33-Year Bear Market And We Are Only One Year Into It!

And the Dow Theorist, Tim Woods reckons that we are a long way from being out of the woods.

Mr. Woods wrote the following in FinancialSense market wrap on Friday.

• Now the question at hand is, did the October 2007 top mark THE top of this entire bull market advance up from the 1974 low? If so, then we are now operating within the context of a much longer-term secular bear market that should serve to correct the entire 1974 to 2007 bull market. Also, based upon the historical bull and bear market relationships of the past, the 33 year bull market period should be corrected by a 10 to 12 year bear market, which, based on the 2007 top, would take the bear market down into the 2017 to 2019 timeframe. Another point I want to make here is that back in 2000 the bull market from 1974 was only 26 years in duration and one-third of that would have been some 8 to 9 years, which means that if they would have let the bear market that tried to begin back then unfold, we would now be coming out of a natural bear market bottom in which a real advance could have occurred. Rather, they fought it tooth and nail and were ultimately able to extend the bull market into 2007. As I said all along, this only served to make matters worse. We now have a 33-year bear market to correct and we are only one year into it. Point being, if we have truly seen THE bull market top, then we still have some 9 plus years to go based on these typical bull/bear market relationships and fighting it will only extend the inevitable and make matters worse.

Source: Why Opinions Differ and Brief Update (Fully recommend you to read the full article!)

Also Double T had also highlighted me the following: http://www.ritholtz.com/blog/2008/11/shiller-crisis-may-run-for-years-and-years/

Prem Watsa Gives An Investment Tip: Buy Now!

Published on NationPost.com: Wall Street winner: buy now

• Canada’s Prem Watsa, Chair and founder of Fairfax Financial Holdings Limited, is the only major money manager/insurance company to have forecasted and benefited from the current catastrophe. On Oct. 4, he told me in an interview that it was wise for everyone to stay on the sidelines in terms of investment. He now has a new view and last week took off the hedges from his equity holdings and is investing selectively in common stocks.
  
  (Fairfax’s investment team, led by Watsa, has made US$2 billion in profits for shareholders since 2003 and its market cap has gone up slightly despite the worst market since 1929 and the fact that its property and casualty rivals’ stock prices have cratered by 26.5% to 97.4%. Fairfax has remained at US$5 billion market cap in the past year while Warren Buffett’s Berkshire Hathaway has collapsed from US$219.2 billion market cap to $120.1 billion or the Hartford Financial fromUS$27.4 billion to US$1.7 billion. Or AIG.)
  
  The result is that Fairfax has now gone from North America’s 14th largest public property and casualty insurer to its 7th.
  
  Q&A with Prem Watsa:
  
  Q. You removed hedges last week, so do you think the bottom’s been reached?
  
  A. “With the S&P drop year-to-date of 50% -- not seen since 1931 -- and how worried the investment community is, it just seemed to us a lot of fear may already be discounted in the stock markets. You can't say this is the bottom, markets are a discounting mechanism and certainly still can go down some; however, we thought it was an appropriate time to close our equity index hedges."
  
  "Before we took the equity index hedges off we asked: Suppose we were wrong and the stock markets go down further, can we handle it? Our analysis indicated we could. Our hedges have done their job, protecting us from the 50% market decline we saw into November. However, we asked ourselves what if the stock markets decline another 50% and - in terms of ratings and capital - all the models we use indicated that we'd be fine.”
  
  “As for future stock values, trees don't grow to the sky and markets don't go to the floor, or zero. After a 50% drop, we see a ton of opportunity in terms of stock prices (in relationship to intrinsic values) we have never seen for a long, long time now."
  
  "General Electric has never been valued this cheaply in 50 years. GE at $15-16, represents seven times earnings, over 8% yield -- which takes you right back to the 50s. This is a AAA-rated company. It has a tremendous record and today you can buy it at these very low prices."
  
  Q. What’s your advice now to the average investor who you warned should avoid the market in early October?
  
  A. “We are buying many common stock positions at these prices. We are buying with the idea that the stocks we buy could go down in the short-term and that is not going to affect us. You have to be able to buy with cash and not go on margin or borrow money to buy these stocks."
  
  "We would not have taken our hedges off if we didn't think we could survive a further 50% drop in the market, because a further stock market drop in the short-term is also a possibility".
  
  "A good investment now would be a value-oriented mutual fund with a long-term track record but without leverage."
  
  Q. Is the redemption phenomenon, by hedge and mutual funds, nearly finished knocking down stock values?
  
  A. "We have seen more than a 20% decline in mutual fund assets in the last three months and this redemption run can last for some time. The recession may be long and deep and redemptions may continue for some time.”
  
  Q. How will the next President-elect Barack Obama affect Canada?
  
  A. "They are pouring money into banks, consumer credit, toxic assets. I'm not sure there is a lot of ammunition left but it looks like the new administration is going to come with a very significant stimulus program. The Chinese have too. At some point these actions will bite and a recovery will begin, but we must be careful to see what the new administration will do."
  
  "Things to watch the new administration on are trade and China, currency, autos, the environment as it affects businesses, interest rates and of course, taxes. If the new administration decides not to do anything on taxes for two years, that could have a very different impact from hiking corporate and capital gains and other taxes immediately."
  
  “We will most likely be dragged down by the events unfolding in the U.S. Fortunately, our C$ has gone down, which gives our businesses some protection. Canada may have to put money into any auto deal."

Got the tip?

• "General Electric has never been valued this cheaply in 50 years. GE at $15-16, represents seven times earnings, over 8% yield -- which takes you right back to the 50s. This is a AAA-rated company. It has a tremendous record and today you can buy it at these very low prices."

Regarding AirAsia Forex Losses.

Last nite I wrote, AirAsia Posted Massive Losses!

In which Jasonred79 said the following:

• Moo, you got some errors in your analysis:
  
  The Finance costs of 292,570includes a forex loss of 212,510.
  I assume we can count this forex loss as a one time event. Possibly reversable in fact.
  
  So, Airasia's "real" quarterly finance cost is around RM80 million.

Jason,

Thanks for your comments as usual.

Yes I am aware of what I wrote and yes I am aware that I deliberately included the forex losses in.

If you look at the third picture loaded http://1.bp.blogspot.com/_nDt1odcHv2g/SS_cHQSuJeI/AAAAAAAABXg/1o4BbcWl2Hw/s1600-h/aa3.JPG, you can see that I had CLEARLY noted what's INCLUDED in AirAsia financial costs.

Now I had DELIBERATELY included the forex losses in it.

Why should I or why should anyone treat it as a one-off item?

I tell you what... it was just back in May 2008, AirAsia trumpeted about its strong earnings performance. Included in the STRONG earnings was a forex gain of around 86 million. (This issue was even noted by Seng in a blog posting, http://fusioninvestor.blogspot.com/2008/05/edge-on-airasia.html and http://fusioninvestor.blogspot.com/2008/06/airasia-still-profitable-on-us200.html)

So during the good times, forex gains were part of AirAsia good times.

So during bad times, forex losses SHOULD also be part of AirAsia bad times.

Should I even assume that this forex loss as a one time event? Should I assume that there is a possibly that a reversible is likely to happen?

I do not know. Do you know for sure?

Since we do not know for sure why shouldn't we treat it as it is?

For example, if I borrow a million dollars in USD and if the exchange rate of the ringgit to the USD is at 3.25, I had effectively borrowed 3.25 million ringgit.

Now say the exchange rate of the ringgit to the USD is CURRENTLY at say 3.50. My borrowings now is now 3.5 million.

Now I can argue that the current rates is only temporary and I can argue that a reversible can and should happen but I am sure that you will understand it's all futile for what I owe the bank currently is based at current rates.

And based on the current rates, my loans had increased and based on the current rates, the interests paid on the loans had increased.

And based on current rates, this is my REAL financial cost.

This is how I would treat it.

And if you think this is an error in my interpretation, then it's an error.

By the way, did you love the way Star Biz reported AirAsia massive losses? AirAsia revenue rises on high passenger volume

• By LEONG HUNG YEE
  
  PETALING JAYA: AirAsia Bhd, which posted its first loss since its listing in 2004 due to foreign exchange translation and hedging losses through Lehman Brothers Commodity Services Inc, reported positive growth in revenue due to higher passenger volume and higher contribution from ancillary income.
  
  It said yesterday that passenger volume grew by 24% to three million in the third quarter ended Sept 30 compared with 2.44 million a year ago.
  
  Average fare was higher by 12% at RM195 against RM174 previously. It expected to carry 20 million passengers across the AirAsia group this year.
  
  “The higher average fare achieved reflects the positive contribution from ancillary income and the increase in fees.
  
  “Load factor was 3.9 percentage points lower to 75% as a consequence of significant capacity addition and the full impact of the fasting month,” it said in a filing with Bursa Malaysia.
  
  Ancillary income increased 88% to RM69.7mil from RM37mil in 2007. Ancillary income currently represents 10.6% of its total revenue.
  
  Its Indonesian operations made significant improvements with a 61% higher yields compared with last year and a 78% load factor.
  
  Group chief executive officer Datuk Seri Tony Fernandes said the carrier was confident of offsetting the RM215mil related to the provisions for unwinding its derivatives structures and likely non-recovery of collateral for trades.
  
  “Our strategy is already in place to recover the losses. We have hedged 35% fuel requirement for 2009 and we are paying spot price for it (fuel),” he said in a telephone interview.
  
  “We do not want to be paying US$60 per barrel when the spot price is US$40, so we decided to buy on spot price. We get to lock in the potential gain by paying spot price,” he said, adding that AirAsia would be monitoring the fuel price movements.
  
  However, he declined to elaborate on AirAsia’s fuel hedging strategy.
  
  Fernandes also said the group’s finance costs had increased significantly as AirAsia had more planes now and would be getting nine new ones next year.
  He added that AirAsia had provided the full amount for unwinding derivatives structures and likely non-recovery of collateral for trades held by Lehman Brothers to be written off. “It’s best to assume that it is gone and it will be a bonus if we manage to recover it,” he added.
  
  He declined comment on reports that AirAsia’s major shareholder Tune Air Sdn Bhd was close to securing financing for a possible privatisation of the airline.

Ahem...

• However, he declined to elaborate on AirAsia’s fuel hedging strategy.

Huh?

Still got fuel hedging????

Sigh... see What Lah! Didn't AirAsia Said No More Oil Bets?

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

Edit: 1:53 pm.

I just realised the following.... AA hedged their USD at fixed rates!!! Looks sketchy but this is what it is saying.

As per Note 29 (i), the Company has previously entered into a number of long-term forward contracts to purchase US Dollars at fixed rates. Based on the current outstanding principal amounts in respect of the contracts, the weighted average contracted rate and the prevailing exchange rate as at 30 September 2008, the Company could potentially enjoy a gain of RM35.6 million. However, this can only be reflected in the financial statements upon realization over the duration of these contracts.

AirAsia Posted Massive Losses!

Blogged the other day, What Lah! Didn't AirAsia Said No More Oil Bets?. In it, Business Times carried a stronger header for AirAsia, Strong bookings to fuel AirAsia's revenue.

And I remarked then, "Record revenue? Since when did revenue ever counted for anything in the investing world? Strong revenue WILL NOT seduce any investors to invest in a stock! Strong net profits, yes! "

Today AirAsia reported its earnings. Wanna guess how it did?

Me? You should know where my bet was! Yup, earnings should be rather poor!

• AirAsia posts RM465.5m net loss
  
  Published: 2008/11/28
  
  AirAsia Bhd, Southeast Asia’s biggest discount airline, posted its first loss since it went public in 2004 after it took a one-time charge for contracts tied to fuel hedging and trades held by Lehman Brothers Holdings Inc.
  
  The company reported a net loss of RM465.5 million (US$129 million) in the three months ended September, from a profit of RM180 million a year earlier, the Sepang, Malaysia-based airline said in a statement today. Sales climbed 43 per cent to RM658.5 million. Operating profit fell 37 per cent to RM91.6 million.
  
  AirAsia had a charge of RM215 million in the third quarter after the company unwound hedging contracts and the likely non-recovery of a collateral for trades held by the now bankrupt Lehman Brothers. The carrier also filled fewer seats for a fourth consecutive quarter after chief executive officer Datuk Seri Tony Fernandes increased capacity while rivals including Malaysian Airline System Bhd scaled back operations.
  
  “We see limited growth prospects for AirAsia,” said Christopher Eng, an analyst at OSK Research Sdn Bhd in Kuala Lumpur, who has a “neutral” rating for AirAsia. “This is not a time to aggressively invest in airline shares.”
  
  AirAsia lost 1.8 per cent to close at RM1.11 today in Kuala Lumpur trading. The stock has fallen 31 per cent this year.
  
  The company filled 75 per cent of seats in the last quarter compared with 79.3 per cent a year earlier, the statement said. The airline’s total passenger traffic increased to 3 million from 2.8 million, it said. - Bloomberg

Yup, sales rocketed but operating profits slumped!!!

But I was not interested in all these. I wanted to look at its balance sheet.

Back early this month, I wrote another posting on AirAsia, Tune Air Insists That It's Still In Midst Of Trying To Privatise AirAsia!

In that posting I had loaded some key balance sheet items.

Here are some shots of AirAsia balance sheet as reported in its quarterly earnings

Cash balances is now only 774 million compared to 1.084 billion in its previous quarterly earnings!

And the horror part yet again...

Holy cow!

Yes Holy Cow!!!!!!!!!!

In its previous quarter, I thought AirAsia borrowings were extremely high at 5.397 billion.

AirAsia total debts is now 6.352 billion!!!!!

"Macam mana nak cari makan macam ni?"

And needless to say.. based on current quarter, one has to ask 'why it borrow so much but yet cannot make money?!'

And the following snapshot from its earnings notes shows exactly why such borrowings is a no-no.

And what's so wrong if the above, one may ask.

For starters, have a look at the below.

It's operating profit per quarter is only 91.559 million and when you add back its depreciation and amortisation figures, of 88.037 million its free cash from its operations is around 179.596 million.

Look again at the financial cost table. It's financial cost is 292.570 million!

How to make money when your financial cost is so much more than your operating profits

*The above comments were striked out because some readers felt it was misleading since the forex losses (or gains) are non cash flow items*

6.352 billion in debts?????

I guess no one has ever mentioned back to AirAsia that debts need to be paid one day!

And based on the current balance sheet, did Tune Air Insists That It's Still In Midst Of Trying To Privatise AirAsia!????

Does it even make business sense?

Kurnia Asia Continued Losses Is Considered A Turnaround??

Posted this recently: Shocking Losses Reported By Kurnia Asia!

On today's paper, Business Times carried the following article, Kurnia Asia achieves a turnaround

• KURNIA Asia Bhd has achieved a turnaround in underwriting performance with a surplus of RM2.67 million for its first quarter of financial year 2009, after four immediate preceding quarters of consolidated underwriting deficit.
  
  In a statement yesterday, the group attributed the turnaround to a more proactive risk selection strategy as well as to strengthened claims management practices implemented through its Transformation of Operations and Performance (TOP).
  
  “We have successfully turned around our underwriting performance for the first quarter of our new financial year,” said Kurnia Asia executive chairman Tan Sri Kua Sian Kooi.
  
  “It’s a good start to our new financial year and we are back on the right track as a result of strategic business and operational measures put in place,” he said.
  
  For the current quarter under review, the group’s claims expenses was reduced by 10 percent to RM172.87 million compared with the first quarter of the previous financial year.
  
  As such the group’s claims ratio has improved to 68 per cent compared to 75.4 per cent in the previous quarter, Kurnia Asia said.
  
  The group also registered an improvement in its top-line, whereby gross premium income improved by 5.2 per cent to RM282.55 million for the first quarter, up from RM268.52 million in the same quarter of the preceding year.
  
  “However, the group’s improved top-line and underwriting performance were weighed down by our invesment results,” Kua said.
  
  “Though a net loss of RM12.11 million was incurred mainly due to the unfavourable stock market condition, we have taken steps to review our asset allocation in our investment portfolio and have adopted a defensive stance in view of the uncertain market outlook,” he said.
  
  “While our presence in the motor sector will continue to be an important business segment for Kurnia Insurans (Malaysia) Bhd, we are also strategically refocusing our priorities on the motor sector to achieve a 15 per cent non-motor portfolio mix, up from 12 per cent last year,” he added. — Bernama

I got only one word.... HUH?

Yup!

A big HUH to such an article.

What's the bottom line?

Kurnia Asia is still reporting losses and the losses is 12 million and 12 million in losses is still losses!

So how on earth can one consider this a turnaround???

Losing less money is good???

Oh my!

Pessimists Views On The Chinese Economy??

The following article is highlighted in the latest issue of Newsweek.

• Why Beijing Is In A Risky Place
  As the factory to the world, China may be the nation most vulnerable to collapsing global demand.
  
  By George Wehrfritz NEWSWEEK
  
  Workers are losing factory jobs at the fastest rate in decades. Automakers—having failed to anticipate today's sales slump—are lobbying politicians for bailouts. The stock market is a crash heap, home prices are down by 35 percent or more in many cities and toxic assets have begun to weigh heavily on banks. America in 2008? Try China, where the global economic downturn now looks certain to end the country's 30-year growth boom, posing the greatest leadership challenge to Beijing since pro-democracy demonstrations threatened one-party communist rule back in 1989.
  
  That's not the conventional take on China—yet. But with most industrialized countries now in recession and countries the world over hoping against hope that the planet's most buoyant major economy might somehow dampen the global downturn, it's a forecast that increasingly rings true. The reasoning goes something like this: China, despite its deep pool of savings and $2 trillion in foreign reserves, is unprotected from the fall in global demand that began in earnest in mid-2008. Notwithstanding all the hoopla about the rise of China's billion consumers, the body blow that's now landing in the industrial heartland will debunk the notion that China has already begun transitioning toward a new growth model based less on exports and investment and more on household consumption. "We would love to believe it too, but it just ain't so," wrote Standard Chartered bank's highly respected China economist, Stephen Green, last month. He says expecting Chinese spending to save the world from recession is "a pipe dream."
  
  With China at the vanguard, Asia as a whole stands dangerously exposed to external shock. Since the late 1990s, household consumption as a share of China's GDP has fallen from roughly half to 35 percent. On the flip side, the share of Asia ex-Japan's output devoted to exports is now more than 45 percent, or roughly 10 points higher than it was on the eve of the 1997–98 Asian financial crisis. When juxtaposed with America's debt-driven gluttony, Asia's puny appetite for the goods it produces reflects a global economy that's staggeringly out of whack. "We are where we are because of massive imbalances that policymakers and politicians have allowed to build up over the last decade," argues Stephen Roach, chairman of Morgan Stanley Asia. "Those imbalances were never sustainable, but the longer they went on the more they seduced people. And now we're paying the ultimate price for that seduction."
  
  The tab, in fact, has yet to be tallied, but don't be surprised if Beijing gets stuck with the biggest portion of the bill for the simple reason that China's rebalancing act is actually much tougher than America's. For U.S. households, today's crisis means saving more and consuming less (recent consumption data suggests that is happening quite rapidly). Yet in China, where total household consumption is just 5 percent of America's by value, the challenge is to sustain an economy that's largely investment- and export-driven, which means finding ways to perpetuate industrial overproduction. Michael Pettis, a professor of finance at Peking University, says America found itself in the same bind back in 1929. "The U.S. in the 1920s ran a huge trade surplus and had the largest reserves in history to that point," he says. "So was the U.S. immune to the global crisis? No. It was the country that suffered the most. In that sense it is exactly like China today."
  
  Beijing realizes the growth trap it's in. Why else would it unveil on Nov. 10 a $590 billion stimulus plan—a package nearly as large as Washington's $700 billion financial bailout—just days after it announced that China's economy expanded by 9 percent in the July–September quarter? The consensus view is that China's economy has slowed markedly since then. Year-on-year growth estimates for 2009 are mostly in the 7s, with the latest forecasts adding the scary caveat, "or less." This month the Royal Bank of Scotland said 5 percent growth in China next year couldn't be ruled out. China's economy, which grew by 11.9 percent last year, hasn't dipped below 6 percent annually since 1990.
  
  Beijing's stimulus plan has won plaudits internationally not least because it indicates that Chinese leaders won't stand idly by as the crisis deepens. But just as in Washington at the beginning of the Great Depression, policy miscues could cost China dearly—especially if they undermine the global trading regime that China's economy relies on more heavily than any other major economy in the world. In the early 1930s, America's self-defeating mistake was to cut off world trade, particularly in the Smoot-Hawley Tariff Act, at a time when it was the leading exporter in a world burdened by massive industrial overproduction. Today, China is the lead exporter, the world again faces massive overproduction, and the mistake Beijing must avoid is moving too hard to sell more manufactured exports at the risk of flooding an already weak market, and triggering a protectionist backlash. That will only push the global market toward deflation—the downward spiral of falling prices leading to falling demand, as stressed consumers wait for even better bargains.
  
  The doubts about China's stimulus plan arise in part because it's all broad strokes with no fine print. Conceptually, however, it seems intended to split the difference between promoting consumption at home, and export sales. It includes commitments to fund rural infrastructure, boost social spending on health and education, and mount an "economic housing" scheme for migrant workers in major cities—all of which, if implemented, would raise household spending over time. But it also contains perks for heavy industry, value-added tax cuts for the export sector and lending provisions that will channel bank funding to state enterprises engaged in road and rail construction and away from private companies. "The two focuses are definitely exports and infrastructure. That's what we're getting from everything we're picking up," says Green. "And that the health and education spending, although it has been listed as one of the eight priorities, is not going to be [well] supported." Economists estimate that only a quarter of the $590 billion is new money as opposed to previously announced spending, future tax cuts and unfunded mandates passed down to local governments. There's reason to expect that much of the promised social spending—and the consumer empowerment it represents—may not materialize. One warning signal is that Beijing has entrusted much of the safety net stuff to the provinces, which historically have put a low priority on building schools, unless the order to do so comes with earmarked funding from Beijing. One new concern: local tax revenues are shrinking due to the economic downturn. Roach says investment in the social safety net would "reduce the precautionary saving that is inhibiting broad-based consumption growth across the nations [of Asia]," though he adds: "China has from time to time flirted with that, but they really have dragged their feet."
  
  To understand the linkage between social services and household consumption, visit a Chinese hospital. At check-in, patients are required to deposit money up-front, and when that funding runs dry they're tossed out onto the street, healthy or not. According to the World Health Organization, China spends less than 1 percent of its GDP on health care, which ranks it 156th out of 196 nations the U.N. agency tracks. Likewise, poor kids can't attend school without paying fees, and most migrants are uninsured against job-site accidents at any price. Families cope by saving an estimated 25 percent of their disposable income, just in case.
  
  That isn't a social contract conducive to the "harmonious society" President Hu Jintao has advocated since 2006, or so concludes a new report co-produced by the United Nations Development Program and the China Institute for Reform and Development. It calls on China to overhaul its social-welfare system to provide universal basic health care, education, unemployment and retirement benefits for the country's 1.3 billion people. It stresses the need to vest forgotten segments of society including farmers, migrant workers and the poor. And it claims that such expenditures—which it estimates would cost $55 billion a year—actually offer a bigger bang for the buck than would the construction of new roads, railways and bridges.
  
  The risk today (and it's one that's already materializing in a mounting exodus from shuttered factories in Guangdong province) is that these workers could, like the boxcar-hopping hobos of America's Depression era, become the flotsam and jetsam of the economic bust. Almost since China's reforms began three decades ago, Beijing insisted that sustaining economic growth rates above 8 percent was paramount to employing the millions of workers pouring in from inland villages. The further growth drops below that level, the higher the percentage of an estimated 15 million workers entering the labor force each year lands in the ranks of the unemployed. Yet even as policymakers stoked fast growth with every means at their disposal, little was done to transform these workers into foot soldiers of a different sort: new consumers with sufficient social protections to save less and spend more.
  
  The prescription for change has been obvious since the late 1990s. It includes balanced growth between booming east and lagging west; efforts to narrow the yawning income gap between China's superrich and everyone else; and policies that channel the massive earnings logged by the state-owned conglomerates that dominate China Inc. back into government coffers to fund social spending. Yet campaigns with names like Go West meant to spur investment in the hinterland never amounted to more than propaganda exercises, and a long-mulled plan for the government to charge state companies dividend on their huge profits remains a small-scale experiment. In October, Standard Chartered noted a "gulf between aspirations and actual policies" illustrated by Beijing's long-standing bias toward investment and exports, and support for "state-protected oligopolies." Pettis argues that Beijing's persistent mercantilism has prepared it for the wrong crisis—specifically, an external debt shock akin to the one that ravaged Asia in 1997-98, against which China's huge savings and foreign reserve pools would make it "superbly protected." Yet as with America in 1929, China is the nation most exposed in the world to a collapse in global demand today.
  
  As such, Beijing finds itself in a fix as 2008 winds to an ignominious close. Export promotion offers a viable short-term means of keeping the factories of China running—yet grabbing more market share amid a global downturn is the surest way to incite protectionism. During the recent gathering of G20 leaders in Washington, much public emphasis was placed on shoring up the global financial architecture and defending free trade. Yet former New Zealand prime minister Mike Moore, who headed the World Trade Organization from 1999 to 2002, believes the backroom talks focused on the imperative that Asia not try to export its way out of today's crisis. It was "the elephant in the room; how China, and to a lesser extent India and the Southeast Asians, must become consuming countries," he says. "It's overwhelmingly in [their] interest to become a lot less reliant on exports, and it also does right by the people they represent. Not to do it could trigger something that's very, very unpleasant." Global trade slumped 70 percent in the 1930s, and any return to the virulent economic nationalism of that era "would turn crisis into catastrophe," warns Moore.
  
  That presents Beijing with a leadership challenge very different from the one it confronted with tanks and soldiers in 1989. Today, it must work to maintain enough harmony in the global trade arena so as not to lose access to vital overseas markets, while telling the Chinese people that fast growth isn't their birthright. In essence, Beijing must offer a new social contract in which consumption bolstered with a social safety net replaces the export-driven growth engine that has powered China's economy for 30 years. FDR did that in America in the 1930s, but it took a decade. Might China's leaders fare any better? In the late 1990s, then Premier Zhu Rongji refrained from devaluing China's currency when many of its neighbors did so; the decision lost China some export momentum but gained its leadership a reputation for responsible global action. Today's leaders have maintained that reputation, but given the enormity of the economic challenges at hand, the only safe bet is that their helmsmanship will be tested to the extreme in 2009. Especially if the pessimists are correct and China's economy grinds to a halt.

Source: http://www.newsweek.com/id/170305

I wonder if these comments made have their justifications or are they 'depression cheerleaders' as suggested by some arrogant local commentators. ( see So What Is iCapital Talking About Now? )

So What Is iCapital Talking About Now?

It still makes me laugh so much when I read back what I write before on iCapital.
It was not long that OUR so-called local expert lambasted Warren Buffett for being a lousy economist! ( see past postings Tan Teng Boo Declares Warren Buffett to be a lousy Economist! and Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist? )

And today, this same very person wrote the following: Reports slammed for anticipating a repeat of the Great Depression

Since when did Star Biz got comical investment articles?

I kid you NOT.

• IT is increasingly common nowadays to hear and read that the world economy is heading for Great Depression 2. Whether this will actually happen depends on a wide variety of factors.
  
  Right now, whether it will happen, is not even the right question to ask. iCapital talked about how the asymmetrical reporting in the mass media has contributed greatly to widespread fear and panic. With markets continuing to fall, are we depressing ourselves into a depression?
  
  An important question that has not been raised is, despite all the predictions about Great Depression 2, do we know what the 1930 Great Depression was like? Since we all seem to be talking or writing about it like Depression experts, we should first take a look at some pertinent facts.
  
  We should get a better sense and perspective of what is happening currently and realise that we should stop putting fear and panic into ourselves as the consequences will be so painful that we will regret it.
  
  The quick and widespread loss of confidence will be seen by historians of the US-led financial crisis as one of the most important factors that dragged a manageable problem into one that went entirely out of proportions. And historians will wonder why this happened.
  
  
  
  Chart 1 shows the unemployment rate in the US from 1929 to 1943. Currently, the US unemployment rate is 6.5%. If we are seeing Great Depression 2, there is certainly a long way to go for the unemployment rate to shoot up.
  
  Should that happen, there would be every reason to fear and every reason to sell every asset you own. Having gold would be the safest. Imagine the unemployment rate surging to 25% and staying at an elevated level for a long time.
  
  At 25%, the US economy will see 38 million Americans out of job, compared with 10 million currently. The whole country will be thrown into complete confusion and dismay; the world economy will come tottering down and life for millions will never be the same again.
  
  Obama will most certainly not win a re-election. Imagine seeing many of your friends and some of your family members out of jobs, and everyone begging for jobs? Do we really want to see Great Depression 2?
  
  In the 1930 Depression, due to global protectionism and a foolish retreat from globalisation, world trade collapsed, greatly aggravating the ongoing recession then and turning it into a global depression.
  
  Chart 2 shows what world merchandise trade will be like now if it collapses like in the 1930 Depression. In this Great Depression 2, world trade as we know it now will collapse and disappear.
  
  Many economies will suffer pain they have never suffered before. A collapse in world trade on the scale of the 1930 Depression will guarantee every country will be in severe contraction. It will guarantee global deflation which would then make the vicious cycle of downward spiral even more painful and longer. Crude palm oil may even sell at RM150 per tonne. Ponder on this and then ask, do we want Great Depression 2?
  
  Chart 3 shows the 90% collapse in the Dow Jones Industrial Average from 1929 to 1933. So far, the NYSE has “only” fallen 47%. If there were to be a repeat of the 1930 Depression, the NYSE would have another massive 80% to plunge. Wow! If the NYSE dives another 80%, would the markets of Kuala Lumpur, Singapore, Hong Kong, Japan, London, Frankfurt, Mumbai, Sydney, etc. not all collapse totally?
  
  In such a calamitous situation, how much would your properties be worth? Would your property prices not collapse too? No one will rent your properties.
  
  So, do you really want to experience Great Depression 2? Are we all, cheered on by the mass media, depressing ourselves into a depression? Is that what we all want?

Ha ha!

• An important question that has not been raised is, despite all the predictions about Great Depression 2, do we know what the 1930 Great Depression was like?

Wait.. how about yourself? Why treat your readers like ignorant? How about yourself? Do you really know what the 1930 Great Depression was like?

Hey, obviously I do not for I am simply ain't that old!

• We should get a better sense and perspective of what is happening currently and realise that we should stop putting fear and panic into ourselves as the consequences will be so painful that we will regret it.

I wonder why do folks like to use these two words, fear and panic, like tissue paper?

Was there not a reason to fear?

What exactly are we not seeing now?

Is this not a global crisis?

And what do we get from a global crisis? Take a look at the shipping industry. Ships have grinded to a halt. Why? What's the implications on the global economy?

Shouldn't one address these issues?

What about the banks?

How many too big to fall has fallen?

Or what Iceland?

What about Russia?

What about the plunging markets in the Arab nations?

Are we not in a global crisis?

Or should one discount it and call everyone as been in a state of panic and fearful?

I do not know but I for one think that the problem is serious enough.

• Chart 1 shows the unemployment rate in the US from 1929 to 1943. Currently, the US unemployment rate is 6.5%. If we are seeing Great Depression 2, there is certainly a long way to go for the unemployment rate to shoot up.

Comparing unemployment rate back in 1929 with now?

Them folks at FinancialSense would beg to differ greatly on your unemployment figures! Do have a read, Lies, Damned Lies, and Statistics: Unemployment Worse Than Reported

• Should that happen, there would be every reason to fear and every reason to sell every asset you own.

Huh? Huh? Huh?

I am sorry but what are they talking about?

Let's see do you know that as late as Aug 2008, they wrote the following.

• [Updated on 16/08/2008 07:57:00]
  
  If one listens to all the doom and gloom forecasts, it would seem that there is no end to the end of the world. The facts point to a welcomed slowdown, not a frightening apocalypse. What do all these mean for the NYSE ? The NYSE should be rising soon, in anticipation of stronger US economic growth rate. Last week, i Capital said that it sees the fall in the NYSE from Jul 2007 as a correction in a long bull market. i Capital retains its bullish short-term outlook of the NYSE at a range of 1,190 to 1,500. i Capital also retains its long-held bullish longer-term target of the NYSE at 1,900 - 2,000.

Tell you what.. if one had listen to what you were saying and your bullish targets, one would have been sitting on unreal losses!

This much I do know.

Shipper Swee Joo Announces Losses

Local shipping company announced its earnings tonight.

I will borrow these old notes I received from a friend back in 2007. The notes describes what Swee Joo does.

• [Updated on 20/07/2007 15:41:00]
  
  Principal activities: Shipping & related businesses
  Major shareholder/s: Leonard Linggi Anak Jugah,Goodlink S/B, Limar Management Services S/B
  
  The principal activities of Swee Joo Bhd (SJB), an East Malaysian group that is fast catching the headlines, comprise mainly shipping services, shipping agencies and shipping-related services like haulage, distribution, warehousing, container handling and repairs.
  
  The shipping services provided by SJB are mainly domestic and some regional routes. Domestic refers to routes between East, Peninsular Malaysia and Brunei and coast to coast refers to Sarawak while the regional shipping liner covers Bangkok, Ho Chi Minh City, Jakarta, Surabaya, and Singapore. Currently, one of the strengths of SJB lies in its comprehensive coverage of the East Malaysian ports. Domestic shipping services contribute the bulk of the group's revenue and earnings. In 2001, SJB formed an alliance with a large global shipper, Evergreen Marine Corp. The tie-up with Evergreen increases its revenue with the trans-shipment of goods from international to domestic routes. SJB is allowed free use of Evergreen's containers for 30 days. Presently, the feeder freight revenue contribution from Evergreen makes up 4.3% of SJB's sales. The group's revenue is primarily denominated in Ringgit, while a substantial portion of its cost is in US$. Unfortunately, the group does not undertake currency hedging. Due to the rise in oil price, bunker costs have been rising but this event affects all shippers.
  
  The two main 100% owned subsidiaries of the group are, Johan Shipping Sdn Bhd (Johan) and Swee Joo Coastal Shipping S/B (SJ Coastal). Johan, which provides domestic container shipping services, started business in 1983. It offers scheduled shipping services between west Malaysia and Singapore to East Malaysia and Brunei. In addition, Johan also provides regional shipping services to Indonesia, Bangkok, and Ho Chi Minh City. Johan expanded its shipping services to Ho Chi Minh City and Bangkok in 2003. In 2006, Johan recorded a turnover of RM206.5 mln with a net profit of RM20.3 mln. On the other hand, SJ Coastal provides scheduled services between the various towns in Sarawak. In 2006, it recorded revenue of RM36.5 mln with net profit of RM2.33 mln.
  
  SJB also provides services such as warehousing, container depot, consolidation and deconsolidation of cargoes at Port Klang, Pasir Gudang, and in the major parts of Sarawak. Repair and maintenance of container services are done at Port Klang. The group has 54 prime movers and 189 trailers. The haulage business had sales of RM8 mln in 2006 and net profit of RM0.11 mln.
  
  Presently, SJB operates a fleet of 14 container vessels, 10 general cargo ships and backed by 7 support vessels. No single client, market segment or industry dominates in terms of revenue or profit contribution to the group. In 2007, Johan is adding one 713-TEU container vessel, 1 dual-purpose CPO/container barge and 1 general cargo vessel for transporting rice and is entering the Myanmar and East India markets. SJ Coastal would be adding one 2,400-tonne CPO barge in 2008. Asia Bulkers Sdn Bhd, which mainly transports palm oil products and logs, will be adding one 7,000-tonne product tanker, and 2 sets of tug and CPO barge in 2008.
  
  Conclusion & Advice
  
  Imagine a company that has proven management, earnings that have grown rapidly and are expected to continue growing rapidly and with some of its businesses enjoying strong market positions, how much would you be willing to pay for such a company? Although the shipping business is capital intensive and the company has high borrowings, the current market valuation of RM278 mln for SJB seems to be on the low side. Hence, i Capital rates Swee Joo a Buy for the longer-term.
  
  Disclosure of interest (required under the Securities Industry Act) : The publisher and associates have an interest in Swee Joo.

Remember that above set of comments were OUTDATED comments.

Anyway, here is the link to Swee Joo's quarterly earnings reported tonight.

Quarterly rpt on consolidated results for the financial period ended 30/9/2008

It reported losses of 2.4 million.

The below screenshot shows the CLEAR declining set of earnings. ( I wonder if the investment advisor warned its readers about the deteriorating earnings or not! Or perhaps not due to the vested interests!)

Straight away one see the weakness. Receivables are up, cash balances down.

And more weakness can be see in their liabilities.



Loans are increasing and they are HUGE! And trade payables are on the increase!

And this is what the company had to say in its notes.

• For the current quarter ended 30 September 2008, the Group recorded an increase of 26.5 % on turnover compared to same quarter of previous year (from RM 82.8 million in 4th Quarter 2007 to RM 104.7 million in 4th Quarter 2008). However the profit before taxation decreased from a profit of RM10.3 million to a loss of RM1.5 million when compared to 4th quarter of 2007. The decrease in profit before taxation during the current quarter under review compared to same quarter last year was mainly due to the combination of the following factors:
  
  (i) Increase on cost of sales resulted from escalating fuel prices;
  (ii) Higher finance expenses due to additional borrowing to finance the expansion in property, plant and equipment; and
  (iii) Strong appreciation of USD against MYR during the current quarter under review
  resulting in a substantial exchange loss.
  
  

Swee Joo last traded at 61 sen.

Baltic Dry Index Plunges To New Low Of 763!

For a while, it appeared that the Baltic Dry Index had stopped falling. It seemed to be drifting around 830 points. However, it looks like I am wrong as the Baltic Dry Index plunged another 5.1% or 41 points to close at 763 points!

763 points!

Remember its high was some whopping 11,793 in May 2008!

Global shipping demand is really grinding to a halt.

And when ships don't move it means there is no trade.

When there is no trade, can you even imagine the consequences and the implications for the GLOBAL economy?

Yes, I have no doubt that this crisis in the shipping industry is only temporary but the less than financially strong companies would be hurting real bad. Shippers and ship builders would be hurting real bad for most in these industry are highly leveraged and the longer the situation persist, as mentioned in a lot of earlier postings by industry experts, I would not be surprised to see more less than healthy companies going under. ( Do note the collapse of Ukraine’s Industrial Carriers and UK-based, New York-listed Britannia Bulk. )

Just published on FinanceAsia.com Shipping outlook bleak

• The global slowdown and overcapacity take their toll on the shipping industry.
  
  Global shipping demand is shrinking, as evidenced by the fact that the London Baltic Dry Index is trading at its lowest levels in years. Closer to home, October throughput at the Hong Kong port was down after posting strong gains through the summer.
  
  The decline in shipping traffic has been sudden and dramatic. “Quite frankly, no one’s ever seen anything like this,” says Standard Chartered managing director and head of shipping finance Nigel Anton. “It’s been quite incredible across all the sectors, but particularly in the dry bulk and the container market. There has been some weakening on the tanker market but nothing like what we’ve seen on the dry and container markets.”
  
  The Baltic Dry Index, a measure of global dry bulk freight rates, closed at 804 points on November 25, down 93% from the high of 11,793 points in May.
  
  In Hong Kong, the Transport and Housing Bureau reported that October throughput was down 2.9% to 2 million TEU (twenty-foot equivalent units or one standard container). This comes after the bureau posted a 7.8% increase in port throughput in July.
  
  The outlook for shipping companies has weakened amid the bleak global economic outlook. Last week, Moody’s Investors Service released a report downgrading the outlook for the Asia-Pacific shipping industry across all sectors – dry bulk, container and tanker – to negative for the next 12 to 18 months. The report cited slack global growth, unstable operating costs and volatile shipping rates as reasons for the downgrade.
  
  The frozen credit markets are seen as at least partially responsible for the negative outlook. "A freezing of trade credit has exacerbated a slowdown in demand for commodities and contributed to the recent, unprecedented plunge in the sector's Baltic Dry Index," says Moody’s senior credit officer, Peter Choy.
  
  Moody’s maintains stable ratings for most of the region’s shipping companies including MISC Berhad, Nippon Yusen Kabushiki Kaisha (NYK), Mitsui O.S.K. Lines (MOL), BW Group and Humpuss Intermoda Transportasi (HIT).
  
  One impending challenge for the industry is the burgeoning order books at the shipyards. “While existing owners are laying up ships we have this massive order book and a lot of those ships will clearly not be delivered,” says Standard Chartered’s Anton. “People will begin to walk away from orders, they already have, because they have generally paid very little in deposit and just say: ‘Fair enough, I’ll leave the deposit on the table and just walk away.’”
  
  Moody’s reports that current orders for dry bulk and container lines is equal to roughly half of current capacity. For tankers, orders are equal to the current capacity.
  
  Anton predicts that a large number of regional shipyards, especially the newer players and those not yet open, will either close or never come to fruition.
  
  While shippers and shipyards are dealing with overcapacity, the value of current assets continues to decrease. “I was just chatting to a broker who is trying to circulate a ship. This is a new ship that six months ago was valued at $80 million and now they are looking at offers of about $35 million,” says Anton. “Six-months ago the chartered rate was about $45,000 a day but now you’d be lucky to get about $15,000.”
  
  The decline in ship values is in no small way influenced by the credit crunch. The value of ships is determined by the forecasted charter rate for different types of vessels, for example the Baltic Dry Index determines the market rate for dry bulk carriers. As charter rates fall, the value of ships declines and forces shippers and banks to revalue their assets.
  
  When the shipping market will turn around is anyone’s guess. “A volatile and extraordinarily challenging dry bulk market is anticipated to continue through Q4 2008 and beyond,” Hong Kong-listed Pacific Basin Shipping notes in a third quarter market update.
  
  Both Standard Chartered’s Anton and Moody’s reiterate the sentiment that a volatile and unpredictable sea freight market will continue for an indeterminate period into the future.
  
  “The current crisis started with the banks, then you could see it in the consumers and now the car makers in the States may go into bankruptcy – it is one thing knocking after the other,” says Anton. “We’ll have to see how it pans out.”

And on the UK Financial Times: Dry bulk shipping rates approach all-time low.

• Participants in such chains are now nervous they could collapse if just one participant suffers financial problems. Some have already been hit by the collapse of Ukraine’s Industrial Carriers and UK-based, New York-listed Britannia Bulk.

Other past postings on Baltic Dry that matters

1. Views On Current Weakness On Baltic Dry Index

2. The Collapse of the Baltic Dry Index

3. Goldman Downgrades Bulk Shippers!

4. Baltic Dry Index Keeps Falling!

5. Baltic Dry Index Stages Strong Rebound!

6. Baltic Dry Index Set For Strong Recovery???

7. Baltic Dry Index Plunges To Seven Month Lows!

8. The Baltic Dry Index Keeps On Plunging!

9. Baltic Dry Index Continues To Plunge

10.The Plunging Baltic Dry Index And The Dangers Of Using Forward PE!

11. Baltic Dry Plunges Below 2000!!!

12. Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!

13. Comments Heard Admist The Plunging Baltic Dry Index ( recommended reading!)

14. Shipping Giant Neptune Orient Lines (NOL) Warns of Losses!

15. Massive Warnings From Shippers On Their Drying Baltic Dry Index

16. More Dry Bulk Update

17. More Warnings From The Baltic Dry Index

KNM Q3 Earnings

KNM just announced its earnings.

Here is how its balance sheet is looking.



The receivables is looking rather high, yes?

So I decided to compare what it previously. Quarterly rpt on consolidated results for the financial period ended 30/6/2008

And it would appear that KNM has managed to trim its receivables from 657 mil to 586 million. ( In my opinion the receivables are still way too high!) Some decent improvement from KNM.

Let's check out its loans. Three months ago, it had the following.

Total loans was at 1.186 billion.

In its earnings notes today, it loans increased! Total loans now stands at 1.241 billion!


So despite the much improvement in earnings (for this quarter alone, KNM recorded its highest ever quarterly earnings of 103.416 million (last quarter its net earnings was at 96.291 million)), do you see the wealth creation within the company?

Conspiracy Theory Involving Crude Oil

And here's one conspiracy theory involving crude oil.

Posted recently on Naked Capitalism: Oil Companies Storing Oil on Tankers, Waiting for Higher Prices

• I am not making this up, and this is NOT Iran, which has stored oil on tankers due to a lack of sufficient refining capacity for its heavy, nasty crude.
  
  Even though the long-term outlook for oil is for higher prices, holding oil already produced off the market is no panacea. But the intent is not to buffer declines, since the amount contracted to be stored at sea is still only a fraction of daily world demand. This is a a speculative move by the oil companies themselves rather than an effort to shift the supply/demand equation (although the oil companies may hope that the information value of their move, that they are confident enough that prices are "too low" to spend money on storage, may help put a floor under oil prices). And due to the falloff in shipping rates generally, tankers can be contracted at very low prices, making this a cheaper gamble than it would ordinarily be.
  
  We have noted before that above-ground oil storage is costly and not as tidy as one would imagine, so in cases like this, oil is not as easily stored as one might imagine.
  
  From Reuters (hat tip reader Michael)

Transmile Again

It's been a while since I wrote on this stock. Transmile reported its earnings last night and it was not pretty. This morning, Business Times carried the following article on it.

• Transmile reports lower Q3 net loss
  
  Published: 2008/11/26
  
  LOCAL air cargo carrier Transmile Group Bhd (7000) reported a narrower third-quarter net loss, helped by cost reduction and higher charter revenue and general freight sales.
  
  Net loss for the quarter ended September 30 2008 narrowed to RM26.3 million, compared with a net loss of RM84.8 million during the same period a year ago.
  
  In a statement issued yesterday, Transmile, controlled by Hong Kong-based billionaire Tan Sri Robert Kuok, said the net loss included an unrealised foreign exchange loss of RM24.6 million on US dollar loans taken by a subsidiary company.
  
  If the unrealised foreign exchange loss were excluded, the group's net loss for the quarter would have been RM1.7 million.
  
  However, revenue slid 35 per cent to RM68.1 million from RM104.8 million, due to the lower flight hours as a result of the cessation of unprofitable routes flown by its four MD-11 planes since end-March 2008.
  
  Transmile managing director Liu Tai Shin said the group will continue to look for new business opportunities, including having discussions with prospective strategic partners on the possibility of flying new regional routes.
  
  He added that discussions were ongoing with the lenders on the proposed restructuring of its outstanding debts totalling RM554.1 million.
  
  "We are optimistic that a mutually agreed settlement will be reached and the restructuring of the outstanding debt will allow Transmile to pay all the debts that are due and payable in the next 12 months," he said.
  
  It is also pursuing the disposal of its MD-11 aircraft to raise cash for the repayment of its outstanding borrowings, which were raised to purchase the said aircraft.
  
  The net loss for the nine months through September 30 2008 also narrowed to RM94.9 million from RM149.3 million.
  
  Revenue was RM237.2 million, down 42 per cent from RM408.7 million.

So I decided to have a look at its Balance Sheet.

Ok, the receivables has corrected significantly ( but it's still a bit high in my opinion.) and the cash balances has diminished quite a bit (if one compares it to the same period, previous fiscal year)

And the borrowings remains high.


Here are past postings on the Transmile saga:

1. Transmile Receivables,
2. How about TransMile?,
3. TransMile,
4. More on TransMile,
5. 50 Million Adjustment for TransMile?
6. The Full audit Statement on Transmile!
7. Reviewing the events at TransMile
8. Cooking And More Cooking!!
   
   

New Update On Ecofirst

I just saw an article on EcoFirst on theEdgedaily.com.

I chuckled.

I remember this one since I had blogged on it back on Sep 2007: EcoFirst (Kumpulan Emas) I was rather amazed because this company had 7 consecutive quarters of losses since changing its name from Kumpulan Emas!!!! And that was during the good times too! I guess change of name did not bring a change in fortunes!

And the quarterly earnings after that.

Quarterly rpt on consolidated results for the financial period ended 31/10/2007

That would make it 9 quarters in a row! The next quarter, Ecofirst showed some profit!

Quarterly rpt on consolidated results for the financial period ended 31/1/2008

However the gain was rather subjective because as the company own self stated:

• The improvement is due to recognition of gain on disposal of subsidiaries amounting to RM18.1 million

And since Ecofirst had earnings of only around 11 mil and if you minus out this disposal, Ecofirst would have showed a loss too.

And as expected, the next three quarters, Ecofirst continued to record losses!

Quarterly rpt on consolidated results for the financial period ended 29/2/2008

Quarterly rpt on consolidated results for the financial period ended 31/5/2008

Quarterly rpt on consolidated results for the financial period ended 31/8/2008

Which means that since Kumpulan Emas changed its name to Ecofirst back in Jan 2006, Ecofirst had recorded losses all the way!

Truly amazing.

Anyway, back to the article on theEdgeDaily.com. It announced it had a new Executive Director and the Executive Director has came out with a rather BOLD announcement!

• 25-11-2008: Ecofirst sets 3-year target for rebound
  by Pauline Puah
  
  SUBANG JAYA: Ecofirst Consolidated Bhd will return to the black within several years if its turnaround strategy goes according to plan, said its newly-appointed executive director Tiong Kwing Hee.
  
  “With all these things (turnaround measures) in place, I would say in about two to three years’ time we should be in the black,” he told The Edge Financial Daily after the company’s AGM yesterday.
  
  Key to Tiong’s strategy is the restructuring of the group’s liabilities. Tiong said he planned to talk to financial institutions on the possibility of restructuring the group’s borrowings to a “slightly longer term”, possibly through their convertion into preference shares.
  
  As at May 31, 2008, the group’s long-term borrowings stood at RM102.2 million, while short-term borrowings amounted to RM29 million.
  
  The group changed its financial year-end to May 31 from July 31 for fiscal 2008, in which it posted a net loss of RM32.4 million in the 10 months.
  
  “(Another option) may be some form of loan stocks and a minimum coupon rate, may be a few percent to match our cash flow,” said Tiong who joined the group in September.
  
  Ecofirst’s diversified business interests include property, construction, food services and network marketing businesses. The group has been posting net losses for the past three years.
  
  As part of its turnaround strategy, the group planned to turn its South City Plaza into an “educational mall” for higher learning institutions to cater for 6,000 to 7,000 students, Tiong said.
  
  He also said the group expected to secure some projects from its ongoing negotiations with several government agencies.
  
  “We expect to get about few hundred million (government) worth of works for next year. (The amount will be) around RM300 million to RM400 million,” he said.
  
  Tiong said the group’s network marketing division had set up offices in Indonesia and the Philippines and planned to set up more offices in the region.
  
  “Hopefully by middle of next year, we will be in Vietnam and Thailand.”
  
  In near future, our turnover will be RM25 million,” he said, adding it was currently in talks with several manufacturers with “very good growth potential”.
  
  Tiong said the group would be going through operational cost cutting but denied there would be lay-offs.

Jim Rogers Expects US Dollar To Fall And Remains Bullish On Commodities

Posted on Bloomberg.

• Nov. 25 (Bloomberg) -- The U.S. dollar will be “devalued” as policy makers seek to weaken it, undermining the greenback’s role as an international reserve currency, said Jim Rogers, chairman of Rogers Holdings in Singapore.
  
  “They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term,” said Rogers. The ICE’s Dollar Index has gained 18 percent since Rogers said in an interview on April 27 he expected a dollar rally “about now.”
  
  The U.S. dollar gained since June 30 against all the 16 most-traded currencies except for the yen as investors fled for the perceived safety of Treasuries after the global financial crisis struck, tipping the world into recession. U.S. politicians are seeking to reverse those gains to revive growth, Rogers said.
  
  The dollar is “going to lose its status as the world’s reserve currency,” Rogers said yesterday in an interview with Bloomberg Television. “It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.”
  
  Rogers said that he is buying the Japanese yen. All of the 16 most-active currencies have weakened against the yen this year, with South Korea’s won falling 45 percent as the worst performer.
  
  The ICE’s Dollar Index, which tracks the greenback against the currencies of six major trading partners, fell to 86.028 as of 11:55 a.m. in Tokyo from 86.081 late in New York yesterday. It reached 88.463 on Nov. 21, the highest level since April 2006.
  
  Plan to Exit Dollars
  
  The U.S. currency’s rally has “already lasted several months” and “will probably go into next year,” Rogers said. “What I plan to do sometime during this rally is to get out of the rest of my U.S. dollars.”
  
  “If I were doing it today and what I have done today is buy the yen,” Rogers said. “But, it is also an artificial move that’s going on. It’s a difficult problem to find out what is a sound currency.”
  
  Democratic lawmakers including Senator Charles Schumer of New York said this weekend they plan to design a package as large as $700 billion and deliver it to President-elect Barack Obama on his first day in office. Obama has called for a large economic-stimulus package, saying the U.S. faces the loss of “millions of jobs” unless immediate steps are taken to stimulate growth and rescue the nation’s automakers.
  
  Buying Commodities
  
  Rogers also is buying commodities, saying their “fundamentals have not been impaired and, in fact, are improved.”
  
  “In mid-October, I started buying commodities, I started buying China and I started buying Taiwan,” he said. “I bought them all, but I’ve been focusing more on agriculture. I mean sugar is 80 percent below its all-time high. It’s astonishing how low some of these prices are.”
  
  Sugar surged the most in two weeks yesterday amid speculation that higher crude-oil prices will boost demand for alternative fuels, including ethanol made from cane.
  
  Raw-sugar futures for March delivery rose 0.44 cent, or 3.9 percent, to 11.72 cents a pound on ICE Futures U.S. in New York yesterday. The gain was the biggest for a most-active contract since Nov. 4. Sugar has declined in each of the past three weeks.

Source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axUDVSTZ1k3g

Winsun Technology Reporting Losses Less Than A Year After Being Listed!

Winsun Technology was listed early this year on January 22nd. Here are couple of articles on it.

Posted on Business Times

• MIMB bullish on WinSun's prospects
  
  The investment bank is projecting a fair value of RM0.34 ex-rights on the company, implying an upside of 19 per cent on the ex-rights price of RM0.283
  Published: 2008/01/07
  
  CHANGES in China's economic environment will affect Mesdaq-bound WinSun Technologies Bhd's profitability, given that the bulk of its operations are carried out in China.
  
  "With the bulk of WinSun's operations being conducted in China, the double-digit gross domestic product growth powered by foreign direct investments in China as well as the Chinese government's spending on infrastructure projects will have a positive impact on the profitability of WinSun," MIMB Investment Bank Bhd said in a report on Friday.
  
  However, there are several key risks that WinSun has to face, namely those related to Chinese operations; protection of intellectual property rights; dependence on key management and technical personnel, this being a knowledge-based industry; dependence on relatively narrowly-based products, services and markets; and lack of long-term contracts.
  
  Due to the risk in intellectual property rights, WinSun plans to transfer part of its research and development team and activities from China to Malaysia this year.
  
  The company also plans to expand its services into Vietnam by next year.
  
  "Since Vietnam is one of the fastest growing economies in the region and is at a developing stage, the country will require the services of WinSun's technical and engineering knowledge in designing, installing, maintenance as well as support and training," MIMB said.
  
  Bullish with the prospects of WinSun, MIMB is projecting a fair value of RM0.34 ex-rights on the company that implies an upside of 19 per cent on the ex-rights price of RM0.283.
  
  Its RM0.34 fair value on WinSun is based on 1.28x price to sales ratio industry average, using expected financial year-end December 2008 sales.
  
  "The potential upside of WinSun is therefore 19 per cent on the theoretical ex-rights price of RM0.283 upon completion of the 2-for-1 bonus issue, which successful initial public offering subscribers will be entitled to," MIMB said.
  
  WinSun is an investment holding company and conducts research and development, while its subsidiaries are involved in the provision and design of industrial automation systems.
  
  The firm specialises in the research and development of intelligent industrial control management system, which includes design of automated drive control systems.
  
  The company is also involved in intelligent field instrumentation, industrial engineering design, customised software programming, engineering and production, installation and commissioning as well as comprehensive maintenance, support and training.
  
  Its clientele covers 12 different industries, with its revenue mainly derived from the metal (21 per cent), machinery (19 per cent), chemical (16 per cent) and semiconductor (12 per cent) segments.
  
  WinSun is slated for listing on January 22.

And the following article was posted after Winsun's listing.

• WinSun eyes Vietnam market
  
  The company plans to set up a representative office in Vietnam next year, but things are in the preliminary stage now, says its managing director
  
  Published: 2008/01/23
  
  WINSUN Technologies Bhd, which provides intelligent industrial control management systems with all its operations based in China, plans to expand its market to Vietnam next year.
  
  "We are eyeing the market in Vietnam to set up a representative office there in 2009. However, things are in the preliminary stage now," managing director/chief executive officer, Choong Siew Meng, told a media briefing after the listing of the company's shares on Mesdaq Market in Kuala Lumpur on Tuesday.
  
  The shares opened at 34 sen, up 5.7 sen from its theoretical ex-bonus price of 28.3 sen. It closed the morning session at 36.5 sen after hitting a high of 48 sen earlier.
  
  Under its listing exercise, WinSun made a public issue of 30 million shares, of which 25 million were for private placement, two million for directors and employees, and the rest for the public.
  
  It also implemented a 2-for-1 bonus issue of 200 million shares after the public issue. - Bernama

Winsun announced it earnings last night.

Quarterly rpt on consolidated results for the financial period ended 30/9/2008

It LOSS some 1.76 million!

Less than a year after listing on the Messdaq, this company has already started reported losses! Another high quality listing on Messdaq?

Stock last traded 6 sen.

Now Barron Calls Berkshire Undervalued!

Was reading Barron's article: Finally, Berkshire Looks Undervalued

The following passages caught my attention.

• The selloff reflects concern about Berkshire's equity portfolio, valued at $76 billion on Sept. 30, plus a sizable bet involving put options on $37 billion of equity indexes, including the Standard & Poor's 500 and foreign markets. The derivatives bet, while ultimately likely to be profitable, looks like a rare mistake by Berkshire CEO Warren Buffett, who couldn't be reached for comment on this story.
• If the stock market rallies in 2009, Berkshire probably will see record profits. Its operating profits this year could be about $5,400 per Class A share, excluding losses on equity and junk-bond derivatives that may cause a fourth-quarter loss. One big investor says earnings could hit $7,000 a share by 2010, a modest 13 times the current stock price.
• The puts give their buyers the right to make Berkshire buy the indexes at a set price, based on the indexes' level on the day the options were sold, mostly from 2005 through 2007. The puts, whose current value is difficult to determine, don't jibe with Buffett's frequent criticism of derivatives as "financial weapons of mass destruction."
• BUFFETT PROBABLY FIGURED he was getting a great deal by pocketing $4.8 billion in premiums for writing at-the-money puts on some $37 billion of equity indexes with maturities from 2019 to 2027. The puts are only exercisable at maturity, and don't require Berkshire to post collateral whenever the markets fall and their value rises. Who knew that stocks would keep sinking?

$37 billion of equity indexes that matures from 2019 to 2027.

We are now only 2008!

The puts are only exercisable at maturity and don't require Berkshire to post collateral whenever the markets fall and their value rises!

From now till 2019.. I wonder if the markets will be in a loooooong doom? Is that even possible?

A Wanderer highlighted this link to me: http://www.michaelcovel.com/2008/11/20/danger-will-robinson/

See point 3!

• 3. When do stocks stop falling? When one of the big guys, preferably the bull’s poster boy Mr. Buffett, collapses. Buffett going down would be a signal for panic, which would lead to an eventual selling climax. He wasn’t predicting this, it was just his temperature gauge on what needs to happen for pain to subside. He did note Buffett’s derivative exposure.

LOL!

Bull's poster boy?!

Buffett collapses?!

ROFLMAO!

You really got to give it A1 for originality!

Melewar's Earnings

One of the earnings that caught my attention tonight was Melewar Industrial Group. Quarterly rpt on consolidated results for the financial period ended 30/9/2008

It reported sales revenue of 220 million. Losses for the quarter totalled 95.5 million!

I wrote on this stock before back in April 2008: Melewar Bids for RM2.2 Billion Monorail Project!

It had some 416.449 million in borrowings then when I wrote on it in April 2008.

Now loans is at 533.775 million!

This is the company review of its own earnings performance.

• The Group recorded a total revenue of RM220.9 million for the 1st quarter ended 30 September 2008, a significant increase of 59% over the preceding year's corresponding quarter of RM138.9 million, on the back of a higher sales volume of steel related products.
  
  Notwithstanding the increase in total revenue, the Group recorded a loss after tax of RM94.4 million for the quarter under review compared to a profit after tax of RM8.9 million in the preceding year’s corresponding quarter. The decline of RM103.3 million is attributable mainly to the fair value loss suffered on a financial asset of RM137.6 million (net of tax), partly offset by a write back of allowance for shares under litigation of RM30.5 million (net of tax).
  
  For the current quarter under review, the Company’s principal subsidiary, Mycron Steel Berhad, posted a profit after tax of RM3.2 million, which is RM1.3 million or 68% higher than the RM1.9 million achieved in the corresponding quarter of the preceding year. The better performance attained is principally due to a 70% increase in the total revenue from RM79.8 million to RM136.0 million, contributed mainly by a higher sales volume.

Warren Buffett Talks About The Auto Bailout

Here is a recent interview on Fox Business: Warren Buffett On Auto Bailout

More Horror Stories Told In The Global Shipping Industry!

Here's yet another article on how badly hit the global shipping industry, Greek shipping industry hit by global financial crisis

• GREECE, which controls nearly 20% of the world’s merchant fleet, is feeling the pinch of the global financial crisis.
  
  “The shipping industry is at the forefront of the free economy, and we’re the first ones to feel the recession as well as the boom,’’ said shipping broker Francois Savaricas of ACE Chartering.
  
  “In this case, what we’re going through is not so much a shipping crisis as a whole financial crisis.’’
  
  With the international financial crisis leading banks to sharply cut back on lending, and consumer spending contracting in many places, it is much harder to move goods, and there are fewer goods to move.
  
  The crisis means that “fewer consumer products are sold because people don’t have money to buy them, therefore this has a knock-on effect on our sector, which is particularly globalised and prone to all these fluctuations,’’ said Nikos Efthimiou, head of the Union of Greek Shipowners.
  
  Efthimiou said there had been “a violent drop from June to today’’ in the dry bulk and container sector, with oil and gas tankers weathering the storm the best so far.
  
  Shipowners, brokers and analysts said ships that earned US$50,000 to US$100,000 a day a few months ago were now struggling to take in US$5,000-US$10,000 a day.
  
  The Baltic Exchange Dry Index, an indicator of dry bulk freight rates, had plunged from a record high of 11,793 points in May to a nine-year low of just above 847 points on Thursday.
  
  Analysts and brokers said the scene outside the gritty port of Piraeus, with ships anchored and awaiting orders, was being replayed across the world, particularly outside Asian ports such as Singapore and Shanghai.
  
  Savaricas said about 25% of the world’s fleet was at anchor because it was uneconomical to trade.
  
  ”The lack of liquidity in the banks meant there’s no cargo moving, and so from one day to the other there’s been no volume, no cargos and no movement for the ships,’’ he said.
  
  It’s no small matter for Greece. Shipping makes up about 7.6% of gross domestic product and brought 16.9 billion euros into the country in foreign exchange last year, 18% more than the previous year, according to the Union of Greek Shipowners.
  
  The wider shipping industry employs 160,000 people, or roughly 4% of the Greek workforce.
  
  The Greek-controlled fleet, counting vessels of more than 1,000 tonnes under Greek and foreign flags, came to 4,173 ships and more than 154.5 million gross tonnes in February, Hellenic Union of Shipping figures show.
  
  Just a few months ago, the picture was completely different. Shipping had enjoyed four or five years of burgeoning trade that had seen companies ordering new ships while still keeping old vessels in service, reluctant to decommission and sell them for scrap.
  
  “Everyone knew that the shipping market was heading for a downturn, and they prepared for it. But when it hit, it hit so hard and so fast,’’ said David Glass, managing editor of the Greek shipping publication Naftiliaki.
  
  “One morning, everything was a few clouds on the horizon. By evening, the thunderstorm had flooded. It just happened so fast.’’
  
  Now, companies with old vessels are selling them for scrap in India, Bangladesh, China and Pakistan. Others are cancelling orders, forfeiting millions of dollars in down payments to shipyards.
  
  Harry Vafias, who heads StealthGas Inc, the Nasdaq-listed gas arm of the Vafias Group, said oil and gas tankers had not suffered the same freight rate drops. Of the Vafias Group’s 82 ships, only five are bulk carriers.
  
  With orders for 24 new vessels in shipyards in China, Japan and South Korea, the group had the fourth-largest order book in Greece, Vafias said. But with banks unable to provide financing, or giving it only on very expensive terms, companies are forced to use a lot of their own money to take delivery of the ships.
  
  “The banks are virtually shut for new business,’’ he said.
  
  Industry experts say it can’t last forever. “Trade can’t stop,’’ Efthimiou said. “People don’t stop needing goods, food, certain things. All the world’s industries haven’t stopped working, thankfully. Therefore there is demand, it’s just very much reduced.’’
  
  Greeks, with 2,000 islands and a seafaring tradition that stretches back thousands of years, feel they are better prepared than most to ride out the storm. — AP
  
  

AirAsia: On The Contrary For Being Contrary!

Published on Business Times. On the contrary ...

• By Presenna Nambiar Published: 2008/11/24
  
  For AirAsia boss Datuk Seri Tony Fernandes, a recession is the best time to build, an uncommon opinion to say the least.
  
  DATUK Seri Tony Fernandes is a man who has built his business on being contrary.
  
  When the global airline industry was recording losses in the aftermath of September 11 2001, Fernandes and compatriot Datuk Kamaruddin Meranun were busy trying to get their brainchild AirAsia (5099) off the ground ... which they succeeded in doing, recording a profit in 2002.
  
  When the media and analysts continued to prophesise doom for the airline, Fernandes and his team put in an order for 60 A320s from Airbus in March 2005.
  
  Three years later, with every industry (in particular the airline industry) bracing itself for a long and painful recession, he hasn't changed.
  
  "We (AirAsia) are very bullish and very optimistic (about the future), all the newspapers in Malaysia had wanted me to be negative in the last seven years.
  
  "You are a depressing bunch, but I'm optimistic, my load factors are good, people want to travel, they are not killing themselves every day ... you have to be innovative," Fernandes told Business Times in Kuala Lumpur last week.
  
  For him, a recession is the best time to build, an uncommon opinion to say the least.
  
  "My gut feeling says the best thing to do now is to grow ourselves out of a recession. I think we have enough people to fly with us. By opening up new markets, we are constantly getting new people on our flights," Fernandes said.
  
  His optimism is backed by the fact that AirAsia has seen record bookings for December, with seats sold out in two weeks.
  
  Fernandes said the group also expects its Thai and Indonesian subsidiaries to be "very profitable" in the fourth quarter of the year.
  
  Thai AirAsia recorded an unrecognised share of loss of RM21.7 million, while Indonesia AirAsia registered a loss of RM12.2 million for the quarter ended June 30 2008.
  
  Thai AirAsia is a jointly controlled entity of the budget carrier while Indonesia AirAsia is an associate company.
  
  Fernandes said the Sepang hub also stands to benefit from the growth in passenger movement on its Thai and Indonesian flights.
  
  Despite his optimism, one might say that this time around the odds are stacked against it, what with the International Air Transport Association expecting further losses in 2009 and Centre for Asia Pacific Aviation expecting no Asian airline to make a profit a next year.
  Fernandes would probably say, "When has it ever been different?"

Being contrary.

I always dislike that phrase. I do NOT like to buy a stock just for the sake of being contrary. Most of all, for me, the reasoning to invest has to be justifiable and sound. Same with business.

Yes, in a recession, this is probably the best time to invest but one cannot simply invest. We need to study the durability and the competitive advantage of the business that we want to invest in and most of all, we have to look at our own financial health.

Now, if one is neck deep in debts, like AirAsia, does it make sense to expand like nobody else business?

Are we, the critics, a depressing lots?

Here's a simple reason why perhaps it would be a better option to be more humble and prudent.

Recession can be long and deep. Is this not a possibility?

And if this is the case, a long and deep recession, could not hurt a company but it could also wipe a company out, if it's less than prudent.

Is this not possible?

As it is, is AirAsia expanding via its own financial capabilities or is it on a borrowing orgy?

Here's an interesting issue. Do you know much does AirAsia pays in financial interests every quarter? ( here's the link to AirAsia last reported quarterly earnings: Quarterly rpt on consolidated results for the financial period ended 30/6/2008 - see page 12. Do you see the interest costs from its bank borrowing equates to a whopping 59 million?)

Well, in my opinion, if AirAsia was a cash rich giant, I would probably agree that it would be a good idea for it to look for business opportunities. (In my opinion, this means buying good businesses at a great price). However, the problem for me is that currently AirAsia has already borrowed way to much. For it to continue to expand and borrow even more, just makes no business sense. And worse still, the earnings performance from its last reported earnings in August (see link above) was downright poor.

Think about it.

What are we seeing here?

Are we not seeing a downright poor performing company, extremely leveraged, borrowing more money to expand in times like this?

How do you even rate its chances for success?

For it to continue to expand with more borrowings is a recipe for disaster!

See also

• AirAsia X: No slowing down
  
  AirAsia X Sdn Bhd hopes to grow sales by 10 times to US$1 billion (RM3.62 billion) by the end of 2010, after it achieves its target of becoming a billion-ringgit company next year, said its chief.

HDM-Carlaw

Published a year ago on Star Biz

• Wednesday June 27, 2007
  
  HDM-Carlaw: Validation takes long time
  
  MD: This caused high trade receivables
  
  By DAVID TAN
  
  PENANG: HDM-Carlaw Corp Bhd’s high trade receivables last year was due mainly to the long process required by its Japanese customers to validate the new automated equipment from the group.
  
  For the financial year ended Dec 31, 2006, the company’s trade receivables swelled to RM9.2mil, while its revenue stood at RM6.25mil.
  
  Managing director Tong Keng Yoon said the validation process for the new automated equipment took six to nine months.
  
  “Presently, seven or eight units of our automated equipment, used in the paper and print industry, are being validated by our Japanese customers,” he told StarBiz after the company AGM on Monday.
  
  “The nine-month period is almost up, and we are confident of recovering the amount from our customers,” he said, adding that the group had no provision for the receivables.
  
  Tong said for the first quarter ended March 31, HDM-Carlaw’s trade receivables dropped slightly to RM8.6mil, as some payments had been settled. It recorded pre-tax profit of RM99,000 on revenue of RM1.4mil for the quarter.
  
  Listed on Mesdaq last year, HDM-Carlaw specialises in manufacturing automated equipment for the paper and print industry and medical examination gloves.
  
  Tong said he had firmed up orders from south Europe, Canada, Brazil, and the Middle East for the group’s automated equipment.
  
  “We are setting up a factory in Thailand next year to produce automated equipment for the paper and print industry. A company, Carlaw Paulzen Maschinenbau Ltd, has been incorporated in Thailand to run the factory.
  
  “Once the facility starts operations next year, it will help cater to the new orders from south Europe, Canada, Brazil and the Middle East,” he said, adding that the company had yet to work out the investment required for the plant.
  
  Tong said the group would be moving from its rented premises at the Prai Industrial Estate, where its production facility is currently located, to its own plant at the vicinity by year-end.
  
  He said sale of the group’s automated equipment for the paper and print industry contributed about 80% of its revenue.

The reason I brought this article up was that I wanted to get an idea on what HDM-Carlaw is doing.

Ok it has its problems with receivables.

Anyway, HDM-Carlaw announced its earnings last Friday: Quarterly rpt on consolidated results for the financial period ended 30/9/2008

Sales of ONLY 28k???? Forget that HDM had losses of 860k. The fact that it only managed a sales revenue of 28k for 3 months is shocking. Yes, HDM-Carlaw is a Messdaq stock.

This is what the company said in its notes.

• For the third quarter ended 30 September 2008, the Group recorded revenue and loss before taxation (“LBT”) of RM28,190 and RM860,097 respectively. There were no machines delivered during the quarter. The contribution in revenue for the period was from the continued sales of spare parts to customers in the paper and print industry

Not looking good! No machines delivered! Ouch!

HDM last traded at 6 sen.

Warren Buffett Losing Midas touch? Hey It's Buffett and Berkshire Bashing Time!

It just got to happen, yes?

Posted on GlobeAndMail.com

• Has Buffett lost his Midas touch?
  Berkshire not immune to recession; investors bail as stock falls 50 per cent in past year
  
  JONATHAN STEMPEL
  
  Reuters
  
  November 21, 2008
  
  NEW YORK -- Investors are wondering if Warren Buffett has lost his gift for the markets.
  
  They are bailing out of Berkshire Hathaway Inc. stock and have lost some confidence that the insurance and investment company, run by one of the world's most admired investors since 1965, can pay its debts.
  
  Berkshire stock has lost close to half its value since hitting a record high last December, as the company struggles with lower returns at its insurance businesses, the declining value of its stock holdings and paper losses on derivative contracts.
  
  Meanwhile, the cost of protecting Berkshire's triple-A-rated debt has soared to a level more befitting a triple-B or even a junk-rated company.
  
  Omaha-based Berkshire has nearly 80 businesses - from car insurance to carpeting, clothing, food, kitchen utensils and manufactured housing - and owns tens of billions of dollars of stock.
  
  Mr. Buffett's empire is diversified enough so that at any given moment many parts are unlikely to run on all cylinders.
  
  "Everything you're seeing that affects other companies is eventually going to catch up with Berkshire," said Vahan Janjigian, author of the 2008 book Even Buffett Isn't Perfect. "I'm not saying Berkshire is not well run, but that even well-run companies will be hit in a severe recession."
  
  Mr. Buffett, 78, was not available for comment.
  
  Berkshire class A shares fell as low as $74,100 a share yesterday, their lowest level since August, 2003, before rebounding slightly. That's down 51 per cent from their record $151,650 set last Dec. 11 and down 34 per cent since Berkshire said on Nov. 7 that lower insurance returns as well as investment losses led to a 77-per-cent drop in third-quarter profit, the fourth successive quarterly decline. Operating profit was down 18 per cent. Berkshire ended September with $33.37-billion in cash.
  
  "We're buying Berkshire like crazy. It was our largest position, and we have made it much larger in the last two weeks," said Whitney Tilson, managing partner at T2 Partners LLC, a hedge fund firm.
  
  "Investors are looking at the derivative exposure, seeing Berkshire marking losses, and it reminds them of AIG and other companies whose derivative exposures got them into trouble," he added. "They are coming to the insane conclusion that Berkshire faces similar risks." He referred to American International Group Inc., which got a $152-billion government bailout.
  
  The cost of protecting $10-million of Berkshire debt against default for five years rose to $490,000 annually yesterday from $294,000 a week ago and $31,000 at the start of 2008, according to financial information services company Markit.
  
  "We're in an unusual time," said Peter Schiff, editor of Schiff's Insurance Observer. "It's like comparing a person having trouble making mortgage payments with a billionaire. The financial crisis affects them, but not in the same way."
  
  Berkshire could have to pay as much as $37.04-billion between 2019 and 2027 under some derivative contracts if the Standard & Poor's 500 index and three other stock indexes are lower than when Berkshire entered the contracts. It obtained about $4.85-billion of premiums upfront.
  
  As of Sept. 30, Berkshire had written down $6.73-billion on the contracts, and losses have almost certainly mounted since then. In October alone, Berkshire shareholder equity fell $9-billion or 7.5 per cent.
  
  Mr. Buffett has said he expects the contracts to be profitable, distinguishing them from the "financial weapons of mass destruction" that he labelled other derivatives.
  
  Berkshire also ended September with $10.78-billion in potential liabilities tied to various credit events, such as junk bond defaults, up from $4.66-billion at year-end 2007.
  
  Moody's Investors Service said the global junk bond default rate could rise to 10.4 per cent by the end of 2009 from 2.8 per cent in October. With a typical junk bond yielding more than 20 per cent, new financing is essentially non-existent.
  
  "Based on his 50-year track record selling insurance, I have a great deal of confidence he is selling these at the right price," Mr. Tilson said. "The critical thing is he does not have to post cash collateral until there are actual defaults."
  
  A credit rating downgrade would likely not be material. Berkshire would have to post "nominal" additional collateral on derivatives of "far below 1 per cent of assets" if Berkshire lost its triple-A ratings, according to Jackie Wilson, Mr. Buffett's assistant. It was posting no such collateral as of Sept 30, when Berkshire assets totalled $281.7-billion.
  
  Berkshire has other exposures to falling markets.
  
  It ended September with $76-billion in stock investments, including multibillion-dollar stakes in American Express Co., Coca-Cola Co., ConocoPhillips Co., Procter & Gamble Co. and Wells Fargo & Co. Shares in all have fallen this quarter.
  
  And investors have shrugged off Berkshire's investment of $8-billion in General Electric Co. and Goldman Sachs Group Inc. preferred shares, with their 10-per-cent dividend yields. Shares of both have fallen, rendering Mr. Buffett's warrants to buy common shares worthless for the time being.
  
  Mr. Buffett has been out of step with the markets before. After missing the late 1990s tech bubble, he gave himself a "D" for capital allocation in 1999, when Berkshire's book value barely budged and the S&P 500, including dividends, rose 21 per cent. Berkshire fared better in six of the subsequent eight years.
  
  "Earnings of Berkshire's operating businesses will undoubtedly decline given the worldwide economic downturn," T2 Partners' Mr. Tilson said. "However, these businesses remain enormously profitable, and will almost certainly continue to be."
  
  Mr. Schiff, of the Insurance Observer, expects Mr. Buffett will actually find new opportunities to win business or make acquisitions, in part because many insurance rivals are scrambling for capital. Several are applying to become bank holding companies to be eligible for the government's $700-billion financial rescue.
  
  "When insurers lose capital, you're going to be more conservative with how much business you write," Mr. Schiff said. "Berkshire doesn't have this problem because its balance sheet is so strong. What they own may be worth less, but they get more opportunities to buy things at cheap prices."

Source: http://www.theglobeandmail.com/servlet/story/LAC.20081121.RBUFFETT21/TPStory/?query=Berkshire

And then there is Danger Will Robinson

Point number 3 is simply funny like hell!

• 3. When do stocks stop falling? When one of the big guys, preferably the bull’s poster boy Mr. Buffett, collapses. Buffett going down would be a signal for panic, which would lead to an eventual selling climax. He wasn’t predicting this, it was just his temperature gauge on what needs to happen for pain to subside. He did note Buffett’s derivative exposure.

Uncle Bufett is now a poster boy! ROFLMAO!

Buffett collapses???!!!!????

Ho ho ho ho!!

Btw.. just some 4 hours ago.. Berkshire stocks went up a small 16.1%

• After nine straight days of drops, Berkshire Hathaway bounced back with the rest of Wall Street today (Friday).
  
  Shares of Warren Buffett's holding company ended at $90,000 each, up $12,500 or 16.1 percent.
  
  It's the biggest one-day percentage gain for Berkshire since at least 1985, topping the stock's 14.8 percent rally on September 19.
  
  The stock surged in the last few minutes of trading, in what may have been a flurry of short-sellers covering their positions.
  
  Just two days ago, we were telling you about a 12 percent daily drop, Berkshire's worst day since 1987's Black Monday.
  
  The stock is still down just over 20 percent since November 7, when its losing streak was sparked by a disappointing (to some) third quarter earnings report.
  
  Today's gain widens Berkshire's year-to-date outperformance of the S&P, although it's still nothing to write home about. Berkshire is down 36.4% vs. the benchmark index's 45.4 percent drop.
  
  Berkshire's drop from its December, 2007 all-time closing high, which was close to 50 percent yesterday, has been cut to "only" 39.7 percent.
  
  In an interview with Fox Business Network today, Buffett said he wasn't worried about Berkshire's decline, pointing out that it's had three similar drops in the past. "I hope I live long enough so it happens a couple more times to me."

Source: http://www.cnbc.com/id/27846807

OSK Holdings On 3A-Resources

I was reading this research report from OSK Holdings.

It has a header "Above Expectation"

I was kinda interested to see how good is the Above Expectation.

First line of the report.

• 3A registered 9MFY08 net earnings of RM9.7m, which was 6.5% above our forecast, while revenue and earnings grew 63.4% and 14.2% respectively.

Hmm... ok.

Second line.

• Nevertheless, q-o-q revenue and earnings dipped 12.9% and 35.8% respectively on slower demand in the current quarter.

Huh?

Earnings dipped 35.8% on a q-q?

So much?

I lost interest right there and then...

Maybulk Had 'Investment' Losses Of Over 62 Million!

I had posted some postings on companies dabbling in the share market. ( see Regarding CSC Steel'sCurrent Earnings And Its Investments In Marketable Securities, Apollo Food's'Investments' In The Share Market and Listed Companies Investments: Yung Kong Galvanised Steel )

From last night announcement, we have a whopper in Maybulk's earnings.

And this one was not easily detected for one has to scrutinise the company's shareholders to see the big stinking whopper!

And to be honest, I missed it myself too and I was not aware of it till I read OSK comments on Maybulk!

• Below expectation. MBC’s annualised 9M core net profits (excluding RM303m gains from sale of 2 bulkers and 1 tanker YTD) were 38% below our expectations and 42% below consensus. The poor results were partly due to RM32.3m in unrealised losses in investments, RM23.1m in forex losses and high MI, which we believe was due to a high number of third party in-charters done through subsidiaries. Its balance sheet remains strong, with net cash per share now at RM1.06. NTA per share also rose to RM1.84.
  
  
  

Jason Zweig Review Of Alice Shroeder's "The Snowball".

Jason Zweig comments on Alice Shroeder's "The Snowball".

• Journey to the Center of Warren Buffett’s Mind
  
  November 14, 2008, 3:43 pm
  
  Not so long ago, investing used to be fun. Now it resembles an Olympic archery practice at which the target is you. Maybe you felt a little safer this Thursday, when the Dow went up 553 points. Well, today it dipped by as much as 352 before closing down 338 points.
  
  If you want to escape the arrows, you can find some refuge by reading the new biography by Alice Schroeder, “The Snowball: Warren Buffett and the Business of Life” (published by Bantam on Sept. 29, the day Congress voted down the first bailout plan and the Dow fell almost 800 points). Although he is lucky in many ways, Mr. Buffett is also the world’s most successful investor because he has worked extraordinarily hard and thought very deeply about his craft.
  
  Mr. Buffett gave Ms. Schroeder thousands of hours of face time, a privilege earlier biographers did not have. In 1995, Roger Loewenstein’s superb book “Buffett: The Making of an American Capitalist” analyzed Mr. Buffett’s rationale for specific investments in illuminating detail, but Ms. Schroeder has been able to delve more deeply into Mr. Buffett’s mind and heart.
  
  The result is riveting and encyclopedic. At 960 pages and 3½ lbs., “The Snowball” hits readers like an avalanche. Some people feel almost buried by the wealth of detail about Mr. Buffett’s family life, but the overall power of the story carries “The Snowball” forward. There is much to be learned from it.
  
  To me, the most striking thing to come out of the book is a clearer sense of Mr. Buffett’s extraordinary emotional detachment. Remember, this is an authorized biography; as Mr. Buffett’s spokesperson put it, “She [Ms. Schroeder] wrote every word, and he did not edit it.”
  
  After years of emotional isolation from the workaholic Mr. Buffett, his wife Susie “stayed up late at night alone, listening to music that transported her to some different place…. She loved…great soul music, like the Temptations, who sang of a world in which it was men who felt all the longing.”
  
  Passages like these are heartbreaking for even a stranger to read. How many of us could bear to let someone else bare our most intimate weaknesses and failures? And yet here we not only see the pain that Mr. Buffett caused his wife, but we know that he has acquiesced in letting us see it.
  
  This detachment, I think, is one of Mr. Buffett’s greatest strengths. He has the ability to hover over his own actions and judgments, as if he were having an out-of-body experience, looking down and evaluating the man who made them as if he were someone else entirely.
  
  In person, Mr. Buffett is as warm and empathetic a person as anyone I have ever met — but he also seems, in Ms. Schroeder’s telling, to be forever observing himself from a distance as well. There is, in her portrait of him, a streak of something at least mildly reminiscent of autism: a photographic memory, an effortless command of complex mental computations, an enduring obsession with collecting and measuring everything imaginable.
  
  This almost-autistic streak in Mr. Buffett exacted a terrible toll on his family as he toiled around the clock for years. Long before it was common, he worked out of a home office, and it is hard to shake the image of him padding through the house in his stocking feet, his face buried in an annual report, oblivious to his own family.
  
  Mr. Buffett’s unparalleled record of investing achievement came at a personal price most of us would never be willing to pay; although he now has a warm relationship with his adult children, his billions were earned only at an incalculable emotional cost in their earlier years.
  
  I shuddered several times as I read Ms. Schroeder’s account of how desperate Mr. Buffett’s family was for his affection. Anyone who thinks beating the market is easy should think twice, based on Mr. Buffett’s own experience.
  
  The Schroeder book makes it clear that in his early years, Mr. Buffett paid a toll so high, in currency so dear, that most investors would not dare to approach the same tollbooth.
  
  Here are the investing ideas that I think the book highlights in new detail:
  
  Discipline. What explains Mr. Buffett’s success? His one-word answer: “focus.” For him, that meant working all hours day and night, memorizing oceans of statistics about hundreds of stocks, and reading corporate financial statements on a family trip to
  
  Mr. Buffett’s uncanny ability to stay one step ahead of the markets comes from five decades of working harder on his homework than anyone else. Can you even name the three toughest competitors of every company whose stock you own?
  
  Self-confidence. From his father, an iconoclastic politician, Mr. Buffett inherited what he calls the knack of keeping an “inner scorecard,” rather than an “outer scorecard.” He does not care whether other people agree with him. He cares only whether his decisions make sense to him, based on his own rigorous research. Do you invest based on what “everybody knows” is “true,” or do you analyze all the evidence yourself?
  
  Self-control. Mr. Buffett does not let the emotions of millions of strangers — the collective greed and fear of the markets — determine his own mood. When he feels his blood pressure rising or his nerves on edge, he calms himself down by gazing at snapshots of his kids or playing a game of bridge with his friends. Mr. Buffett restores his sense of self-control by refusing to dwell on the things he cannot control. Are you staring at every scarlet downtick on the Dow?
  
  Inversion. Mr. Buffett most likes to buy stocks not when they are going up, but when they are going down. In 1969, during a raging bull market, he shut down his original investment partnership. Then, in 1974, when stocks (and market sentiment) hit rock bottom, Mr. Buffett bought with such abandon that he felt “like an oversexed guy in a harem.” Again, in 1999, as investors went gaga for technology stocks, Mr. Buffett sat on his hands. In the miserable market of 2008, he is buying again (although sometimes on “sweetheart” terms not available to you and me). Are you tempted to stand aside from stocks until after they go up?
  
  The long view. From a very young age, Mr. Buffett developed the remarkable habit of regarding a dollar spent today as a small fortune he would not have in the future: “Do I really want to spend $300,000 for this haircut?” He felt that any money he could not invest was money that would never grow — and that he would thus incur a huge future price for any present spending. If you are among the many people cutting back your 401(k) contributions because the market has cratered, have you thought about the cumulative future costs of that decision?
  
  Rigid versatility. Throughout his career, Mr. Buffett has been tactically flexible but strategically inflexible. His core principles have never varied one iota: Buy only what he understands, never overpay, always put safety first, be patient. But Mr. Buffett is as stretchy as Plastic Man when it comes to implementation. He will buy silver ingots, or municipal bonds, or a privately held company that manufactures both bricks and cowboy boots — whatever is on sale at the right terms. Now that virtually every investment on earth is down between 10% and 60%, is cash the only thing that interests you?

Source: http://blogs.wsj.com/wallet/2008/11/14/journey-to-the-center-of-warren-buffetts-mind/

And The Contrarian, David Dreman, Says It's Time To Buy!

Yet another buy call. :)

• We have plunged into the worst financial crisis since the 1930s. The leadership of Treasury Secretary Henry Paulson and Federal Reserve Chief Ben S. Bernanke in fighting it has been sluggish and inconsistent. Although we've just elected a new President and Congress, they will take time to develop policies to stimulate the economy and promote liquidity. What's an investor to do?
  
  First, do not flee the market by selling your quality stocks. Yes, it's the worst bear market since 2000--02, and stocks are trading at valuations not seen in decades, but equities will come back. Second, because credit is subject to unpredictable crunches and it's impossible to guess when this bear will end, don't buy on margin. Third, don't hold shares of companies that will need cash to expand or refinance. There is a good chance they won't be able to borrow.
  
  Fourth, keep your bond maturities very short. When governments face economic crisis, they print money. The magnitude of this crisis suggests that the printing presses will be running around the clock for some time. That means we'll see serious inflation when we emerge from the recession. Long-term bond prices could then drop even more than equities already have dropped. Stocks, by contrast, hold their own over long stretches of inflation.
  
  How patient do you have to be? Some economists argue that it will take years to recover from the worldwide collapse we're facing. I don't agree. The Fed and Treasury may have handled the crisis ineptly so far, but the U.S. and every other economic power know only too well the lessons of the Great Depression. Nobody will try to fight the recession by raising interest rates, or by closing the door to imports, as we did in 1930 with the Smoot-Hawley Tariff Act. We're already seeing real global cooperation to prevent true disaster, such as early October's coordinated rate cuts by the Federal Reserve, the European Central Bank, the Bank of England and the central banks of Sweden, Canada and Switzerland.
  
  Panics invariably provoke investors to make the wrong moves. So resist the panicky calls from many of your friends (and some experts) to move to cash while you still have some savings left.
  
  And if you have uninvested cash? There is almost an endless choice of quality businesses trading at or near liquidation prices. Start with oil companies and producers of raw materials. In a panic, people think growth is gone forever. These stocks reflect that misapprehension.
  
  Oil exploration and production companies have fallen as sharply as has the price of oil. Three to look at: Encana (44, ECA), with a price/earnings ratio of 7 and a yield of 3.7%; Nobel Energy (47, NBL), P/E 6, yield 1.4%; and Parallel Petroleum (3, PLLL), P/E 4. Other oil stocks I would consider are Chevron (70, CVX), P/E 6, yield 3.7%; Occidental Petroleum (46, OXY), P/E 5, yield 2.8%; Valero Energy (18, VLO), P/E 4, yield 3%; and Transocean (70, RIG), P/E 5. Also look at these raw materials companies trading at a small fraction of their former highs: Rio Tinto (152, RTP), P/E 4, yield 4%; and Freeport- McMoran Copper & Gold (23, FCX), P/E 3, yield 8.7%.
  
  In tobacco both Altria Group (17, MO), P/E 10, yield 7.6%, and Philip Morris International (40, PM), P/E 12, yield 5%, look attractive. In retailing, Best Buy (22, BBY), P/E 7, yield 2.5%, and Target (34, TGT), P/E 10, yield 1.8%, appear cheap. So does the cruise company Carnival (20, CCL), P/E 7 (see p. 134). Also in the bargain basement: General Electric (17, GE), P/E 8, yield 7%; Pfizer (16, PFE), P/E 7, yield 8%; and Eli Lilly (33, LLY), P/E 8, yield 6%. In capital goods I like Eaton (41, ETN), P/E 5, yield 5%; and Paccar (26, PCAR), P/E 8, yield 2.8%. They've both been knocked down sharply and should bounce back when the downturn ends.
  
  One last investment that should work out well over time: Buy property, if you live in a place with a forest of for-sale signs. The housing crisis is terrible, but it won't last forever. If you can get a mortgage, and if I'm right about inflation, you will eventually be paying it back with 50- or 60-cent dollars. Pay 20% down on a house that rises 40% in five years and you'll triple your investment, assuming you can cover the interest and maintenance with rental income. If prices rise above the rate of inflation, a reasonable possibility given how depressed they are now, your return will be still higher, possibly significantly so.
  
  Take that money out of your mattress. If you don't, you'll miss one of the great buying opportunities of your life.

Source: http://www.forbes.com/forbes/2008/1208/178_print.html

Btw check out the chart in the following posting: http://calculatedrisk.blogspot.com/2008/11/four-bad-bears.html

What Lah! Didn't AirAsia Said No More Oil Bets?

11th January 2008. Published on the Business Times.

• AirAsia: No more bets on oil price
  
  There has been significant selling from AirAsia's foreign shareholders and this is 'related to AirAsia's fuel-hedging policy', says an analyst
  
  Published: 2008/01/11
  
  AIRASIA Bhd, Asia's biggest discount carrier by fleet size, will stop making bets on the price of oil, after incorrect forecasts contributed to a 16 per cent slide in shares over the last month.
  
  "It's a nightmare because the volatility is crazy," chief executive officer Datuk Tony Fernandes said in a Bloomberg Television interview on Thursday. "We took a bet that oil won't go above US$90 a barrel and it has and it's staying there."
  
  Crude oil rose to a record US$100 a barrel earlier this month instead of falling as AirAsia had predicted. If the price of oil remains at that level, earnings could fall by RM8.45 million a month because of speculative hedging, according to Christopher Eng, an analyst at OSK Research Sdn. in Kuala Lumpur.
  
  There has been significant selling from AirAsia's foreign shareholders," Eng wrote in a January 9 report. The drop is "related to AirAsia's fuel-hedging policy, which some parties considered excessively speculative."
  
  Fidelity International cut its stake by 9.8 million shares as of December 24, according to Bloomberg data.
  
  The Sepang, Malaysia-based carrier also said it will keep ticket prices unchanged even as the cost of fuel rises.
  
  "The danger for low-cost carriers is that it will impact demand," Fernandes said in Singapore. "You can't keep raising prices all the time. Oil inflation doesn't move in line with salary inflation."
  
  Fernandes is counting on higher ticket sales and revenue from selling food, drinks and other services to offset higher expenses.
  
  The price of jet fuel, the biggest expense at most Asian airlines, fell one per cent to US$108.50 a barrel in Singapore yesterday, according to data compiled by Bloomberg.
  
  That is 53 per cent higher than a year earlier. Crude oil futures reached a record US$100.09 a barrel on January 3.
  
  AirAsia fell one sen, or 0.6 per cent, to RM1.58 at the 5pm close of trading in Kuala Lumpur yesterday.
  
  AirAsia has ordered 175 single-aisle A320s from Airbus SAS, worth at least RM39.33 billion at list prices, as it wins permission to start new routes, including flights between Kuala Lumpur and neighbouring Singapore.
  
  For now, it has enough aircraft to expand operations and will not need to exercise options to purchase another 50 planes of the same model "for the next few years," Fernandes said.
  The carrier, which will begin services between Singapore and Kuala Lumpur on February 1, plans to operate as many as 20 daily return flights between the two capitals by 2013, carrying as many as seven million passengers, he said. - Bloomberg

( See blog posting: AirAsia: Lunatics And Cheap Talks? )

In yet another twist, the following was published on Business Times today.

• Strong bookings to fuel AirAsia's revenue
  By Presenna Nambiar
  
  Published: 2008/11/20
  
  AirAsia Bhd (5099) is poised for a record fourth-quarter revenue, driven by a blistering pace of bookings for its flights.
  
  "I think bookings are at a record pace ... it's such a record pace that our computer systems crashed on the first day," AirAsia chief executive officer Datuk Seri Tony Fernandes told Business Times in Kuala Lumpur yesterday.
  
  The airline industry is not in good shape as a slowing global economy has hurt demand for travel amid high fuel prices.
  
  Although this is changing, falling fuel prices present another problem as airlines had locked in prices with hedging contracts to deal with price volatility. This means that carriers could be stuck with hedging losses.
  
  AirAsia's second-quarter net profit plunged almost 95 per cent due mainly to foreign exchange losses and its third-quarter numbers are not out yet.
  Fernandes, however, expects the airline to remain profitable this year, despite provisions and costs which will be incurred.
  
  AirAsia will make provision for losses from the collapse of Lehman Brothers investment bank.
  
  "We had a trade (on fuel) with them (Lehman Brothers) and some money outstanding, I don't think we are going to get it back, but we would have paid for it anyway," he said.
  
  That, together with hedging losses, which even Fernandes admits will be heavy, will be quite a sum. However, he declined to reveal any figures.
  
  "We'll take the loss now to be clean in 2009. Over the next two to three months we will recover it," he said.
  
  On the budget carrier's position on hedging, Fernandes said its principle has always been that if the airline can hedge 100 per cent, it will do it to take the risk out.
  
  "It's at what point you hedge really ... it's a very tricky situation now, because people are saying oil might go down to US$30 (RM108.30) a barrel, logically it should be US$40 to US$50 (RM144.40 to RM180.50) per barrel but I really don't know, because recession hasn't really even started yet," he said.
  
  Meanwhile, in a separate statement, AirAsia announced that BNP Paribas and Natixis Transport Finance, the lead arrangers, global coordinators and book runners of AirAsia, have been able to secure a US$336 million (RM1.2 billion) syariah-compliant French Single Investor Ijarah, for the financing of up to eight Airbus 320-200 aircraft.
  
  This is the first Islamic French-Malaysian optimised transaction of its kind.
  
  Purchase of each aircraft is through a mix of euro-denominated equity, a US dollar-denominated investment agency agreement, Wakala from Islamic financiers and a US dollar-denominated Wakala granted by AirAsia and refinanced by a ringgit-denominated commodity - Murabaha.
  
  Above a cost-efficient 100 per cent financing structure, the Islamic Ijarah ensures that AirAsia's capital and investment allowances are preserved.
  
  "This unique structure has not only allowed us to continue to enjoy overall competitive financing terms for our aircraft purchases, especially under the current market situation, but also encouraged the innovation and creativity in structuring Islamic products and promote the development of aircraft financing in Malaysia with the participation of RHB Islamic and Bank Rakyat.
  
  "AirAsia is privileged to have this partnership with BNP Paribas and Natixis. Their commitment and support is evident from the very first A320 delivery in 2005, which was also arranged and financed by them," said AirAsia deputy group chief executive officer Datuk Kamarudin Meranun.

I had a chuckle. Record revenue?

Since when did revenue ever counted for anything in the investing world?

Strong revenue WILL NOT seduce any investors to invest in a stock!

Strong net profits, yes!

Anyway what's shocking is the statement about hedging losses!

• AirAsia will make provision for losses from the collapse of Lehman Brothers investment bank. "We had a trade (on fuel) with them (Lehman Brothers) and some money outstanding, I don't think we are going to get it back, but we would have paid for it anyway," he said. That, together with hedging losses, which even Fernandes admits will be heavy, will be quite a sum.

It was just in January when AirAsia publicly announced that there will be no more oil bets.

And now, heavy hedging losses????????????????????????

What lah!

Reply To Comment On Parkson Holdings

Posted the following yesterday, A Quick Look At Parkson Holdings Earnings

caseywong said...

• hi, i have been a silent reader of your blog. I have some holdings in Parkson. Would like to know what is so unreal about the receivables part? And what about the borrowings? Mind to share more of your view on this? Thanks.

Casey,

Unreal about the receivables part?

Compare the first table and the second.

The first table showed:

1. Trade receivables at 14.411 mil
other receivables at 261.134 mil

total: 275.545 million.

The current table shows receivables as a lump sump, at 451.349 million.



Think about it...

Here's my reason why I think it's unreal.

a. Last I checked, Parkson Holding is a retail business and in the economics of a retailing business, I cannot understand how Parkson can even have receivables. What exactly are they selling on credit? Who OWES Parkson Holdings so much money? And why? I for one cannot see no logic in why a retailer would even have a receivables account!

b. The size of the receivables. At 451.349 million, the figure is insane. It's simply too high! In a short span of 3 months, the receivables jumped 175.804 million!!!!!

Now try not to think about stocks for a moment. Indulge with me for a moment.

Think of a real life normal business where you and your business associate has setup. And imagine you went on a holiday and upon your return, your partner shows you the accounts and you find out that suddenly so many people owe you so much money. How? Wouldn't you not be concerned? Wouldn't you find it so unreal?

I do not know about you but I write what I feel. And in this instance, for Parkson Holdings, I find it so unreal.

Borrowings. I find the amount of borrowings Parkson Holdings is unreal too. Yes, in my flawed opinion, it's in my opinion that Parkson Holdings is too unrealistically high for me to consider Parkson Holdings as an investment grade stock. Do understand that for the borrowing issue, this is my own opinion, which like I said it is obviously flawed, hence, I do hope you take my view points stated here with a pinch of salt. And since I have repeatedly said that I am no investment advisor, I do hope you take all these comments as a mere second opinion and if you disagree, it's your rights to do so.

Cheers

A Quick Look At Parkson Holdings Earnings

Three months ago Parkson Holdings reported the following set of earnings: Quarterly rpt on consolidated results for the financial period ended 30/6/2008

Net earnings was 50.497 million.

The following was a snap shot of its current assets.

Today Parkson Holdings reported its latest earnings. Quarterly rpt on consolidated results for the financial period ended 30/9/2008

Net earnings improved to 60.162 million.

However, let's take a look at Parkson Holdings current assets.

Receivables has jumped to 451.349 million!

WOW!

Totally unreal!

Let's look at its debts.

3 months ago, Parkson reported it had the following set of debts.

Today, Parkson reported the following.

Tune Air Insists That It's Still In Midst Of Trying To Privatise AirAsia!

On Oct 18th I made the following blog posting: Air Asia Now Remains TIGHT-LIPPED On It's Privatisation Plan Details, a posting which was follow-up posting to Did Tune Air Said It Was Thinking Of Making a GO for Air Asia?

On Monday it made the following announcement: AIRASIA BERHAD (“AIRASIA” OR “COMPANY”) POTENTIAL PRIVATISATION EXERCISE OF AIRASIA

• We refer to the announcement made on 7 October 2008.
  
  Tune Air Sdn Bhd (“Tune Air”), our major shareholder, had informed us that it is still in the midst of negotiating the terms and conditions with financial institutions and other potential investors to fund the potential privatisation exercise of AirAsia. An appropriate announcement will be made when Tune Air has formed a firm intention to proceed or not.

I had a chuckle! Still in the midst of negotiating?

I had even more chuckle when I read RHB Research notes of what they think of Tune Air announcement.

So RHB reckons that AirAsia is an under performer and values it at around 0.86 (me thinks this is rather generous valuation!) but what RHB wrote its most amusing.

• Market doesn’t buy it, apparently. Since the announcement was first made, the discount of AirAsia’s market share price to the “indicative privatisation price” has almost tripled from 6% (RM1.27 vs RM1.35) to 16% (RM1.13 vs RM1.35), indicating the growing market scepticism that Tune Air can pull off the deal against a backdrop of a global credit crunch. We remain big skeptics of this deal and strongly encourage minority shareholders to disregard it and move on with lives.

LOL! Encourage minority shareholders to disregard it and move on with lives! LOL!

Yes, the global credit crunch will obviously be a major stumbling block to this deal. AirAsia is at 1.15 now and this would equate to a market cap of around 2.73 billion. Let's assume that the global credit crunch is a non-issue.

Let's look at AirAsia last reported earnings again. Quarterly rpt on consolidated results for the financial period ended 30/6/2008

The balance sheet as it was.

Cash is nice, AirAsia had some 1.084 billion in its piggy bank.

However... here comes the horror part!

AirAsia total debts is a whopping 5.397 billion.

Which means AirAsia is in a massive net debt of 5.397-1.084 = 4.313 billion.

Remember at 1.15, AirAsia is currently valued at some 2.73 billion.

Simple question now, how much would anyone wants to pay just to own this company that is in a net debt position of 4.313 billion and has a debt obligation of 5.397 billion?

(ps. this figure should be more since AirAsia debts are mainly US denominated and with the ringgit trading lower against the USD, AirAsia debts should be much more!)

And what kind of returns are you getting?

Well, for the last reported earnings, AirAsia made a net profit of 9.4 million! Yes 9.4 million only.

And the current market valuation of the stock is some 2.73 billion!

Do I see some disconnect here?

And what did Tune Air said it wanted to do? Privatise AirAsia? LOL!

Michael Lewis: The End

Excellent article: Michael Lewis: The End

• To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.
  
  I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.
  
  When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.
  
  Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.
  
  I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn’t expect was that any future reader would look on my experience and say, “How quaint.”
  
  I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.
  
  Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.
  
  In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces? (read the next page here )

Lion Diversified Has Now Got Much More Earnings but.....

Lion Diversified announced its earnings tonight. The numbers looked good but I am truly baffled.

Firstly, let's go back in time. May 2008, it made the following announcement. Quarterly rpt on consolidated results for the financial period ended 31/3/2008

I will focus on the Segmental earnings.

As you can see no earnings from steel sector.

Three months later, Lion Diversified announced the following set of earnings. Quarterly rpt on consolidated results for the financial period ended 30/6/2008

Let's look at the segmental earnings again.

And then there is some steel earnings. Lion Diversified reported some 60.9 million in revenue and some 18.1 million profits from its steel industries.

However, at that point, I was hardly impressed with what I saw and I made the following comments at Sahamas, http://sahamas.net/forum5/5824-4.html

Here is the link to LionD latest quarterly earnings: Quarterly rpt on consolidated results for the financial period ended 30/6/2008

If I run this same exercise as mentioned back in May 2008..

1. Cash balances is now 215.439 million. (lots of money)

2. Total debts is now 864.774 million (lots of debts too! )

Compare this to the earnings report in Feb 2008. Quarterly rpt on consolidated results for the financial period ended 31/12/2007

1. Cash balances was 316.972 million. (less money yes? In a period of 6 months, Lion Diversified cash shrunk by 316.972 - 215.439 = 101.533 million)

2. Total debts was 447.787 million. ( Debts exploded by 864.774 - 447.787 = 416.987 million!!!!!! )

WOW! Cash shrunk by 101.533 million. Debts exploded by 416.987 million.

Now let's look at Lion Diversified earnings reported tonight.

The steel sector revenue jumped from 60.9 million a quarter ago to 373.757 million and profit from the steel sector jumped to 101.859.

Now that's a shocker for me!

And due to this sudden surge in steel earnings, Lion Diversified earnings for the quarter is a whopping 63.094 million! (compare to losses of 4.254 million a quarter ago!)

It's like how did it became so good suddenly? I am baffled.

Anyway, let's look at how it's balance sheet is looking after this much better set of earnings.

1. Cash balances is now 176.745 (compare to 215.439 million a quarter ago).

2. Total debts is now 986.542 million (compare to 864.774 million a quarter ago!!)

3. Trade receivables is now 511.587 million (compare to 392.027 million a quarter ago!!!)

How?

Lion Diversified has now got much more reported earnings but.....

Temasek Holdings Chalking Up Massive Paper Losses Everywhere!

Interesting write on Asia Sentinel: Singapore's Temasek Stumbles Again

• The island republic's premier sovereign wealth fund takes another massive writeoff
  
  Although global markets have stabilized at least temporarily over the last couple of weeks, there is no sign of a letup for Temasek, the Singapore sovereign wealth fund that has already chalked up massive paper losses from its exposure to the world’s ailing banks.
  
  Temasek looks likely to have lost its entire S$400m (US$270m) investment in ABC Learning Centres, the recently-collapsed Australian childcare provider, and there are growing concerns that the fund may have to help bail out the Marina Bay Sands casino project in Singapore as owner Las Vegas Sands creaks under a mountain of debt.
  
  If last year, when Temasek built multi-billion dollar stakes in the once mighty Merrill Lynch and the UK banks Barclays and Standard Chartered, was a bad time to be putting money into the financial services sector, then now is not exactly the ideal moment to be pushed into a big investment in Singapore’s nascent casino industry.
  
  Like other investors enticed by the dramatic gains on offer in a late-stage bull market, Temasek - which is run by Ho Ching, the wife of Prime Minister Lee Hsien Loong - appears to have had the canny knack of buying right at the top of the market and then watching its investments slide in value. Even as the first warning signs of serious problems in the banking sector appeared in the first half of last year, Temasek continued to pump money into the financial services industry, which now accounts for 40 percent of its S$185 billion (US$124 billion) portfolio.
  
  This fondness for the financial services sector may stem in part from Temasek management’s closeness to the bulge-bracket investment banks. Despite the humbling of the one-time masters of the universe over the last year, Temasek has continued to recruit senior executives from Wall Street, bringing in Morgan Stanley investment banker Michael Dee in August and Rohit Sipahimalani, another Morgan Stanley banker, last month.
  
  But the rapid demise of ABC Learning, which is Australia’s largest childcare provider, shows that Temasek’s poor investment decisions are not limited to the banking sector. Temasek bought into ABC in May last year at a punchy A$7.30 a share and the stock soon headed south as the outlook for the over-hyped operator deteriorated. The shares were suspended at 54 cents each in August but equity investors are likely to lose everything after ABC went into administration because of mounting financial problems.
  
  If Temasek were to bail out Marina Bay Sands, it certainly would not be buying at the top of the market. But it would be an investment decision driven less by financial prudence and more by the need for the Singaporean government to ensure that its casino experiment doesn’t fail.
  
  Nervous about the Singapore economy’s narrow reliance on shipping and financial services, the socially-conservative government took the controversial step of legalizing casinos in 2005, prompting an unprecedented public debate in the usually acquiescent city state.
  
  Having staked its reputation on partnerships with the likes of Las Vegas Sands and Malaysia’s Genting (which won the licenses to operate the two casino resorts), the government is desperate not to let the experiment fail. So Las Vegas Sands’ indication last week that it will not be able to meet the requirements of some of its loans unless it cuts spending will have sent shockwaves running through the corridors of power in Singapore.
  
  While Sheldon Adelson, the tycoon behind Las Vegas Sands, has personally confirmed his commitment to completing the Marina Bay Sands resort, analysts now believe it is increasingly likely that the government may have to step in at some stage, probably in the guise of Temasek or one of its linked companies. Adelson’s gaming empire is such bad shape that Sands has had to stop construction in Macau of its huge Cotai Strip development opposite its Venetian complex which is intended to house various 5-star hotels as well as a casino. The Macau government has said -- according to the Financial Times- that it won’t allow any casinos to close and will take them over if necessary. However it seems that commitment does not extend to helping out partly finished projects.
  “If Las Vegas Sands cannot cough up its share of equity, the Singapore government is likely to step in,” said Donald Chua, an analyst at local stock broking firm CIMB-GK, in a research note. “A viable option would be a 49:51 joint venture between the Government and CapitaLand, with CapitaLand taking a controlling stake.”
  
  Singapore-based brokerage UOB Kay Hian added that the syndicate of banks providing the S$5.4bn ($3.6bn) debt facility for the construction of Marina Bay Sands could seek a new investor, hinting that they could turn to 40pc-Temasek-owned CapitaLand, a property group that was involved in unsuccessful bids for both casino licenses.
  
  CapitaLand has insisted that it has not held any talks with Las Vegas Sands but, at the same time, it said that it was “strategically watching the situation and studying opportunities related to distressed companies or assets.” And, despite Las Vegas Sands’ assurances, the Singapore Tourist Board stressed this week that it has a number of options should the project fail, including taking possession of the development site.
  
  While Temasek or CapitaLand may be able to pick up a stake in the Marina Bay casino on the cheap, gambling is one strategic industry that the government did not want end up owning. The government originally opted for international gaming companies like Las Vegas Sands and Genting because it thought they had the experience and clout to build world-class casino resorts that would attract gamblers from around the globe. While the Marina Bay Sands is unlikely to be re-branded as the Temasek Casino, whatever happens, gaming analysts doubt whether a government-backed resort would have the same draw.
  
  With the impact of the financial crisis only just starting to hit the global economy, there are likely to be more disappointments ahead for Temasek in the coming months. But Temasek is not required to disclose regular financial results, as it has been given the status of an exempt private company despite being owned by the Ministry of Finance. So the people of Singapore, whose money Temasek is ultimately controlling, will probably have to wait until summer, when the fund is expected to release its next annual review, to find out exactly how badly it has fared over the past year.
  
  Temasek also leaped heavily into one of China's highest profile, and perhaps more vulnerable, property developers, Country Garden. When it went public in Hong Kong in April 2007, Country Garden was the second largest IPO in Hong Kong history, with Temasek joining local tycoons Lee Shau Kee and Robert Kuok as key investors. According to the mainland financial magazine Caijing, a subsequent S$800 million convertible bond issue in Singapore in February this year was made on terms which suggest the company is very stretched and badly needs to keep its share price from falling. It is now little more than half its initial price and down 75 percent from its peak.
  
  Australia, once seen as a safe if unexciting location for Singapore cash, has also attracted top of the market deals from Singapore Power. Already well-established in Australia, it paid heavily in cash for the eastern Australia assets of pipeline company Alinta but with values in decline they have been unable now to flip them into their 51 percent owned local subsidiary SP Ausnet leaving SP meanwhile saddled with huge borrowings.

And on one of Singapore's popular forums, ChannelNewsAsia, this issue is fast getting massive attention: here

More Warnings From The Baltic Dry Index

The following post by blogger, London Banker, is worth a good read: Systemic Risk, Contagion and Trade Finance - Back to the Bad Old Days

• We are now starting to see the contagion effects of the current liquidity crisis feed through to the real economy. We are about to go back to the bad old days. Whether the zombie banks are kept on life support by the central banks and taxpayers of the world is highly relevant to whether the zombie bank executives pay themselves outsize bonuses and their zombie shareholders outsize dividends with taxpayer money. It appears sadly irrelevant to whether the banks perform their function of intermediating credit and commercial transactions in the real economy along the supply chain. The bailout cash and executive and shareholder priorities do not seem to reach so far.
  
  The recent 93 percent collapse of the obscure Baltic Dry Index – an index of the cost of chartering bulk cargo vessels for goods like ore, cotton, grain or similar dry tonnage – has caused a bit of a stir among the financial cognoscenti. What is less discussed amidst the alarm is the reason for the collapse of the index – the collapse of trade credit based on the venerable letter of credit.
  
  Letters of credit have financed trade for over 400 years. They are considered one of the more stable and secure means of finance as the cargo is secures the credit extended to import it. The letter of credit irrevocably advises an exporter and his bank that payment will be made by the importer's issuing bank if the proper documentation confirming a shipment is presented. This was seen as low risk as the issuing bank could seize and sell the cargo if its client defaulted after payment was made. Like so much else in this topsy turvy financial crisis, however, the verities of the ages have been discarded in favour of new and unpleasant realities.
  
  The combination of the global interbank lending freeze with the collapse of the speculative, leveraged commodity price bubble have undermined both the confidence of banks in the ability of a far-flung peer bank to pay an obligation when due and confidence in the value of the dry cargo as security for the credit if liquidated on default. The result is that those with goods to export and those with goods to import, no matter how worthy and well capitalised, are left standing quayside without bank finance for trade.
  
  Adding to the difficulties, letters of credit are so short term that they become an easy target for scaling back credit as liquidity tightens around bank operations globally. Longer term “assets” – like mortgage-back securities, CDOs and CDSs – can’t be easily renegotiated, and banks are loathe to default to one another on them because of cross-default provisions. Short term credit like trade finance can be cut with the flick of an executive wrist.
  
  Further adding to the difficulties, many bulk cargoes are financed in dollars. Non-US banks have been progressively starved of dollar credit because US banks hoarded it as the funding crisis intensified. Recent currency swaps between central banks should be seen in this light, noting the allocation of Federal Reserve dollar liquidity to key trading partners Brazil, Mexico, South Korea and Singapore in particular.
  
  Fixing this problem shouldn't be left to the Fed. They aren't going to make it a priority. Indeed, their determination to accelerate the payment of interest on reserves and then to raise that rate to match the Fed Funds target rate indicates that the Fed are more likely to constrain trade finance liquidity rather than improve it. Furthermore, the Fed may be highly selective in its allocation of dollar liquidity abroad, prejudicing the economic prospects of a large part of the world that is either indifferent or hostile to the continuation of American dollar hegemony.
  
  .If cargo trade stops, a whole lot of supply chain disruption starts. If the ore doesn’t go to the refinery, there is no plate steel. If the plate steel doesn’t get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers don’t buy. If the consumers don’t buy, there is no Christmas.
  
  Everyone along the supply chain should worry about their jobs. Many will lose their jobs sooner rather than later.If cargo trade stops, the wheat doesn’t get exported.
  
  If the wheat doesn’t get exported, the mill has nothing to grind into flour. If there is no flour, the bakeries and food processors can’t produce bread and pasta and other foods. If there are no foods shipped from the bakeries and factories, there are no foods in the shops. If there are no foods in the shops, people go hungry. If people go hungry their children go hungry. When children go hungry, people riot and governments fall....

Oh, and the Baltic Dry Index seems to have found a 'bottom' for now. The good news is that the Index has stopped its plunge. The Baltic Dry Index last closed at 856.

However, it does not appear to me that this is something to be happy about. Yes, it's good to see the index has stopped plunging but, for me, based at current index level and the longer the index stays at current levels, how could the shippers even survive? And the longer it stays at current levels, what's the index saying about global trade?

And on today's Business Times, Moody's has downgraded Asia-Pacific shipping industry outlook! It's rather too late for such a downgrade eh?

Moody's downgrades shipping industry outlook

• Rating agency Moody's has downgraded the Asia-Pacific's shipping industry's outlook from 'stable' to 'negative' for the next 12 to 18 months.
  
  The agency cited continued vessel overcapacity, weaker demand for commodities, and volatile prices for bunker fuel.
  
  The negative outlook applies to all three sectors: dry bulk, tankers and liners.
  
  "The excess of supply in vessels has worsened as growth in commodities demand has slowed, in line with the global economic downturn, the freezing in credit, lower consumption in the US and Europe, and volatility in currency and other financial markets. An easing in demand for oil is another factor," Moody's said in its report entitled "Asia-Pacific Shipping Sector: Preparing for Volatile Times".
  
  It said the excess supply is apparent in all three sectors and expected to take a long time to correct.
  
  Today, the order book for capsized bulk carriers is similar in size to that of the current global fleet. For the tanker sector, the order book for Very Large Crude Carriers (VLCCs) and Suezmax tankers is about half the size of current fleet capacity, and these new- builds will be delivered over 2008-2012.
  
  As for the liner sector, it has an order book for 6.5 million TEUs (20-foot equivalent units), representing 55 per cent of current fleet capacity.
  
  Moody's said rated issuers facing over-supply in vessels include PT Humpuss Intermoda Transportasi in dry bulk; MISC Bhd and BW Group Ltd in tankers; and Wan Hai Lines Ltd and MISC in liners.
  
  "However, MISC benefits from business with (parent) Petroliam Nasional Bhd and other major oil companies, and is thus partly protected from the over-supply situation," it added.
  Apart from vessel overcapacity, unstable operating costs - due primarily to volatile bunker costs - have also undermined profitability in all three sectors.
  
  Meanwhile, Moody's said while its industry outlook is negative, the rating outlook for most of its rated issuers is stable.
  
  The reason for this disparity is that rated shipping companies such as MISC, BW Shipping, NYK and MOL are supported by use of many of their vessels under long-term agreements, adequate liquidity, based on good access to bank financing, and diversified trade and vessel types.
  
  
  

Other past postings on Baltic Dry that matters

1. Views On Current Weakness On Baltic Dry Index

2. The Collapse of the Baltic Dry Index

3. Goldman Downgrades Bulk Shippers!

4. Baltic Dry Index Keeps Falling!

5. Baltic Dry Index Stages Strong Rebound!

6. Baltic Dry Index Set For Strong Recovery???

7. Baltic Dry Index Plunges To Seven Month Lows!

8. The Baltic Dry Index Keeps On Plunging!

9. Baltic Dry Index Continues To Plunge

10.The Plunging Baltic Dry Index And The Dangers Of Using Forward PE!

11. Baltic Dry Plunges Below 2000!!!

12. Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!

13. Comments Heard Admist The Plunging Baltic Dry Index ( recommended reading!)

14. Shipping Giant Neptune Orient Lines (NOL) Warns of Losses!

15. Massive Warnings From Shippers On Their Drying Baltic Dry Index

16. More Dry Bulk Update

Telekom Malaysia: Is There Anybody Out There?

The following article on Saturday's Starbiz from Errol Oh highlights the issues within Telekom Malaysia.

The double flip-flop as mentioned by Errol Oh was unreal.

• Crossed lines over TM dividends
  
  THE management of the turning point was when senior executives spoke to analysts in a conference call the following morning. TM’s representatives included group chief executive officer Datuk Zamzamzairani Mohd Isa and group chief financial officer Datuk Bazlan Osman.
  
  That day, the stock plunged 18% from Tuesday’s close of RM3.30 to end trading at RM2.79. The selldown continued on Thursday, pushing the share price to an intraday low of RM2.54 before it came to a rest at RM2.77.
  
  In response, TM issued a statement through Bursa Malaysia on Thursday to say the dividend policy “remains unchanged for 2009 and beyond”. That has helped calmed things down. The shares never fell below RM2.77 last Friday.
  
  The company calls the statement a reiteration of its stand on the policy. There are others who see it as a double flip-flop. At first, the policy was on. Then, it wasn’t. And then, it was on again.
  
  According to analysts who participated in last Wednesday’s teleconference, the attention shifted to the dividend policy when somebody noticed that the dividend policy statement in TM’s presentation contained the phrase “in the current year”.
  
  (It’s interesting to note that last week’s quarterly report contains these lines: “Due to the global economic uncertainties, the board of directors expects TM’s performance for the financial year ending Dec 31, 2008 to remain challenging. However, TM continues to be committed to its current year dividend policy.”)
  
  To the analysts, the reference to the current year was an indication that TM might not stick to the policy after 2008. They asked questions to clarify the matter, but analysts who spoke to BizWeek say the TM management was tentative and vague when pressed about its commitment to the policy.
  
  The main point that the analysts gathered from the management was that the dividends for future years will depend on the excess cash available.
  
  To the analysts, that’s a departure from the dividend policy articulated in December last year, when TM announced the demerger plan that led to the listing of TM International Bhd. For some investment houses, it was a development that merited a downgrade of the stock. Thus, we saw the heavy selling.
  
  The investment case for TM is built largely on its ability to pay generous dividends. A big chunk of its earnings come from mature and stable businesses such as fixed-line voice and data, and these provide a steady cash flow. This makes TM shares a safe haven and this is essentially how TM positions itself with investors.
  
  However, when it appeared that the management did not stand solidly behind the dividend policy during the teleconference, it was seen as a signal that all bets were off. The analysts and investors wondered if TM’s growth plan would be more aggressive than expected, and thus would leave it with less cash to distribute to shareholders.
  
  TM’s announcement on Thursday may have dispelled these doubts, but in the first place, how did things go wrong in a routine conference call?
  
  There are two possibilities. One, it was never TM’s intention to drop the dividend policy but the management somehow failed to get this message across clearly during the teleconference. Two, the TM management indeed wanted to revise the policy but had a change of heart after the stock got a pummelling.
  
  Either way, the management underestimated the importance of what it needs to say about the dividend policy. Sure, the policy is never meant to be a guarantee, but it’s nevertheless central to how analysts and investors evaluate the stock. If TM is adhering to the policy, there shouldn’t be any ambiguity in telling the analysts so.
  
  On the other hand, if TM is convinced that the circumstances have changed since last December, to the point that the dividend policy can’t no longer be upheld, the management should be upfront, lucid and persuasive about it. It would be bad news for the investors, but not as bad as being blindsided by a stealthy switch.

And it's not a shock to me that Credit Suisse has quickly downgraded the stock to UNDERPERFORM with a TP of rm 2.30!

I am lucky enough to get a hold of that copy and here are Credit Suisse reasoning.

• In a surprising conference call with investors, Telekom Malaysia's management stated that its dividend policy (RM700 mn, or 90% of normalised PATMI), which in our view underpins the value of the stock, was now under review for FY09.
  
  Rather than focussing on maximising cash flow generation from existing operations, management's strategy seems to be shifting towards more aggressive investment in non-core areas (e.g. IPTV, content, business process outsourcing) in an attempt to grow.
  
  Following very weak 3Q08 headline results (due to a variety of 'one-off' items), we have cut our FY09 EBITDA and net profit forecasts by 12.6% and 46.2%, respectively. Our FY08 headline earnings forecast has been revised down by 64.1%.
  
  Our DCF-based target price declines by 42.7% from RM4.02 to RM2.30, on assumptions of structurally lower EBITDA margins, and an increase in WACC from 9.9% to 13.0% (earnings and dividend certainty is now under threat). Rating downgraded from Outperform to UNDERPERFORM.
  
  Dividend policy amended (negatively)
  In a surprising conference call with investors, management confessed that a subtle change in wording in its presentation, which stated that the company was committed to a dividend policy of RM700 mn, or 90% normalised PATAMI, whichever higher, in the current year was in fact a statement that the dividend policy (which underpins the valuation of the stock) was effectively under review for subsequent years.
  
  Root of the policy change seems to be a thirst for growth ...
  Telekom Malaysia's balance sheet remains very healthy and in our view it is easily strong enough to meet our previous dividend forecasts. Thus, the problem seems to lie with the willingness of the management team to pay out, rather than with the ability of the balance sheet to meet the payment.
  
  As to why management has changed its view in this way, the issue seems to be with what we have previously highlighted as the key risk facing Telekom Malaysia - the government's high-speed broadband project (HSBB). While we have recognised that value will likely be destroyed by the project, to the tune of RM0.60/share, the wider concern is that management now sees the rollout as a platform for growth into other areas, most notably IPTV. As set out in our recent report (published 17 June 2008) "7.7% dividend yield offsets HSBB risk", we have harboured concerns that Telekom Malaysia's execution on cutting costs as the new network is rolled out, and more specifically harvesting revenue opportunities from the content space (an area outside of Telekom Malaysia's core competency), carries significant risk to the downside.
  
  Unfortunately it seems that, rather than dissuading management from being overly aggressive in this strategy, the opposite has occurred; management is so keen pursue the perceived opportunity that it is prepared to use the cash flows of the existing business to support the plans. The lure of (potential) growth seems to have proven too strong to resist, perhaps because of the difficulties involved in seriously addressing the cost base should revenue falls accelerate.
  
  .. in contrast to Telekom Malaysia's original mandate
  We would highlight that this change in strategy seems to go against both the spirit and the explicit terms set out in the split documentation which shareholders of Telekom Malaysia approved. The concept was that TM International Snd Bhd (TMIT.KL, RM4.40, OUTPERFORM, TP RM7.50) would be the growth vehicle, while Telekom Malaysia would be the stable cash cow.
  
  Earnings cut on very weak 9M09 results ..
  While Telekom Malaysia continues to report "normalised" EBITDA in line with our previous forecasts, the list of "one-off" costs continues to grow quarter on quarter. We had previously been prepared to ignore this given the policy of paying out on the basis of normalised PATAMI. However, it is becoming clear that some elements of what are being termed "one-off" items are structural, and we are now even less optimistic on Telekom Malaysia's ability to control operating costs going forward given the desire to expand into new areas.
  
  We have therefore cut our FY09 EBITDA and net profit forecasts by 12.6% and 46.2%, respectively. Our FY08 headline earnings forecast has been revised down by 64.1%, largely due to various one-off costs, including 3Q08's RM195.7mn loss on foreign exchange.
  
  Most importantly, we have revised down our DPS estimate for FY09 by 46.2%, from 27 sen to 15 sen. While Telekom Malaysia could of course afford to pay out an additional RM1.06/share, if net debt were taken to 1.5x EBITDA, there is now an unwelcome question mark over whether or not management will be willing to actually do so. We downgrade our rating to UNDERPERFORM.
  
  
  

The Difference Between Conviction and Stubborness

Today I saw this posting in a forum titled: The Difference Between Conviction and Stubborness

• When is holding on to your beliefs considered foolish stubborness, and when does it constitute "conviction" ? Look at it this way, when Warren Buffett refused to buy tech stocks during the dot.com bubble, he was criticized as being out of fashion and out of touch. But books have always mentioned (on hindsight) that he stuck to his guns and had "conviction" to stick to his beliefs, and thus avoided the inevitable crash that followed.
  
  To take another example, another investor stubbornly holds on to his beliefs that a company/industry is good and growing, yet he is actually wrong and the investment goes on to perform badly in the next 5-8 years.
  
  So how do we separate "conviction" from "foolish stubborness" ? Objective data may guide us, but as the future is always murky, there is no such thing as a sure thing.
  
  Note that mistakes of omission (i.e. not buying something which you SHOULD have, on hindsight) are always easier to bear than mistakes of commission (i.e. buying something which you SHOULD NOT have). In the former, it's just opportunity cost. In the latter, you lose real hard cash.

I like the following reply by d.o.g.

• Speaking for myself, I think "conviction" is when you follow the course of action suggested by the facts, against the actions of the herd. But I think Benjamin Graham said it better in chapter 20 of The Intelligent Investor:
  
  You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
  
  "Foolish stubborness" is when the facts subsequently show that the initial decision was wrong, and yet one continues with the old conclusion.
  
  In other words, conviction can easily turn into stubborness if we are not insistent about staying rational i.e. focused on the facts.
  
  Personally, when the facts change, I change my mind. What about you?

Yes, what about me? For me, this reminded me so much of the post I wrote back in June 2008. I wrote the following posting: Do Not Be Stubborn In Investing!

That post would be my view on this issue. Let me reproduce what I wrote back then again.......

======>

Blast from past. From Sun Tzu On Investing

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Sun Tzu often warned his generals that it is adaptive strategy that win wars, not persistence.

Persistence can be a fine quality, but blindly, stubbornly and obstinately pushing ahead in the wrong direction is not going to make you more successful.

Your persistence must be rational.

Stubbornly holding onto losing stocks as their business fundamental decay, hoping they magically return to your purchase price is no way to ensure victory, in fact, it all but guarantees defeat.

When the evidence says sell, then sell. Be persistent in the application of your strategy, not in banging your head against the wall or burying it in the sand. Be open to accept new information, face facts and take action as necessary. Ignoring important business developments in your portfolio won't make them go away.

Selling a stock that no longer measures up, or one that was purchased without accurate or complete evaluation is not admitting a mistake or any cause for embarrassment, it's just one more necessary, even essential step toward victory.

If the stock price rises after you sell, don't be frustrated - you made a rational decision, the best you could based on the information you had at the time - and over your investing lifetime this rational approach will win out.

You invest your time and your energy into every business analysis, so after a sell decision you need not write off the company forever. If the business prospects and fundamentals improve later, you can and should reconsider repurchasing. Each decision must be viewed independently from previous decisions. Selling as fundamental decay is essential, as it frees capital to be redeployed into another productive investment.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Ahh... the most common behaviour I have seen is one tends to be frustrated because after we had decided to sell the stock, that darn stock decides to move up!

Celaka betul!!!

Haven't we not witnessed this before?

It's like we are the sole reason why that rotten piece of stock is NOT moving, and the minute we sell, it flies! It's like they know. It's like they have them eyes on me!

And even for the investor, sometimes after the most intense thorough reasoning, sou searching and consultation from our Auntie May to Uncle Bennie, we finally come to the conclusion that the certain stock is not worth to be invested in anymore. And the very minute we finally gathered all our courage to execute our SELL decision(s), the stock miraculously rises!

Aisehman! #%$^(*@#

Err... so what gives?

Yes, being frustrated is understandable but what else can be done?

Nothing more! I repeat nothing more!

The point is, in the stock market sometimes this kind of stuff does happen, and it would most likely to happen again in the future! This is simply how the game is. All can we can do is say 'Que Sera Sera'!

For me, there is no way I could tell whether a stock is gonna go up or down. It is mere impossible for me to figure out which way the stock is really going to go. Haven't we seen them bad to the bone, them rotten stocks, them almost bankrupt stocks, go up faster than Iron Man on some rocket booster?

It does happen but for me, trying to catch which and when these rotten stocks will go up is the equivalent of buying a lottery ticket.

I simply cannot do it.

Again, let me say out loud again, I am not saying that it cannot be done, all I am saying is that I realise I do NOT have the abilities to play such a game.

And in my opinion, for the investor, the most important issue is making clear logical reasoning to invest in a stock or to stay invested or to cash out of a stock investment. That's the investors edge. Making commonsense investing decisions. That's all that matters. If we take this edge away from ourselves, what then will become of we? Does it make sense to try to play a game that we don't understand too well just so long as we can be a hero?

Remember..

• Without faith in his own judgement no man can go very far in this game! - - Lefevre

Or this one.

• "A man must think for himself, must follow his own convictions...Self-trust is the foundation of successful effort." - Dickson G. Watts

So what's our investment edge?

The very basic of our edge is we buy a 'good' stock at a cheap price and we sell the investment when either we get a really 'good' price (ie some paying an insane price for our investment stake... but how could i call it insane since this will be a good thingy for me? :P) for our investment or if the investment makes no sense anymore - ie the stock used to be good, but due to for some reasons or another, there are clear signs that the stock won't be good no more! And obviously we also sell if and when we made an investment mistake, ie a wrong stock selection.

Remember the issue of making mistakes? Here's some words of advice yet again...

There is no shame in making a mistake. Despite a great deal of research and analysis, I make plenty of them -- and so does every other investor -- because the future is inherently unpredictable. But there is shame in refusing to acknowledge a mistake and rectifying it. - - Warren Buffett

So if a stock goes up after we decided to sell (ie the stock investment makes no sense no more), what's there to be frustrated?

Should we continue to stick to our game plan and not get bothered? (see this blog posting: Developing A Good Investing Mindset )

Or should we try to get the best possible price out of our mistakes?

(Isn't this like HOPING for the market to correct our mistakes?? Does it make sense? Are we even that lucky all the time that the market will rectify our mistakes? What if that one mistake wipes us out of the game? How then?)

Or some would rather stay delusional by insisting that their paper losses caused by their own flawed stock picking is not real. It's only paper!!?!! ( See Is Paper Loss Not A Loss? and Do Not Cheat Yourself! )

Lastly...

• "ppersistence can be a fine quality, but blindly, stubbornly and obstinately pushing ahead in the wrong direction is not going to make you more successful"...

How very true!

Remember ... there is a verv, very fine line between being correct and being stubbornly wrong... hence it is most important that one's persistence must be rational!

Last but not least, in Buffett Partnership letters (July, 1966) there was this really little set of comments which is simply much, much, much better! (Aiyah.. he's the man, Warren Buffet mah!)

• "The course of the stock market will largely determine... when we'll be right, but the accuracy of our analysis will determine whether we'll be right. In other words, we... concentrate on what should happen, not when it should happen... If we start deciding, based on our guesses or emotions, whether we will... participate in a business where we... have some long-run edge, we're in trouble. We will not sell our interests in businesses when they are attractively priced just because some astrologer thinks the quotations may go lower even though forecasts... will be right some of the time... The availability of a quotation for your business interests should always be an asset to be utilized if desired. If it gets silly enough in either direction, you will take advantage of it. Its availability should never be turned into a liability whereby its periodic aberrations in turn form your judgements."

More Views On CSC Steel

Here's an update on CSC Steel from OSK Research.

• A Bumpy Ride Ahead
  
  With the steel sector’s outlook turning gloomy and the Chinese Government’s recent moves expected to make things worse for the flat steel market, we are revising downwards CSC Steel’s numbers by 47.8% for FY08 and 37% for FY09. Nevertheless, as its share price has halved from its year peak, we think the market has already priced in the potential losses, hence we are only downgrading our call to NEUTRAL. We have toned down our valuation parameters to 5x FY09 EPS, in line with our newly revised steel sector PER, translating to a lower TP of RM0.91.
  
  Hiccups. When annualised, CSC Steel’s 9M figures came in well within our original projection, even surpassing our full-year projection after incorporating a provision of RM30.2m on diminution in value of inventory. The performance is attributed to (i) the peak in average selling prices (ASP) in July ’08 expanded margin in the early part of 3Q but quickly turned into the red after a sharp plunge in ASP, (ii) customers holding back on purchases in anticipation of a further drop in ASP, thus overall sales fell 10.7% q-o-q, and (iii) the utilisation of investment tax allowance and other incentives lower the effective tax rate to 4.1%.
  
  4Q likely in the red. While we had earlier expected a challenging 2H given the traditional summer season correction (refer to our last results review), the sector outlook is now worse than originally projected due to the worsening financial turmoil. Compared with integrated long steel players that need to write down approximately 10% of their inventory value, we suspect CSC Steel may need to provide for 15% to 20% based on a sharper drop on flat steel’s ASP. Thus, the RM30.2m provision in 3Q which translates into 8.9% of the company’s inventory before provision, suggests that there would be more write-downs in the upcoming quarter. As sluggish steel demand suggests the company’s operation will merely break even at best in 4Q, we have revised downwards our FY08 profit estimates by 47.8%, or a potential RM32.9m loss in the next quarter.
  
  Outlook for 2009 murky. We also suspect that the losses could possibly extend into the following quarter if ASP weakens further should global steel giants manage to secure a significant discount for their contracted iron ore. Although spot iron ore, steel scrap, other ASP and its demand rebounded slightly the past few days, the abolishment of export tax for hot rolled coil (HRC) by China’s Government may put further pressure on the company’s product ASP. We have high expectation that the company’s new rolling plant commissioned last year will enhance CSC Steel’s profitability.

Ooh. OSK expects CSC to report losses for the next quarter and as expected, OSK did not comment on CSC larger than normal investment in marketable securities as mentioned in earlier blog posting: Regarding CSC Steel'sCurrent Earnings And Its Investments In Marketable Securities

RHB Research on the other hand was less than optimistic with CSC. It has CSC as underperform with a much lower target price of only 69 sen! OSK TP is at 91 sen!

• ♦ Within expectation. 9MFY12/08 net profit came in at 93.7% of our fullyear forecast. However, we consider this within our expectation as we expect 4Q to weaken significantly on the back of weaker re-stocking activities by steel stockists, who tend to hold back on buying when steel prices are trending down.
  
  ♦ YoY. Despite RM30.2m inventory writedown during 3QFY12/08, 9MFY12/08 net profit still rose 55.9% to RM100.9m thanks to higher CRC price, particularly during 2QFY12/08 that also boosted buying activities.
  
  ♦ QoQ. On a qoq basis, net profit fell 44.8% to RM27.3m mainly due to RM30.2m inventory writedown to reflect a sharp decrease in CSC’s inventory value.
  
  ♦ Future prospect. Looking forward, we expect CSC’s performance to deteriorate over the near term as price outlook for flat steel products in the international market has weakened on the back of global economic slowdown.
  
  ♦ Risks. The risks include: (1) Worse-than-expected dumping activities by steel producers from China in the international market; and (2) Weakerthan- expected steel consumption.
  
  ♦ Forecasts. Unchanged.
  
  ♦ Investment case. Indicative fair value remains unchanged at RM0.69 based on 5x FY12/09 EPS, in line with our benchmark 1-year target forward PER of 5x for the steel sub-sector. Maintain Underperform.

Charlie Rose Talks To Warren Buffett

This Charlie Rose exclusive interview with Warren Buffett is dated 1st October 2008.

Charlie Rose's Interview With Bill Ackman

Finally got to embed the google video to my posting!

Which means I am going to re-post this posting again!

A conversation between Charlie Rose and Bill Ackman, major investor and hedge fund manager of Pershing Square Capital Management LP. 11th November 2008.






http://www.charlierose.com/view/content/9498

It's a must watch!!

Massive Warning From Parkson Retail Group!

Read the following article published on Business Times: Parkson plans aggressive promotion in China

• Parkson plans aggressive promotion in China
  
  Published: 2008/11/15
  
  PARKSON Retail Group Ltd, the Beijing-based department store chain controlled by Malaysia’s Lion Group, plans aggressive promotions at some stores to combat an expected slowdown in consumer spending in China.
  
  The promotion will be introduced in China’s export-driven coastal region which will be “badly affected” by any recession in developed countries and where unemployment is expected to rise, the company said in a release to Hong Kong’s stock exchange yesterday.
  
  Consumer spending may be hurt in China as economic growth weakened to 9 per cent in the third quarter, the slowest pace in five years. Growth in the retail industry is expected to “moderate” as the global financial turmoil will slow wage and economic growth in China, Parkson said.
  
  “More job losses and the slowing economy are hitting consumer spending,” Fiona Wong, Hong Kong-based consumer analyst at Sun Hung Kai Securities, said before the earnings announcement. “I would be quite worried about their fourth-quarter sales performance.”
  
  The company said the measures were aimed at combating short-term challenges as it believes the Chinese government’s 4 trillion yuan (US$586 billion) stimulus package aimed at sustaining growth “will take time to materialise”.
  
  The retailer said third-quarter profit rose 27 per cent to 190.3 million yuan (US$28 million) as sales rose 23 per cent to 2.4 billion yuan. Same-store sales grew 14.4 per cent.
  
  Profit for the first nine months of the year rose 36 per cent to 608.9 million yuan, as sales rose 23 per cent to 7.6 billion yuan.
  
  The supermarket operator has bought out partners this year and said in May it will buy stakes in two stores from parent Parkson Holdings Bhd for 240 million yuan. - Bloomberg

Definitely not looking good at all for Parkson and if I remember correctly, Parkson has always been priced as a super growth stock commanding a very much higher earnings multiple for its stock price. Now the company itself is declaring that it plans an aggressive promotion to combat the slowdown in consumer spending! And if this is the case, I reckon Parkson could be re-rated much lower as it would lose its super growth stock status and it would also lose its command of its high earnings for its stock price!

Bill Miller's Q3 Shareholder's Letter

Highly recommended reading: http://www.leggmason.com/individualinvestors/documents/insights/D6485-MillerShareholder.pdf

I would highlight two passages. Firstly his apology.

Guys like Bill Miller are true legends. He acknowledges his mistakes made. Unlike some other delusional investment advisers/fund managers.

• The Current Crisis
  
  The current crisis is in its second year, and it is only in the past 30 days that effective policies to deal with it are finally being implemented. The policy response prior to this can only be described as disastrous, culminating in the decision to let Lehman Brothers go bankrupt, a decision widely and, we believe, correctly seen to have been a mistake of historic proportions. This decision created a whole new crisis in the global credit markets, which, combined with the existing housing-related crisis, brought the financial system to the point of collapse.
  
  I think the Treasury, up until very recently, must have been operating under the motto of Boris Johnson, mayor of London, who said, “My friends, as I have discovered myself, there are no disasters, only opportunities. And, indeed, opportunities for fresh disasters.”
  
  That of course, applies to us as well. General Douglas MacArthur has famously remarked that every military disaster can be summed up in two words: “Too late.”
  
  That certainly applies to this crisis and to our response to it. The authorities and we were too late to recognize the scope and seriousness of the unfolding crisis, and too late to take the appropriate action. When Federal Reserve Board Chairman Ben Bernanke and others repeatedly said the crisis was contained, we thought that the probabilities were that it was—they had far more information and far more resources than anyone in the private sector to make that judgment. We were both wrong.
  
  This is not the venue for a complete analysis of policy failures, nor is it my desire to blame policymakers for their errors. I have made enough mistakes in this market of my own, chief among them was recognizing how disastrous the policies being followed were, yet not taking maximum defensive measures, believing that the policies would be reversed or at least followed by sensible ones before things got completely out of control. In this market, our long-term orientation and optimism about the future have not served us well.
  
  I believe the present phase of the crisis was initiated by the politically popular but, in my judgment, economically disastrous decision to nationalize Fannie Mae and Freddie Mac (the GSEs)1 on September 7. The best analysis of this, in my view, has been done by famed economist Anatole Kaletsky of GaveKal Research, whose two papers, “The Unintended Consequences of Mr. Paulson” and “The Financial Doomsday Machine” are required reading, in my opinion. Some of the more historically minded of you may recognize the title of the first as harking back to John Maynard Keynes’s 1925 work, “The Economic Consequences of Mr. Churchill.”
  
  The stock market had been recovering from its July 15 low, with the S&P 500 Index rising nearly 100 points by the end of August. Even the GSE’s stocks had been rising. Then the seizure happened, and a bit over a week later Lehman went bankrupt, Merrill was sold to Bank of America, and AIG was “rescued,” again nearly wiping out shareholders. The day after the GSEs were seized, AIG stock was $24. Eight days later it opened at $1.85.
  
  The GSE nationalization created what Karl Marx would have called a “contradiction” in the capitalist system. The contradiction was that the government repeatedly said financial institutions needed more capital, and that it wanted private capital to solve the problem. But the government also indicated that if it needed to provide additional assistance in the future, then shareholders who had provided capital should be completely or mostly wiped out. Private capital will not be forthcoming if it believes it is the policy of the government to wipe it out should intervention later be necessary. Still, prior to the seizure, there had been enough private capital around to put large amounts of money into Merrill Lynch, AIG and Lehman. But when the government preemptively seized the GSEs, not because they needed capital and could not get it (Fannie Mae had $14 billion in excess capital, and Freddie Mac several billion above regulatory requirements), but because the government believed they would run out in the future, then shareholders of every other institution that needed or was perceived to need capital did the only rational thing they could do — sell, in case the government decided to preemptively wipe them out as well.
  
  This made it effectively impossible for any institution, except those who manifestly did not need it, to raise capital. John Thain at Merrill recognized this immediately and salvaged something for Merrill shareholders. The bankruptcy of Lehman, though, ushered in a whole new stage of the crisis.
  
  Heretofore, when financial institutions failed or were seized, their creditors suffered no losses. Bear Stearns creditors were protected, as were those of the GSEs. Lehman, though it was twice the size of Bear Stearns, was allowed to go bankrupt. Creditors who had investment-grade paper on Friday had worthless paper on Monday, leading the oldest money market fund, the Reserve Fund, to “break the buck,” and precipitating a complete freezing up of all short-term credit markets as no one knew whose paper could be trusted.
  
  As I noted earlier, this now seems to be recognized by many as a monumental policy error. (I think it is still widely held that the GSE seizure was good policy, though. If so, it is awfully difficult to account for the financial collapse of all those institutions so close on the heels of what was supposed to be a confidence-building policy decision.) This is not the place for further discussion of the aftermath of Lehman. The question for investors is, where are we now and what of the present policy?...

Lastly, the following passage is probably what most investors seek and want to read about.

• The Current Investment Environment
  
  What should one make of an investment environment where the major indices are down 40% to 50% or more, credit markets are completely disrupted, housing prices are falling for the first time in 70 years, bond spreads are at record highs, consumer confidence has plunged, and fear is palpable? If you have been hoarding cash waiting for the collapse, you feel vindicated, maybe even gleeful. If, like many of us, you have been carefully acquiring assets, building up capital, investing for the long term, trying to ignore market fluctuations, you feel sick, maybe even disillusioned, at the scale of the losses to date.
  
  There is little dispute among knowledgeable investors that U.S. (and global) equities are extraordinarily attractive on a wide variety of measures based on historical standards. The worry is they may go a lot lower before they eventually recover, as the current crisis unfolds and as the economy undoubtedly gets worse. This worry is legitimate. After all, to most of us, stocks seemed quite cheap at the end of September, and now they are a whole lot cheaper. So what to do? The data indicate there is now a mountain of cash on the sidelines, enough in money market funds to buy about half the market capitalization of the S&P 500.
  
  One of the most important bullish signs has been little remarked upon. The monetary base, which consists of cash in circulation or in banks, had been decelerating during the entire time the Fed had supposedly been injecting liquidity into the system since last August. Thus, the amount of what economist Milton Friedman called high-powered money to stimulate the economy was decelerating, and so was the economy as the crisis continued. Now, though, the base is exploding as the Fed has finally turned up the liquidity pump. Since just after the GSE seizure, the Fed began expanding the monetary base, so far by over $300 billion, an unprecedented increase. It takes a while for all that liquidity to find its way into the system, but find it, it should, and the transmission mechanism is typically through capital markets first. As it does so, the odds are very good credit spreads will begin to decline sharply and equity prices rise.
  
  It is an old cliché that they don’t ring a bell at the tops and bottoms of markets, but it is not entirely true. Occasionally someone climbs up in the belfry and does just that, as a public service, but knowing that few are likely to heed the bell. That someone is Warren Buffett, and the reason he is one of the richest men in the world is that he understands asset values and human behavior as it relates to those values better than anyone. In 1974, which prior to now was the worst bear market since the 1930s and the best buying opportunity since then, he recognized that the values were compelling and advised that the time was right to start investing. In 1999, he warned that prices were very high and future rates of return likely to be far below normal. Sure enough, the trailing 10-year return on stocks is now negative, something seen only a few times in history, and an event that has historically heralded strong returns over the next 10 years. Mr. Buffett has returned to the belfry to ring the bell again, with his October 17 New York Times piece saying to buy American stocks, that the values are once again exceptional. His partner, Charlie Munger, has also recently remarked that we are setting the stage for a 10- or 15-year bull market. Once again, few are paying heed.
  
  We are.

Regarding CSC Steel'sCurrent Earnings And Its Investments In Marketable Securities

Blogged just the other day: Apollo Food's'Investments' In The Share Market ( See also Listed Companies Investments: Yung Kong Galvanised Steel )

My point was:

• I have always felt uneasy seeing our local listed companies dabbling with their excess money. Sometimes they invest in the share market and sometimes they just invest! And one of the most disturbing issue is that there is ZERO transparency!

Today, one of the stocks that I had blogged on before, Ornasteel (now known as CSC Steel), had just reported its earnings. Yes, its Q-Q earnings declined drastically but that's not what I want to focus on.

Back in May, I made an update on this company, Update on OrnaSteel

In which, I wrote the following issue as a concern:

Now in yesterday earnings notes, CSC Steel has made much more investments!

• The status of the Group’s investment in marketable securities as at the end of the reporting quarter is as follows:-
  
  (i) at cost: RM56.240 million;
  
  (ii) at carrying value: RM56.956 million; and
  
  (iii) at market value: RM56.956 million
  

I argued then the amount which CSC Steel (Ornasteel) dumped into the marketable securities were getting out of hand because the previous quarter, Ornasteel only had some 30+ million invested.

On Aug, CSC Steel announced the following set of earnings: Quarterly rpt on consolidated results for the financial period ended 30/6/2008

Note at market value, the investment was worth some 57.159 million and its cost was 56.240 million.

And of course, the transparency issue sticks out for CSC does NOT state what these marketable securities are.

Surely, if one is a shareholder, this is a deep concern yes? 56.240 million and CSC Steel does not even want to state what exactly these marketable securities are.

With the current global decline in market securities, I was most interested to check out how CSC Steel fared in their latest quarterly earnings report.

Yet once more, I was shocked at the lack of transparency.

Look at the issues to be considered.

1. CSC was extremely active in this quarter. It purchased some 9.9 million worth of marketable securities and disposed some 10 million worth of marketable securities! But what exactly are these marketable securities?

2. Look at the current market value. I find it 'strange' to see that these marketable securities, despite plunging global market prices, to be the same as what it had reported the previous quarter.

3. Under CSC Steel's cash flow, it states the following:

Ah. The marketable securities appears to be Unit Trust Funds! Now don't you want to know what kind of funds these are? What if there are commodity-linked funds?

4. But look at the size of their investment in these Unit Trust Funds. CSC has cash balances of 7.361 million and bank deposits of 9.5 million but it's Unit Trust Funds investments totals a whopping 57.336 million!!!! Surely, one has the rights to question if CSC Steel management has got their priorities correct or not! Is CSC an investment company or is it a steel manufacturer?Why is CSC investing such a big portion of their total cash into Unit Trusts given the current global credit crisis? Why?

5. The current quarterly earnings is for quarter ending 30th Sept 2008. Most Unit Trust Funds are down since then. As mentioned earlier, what if there are commodity-linked funds?

Come next quarter, what can the shareholder expect of CSC Steel?

CPO Predictions Getting Lower And Lower!!

It was just on Tuesday that famed expert, Dorab Mistry called that CPO could go as low as MYR 1200.00/ton. (Do note that it was just last month that Dorab Mistry Reckons That CPO May Have To Fall To MYR1,600 To Boost Demand )

• DJ CPO Hasn't Bottomed Out Yet; May Fall To MYR1,200/Ton-Analyst
  
  KUALA LUMPUR (Dow Jones)--Crude palm oil prices haven't bottomed out so far and may fall to MYR1,200 a metric ton incase crude oil falls to $50 a barrel, Dorab Mistry, a London-based vegetable oils analyst, said Tuesday.
  
  CPO prices may hover around MYR1,600/ton provided crude oil trades at $80/barrel, Mistry said addressing the China International Oils and Oilseed Conference in Guangzhou.
  
  "Looking at the macro-economic situation, the outlook for demand and excellent weather worldwide, it is premature to talk of a bottoming out (of prices)," Mistry said.
  
  The benchmark January contract on Malaysia's derivatives exchange is currently trading around MYR1,600/ton.
  
  "The MYR1,600 can't be said to be a bottoming price. In a historical perspective, this price is almost mid-range."
  
  He said growth in demand for vegetable oils will be affected amid the current economic turmoil.
  
  Mistry said soyoil prices could fall to $500/ton, free-on-board. Soyoil is currently being offered around $745/ton.

And here comes CSLA with the MYR 1000.00/ton forecast for 2009!

• CLSA sees palm oil at RM1,000 in 2009
  
  Published: 2008/11/14
  
  THE price of palm oil may average 32 per cent lower next year, partly because of oversupply and fading demand for biofuels, CLSA Asia-Pacific Markets said.
  
  Palm oil will probably fetch RM1,000 (US$278) a ton in 2009, and RM1,250 in 2010, analysts at CLSA Asia-Pacific Markets in Kuala Lumpur said in a report today, slashing forecasts for the next two years by 46 per cent and 32 per cent, respectively.
  
  Palm oil, down 58 per cent in the past six months, yesterday closed at RM1,480 in Malaysia. Malaysia is the world’s second-largest producer of the edible oil. - Bloomberg
  
  

Have We Seen The Bottom Or Are We Seeing Yet Another Bear Market Rally?

How? Markets are rallying yet once more.

The Dow swung 911 points today, posting its biggest trading range since October 13. The index closed 11% above its session low, erasing yesterday’s losses and snapping a three-day losing streak.

Have we seen the bottom or are we seeing yet another bear market rally?

Here are some interesting comments from Kathy.

• In every major bear market, there are relief rallies and that is what we have seen today. The Dow Jones Industrial Average dropped more than 300 points during the US trading session before reversing violently to end the day up more than 550 points. The major turnaround in equities has forced the US dollar to give back its gains.
  
  However as much as I would love to see the global unwind come to an end, the continued weakness in US economic data makes me really skeptical of this rally. Nothing is behind the move other than short covering. Therefore this could be more of mirage than a bottom for currencies and equities.... full article here

Exploring Why International Reserves Are Falling

On today's market wrap on FinancialSense, market commentator explores an interesting issue, Strange Case of Falling International Reserves Explored

• ... The enormous growth of reserves in China are a direct consequence of billions of US dollars invested in China and deposited in Chinese banks by US supranational firms. These US firms are using Chinese contract manufacturers or US subsidiaries to produce cheap goods for the US market and elsewhere. This requires the People's Bank of China (PBOC) to buy US securities as reserves against US firms' massive bank deposits in country... full article here

See also THE STRANGE CASE OF FALLING INTERNATIONAL RESERVES by Hugo Salinas Price.

Market Is Still In A Limbo As Libor For Dollars Climb!

On Bloomberg news..

• Libor for Dollars Climbs; Three-Month Rate Snaps 23-Day Decline
  
  By Anchalee Worrachate
  
  Nov. 13 (Bloomberg) -- The cost of borrowing dollars for three months in London rose, snapping a 23-day decline, signaling policy makers have yet to succeed in thawing the global credit freeze.
  
  The London interbank offered rate, or Libor, that banks say they charge each other for such loans increased almost 2 basis points to 2.15 percent today, according to British Bankers' Association data. The last time the rate climbed was Oct. 10. The overnight rate also rose 2 basis points, to 0.40 percent, or 60 basis points below the Federal Reserve's target rate.
  
  Declines in money-market rates may be petering out amid signs the financial crisis will persist and is spreading to the global economy. U.S. Treasury Secretary Henry Paulson said yesterday he plans to use the second half of the $700 billion financial-rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.
  
  ``The market is still in a limbo, and Paulson's statement yesterday doesn't help,'' said Robin Marshall, head of international fixed income in London at NCL Smith & Williamson, which oversees about $20 billion in assets. ``It's true U.S. policy makers have done a lot to address important issues, but given the magnitude of the problem, the $700 billion package is looking too small rather than too big.''

read rest of the news article here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aK7aQmjuKGKs&refer=worldwide

Looking Back At Berkshire's 2007 Shareholder Letters

Was reading Warren Buffett's shareholders letters again, Given the current malaise in the markets, I thought it be good to highlight the following passages again, given what has happened now. ( See page 18 , http://www.berkshirehathaway.com/letters/2007ltr.pdf )

• The average holdings of bonds and cash for all pension funds is about 28%, and on these assets returns can be expected to be no more than 5%. Higher yields, of course, are obtainable but they carry with them a risk of commensurate (or greater) loss.
  
  This means that the remaining 72% of assets – which are mostly in equities, either held directly or through vehicles such as hedge funds or private-equity investments – must earn 9.2% in order for the fund overall to achieve the postulated 8%. And that return must be delivered after all fees, which are now far higher than they have ever been.
  
  How realistic is this expectation? Let’s revisit some data I mentioned two years ago: During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually. An investor who owned the Dow throughout the century would also have received generous dividends for much of the period, but only about 2% or so in the final years. It was a wonderful century.
  
  Think now about this century. For investors to merely match that 5.3% market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last.
  
  It’s amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands, such as 14,000 or 15,000. If they keep reacting that way, a 5.3% annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?
  
  Dividends continue to run about 2%. Even if stocks were to average the 5.3% annual appreciation of the 1900s, the equity portion of plan assets – allowing for expenses of .5% – would produce no more than 7% or so. And .5% may well understate costs, given the presence of layers of consultants and highpriced managers (“helpers”).
  
  Naturally, everyone expects to be above average. And those helpers – bless their hearts – will certainly encourage their clients in this belief. But, as a class, the helper-aided group must be below average. The reason is simple: 1) Investors, overall, will necessarily earn an average return, minus costs they incur; 2) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; 3) With that group earning average returns, so must the remaining group – the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the “know-nothings” – must win.
  
  I should mention that people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about double digit returns from equities, explain this math to him – not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.
  
  Some companies have pension plans in Europe as well as in the U.S. and, in their accounting, almost all assume that the U.S. plans will earn more than the non-U.S. plans. This discrepancy is puzzling: Why should these companies not put their U.S. managers in charge of the non-U.S. pension assets and let them work their magic on these assets as well? I’ve never seen this puzzle explained. But the auditors and actuaries who are charged with vetting the return assumptions seem to have no problem with it.
  
  What is no puzzle, however, is why CEOs opt for a high investment assumption: It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won’t come home to roost until long after they retire.
  
  After decades of pushing the envelope – or worse – in its attempt to report the highest number possible for current earnings, Corporate America should ease up. It should listen to my partner, Charlie: “If you’ve hit three balls out of bounds to the left, aim a little to the right on the next swing.”

Sino Hua An Q3 Earnings.

Blogged previously:

1. Regarding Sino Hua-An
2. More On Sino Hua-Ann
3. Who wants Sino Hua-An?
4. Still Who Wants Huann?

The key issue said was..

And let's look at the company's net profit margins.

1) 07 Q4 Revenue 233.375 million. Net Profit 37.442 million. Margin = 16%.
2) 08 Q1 Revenue 290.798 million. Net Profit 35.567 million. Margin = 12.2%.
3) 08 Q2 Revenue 434.426 million. Net Profit 36.916 million. Margin = 8.5%.

How would you interpret such earnings?

Look at the revenue, its sky rocketing but the company has NOT been able to turn the extra, extra revenue into more cash and instead the net margins are deteriorating. From 16% to just 8.5%.

How? How would you evaluate such earnings? Good? Average? or Poor?

Sino Hua Ann reported its earnings tonight.

The following was its performance.

08 Q43 Revenue 496.993 million. Net Profit 11.711 million. Margin = 2.3%!!!!!!!!!!

Now surely this is a concern, yes?

You have earnings declining at a drastic pace and the margins right now is razor thin!

Balance sheet, check out the trade receivables! Did you see how it rose from 72.308 million (a quarter ago) to an incredible 203.3 million???

And the cash is depleting too!

How?

Morgan Stanley: 2009 Should Not Be 1998 Deja vu!!!

Here's an extremely interesting article posted on the Edge stating why Morgan Stanley Research reckons that 2009 won't be the same as 2008!

Note where Malaysia stands!!!!

• 11-11-2008: 2009 should not be 1998 deja vu
  By Morgan Stanley Research
  
  Investment case
  The Asia-Pacific ex-Japan equity index has declined as much as 65% from the October 2007 peak, a larger decline than in the Asian crisis of 1997-1998, or in the TMT bust of 2000-2001.
  
  Valuation is well below the trough levels of the Asian crisis, Asia’s deepest modern downturn. To assess the prospects for Asian markets in the current global downturn, we compare Asia’s current fundamentals to those in the Asian crisis, the most relevant benchmark given Asian markets were undeveloped in the Great Depression or the 1970s. We conclude that Asia is far better placed than it was in 1997 to withstand a financial crisis, and that China is best placed within Asia.
  
  APxJ equity valuation is a record low, far below Asian crisis trough levels
  APxJ is at a record low on 11 of our 12 valuation metrics. The forward P/E, trailing P/E, and dividend yield are 17%, 37%, and 41%, respectively, below the average of the prior four market troughs. Whilst P/BV is well above the Asian crisis low, ROE is still substantially higher.
  
  Even if we exclude Australia and New Zealand, both of which largely avoided the Asian crisis, the valuation is still more attractive than at the trough in September 1998. Indeed, forward and trailing P/Es are 8% and 49% below the trough levels, respectively, whilst dividend yield is 12% more attractive.
  
  Again, while Asia ex-Japan’s P/BV is still 39% higher than at the Asian crisis trough, only 11 months in the past 29 years have seen a lower valuation.
  
  Furthermore, the current AxJ ROE is well above the level at the crisis trough, at 14.9% versus 4.3%.
  
  Differences between today and 1997-1998
  1) The rise of China and India
  A key difference between Asia today and in 1997-1998 is the emergence of China as a key driver of growth. Since 1996, China’s share of regional GDP has grown from 25% to 44% (2008), while India’s share has increased from 11% to 13%. By contrast, the rest of the region has fallen from 64% to 43%, led by Korea and Taiwan, falling 10 percentage points (ppt) to 14%, and Asean, falling 7ppt to 14%. With China never more important, its ability to engineer a soft landing is critical to Asia’s growth outlook.
  
  2) Strong external sectors: Trade balance; FX reserves
  Unlike 1997, Asia’s external sector is in substantial surplus, reflective of a more diversified direction of trade (the US is at a record low 14.6% of Asia’s exports), more diversified export base, competitive exchange rates, high national saving rates, strong investment in export industries and, until recently, strong global growth.
  
  Asia’s export performance has been robust, up 20.6% year-on-year (y-o-y) in 3Q08, led by Korea, China, India, and the commodity producers of Australia, Indonesia and Malaysia. Singapore and Taiwan have lagged.
  
  Current account balances have improved significantly from -US$28.2 billion (-RM100.11 billion) in 1996 to US$525 billion in 2007 (7.4% of GDP) and are expected to stay at a large 5.6%-5.9% of GDP in 2008-2009. Foreign exchange reserves have risen from about US$500 billion in 1997 to more than US$3.3 trillion. The external balance is strongest in China, Singapore, Taiwan, Malaysia, and Hong Kong, and weakest in Australia, India, and Korea.
  
  In the current global financial crisis, Asian central banks have begun to utilise their FX reserves to defend their currencies and support their banking systems. Korea, for example, has intervened in its FX market and injected US$30 billion of liquidity into its banking system from its foreign reserves. Backed by FX reserves, Singapore, Hong Kong, Malaysia and Taiwan have guaranteed their bank deposits. Hong Kong has also indicated its intention to use its FX reserves to stabilise financial markets should the need arise.
  
  3) Ample scope for policy response
  In the 1997-1998 Asian crisis, IMF austerity programmes were imposed on Thailand, Indonesia, the Philippines and Korea, requiring a substantial tightening of monetary and fiscal policy. In this cycle, however, IMF rescue plans are being implemented in Eastern Europe’s Hungary, Ukraine and Iceland.
  
  By contrast, Asia is currently aggressively easing policy, a trend we expect to continue given Asia’s strong fundamentals. First, high headline inflation, a reflection of the commodity boom, should continue to decline sharply. Indeed, key commodities are now well below 4Q07 levels, including oil (-25% y-o-y), the MGMI base metals index (-38% y-o-y), wheat (-34% y-o-y), palm oil(-32% y-o-y), soybean (-17% y-o-y), ethylene (-55% y-o-y), and naphtha (-61% y-o-y), while corn (-2% y-o-y) and steel (China HRC +3% y-o-y) are about flat. Only rice (50% y-o-y) remains well above year-ago levels.
  
  As such, we expect headline inflation to fall below core inflation, which in core Asia (Asia ex-India, Indonesia and the Philippines) is just 2.0% y-o-y, below the 1H97 average of 4.1%.
  
  Together with Asia’s large external surpluses, low levels of leverage, and liquid and well-capitalised banking systems, low inflation should support significant policy easing to counter the global downturn. This is already happening across Asia, led by North Asia, India and Australia. With rates in the US at 1%, Asia should ease policy by another 100-200bp — our economists expect China (108bp), Korea (125bp), Australia (225bp), Taiwan (50bp), Malaysia (75bp) and Thailand (75bp) to all ease rates over the next year.
  
  4) A commodity tax cut
  Asia is now the major consumer of most global commodities, and even consumes almost as much oil as the US. With the oil price falling from an average of almost US$125/bbl in 2Q-3Q08, a US$55/bbl tax cut to US$70/bbl is equivalent to a US$385 billion tax cut for Asian consumers, or equal to 4.8% of GDP. Whilst this estimate assumes the pass-through of lower oil prices in countries with price controls like China and India, competitive pressures and the global downturn should ensure this happens in the near future. Currency weakness in Australia, Korea, and India will moderate the oil tax cut benefit. Furthermore, given Australia, Indonesia, and Malaysia are large energy producers, and Australia is very energy efficient, we would expect them to receive a smaller benefit. Whilst commodity prices also fell in the Asian crisis, the decline was far less significant. Furthermore, in that instance, Asia was the source of the demand weakness, whilst today the weakness is emanating from the US and other developed economies.
  
  5) Modest household leverage
  Household sector leverage in most of Asia is dramatically lower than in the US or UK. Only Australia, with a household debt/GDP ratio of 110%, is higher. On the other hand, China at 13% and India at 14% are dramatically lower. Similarly, consumption’s share of GDP is also far lower, and has significant room to expand.
  
  6) Record banking system liquidity
  Asia’s banking system has never been more liquid, with the bank loan-to-deposit ratio (LDR) at a record low 72%, far below the mid-1990s peak of 113%. Only Australia (143%) and Korea (140%) have LDRs well above 100%. The lowest LDRs are in Hong Kong (60%) and China (65%).
  
  7) Strong corporate sector; low gearing, moderate capex, strong free cash flow
  Asia’s corporate sector has substantially restructured over the past decade. First, balance sheet leverage has improved substantially, with leverage at a record low 32%, about half the levels of a decade ago (65% in 1996 and 74.3% in 1997). The improvement has been broad-based across Asia.
  
  Second, capital spending in the listed sector is generally under far better control, with the capex/depreciation ratio for the region at a moderate 179%, close to the long-term average, and far below the 260% of 1996-1997. Within Asia, capex discipline appears to have been strongest in Hong Kong (capex-depreciation ratio of 158% versus a long-run average of 264%), but worst in India (ratio of 333% versus a long-run average of 228%) and Australia (240% versus 173%).
  
  Third, free cash flow is strong at 6% of sales versus a negative 3.3% a decade ago. Free cash flow is positive across all markets, but particularly in Hong Kong and Indonesia. Altogether, returns are now far above the cost of capital at 15.2%, up from just 10.1% pre-crisis, and comparable to developed market peers.
  
  Country ranking —Greater China best
  Putting these criteria together, we have ranked the region by country, concluding that Greater China — China, Taiwan, and Hong Kong — is best placed, whilst Australia, Malaysia and India are worst placed.
  
  If Asia’s so good,why has it been so bad?
  The obvious response to this analysis is that it has been a lousy indicator of market performance over the past year. We attribute Asia’s poor performance to three key factors: rapid financial institution deleveraging, depressed risk appetite and a deteriorating earnings outlook. On financial institution deleveraging, qualified foreign institutional investors (QFIIs) have been heavy sellers in Asia since the credit crunch began. Indeed, net selling in six Asian emerging markets totalled US$93.2 billion, or 69.2% of the preceding inflows of the 2003-2007 bull market. Consistent with this, foreign ownership has fallen to at least a seven-year low of 29.4% in Korea, a five-year low of 18.6% in India, and a three-year low of 27% in Taiwan.
  
  Furthermore, anecdotally, the gross and net investment weighting of hedge funds in Asia has never been lower.
  
  That said, margin lending is still high in Australia at 2.5% of market cap, or 3.1% of GDP, well above the 10-year averages of 1.6% and 1.7%, respectively. Inflows into mutual funds in India [inflow of Rs300 billion (RM22.55 billion) year to date] and Korea [fund balance up 26.5 trillion won (RM73.18 billion) year to date] have remained positive. Margin lending in Taiwan, however, is at a record low 1.1% of market cap (versus an average 2.3%).
  
  Second, global risk appetite appears to be very significant in Asia, and the collapse in the MS Global Risk Demand Index has coincided with weakness in Asia equities. Third, reflecting past cycles, the market has been anticipating the economic downturn and earnings downgrades. Indeed, the index has declined far ahead of analyst earnings revisions. With consensus earnings still at 13.8% for 2009, we too see material downside toward our base-case forecast of -1% and bear-case forecast of -21% y-o-y.
  
  Morgan Stanley economists foresee a material slowdown in Asian GDP growth, but do not see a recurrence of 1997-1998. That said, Chetan Ahya is emphasising downside risks, pointing to the risks to exports from an EM downturn, the impact on cost of capital from capital outflow and FX weakness, and the hit from financial market instability. Against this, the support from monetary and fiscal easing and lower commodity prices will need to be balanced.

Source: http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_8a454971-cb73c03a-1c8b24d0-4c01ae8c

Federal Reserve Is Refusing To Disclose Where $2 Trillion Went!!

Utterly shocking!!

Published on Bloomberg. Fed Defies Transparency Aim in Refusal to Disclose

• By Mark Pittman, Bob Ivry and Alison Fitzgerald
  
  Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
  
  Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.
  
  ``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''
  
  Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.
  
  The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.
  
  ``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''
  
  Treasury, Fed, Obama
  
  Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn't respond to a phone call and an e-mail seeking comment.
  
  President-elect Barack Obama's economic adviser, Jason Furman, also didn't respond to an e-mail and a phone call seeking comment from Obama. In a Sept. 22 campaign speech, Obama promised to ``make our government open and transparent so that anyone can ensure that our business is the people's business.''
  
  The Fed's lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan -- without safeguards put into the TARP legislation by Congress.
  
  Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds.
  
  Sept. 14 Decision
  
  Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. The Fed collects interest on all its loans.
  
  The plan to purchase distressed securities through TARP called for buying at the ``lowest price that the secretary (of the Treasury) determines to be consistent with the purposes of this Act,'' according to the Emergency Economic Stabilization Act of 2008, the law that covers TARP.
  
  The legislation didn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' In a reverse auction, bidders offer to sell securities at successively lower prices, helping to ensure that the Fed would pay less. The measure also included a five-member oversight board that includes Paulson and Bernanke.
  
  At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.
  
  `We Need Transparency'
  
  ``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.''
  
  At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. ``Transparency is a big issue,'' he said.
  
  The Fed lent cash and government bonds to banks, which gave the Fed collateral in the form of equities and debt, including subprime and structured securities such as collateralized debt obligations, according to the Fed Web site. The borrowers have included the now-bankrupt Lehman Brothers Holdings Inc., Citigroup Inc. and JPMorgan Chase & Co.
  
  Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group.
  
  Frank Backs Fed
  
  ``You have to balance the need for transparency with protecting the public interest,'' Talbott said. ``Taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system.''
  
  The nation's biggest banks, Citigroup, Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, declined to comment on whether they have borrowed money from the Fed. They received $120 billion in capital from the TARP, which was signed into law Oct. 3.
  
  In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed's disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury secretary.
  
  ``I talk to Geithner and he was pretty sure that they're OK,'' said Frank, a Massachusetts Democrat. ``If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.'' Such losses would be acceptable, he said, if the program helps revive the economy.
  
  `Unclog the Market'
  
  Frank said the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic.
  
  Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D'Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc.
  
  ``I'd love to hear the methodology, how the Fed priced the assets,'' D'Vari said. ``That would unclog the market very quickly.''
  
  TARP's $700 billion so far is being used to buy preferred shares in banks to shore up their capital. The program was originally intended to hold banks' troubled assets while markets were frozen.
  
  AIG Lending
  
  The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.''
  
  The Fed has lent at least $81 billion to American International Group Inc., the world's largest insurer, so that it can pay obligations to banks. AIG today said it received an expanded government rescue package valued at more than $150 billion.
  
  The central bank is also responsible for losses on a $26.8 billion portfolio guaranteed after Bear Stearns Cos. was bought by JPMorgan.
  
  ``As a taxpayer, it is absolutely important that we know how they're lending money and who they're lending it to,'' said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.
  
  Ratings Cuts
  
  Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank's rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury.
  
  Moody's Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.
  
  The Fed's collateral ``absolutely should be made public,'' said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed's moves.
  
  The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).
  

Deutsche Bank Declares General Motors To Be Worthless!!

Blogged the other day: General Motors Says No More Money!!!

And now the folks at Deutsche Bank has downgraded GM to worthless! Yes, worthless and not worth less!

• LONDON (MarketWatch) -- Deutsche Bank downgraded General Motors Corp. (GM: General Motors Corporation News, chart, profile, more 3.36, -1.00, -22.9%) to sell from hold, with a price target of $0, saying the car maker may not be able to fund its U.S. operations beyond December without government intervention. Deutsche Bank said it believes the U.S. government will be compelled to intervene through a capital infusion or loan. "Without government assistance, we believe that GM's collapse would be inevitable, and that it would precipitate systemic risk that would be difficult to overcome for automakers, suppliers, retailers, and sectors of the U.S. economy," the broker said. Even if GM avoids bankruptcy, equity shareholders are unlikely to get anything back, it added. (source: here )

On CNBC: GM's Shares Plunge Amid Worsening Outlook, most other analysts also don't see much HOPE left for GM!

• Barclays' analyst Brian Johnson downgraded GM to "underweight'' from "equal weight.'' Deutsche Bank also cut GM to "sell'' from "hold,'' and saw an equity value of $0 for the stock, according to a report on theflyonthewall.com.
  
  Reuters could not immediately verify the report.
  
  "While further government assistance would decrease the likelihood of a GM bankruptcy, we believe any government assistance would likely significantly dilute GM's equity,'' Barclays' Johnson wrote in a note to clients.
  
  Johnson cut his price target on the stock to $1 from $4.
  
  "Of the four broad options for government assistance for GM, we believe that political pressure to protect taxpayers may lead to a solution similar to the 1979 Chrysler bailout, which was accompanied by concessions from debt holders, labor, suppliers and management,'' Johnson said.
  
  In any scenario, we see little value for current equity,'' he added.
  
  Separately, an analyst at J.P.Morgan Securities said both GM and Ford Motor are likely to receive government aid, even as he widened his loss estimates for both companies after they reported far deeper-than-expected quarterly losses.
  
  "Ford management's commentary on the third-quarter call as well as GM's comments raises our optimism that some form of government help is likely given dire Big 3 liquidity,'' JP Morgan's Himanshu Patel wrote in a note to clients.
  

On CNN: GM: Bailout push can't halt stock slide

On WallStraitsJournal. America's Two Auto Industries

• Can you imagine life without General Motors Corp.? That's now an urgent question facing America's political leaders.
  
  GM survived for 100 years, steering through two world wars, the Great Depression, and all the booms and busts in between. But on Friday, GM said it faces a substantial risk of financial collapse by the middle of next year unless the economy makes a significant improvement, the capital market freeze thaws, or the government provides the money to sustain the company through the downturn.
  
  The Democratic Congress and President-elect Barack Obama signaled last week they are willing to lend a hand. "The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil," Mr. Obama said Friday.
  
  So the question isn't whether Washington is willing to offer more public money to help auto companies survive. There even appears to be a consensus on how much: Up to $50 billion. The tougher question is what's Washington's goal?
  
  First, Congress and Mr. Obama will need to decide what they mean by "the auto industry."
  
  America has two auto industries. The one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s.
  
  The other American auto industry is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently. Their factories are newer, their brand images and marketing strategies are more coherent -- Toyota uses three brands in the U.S. to GM's eight -- and they have cars designed for the competitive global market that exists today.
  
  Honda Motor Co. sells one basic Civic world-wide. Ford sells two different versions of its rival Focus compact car. Ford is engineering one Focus to take advantage of global economies of scale, but the new car won't hit the U.S. market until 2010.
  
  The New American auto industry employs about 113,000 people, according to a recent study by the Center for Automotive Research. The economic slump is hammering sales and profits for these manufacturers, too. But they aren't looking for subsidies, and probably wouldn't get any since the rules governing the auto industry aid proposals to date effectively exclude them.
  
  So this debate is strictly about the Old American auto industry, represented by the "Big Three" of Detroit. The Detroit Three employ more than 200,000 people directly, and sustain nearly 3 million more indirectly, according to the CAR study. Diminished as they are, the Detroit Three still account for about 4% of U.S. gross domestic product. They also represent a way of doing business that has run its course. GM's plea for a federal bailout makes that official.
  
  The government could justify subsidies as a way to prevent more job losses at the Detroit auto makers. But that would risk delaying the restructuring the unionized auto makers need to be viable. In the fragmented U.S. auto market of the 21st Century, auto makers will need to be nimble enough to make money on 10-15% market share or less – not the 29% that GM was aiming for less than a decade ago. Does the government want to get into the business of subsidizing job cuts – paying for retraining and relocation for those who lose their jobs?
  
  Washington could decide the goal in providing taxpayer-financed subsidies to the Detroit auto makers is to increase the number of fuel efficient and high technology cars on the market. House Speaker Nancy Pelosi hinted at this last week in discussions with Detroit Three executives in Washington.
  
  The success of government-mandated automotive product strategies is mixed. The laughable Trabant was a product of the East German Communist government's ideas about affordable personal transportation. On the other end of the spectrum, government mandates such as the California Air Resources Board's demands for "zero emission" vehicles have spurred auto makers to take risks on new technology they otherwise might have left on the shelf. Modern gas-electric hybrids such as the Toyota Prius exist in part because of bureaucrats.
  
  One thing Washington could do to spur profitable sales of fuel-stingy cars is put a floor under gas prices, which now have dipped below $2 a gallon in some parts of the country. No one's discussing such an idea.
  
  Perhaps the government will decide that its role should be to give the Detroit Three the chance to play the same game as its international rivals when it comes to the costs of health care.
  
  Auto makers with home operations in Europe and Japan start with a big advantage in that they are not directly shouldering on their income or balance sheets the burden of providing health care to the bulk of their retirees. Those costs are largely borne by the government and the costs spread to taxpayers.
  
  The Detroit Three in 2007 set up a mechanism to unload their union retiree health obligations by 2010 to trusts controlled by the United Auto Workers. But those trusts aren't up and running yet, and aren't fully funded. Government subsidies could be used to plug that funding gap, and allow the Detroit Three to put their cash into better cars. This is a proposal the UAW supports.
  
  There's another thing the government could do with $50 billion. It could give a $4,000 to $5,000 tax rebate to everyone who buys a new car or truck made in the United States during the next year. The tax break could be scaled up for people who trade in a low mileage vehicle for a vehicle that burns 15%-20% less gas – a percentage that's roughly equivalent to the share of oil the U.S. imports from the Persian Gulf.
  
  Leaving it up to consumers what auto companies should benefit from government subsidies might not save GM. But it would save the government from having to choose sides between America's two auto industries.
  

And GM last traded at 3.36!

Another Russian Crisis?

Another crisis looming?

Published on Bloomberg.

• Ruble Devaluation Looms on Oil; Troika Sees 30% Drop
  
  By Emma O'Brien and Ye Xie
  
  Nov. 10 (Bloomberg) -- Russia's currency reserves, the third-biggest in the world, are no match for tumbling oil prices and an exodus of capital that may force the central bank to accept a devalued ruble.
  
  Just 10 years ago, Russia let the ruble fall as much as 71 percent as the government defaulted on $40 billion of debt and world stock and bond markets collapsed. Now, the combination of a 61 percent drop in oil prices from their peak in July, slowing economic growth and increasing investor concern about emerging markets are draining Russia's foreign reserves, which fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31.
  
  Russia, which uses reserves to curb swings in the ruble that hurt the competitiveness of exports, may find the resistance futile after the currency fell 13 percent against the dollar since Aug. 1. The central bank sold a record $40 billion in October, according to Moscow-based Trust Investment Bank. Troika Dialog, the country's oldest investment bank, said the currency may slump as much as 30 percent in the event of a devaluation.
  
  ``When oil falls, capital runs out of Russia and the ruble weakens, it's not justified to hold your positions,'' said Anas El Maizi, who oversees $342 billion in fixed-income assets in Paris at Axa Investment Managers, a unit of Europe's second- largest insurer. ``If oil stabilizes at this level, Russia will have some trouble.'' Axa cut its Russian bond holdings in August.
  
  Long-Term Capital
  
  Bank Rossii, the central bank, may ``gradually'' widen its ruble trading band if the current account falls into a deficit next year, Arkady Dvorkovich, an economic adviser to President Dmitry Medvedev, said Nov. 7. Goldman Sachs Group Inc. said the comment marked a ``departure from the previous party line.''
  
  The ruble rose 0.2 percent to 26.9690 per dollar as of 11:08 a.m. in Moscow, from 27.0304 on Nov. 7. Against the euro, it dropped 0.5 percent to 34.5459, from 34.3773.
  
  When Russia defaulted in August 1998, it caused an investor stampede to the safest assets. Yields on 10-year U.S. Treasury notes dropped more than half a percentage point to 4.98 percent that month and the Standard & Poor's 500 Index slumped 15 percent. Hedge fund Long-Term Capital Management LP collapsed after losing about $4 billion, prompting a Federal Reserve- backed bailout by Wall Street. Gross domestic product in Russia shrank 6.5 percent and inflation accelerated to 84 percent.
  
  100 Billionaires
  
  Since then, rising prices of oil, gas and metals such as nickel and aluminum provided Russia with 10 years of economic growth under former President Vladimir Putin and his hand-picked successor, Medvedev. Foreign reserves grew to $598.1 billion in August, the world's biggest behind Japan's and China's, from $18.4 billion just before the 1998 default.
  
  With average economic growth of about 7 percent a year since 1999, rising commodity and stock prices created more than 100 Russian billionaires, including aluminum magnate Oleg Deripaska and soccer club owner Roman Abramovich. In December last year, Time magazine named Putin ``Person of the Year'' for bringing his country ``roaring back to the table of world power.''
  
  Russia's current account, the widest measure of flows in goods and services, is now headed toward a deficit. Investors pulled at least $140 billion out of the country in the past three months, according to BNP Paribas SA, sending the dollar- denominated RTS Index of stocks down 61 percent.
  
  The benchmark 30-year government bond slumped in 2008, pushing the yield to an almost seven-year high of 12.55 percent on Oct. 27. So far this year, the RTS Index lost 67 percent, headed for the worst performance since 1998.
  
  Growth Slows
  
  ``With the oil price falling we were concerned that the trajectory of Russia's reserves had changed from building them up to selling them,'' said Kieran Curtis, a fund manager in London at Aviva Investors Ltd., which cut Russian holdings in August from the $787 million of emerging-market assets it has under management.
  
  Russia is poised to grow 7.7 percent this year, the Economy Ministry said Oct. 29, down from 8.1 percent in 2007. Gross domestic product will expand 5.4 percent in 2009, according to a Bloomberg survey of 14 economists.
  
  The combined wealth of Forbes magazine's 25 richest Russians fell more than 50 percent in four months, based on the equity value of stocks and analysts' estimates.
  
  Bank Rossii, headed by Chairman Sergey Ignatiev, began managing the ruble's exchange rate in February 2005 against a currency basket comprised of about 55 percent dollars and 45 percent euros. Policy makers let it trade within a fixed range in mid-May. Since then, it has dropped 2.2 percent against the basket to 30.39. Though the central bank doesn't reveal the limits of the band, BNP Paribas considers 30.40 to be its weaker end.
  
  No `Sharp Devaluation'
  
  ``You can't stimulate a slowing economy by keeping the currency fixed,'' said Lars Christensen, head of emerging- markets currency strategy in Copenhagen at Danske Bank A/S. ``They will have to change their attitude to using reserves for the sake of the economy.''
  
  Dvorkovich increased speculation that Russia will reduce its interference in foreign exchange last week when he told reporters in Moscow a ``prolonged'' period of deficit in the current account may prompt policy makers to ``gradually'' widen the trading band.
  
  The current account, now at a surplus of $91.2 billion, may swing into a deficit as early as next year, though there will be no ``sharp devaluation'' in the ruble in 2008 or in 2009, Dvorkovich said.
  
  Tumbling Crude
  
  ``These remarks mark a departure from the previous party line among top officials that there was no reason for the ruble to depreciate,'' Rory MacFarquhar, a senior economist at Goldman Sachs in New York, wrote in a note Nov. 7. ``They confirm our view that there is a strong political preference for gradual depreciation over a steep devaluation, even though the central bank would prefer the latter approach.''
  
  Urals crude, Russia's export oil blend, rose to an all-time high of $142.94 a barrel in July. For the past three weeks, it has averaged $61.74, below the $70 mean price that Finance Minister Alexei Kudrin said in September the government will need to balance its budget next year. It traded at $57.08 today.
  
  ``Without an increase in oil prices or an improvement in the capital account of the balance of payments, the central bank will eventually have to devalue,'' Evgeny Gavrilenkov, Troika Dialog's Moscow-based chief economist, wrote Nov. 7. An average price for Urals crude of $60 a barrel ``would imply a devaluation of the ruble against the bi-currency basket by 25 to 30 percent,'' he said.
  
  BRICs Cooperate
  
  Russia's reserves are 25 times bigger today than what it had on the eve of the default, central bank data show. The world's biggest energy exporter, Russia still earns $700 million a day from oil, compared with $100 million 10 years ago, according to Chris Weafer, chief strategist in Moscow at UralSib Financial Corp., Russia's biggest privately owned bank.
  
  ``The market is getting overly bearish,'' said Michael Ganske, head of emerging-markets research in London at Commerzbank AG. ``This is a temporary phenomenon and the ruble will stay stable until investors realize the value.''
  
  Brazil, Russia, India and China, the so-called BRIC nations, plan coordinated measures to increase trade and capital flows between their economies, Kudrin said in a Nov. 8 interview in Sao Paulo. Russia, the world's second-biggest oil producer, will also pursue an ``independent'' strategy on production, ignoring the Organization of Petroleum Exporting Countries' moves to cut output, he said.
  
  Gazprom, Norilsk
  
  While Russia's plight 10 years ago reflected an economy emerging from communist control, the turmoil today is part of a crisis hurting nations worldwide as a shortage of credit prompts investors to sell higher-yielding assets in favor of the safest securities.
  
  OAO Gazprom, Russia's natural-gas exporter, said Oct. 22 it may have trouble getting new loans and refinancing debts even after posting record earnings. OAO GMK Norilsk Nickel, the world's largest producer of the metal, posted a 33 percent decline in first-half earnings on Oct. 3 as demand slumped.
  
  Russians are taking note. Svetlana Malyarevich, a Moscow- based accountant, says she considered changing some of her savings into foreign currency after people in her office said the ruble might slide to 40 per dollar.
  
  ``People who have ruble accounts understand that their savings decline if the dollar rises,'' the 36-year-old said. ``The security of my money is directly dependent on the economic situation in Russia.''

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avXSlS6mv4Hs

Top Hedge Fund Managers Says It Isn't Over

Posted on CBS's MarketWatch: Hedge fund managers 'funereal' in midst of crisis

• SAN FRANCISCO (MarketWatch) -- In the midst of the worst financial crisis since the Great Depression, several top hedge fund managers sent a grim message to their investors in October: it isn't over.
  
  One said he was sickened by the crisis, while another admitted shock and embarrassment at the severity of the market slump and the losses his firm suffered.
  
  A third warned clients to be careful about buying anything and said it will be years before investors should buy stocks.
  
  Such pessimism is often taken as a sign that markets may have hit a bottom and most of the managers realized this. Indeed, some said they'd already begun buying securities that they think are cheap enough to discount all the gloom.
  
  The Standard & Poor's 500 index slumped more than 16% in October, while credit markets collapsed.
  
  Spreads on investment-grade corporate debt jumped by 151 basis points, while junk bond spreads surged by 521 basis points to a record 1,617, according to CreditSights.
  Losses in these markets so far this year reached 19% and 31% respectively, prompting the fixed-income research firm to ask "Can it get any worse?"
  
  Hedge funds have been hit particularly hard by this market collapse. The average manager lost 5.43% in October, leaving them down more than 15% so far this year, according to preliminary estimates on Friday from Hedge Fund Research.
  
  That puts the $1.7 trillion industry on course for its worst year since at least 1990, when HFR began tracking performance. Before 2008, hedge funds had only one down year in that time: in 2002 they lost 1.45% on average.
  
  'Funereal'
  
  Steve Galbraith, a partner at Lee Ainslie's Maverick Capital, read about 25 letters other hedge funds sent to their investors in October.
  
  "The tone of the discourse was funereal," he wrote in Maverick's own Oct. 9 letter to clients. "The global economy has already entered a grim recessionary period akin to those of the '90s and '80s rather than the shallow post tech bubble recession of 2001-2002."
  
  The Maverick Fund, Ltd. was down more than 7% last month through Oct. 17, leaving it off roughly 26% so far this year, according to a hedge fund performance report compiled by HSBC's private bank.
  
  In Maverick's Oct. 9 letter to investors, the firm reported that its funds lost between 14.4% and 40.6% during the third quarter.
  
  "I cannot find words to describe our disappointment, embarrassment and shock over the above results," Ainslie wrote.
  
  Oct. 1 marked the 15th anniversary of Maverick Capital, during which time Ainslie has outperformed the S&P 500 handily.
  
  But Maverick couldn't shelter from what Ainslie called a "perfect storm" of hedge fund de-leveraging and failure, short selling bans, slumping equity markets, faltering prime brokers and a spike in volatility.
  
  Buffett bashing
  
  "Be careful buying ANYTHING today," Kyle Bass, managing partner of Hayman Advisors, warned in an Oct. 17 letter to investors.
  
  "There will be a time to buy stocks," he added. "That time is a few years into the future when the strong have separated themselves from the week ... a time when unemployment has hit 10% and U.S. GDP has dropped 4-5% (maybe more)."
  
  He criticized Berkshire Hathaway's Chairman Warren Buffett who advised investors to buy U.S. stocks in a New York Times column last month.
  
  "Mr. Buffett has enough money to be able to have his holdings drop 50% and still fly in his jets and live the way in which he has become accustomed," Bass wrote. "Do you have enough capital to take what you have left, cut it in half, and continue to live the way you have for the past few years? I don't."
  
  'Carnage'
  
  Seth Klarman, a top-performing value investor and head of The Baupost Group LLC, told clients in an Oct. 10 letter that the economic downturn could be "vicious and protracted."
  
  "The financial market collapse and bailout makes us sick," he wrote. "There is likely more carnage to come."
  
  The U.S. dollar will likely weaken and its reign as the world's reserve currency could end, Klarman predicted. Longer-term, U.S. interest rates may rise as foreigners have to be enticed more to invest in dollar-denominated assets, he added.
  
  The recent Treasury Department bailout has yet to be paid for and should add to inflationary pressures over time, especially when the economy begins to recover, he said.
  
  Baupost has built a "sizable position" in low-cost inflation protection for the next three to five years, he noted.
  
  'Genuinely depressed'
  
  Howard Marks, chairman of Oaktree, a giant LA-based fixed-income hedge fund firm, said some "great" investors he knows were "genuinely depressed" when the credit crisis reached a peak in October.
  
  Pessimism fed on itself as managers exchanged increasingly gloomy emails about the coming meltdown, he explained in an Oct. 16 letter to investors.
  
  "People's only concern was bullet-proofing their portfolios to get through the coming collapse, or raising enough cash to meet redemptions," Marks wrote. "The one thing they weren't doing last week was making aggressive bids for securities. So prices fell and fell -- the old expression is 'gapped down' -- several points at a time."
  
  Like Klarman, Marks worried about the impact of government bailouts and interest rate cuts on future prices, recalling the hyper-inflation in Weimar Germany in the 1920's.
  
  It may be time to re-think holding long-term U.S. Treasury bonds, which currently yield little because investors have bought them as havens from riskier assets, Marks said. (Inflation eats into the future fixed payments of bonds, undermining their value).
  
  Interconnected
  
  Thomas Barrack, founder of distressed debt and real estate investment firm Colony Capital, said the crisis has exposed how complicated the financial system has become -- and how difficult it will be to get it working properly again.
  
  "I have absolutely no idea how the intricacies of the global financial system function. I had previously taken solace in believing that 'the other guys' did understand," said Barrack, a former Reagan administration official. "What we all now realize is that nobody understands and nobody ever understood."
  
  "The current turmoil is larger, more complicated, more volatile, more interconnected and more global than anyone had anticipated," he added in an Oct. 14 letter to investors.
  
  Barrack has experience with troubled banks during previous financial crises, having worked with TPG's David Bonderman and Cerberus Capital Management's Stephen Feinberg restructuring Korea First Bank and Aozora Bank respectively.
  
  He was gloomy about the Treasury's efforts to buy toxic assets from troubled U.S. banks, arguing $750 billion won't be enough. The amount needed to acquire these assets, even at true market value, could be in the trillions, he said.
  
  Bank stocks probably haven't bottomed yet and the stock market "will no doubt have further and dramatic dips," he predicted.
  
  Rubble
  
  Still, almost all these managers said the carnage will create great investing opportunities. The key is surviving to take advantage.
  Perry Capital LLC, run by former Goldman Sachs trader Richard Perry, has been buying first-lien bank debt that yields more than 15%. It's also bought a portfolio of securities backed by near-prime and so-called Alt-A mortgages.
  
  "We will continue to pick through the carnage," Perry said in an Oct. 8 letter to investors.
  
  Baupost's Klarman has been buying corporate debt offering yields of as much as 30%. The firm is also seeing some opportunities to invest in real estate, through the debt of distressed companies, he added.
  
  "The seeds of recovery and eventually of substantial profit are sown amidst the carnage," he wrote. "The world is not ending."
  
  Oaktree's Marks expects boutique investment banks including Evercore to benefit as larger banks become more regulated, bureaucratic and risk-averse.
  
  "In the third stage of a bear market ... everyone agrees things can only get worse," Marks wrote on Oct. 16. "There's no doubt in my mind that the bear market reached the third stage last week."
  
  "That doesn't mean it can't decline further, or that a bull market's about to start," he added. "But certainly it's a good time to pick among the rubble."
  Maverick's Ainslie said on Oct. 9 that he'd never seen as many extremely over-valued and under-valued stocks at the same time. That presents great opportunities for hedge funds that both short equities and go long.
  
  "The most important objective at this point is simply to endure this unique turbulence to be positions to take advantage of the far more productive environment that will exist on the other side of this nightmare," he wrote
  

Would Las Vegas Sands Current Cash Crisis Have An Impact On Singapore Marina Bay Project?

Posted on the Economics Times: Global turmoil hits gambling industry

• NEW YORK: The ongoing economic downturn has hit the gambling industry, a media report says. For Las Vegas Sands casino operator, a full-blown financial hurricane may be brewing, Time magazine reported, pointing out that in a November 5 filing to the Securities and Exchange Commission, the company had revealed its cash was drying up.
  
  For the first six months of 2008, according to the filing, the casino's earnings were "insufficient to cover fixed charges" by USD 80.1 million.
  
  This gaping shortfall, astonishing for a company that was throwing off more than USD 600 million in free cash flow annually just three years ago, could trigger defaults on its USD 8.8 billion in long-term loans.
  
  Controlled by billionaire Sheldon Adelson, Las Vegas Sands is yet another high-flying company that has been caught out by the global credit crunch and crashing economy, Time said adding, with the US economy entering recession, gamblers in Las Vegas are growing more reluctant to part with their money.
  
  Adelson, who is credited with helping to revitalise Las Vegas with his lavish Venetian and Palazzo resorts, has become a well known figure in Asia in recent years after he has spent billions building new casinos and hotels in the Chinese enclave of Macau.
  
  The company, Las Vegas Sands was tapped to build an anchor casino and resort complex on Marina Bay in Singapore, when the country, several years ago, had decided to boost its economy by becoming a tourist destination.
  
  The government of the conservative little city-state had then taken the controversial step of legalising gambling, the magazine said.
  
  "In light of recent turmoil in the global markets," the 75-year-old Adelson, pledging to personally ensure the "success" of the Singapore casino, said in a statement released November 7, "I felt the need to personally reaffirm our commitment to the success of Marina Bay Sands."
  
  Analysts were quoted as saying that the casino is too important for the economic diversification of Singapore, which is overwhelmingly dependent on electronics exports and trans-shipping, for it to collapse.
  
  The Singapore Tourism Board may step in either with an infusion of cash or an agreement to assume a sizable chunk of the troubled casino operator's debt, the paper said.
  
  "We are working closely and are in dialogue with Marina Bay Sands [Las Vegas Sands' Singapore subsidiary] to facilitate the completion of the project," says Margaret Teo, Assistant CEO of the Singapore Tourism Board.
  
  She declined to provide further financial details. The statement from Adelson also did not specify what steps are being taken to bolster the finances of his company or its Marina Bay project, apart from announcing that executives from Las Vegas Sands had met with officials from the Singapore government over the last week, the paper said.
  
  Meanwhile, Las Vegas Sands, the news magazine said, has also been grappling with an unexpected problem -- Chinese government, increasingly alarmed by the profligacy and gambling debt of its citizens, had recently imposed visa restrictions on mainland tourists to Macau, reducing the anticipated cash flow from the company's Asia operations.

Here's the report on Bloomberg News on Nov 6th: Las Vegas Sands Plunges on Default, Bankruptcy Risk

• Las Vegas Sands Plunges on Default, Bankruptcy Risk
  
  By Beth Jinks
  
  Nov. 6 (Bloomberg) -- Las Vegas Sands Corp., billionaire Sheldon Adelson's casino company, fell the most in New York trading since going public after saying it may default on debt and face bankruptcy.
  
  The casino owner, which had $8.8 billion in long-term debt at the end of June, said in a regulatory filing today that it probably won't meet the requirements of loans arranged by Citigroup Inc., Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. unless it cuts spending on developments, boosts earnings at its Las Vegas Strip casinos and raises more capital.
  
  The reversal of fortune is a black eye for the 75-year-old Adelson, who was once America's third-richest man on the strength of his Las Vegas Sands holdings. The Las Vegas-based company's dwindling cash flow is threatening $16 billion worth of developments in Macau, China, and Singapore, where Las Vegas Sands is building resorts to cater to wealthy Asian gamblers.
  
  ``They need to raise money,'' said Keith Foley, a New York- based analyst at Moody's Investors Service Inc. ``It's getting to the point where they need to do something now.''
  
  The shares dropped $3.81, or 33 percent, to $7.85 at 4:04 p.m. in New York Stock Exchange composite trading, the biggest decline since its initial share sale in December 2004. Las Vegas Sands had tumbled 91 percent before today this year as investors dumped the stock, worried that falling casino winnings and the global financial meltdown would leave the company without enough cash.
  
  More Capital
  
  Spending declines on the Vegas Strip and restrictions on visas in Macau have stemmed the flow of cash into Las Vegas Sands. Today's admission comes after Adelson, who holds a stake of more than 64 percent, invested an additional $475 million in September to avoid violating the terms of a loan, and hired an unidentified investment bank to raise more capital with his help.
  
  Las Vegas Sands' rush to raise capital ``points to the deterioration of fundamentals, not just for the company, the fundamentals of Las Vegas,'' said Dennis Farrell, a debt analyst with Wachovia Capital Markets LLC in Charlotte, North Carolina.
  
  The casino owner said it doesn't expect to meet a maximum leverage ratio covenant in the fourth quarter. That would trigger defaults that might force it to suspend development projects and ``raise a substantial doubt about the company's ability to continue as a going concern.''
  
  ``Sheldon still has considerable resources, and we doubt he will sit on the sidelines and watch LVS go bankrupt,'' Robert LaFleur at Susquehanna Financial Group LLLP, said today in a client note he titled ``Scary Post-Halloween 8-K Filing.'' ``The question is how much dry powder does he have, and what can he do?''
  
  Deep Pockets
  
  In a July conference call, Adelson suggested he would step in to help the company with any financing it might need, saying a friend described him as ``the tallest person I know when you stand on your wallet.''
  
  ``And I'm saying right now, the company will not have liquidity problems,'' he said at the time.
  
  Ron Reese, a spokesman for Adelson, didn't return an e-mail seeking an interview.
  
  Las Vegas Sands made a filing with regulators today to allow it to quickly sell stocks or bonds if it finds investors.
  
  ``The offering shows what their intent is, but it doesn't mean they'll be successful,'' said Foley. ``How and when is uncertain, and their ability to successfully do that is uncertain.''
  
  Adelson founded the Comdex computer expo in 1979, later selling the business and using the proceeds to build the Venetian Resort Hotel Casino in Las Vegas.
  
  U.S. Projects
  
  He is also building a $600 million condominium in Vegas and a $600 million casino resort in Bethlehem, Pennsylvania. The risk of default applies to some of Sands' U.S. unit loans.
  
  ``It would be prohibitively expensive to raise outside debt capital at this time,'' said Farrell. The company will probably sell more stock, which would hurt existing shareholders including Adelson.
  
  Other alternatives might be another investment from Adelson, an injection of cash from an outside investor or a loan from foreign banks, said Farrell.
  
  The filing, which affects its U.S. unit's debt, sparked new concerns that Las Vegas Sands won't finish Singapore's first casino or a 20,000-room complex of hotels and casinos in Macau. The Chinese territory overtook the Vegas Strip as the world's biggest gambling market in 2006.
  
  `Other Alternatives'
  
  Should Sands fail to raise capital, ``we would need to immediately suspend portions, if not all, of our ongoing global development projects and consider other alternatives,'' the company said in the filing.
  
  Las Vegas Sands owns the Venetian and Palazzo casino resorts on the Las Vegas Strip, plus the Macau Venetian, Sands and Four Seasons, and had expected sufficient earnings from the properties to fund its expansion and pay loans.
  
  Las Vegas Strip casino gambling revenue slid 6.7 percent this year through August, on track for its biggest annual decline on record, as airlines cut back capacity and consumers, battling declining home values, job losses and the worst financial crisis since the Great Depression, spent less.
  
  China increased visa restrictions on some mainland residents traveling to Macau, causing casino gambling revenue in the former Portuguese colony to fall to 26 billion patacas ($3.28 billion) in the third quarter from 28.9 billion patacas in the second.
  
  Adelson plans to sell Sands' Four Seasons apartment hotel in Macau as a co-operative and wants to sell the attached mall space.

And Singapore DBS has quickly assured that there is no loan defaults from Las Vegas Sands. Posted on Reuters.

• SINGAPORE, Nov 7 (Reuters) - DBS Group (DBSM.SI: Quote, Profile, Research, Stock Buzz), Southeast Asia's biggest bank, said there had been no default or indication of a default from casino firm Las Vegas Sands Corp (LVS.N: Quote, Profile, Research, Stock Buzz) for its project in Singapore.
  
  "There's been no default, no indication of default. The project is still going along," DBS's CEO Richard Stanley said on Friday. "I do expect there will be an integrated resort in Marina Bay in Singapore in 2010."
  
  Shares in Las Vegas Sands, which is building one of two casinos in Singapore, fell as much as 44 percent on Thursday after the casino operator's auditor said there are doubts about the company's ability to continue as a going concern. [ID:nN06321876] (Reporting by Saeed Azhar and Kevin Lim; Editing by Lincoln Feast) Source: here

Here is how LVS has performed so far this year!!!

Warren Buffett: You Pay A Very High Price In The Stock Market For A Cheery Consensus

Blogged last month: Warren Buffett Puts His Money Where His Mouth Is ( see also Warren Buffett Buys Stocks, The Snowball Chapter 2 and J. Kyle Bass )

See also: Warren Buffett's Three Market Buy Calls

• The first came in 1974 when Buffett said, "I feel like an oversexed man in a harem. This is the time to start investing." The Dow almost doubled over the next two years.
  
  The second came in 1979, when Buffett told Forbes that "stocks now sell at levels that should produce long-term returns far superior to bonds." That prediction also proved to be correct.
  
  The third positive call from Buffett came last Friday. Warren Buffett Puts His Money Where His Mouth Is

I still have a copy of what Warren Buffett wrote back in 1979 on Forbes on my hard disk. Let me share here. Sorry the link I have is broken.

• You Pay A Very High Price In The Stock Market For A Cheery Consensus
  
  Pension-fund managers continue to make investment decisions with their eyes firmly fixed on the rearview mirror. This generals-fighting-the-last-war approach has proven costly in the past and will likely prove equally costly this time around.
  
  Stocks now sell at levels that should produce long-term returns far superior to bonds. Yet pensions managers, usually encouraged by corporate sponsors they must necessarily please ("whose bread I eat, his song I sing"), are pouring funds in record proportions into bonds.
  
  Meanwhile, orders for stocks are being placed with an eyedropper. Parkinson--of Parkinson's law fame--might conclude that the enthusiasm of professionals for stocks varies proportionately with the recent pleasure derived from ownership. This always was the way John Q. Public was expected to behave. John Q. Expert seems similarly afflicted. Here's the record.
  
  In 1972, when the Dow earned $67.11, or 11% on beginning book value of 607, it closed the year selling at 1,020, and pension managers couldn't buy stocks fast enough. Purchases of equities in 1972 were 105% of net funds available (i.e., bonds were sold), a record except for the 122% of the even more buoyant prior year. This two-year stampede increased the equity portion of total pension assets from 61% to 74%--an all-time record that coincided nicely with a record-high price for the Dow. The more investment managers paid for stocks, the better they felt about them.
  
  And then the market went into a tailspin in 1973-74. Although the Dow earned $99.04 in 1974, or 14% on beginning book value of 690, it finished the year selling at 616. A bargain? Alas, such bargain prices produced panic rather than purchases; only 21% of net investable funds went into equities that year, a 25-year record low. The proportion of equities held by private noninsured pension plans fell to 54% of net assets, a full 20-point drop from the level deemed appropriate when the Dow was 400 points higher.
  
  By 1976, the courage of pension managers rose in tandem with the price level, and 56% of available funds was committed to stocks. The Dow that year averaged close to 1,000, a level then about 25% above book value.
  
  In 1978, stocks were valued far more reasonably, with the Dow selling below book value most of the time. Yet a new low of 9% of net funds was invested in equities during the year. The first quarter of 1979 continued at very close to the same level.
  
  By these actions, pension managers, in record-setting manner, are voting for purchase of bonds--at interest rates of 9% to 10%--and against purchase of American equities at prices aggregating book value or less. But these same pension managers probably would concede that those American equities, in aggregate and over the longer term, would earn about 13% (the average in recent years) on book value. And, overwhelmingly, the managers of their corporate sponsors would agree.
  
  Many corporate managers, in fact, exhibit a bit of schizophrenia regarding equities. They consider their own stocks to be screamingly attractive. But, concomitantly, they stamp approval on pension policies rejecting purchases of common stocks in general. And the boss, while wearing his acquisition hat, will eagerly bid 150% to 200% of book value for businesses typical of corporate America but, wearing his pension hat, will scorn investment in similar companies at book value. Can his own talents be so unique that he is justified both in paying 200 cents on the dollar for a business if he can get his hands on it, and in rejecting it as an unwise pension investment at 100 cents on the dollar if it must be left to be run by his companions at the Business Roundtable?
  
  A simple Pavlovian response may be the major cause of this puzzling behavior. During the last decade, stocks have produced pain--both for corporate sponsors and for the investment managers the sponsors hire. Neither group wishes to return to the scene of the accident. But the pain has not been produced because business has performed badly, but rather because stocks have underperformed business. Such underperformance cannot prevail indefinitely, any more than could the earlier overperformance of stocks versus business that lured pension money into equities at high prices.
  
  Can better results be obtained over, say, 20 years from a group of 9 1/2% bonds of leading American companies maturing in 1999 than from a group of Dow-type equities purchased, in aggregate, at around book value and likely to earn, in aggregate, around 13% on that book value? The probabilities seem exceptionally low. The choice of equities would prove inferior only if either a major sustained decline in return on equity occurs or a ludicrously low valuation of earnings prevails at the end of the 20-year period. Should price/earnings ratios expand over the 20-year period--and that 13% return on equity be averaged--purchases made now at book value will result in better than a 13% annual return. How can bonds at only 9 1/2% be a better buy?
  
  Think for a moment of book value of the Dow as equivalent to par, or the principal value of a bond. And think of the 13% or so expectable average rate of earnings on that book value as a sort of fluctuating coupon on the bond--a portion of which is retained to add to principal amount just like the interest return on U.S. Savings Bonds. Currently our "Dow Bond" can be purchased at a significant discount (at about 840 vs. 940 "principal amount," or book value of the Dow. Figures are based on the old Dow, prior to the recent substitutions. The returns would be moderately higher and the book values somewhat lower if the new Dow had been used.). That Dow Bond purchased at a discount with an average coupon of 13%--even though the coupon will fluctuate with business conditions--seems to me to be a long-term investment far superior to a conventional 9 1/2% 20-year bond purchased at par.
  
  Of course, there is no guarantee that future corporate earnings will average 13%. It may be that some pension managers shun stocks because they expect reported returns on equity to fall sharply in the next decade. However, I don't believe such a view is widespread.
  
  Instead, investment managers usually set forth two major objections to the thought that stocks should now be favored over bonds. Some say earnings currently are overstated, with real earnings after replacement-value depreciation far less than those reported. Thus, they say, real 13% earnings aren't available. But that argument ignores the evidence in such investment areas as life insurance, banking, fire-casualty insurance, finance companies, service businesses, etc.
  
  
  In those industries, replacement-value accounting would produce results virtually identical with those produced by conventional accounting. And yet, one can put together a very attractive package of large companies in those fields with an expectable return of 13% or better on book value and with a price which, in aggregate, approximates book value. Furthermore, I see no evidence that corporate managers turn their backs on 13% returns in their acquisition decisions because of replacement-value accounting considerations.
  
  A second argument is made that there are just too many question marks about the near future; wouldn't it be better to wait until things clear up a bit? You know the prose: "Maintain buying reserves until current uncertainties are resolved," etc. Before reaching for that crutch, face up to two unpleasant facts: The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.
  
  If anyone can afford to have such a long-term perspective in making investment decisions, it should be pension-fund managers. While corporate managers frequently incur large obligations in order to acquire businesses at premium prices, most pension plans have very minor flow-of-funds problems. If they wish to invest for the long term--as they do in buying those 20- and 30-year bonds they now embrace--they certainly are in a position to do so. They can, and should, buy stocks with the attitude and expectations of an investor entering into a long-term partnership.
  
  Corporate managers who duck responsibility for pension management by making easy, conventional or faddish decisions are making an expensive mistake. Pension assets probably total about one-third of overall industrial net worth and, of course, bulk far larger in the case of many specific industrial corporations. Thus, poor management of those assets frequently equates to poor management of the largest single segment of the business. Soundly achieved higher returns will produce significantly greater earnings for the corporate sponsors and will also enhance the security and prospective payments available to pensioners.
  
  Managers currently opting for lower equity ratios either have a highly negative opinion of future American business results or expect to be nimble enough to dance back into stocks at even lower levels. There may well be some period in the near future when financial markets are demoralized and much better buys are available in equities; that possibility exists at all times. But you can be sure that at such a time the future will seem neither predictable nor pleasant. Those now awaiting a "better time" for equity investing are highly likely to maintain that posture until well into the next bull market.
  
  Editor's Note: This editor's note accompanied the original publication of this article:
  
  Warren Buffett is a down-to-earth man of 48 who prefers to operate out of his native Omaha rather than in the canyons of Wall Street, but the pros regard him as possibly the most successful living money manager, a direct descendant of the legendary Ben Graham under whom he studied. Buffett made a fortune for himself and his clients in the Fifties and Sixties but threw in the towel in 1969 because he could no longer find bargains. Then in late 1974, when the Dow Jones industrials were below 600 and the air was thick with doom, he told Forbes: "I feel like an oversexed man in a harem. This is the time to start investing." Within months, the greatest rally in history began, with the DJI running almost 450 points in a bit over a year. What does Buffett think now? In this article, he puts it bluntly: Now is the time to buy.

And here is a collector's item. Two scanned pictures of the said article - click on the pictures itself to get a bigger view!

General Motors Says No More Money!!!

General Motors (GM) is simply in dire straits!!

• GM Says It May Run Out of Operating Cash This Year
  
  By Jeff Green and Mike Ramsey
  
  Nov. 7 (Bloomberg) -- General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital.
  
  The largest U.S. automaker reported a $4.2 billion third- quarter operating loss today and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended.
  
  ``GM is making a pretty direct plea for help,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, Tennessee. ``The message is, `we've done all the things we can do, and we need help.' And if we don't get help, fill in the blank.'' ... read rest here

And it's no wonder that chatter of bailout has begun!

Will Obama Bail Out GM, Chrysler and Ford?

• Posted by Heidi N. Moore
  
  Will it or won’t it?
  
  It is the question swimming around the Big Three U.S. auto makers. Will the federal government give them a bailout? The auto makers, particularly General Motors, have been begging the government for quick disbursement of the $25 billion of loans and they seek more. GM chief Rick Wagoner has been making the rounds of Congressional and Bush Administration officials to talk about the industry’s need for help; one of his advisers, former Treasury official Roger Altman, has been kicking up some dust as well.
  
  And as GM and Ford Motor continue to post massive losses, the windows keep closing for options, such as the now-called-off GM-Chrysler deal. Today, GM warned it “estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business.” The company would find it prohibitively expensive to borrow, even if it could pay it back. The auto maker also abandoned plans to merge with Chrysler. And Wagoner wasn’t afraid to invoke the precedent of disastrous bankruptcies today on CNBC: “Letting GM go is a terrible idea. Look at the effect of Lehman Brothers.”
  
  Enter President-elect Barack Obama. His first press conference included encouraging signs for the auto makers and their efforts to get government helpHere is what Obama said:
  
  The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil. I would like to see the Administration do everything they can to accelerate the retooling assistance that Congress has already enacted. In addition, I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States. I have asked my team to explore what we can do under current law and whether additional legislation will be needed for this purpose.
  
  But read between the lines: While it’s certainly nice that Obama called the auto makers “the backbone of American manufacturing,” Wagoner & friends might be in for a rude awakening unless they come around to Obama’s way of thinking on producing more fuel-efficient cars.
  
  After all, the auto makers have long resisted the call to make more fuel-efficient cars. And while the $25 billion of federal low-cost loans were intended to help the auto makers retool to produce smaller, greener vehicles, the auto makers, especially GM, would like to use that government money for other priorities.
  
  So were Obama’s words a prelude to negotiation, or a Hobson’s choice? The auto makers can’t wait ’til inauguration day to find out.

Here is how GM has performed as the stock this last 10 years!

Too big too fall?

Hold for longer period?

That above chart simply says it all!

A Very Brief Look At A Leading Steel Stock: Southern Steel

Southern Steel announced its quarterly earnings. Quarterly rpt on consolidated results for the financial period ended 30/9/2008

I thought it was extremely interesting to see how it perform since I do regard Southern Steel as one of the leaders in the steel sector.

Here's the briefest of brief look at how it performed.



Looks really superb if one compares what it earned for the same period last year!

However, as we all knows, looks can be so deceiving at time!

3 months earlier, in August 2008, Southern Steel announced the following set of numbers.


3 months ago, Southern Steel reported net earnings of 202.466 million. It was a bumper time!

In today's earnings, Southern Steel net earnings only totals 65.697 million!

Not looking good at all considering that steel prices and demand has dropped!