put the pressure on the government to ensure that the economy continued to grow and the inflation kept under control. Considering that rising cost of living was an issue in the elections, Tai said that the government may have to keep prices low.
  
  “The government may have to step up on its fiscal stimulus programmes in light of the slowdown in the global economy,” he said. But Tai also said that the rising cost of living and inflation was an issue not unique to Malaysia but all countries in the region
  
  
  
  
  

Do They Know It's Christmas Time for ...

The BDI closed at 8536, up another 1.58%!



And yet the leading stock, Maybulk, in this sector has done absolutely nothing!

Maybulk closed yesterday trading flat at 4.10.



Truly amazing!

Well is this an opportunity or is this an trap? Trap? The below is a snapshot of Maybulk's segmental earnings.



How?

Interestingly enough, if one reads the earnings notes, this was what's said by the company in regards to the company's future prospects.

• PROSPECTS
  
  Since achieving a historical peak of 11,039 on 13 November 2007, the BDI has declined by more than 30%. Charterers’ suspension of cargo shipments in an effort to reduce port congestion, bad weather closing ports and mines affected cargo availability. Furthermore the annual iron ore price negotiations between China and the major suppliers resulted in significant decline of iron ore shipments. These adversely affected the cape-size market and the resultant negative influence across the freight market. However, the declining BDI against the backdrop of a global weakening equity market, the subprime mortgage woes, a tightening credit market in reaction to the subprime crisis and heightened concerns over the state of the United States’ economy is clearly exacerbating the negative market sentiment....

Yes, since hitting the peak, the index for the Baltic Dry Index had tumbled. And as stated precisely, cargo shipments were indeed impacted by bad weather condition (severe snow storms in China to be precise) and this had put a huge damper in the charter rates. However, at this moment of time, this has clearly passed. The charter rates had certainly rebounded extremely strongly and as can seen above, the BDI closed at 8536.

Yes, the plunge of the BDI from 11k has spooked the shipping shares. The index fell to a low of a 5615 on Jan 29th 2008.

But the BDI is now at 8536!

Oh, that's a recovery of some 2921 points or a whopping 52% from its Jan 29th lows!

How?

Do you reckon that Maybulk, whose earnings depending heavily on the index, should rate much higher?

Ah yes, if you read Maybulk's earnings, there's a proposed 30 sen dividend. And if you use historical fiscal years as an indicator, Maybulk's dividend should go ex in April and payment would be made in May.

Baltic Dry Index and Maybulk Again.

On Feb 13th 2008, I blogged the following: Another Update on Baltic Dry Index

What interest me the most was the chart of the BDI then. BDI on that day was at 6712 points. See below:



And on that day, the leading BDI stock in our market, Maybulk, was at 3.98.

So how is BDI doing now?



BDI closed at 8403!

Here is the incredible one month chart of the BDI.



Let's see on Feb 13th, BDI was at 6712. it's now at 8403.

Oh.. it's up only some 1691 points.

And Maybulk now is at 4.02.

Up a mere 4 sen from Feb13th 2008????

Macam Mana Ni?

Rational or Irrational?

Saw this set of commentary.

• Baltic Freight Rate Gain Supports Commodities Story
  
  FN Arena News - March 07 2008
  
  By Chris Shaw
  
  Having hit a low in late January the Baltic Dry Index, which is an indicator of the cost of moving raw materials by sea, has run significantly higher, hitting a level this week up more than 45% from those lows earlier in the year.
  
  According to TD Securities global strategist Stephen Koukoulas the fall in January was nothing more than a seasonal blip, a view supported by the fact the index is now up around 300% from its lows of 2006 and around 860% from its lows of 2001.
  
  This has important implications for commodity prices as the index is seen as a reasonable proxy for commodities demand and the latest gains in the index suggest there has been little sign of any slowdown in the global demand for commodities and by extension, global economic activity.
  
  This implies global growth rates should remain at solid levels despite the recent volatility in financial markets, which Koukoulas suggests will also mean the current inflationary pressures evident in a number of economies around the world are unlikely to go away any time soon. ( http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=868B898C-1871-E587-E1A46D8B77BB2002 )
  
  
  

HwangDBS and its Call Warrants

Was alerted by Jamesy on the following story. HwangDBS rolls out structured warrants

• HWANGDBS Investment Bank Bhd will roll out its first retail structured products for this year today - two call warrants that leverage on the upside potential of two of China’s leading blue chip stocks, China Railway Group Ltd and China Mobile Ltd.
  
  They provide investors with alternative investment choices and the opportunity to gain exposure to China stocks for a small investment outlay, said HwangDBS in a statement. The issue price of the call warrants is set at 11 sen for China Mobile and 10 sen for China Railway, and the exercise price is set at HK$111 (RM45.13) for China Mobile and HK$9.30 (RM3.78) for China Railway, it said.

The very last line in the article was most interesting.

• HwangDBS chief executive officer Alex Hwang’s view is that in bear markets, equities and equity derivatives such as call warrants are a good choice, especially blue chips and heavyweights with an upside story.

OMG!

I guess when one wants to sell a product, most of the time they will say anything!

Let's examine that statement.

In a bear market, what would most likely happen to blue chips and heavyweights? My answer? I would imagine that since it's a bear market, by the law of averages, most blue chips and heavyweights would be hit bad, since by definition, it's a bear market. And if that's the case, how could derivative such as call warrants be a good choice?

Of couse, as noted, it was stated blue chips and heavyweights with an upside story. That's always possible. But in a bear market, finding blue chips with upside story is extremely difficult! And if it's difficult, again I ask, would call warrants be a good choice?

So in a bear market, do you reckon call warrants are good ideas?

Credit Suisse goes bull on Ta Ann

Read this article posted on Business Times. Plywood price rebound a boon to Ta Ann

The first paragraph reads

• TA ANN Holdings Bhd, one of the largest timber companies in the country, has been upgraded to "outperform" from "neutral" by Credit Suisse on signs that plywood prices are starting to rebound after falling for the last 12 months.

I was left curious.

I used Globalwood website as my indicator for plywood prices.

This is Dec 2007 Market prices link: http://www.globalwood.org/market1/aaw20080202a.htm

This is Jan 2008 Market prices link: http://www.globalwood.org/market1/aaw20080101a.htm

This is Feb 2008 Market Prices link: http://www.globalwood.org/market1/aaw20080202a.htm



Perhaps my eyes are failing but do I see plywood prices rebounding? Do you? Or maybe I am using a poor website?

The article then continues..

• The fresh target price for Ta Ann is RM9.20 a share, more than a third of the stock's last trading price.
  
  According to Credit Suisse, Ta Ann's share price, historically has a 74 per cent correlation with plywood prices.
  
  It noted that in the last cycle, plywood prices bottomed in December 2005 and its share price surged by up to 51 per cent when plywood prices rose in 2006.

Ta Ann closed yesterday at 6.65!

Now given the fact that Ta Ann was only trading a low of 5.65 on Feb 15th, this would mean that Ta Ann's share price has already appreciated by a whopping 1.00.

See the nice chart posted on BTimes.



Assuming that the date of the Credit Suisse report is fresh and not too out-dated, then surely one would ask why after the share price had already increase so much, then only publish such a bullish article on Ta Ann with a whopping target of rm9.20?

"Macam Mana Ni?"

Gee thanks Credit Suisse!

The article then continues

• "Ta Ann's plywood prices bottomed after falling 38 per cent from the high in late 2006. Prices are just starting to recover. The risk to our target price is if plywood prices don't recover or if there is a total ban on logging in Malaysia," the report stated.
  
  Ta Ann, which exports 98 per cent of its plywood to Japan, had a challenging time in 2007, hurt by an 18 per cent drop in Japan's plywood imports, the steepest drop since the Asian financial crisis a decade ago.
  
  For the year ended December 31 2007, Ta Ann's sales grew by five per cent to RM669.6 million while net profit fell 26 per cent to RM97 million.

Ta Ann net profit fell 26%.

Of course, they would argue that stocks should be valued based on what they earn in the future, which I accept. However, are plywood prices rebounding?

How?

Grand Master Cow!

Here's a video to cheer everyone up!

Many thanks to Doraiddd. Your love for si lembu shall not be forgotten!

:)

Maybulk and BDI again.

A couple of news clip yesterday.

From Bloomber news clip ( Japan's Commodities Shares Gain on Metal Prices; Refiners Fall )

• Nippon Yusen K.K. and Mitsui O.S.K. Lines Ltd., Japan's two largest shipping lines, gained after the Baltic Dry Index, a measure of commodity shipping costs, rose to the highest in almost two months.
  
  Nippon Yusen jumped 3.2 percent to 993 yen, breaking a four- day losing streak, while Mitsui O.S.K. climbed 3.8 percent to 1,375 yen. The Topix Marine Transportation Index was the biggest gainer among the 33 industry groups on the benchmark.

From Reuters ( Singapore's NOL moves 17 pct more cargo in Dec-Feb )

• SINGAPORE, March 3 (Reuters) - Singapore's Neptune Orient Lines (NEPS.SI: Quote, Profile, Research), the world's eighth-biggest container shipping firm, said it carried 17 percent more containers on its ships in the six weeks from Dec 29 to Feb 8, compared with the same period a year ago.
  
  The company said in a statement on Monday that its shipping arm APL carried the equivalent of 289,400 forty-foot containers on its ships in that period.
  
  The average revenue on each container carried by the state-controlled firm rose 17 percent to $2,989, from $2,562 in the same period a year ago. (Reporting by Daryl Loo, editing by Neil Chatterjee)

Here is the how the BDI is looking the past one month!

On the local front, there isn't any action yet on Maybulk. Last traded 4.12.

Worrying Decline In IPO?

The following article was published on the Edge yesterday. 03-03-2008: Worrying decline in IPOs on Bursa

• KUALA LUMPUR: Bursa Malaysia is seeing a worrying trend in the declining number of initial public offerings (IPOs) that have come to the market over the past few years, with a significant number of companies preferring to look abroad to raise equity funds.
  
  According to Bursa data, the number of IPOs last year fell to 28 from 40 in 2006 and 79 in 2005. The number of annual IPOs has declined by about 68.2% from a decade ago. So far this year, there have been six IPOs, comprising three for the Second Board and three for the Mesdaq Market. (rest of article here )

For me, as an investor, it's always quality over quantity for me!

I do not like to see listing just for the sake of listing and I would rather prefer more quality listing!

Just look the Messed-Daq market. The quality of most stocks in there is simply appalling in my opinion!

Warren Buffet Mania!

Did you miss the Warren Buffett show last night?

Here all the video links! Enjoy!

• Warren Buffett to CNBC: U.S. Economy in Recession By "Common Sense Definition"
• LIVE BLOG: Warren Buffett on CNBC's Squawk Box - 6am ET Hour
• LIVE BLOG: Warren Buffett on CNBC's Squawk Box - 7am ET Hour
• LIVE BLOG: Warren Buffett on CNBC's Squawk Box - 8am ET Hour
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 1)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 2)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 3)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 4)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 5)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 6)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 7)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 8)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 9)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 10)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 11 and Final)

Don't Think Bull!

Published on Fortune, here is a nice piece from senior editor, Alan Sloan, Don't expect another bull market

• When the greatest bull market in U.S. history started in the summer of 1982, only a relative handful of people owned stocks, which were cheap because they were considered highly risky. But by the time the Standard & Poor's 500 peaked in March 2000 amid a fully inflated stock bubble, the masses were in the market. Stocks were magical, a supposedly can't-miss way to pay for your kids' college, save for retirement, enrich employees by giving them options, and regrow hair. (Just kidding about the hair. Alas.)
  
  Stocks might go down in any given year, the mantra went, but in the long term they'd produce double-digit returns. However, one of the lessons of the past eight years is that the long run can be ... really long. As I write this in late February, the U.S. market - which I'm defining as the Standard & Poor's 500 - is well below the high that it set on March 24, 2000. Even after you include dividends, which have run a bit below 2% a year, you've barely broken even, according to calculations for Fortune by Aronson & Johnson & Ortiz, a Philadelphia money manager.
  
  Hello? Eight years of dead money in the broad stock market? How can that be, given that Ibbotson Associates says the S&P has returned an average of 10.3% a year, compounded, since 1926? Think of it as a six-foot man drowning in a pond with an average water level of six inches - if you step in at the wrong place, the water can be eight feet deep.
  
  To be sure (the favorite phrase of us journalistic hedgers), this has been a flukishly bad period. Ted Aronson says that it's in the bottom 2% of the almost 900 different 96-month periods in the Ibbotson statistical universe. Nevertheless, it's the return we have.
  
  Barring a miracle - or the creation of a New Math of the market variety - there's no way we'll ever see a bull market along the lines of what so many of us grew up with. During that enchanted period, the boring old S&P returned more than 19% a year. When you include compounding, your money more than doubled every four years. Pretty slick.

Do you agree? Is this it? Or do you still believe that bulls live forever and perhaps we are facing a temporary setback?