Got this extremely interesting article to share:
Benjamin Graham, the father of value investing. Graham’s own books are investment classics. Securities Analysis (first published in 1934) and The Intelligent Investor (first published in 1949) continue to sell steadily. In addition to this legacy, he has permanently influenced many successful investors, including Warren Buffett, the wealthiest man in America; William Ruane, founder of the super-successful Sequoia Fund; and well-known investor Walter Schloss.
Ben was a prophet in a very specialized but important realm of life. He preached commandments that any investor can use as stars when navigating the vast and mysterious seas of the investment world. An individual investor, who is not under pressure to shoot comets across the heavens but would like to earn a smart and substantial return, especially can benefit from Ben’s guidance. In greatly simplified terms, here are the 14 points Graham most consistently delivered in his writing and speaking. Some of the counsel is technical, but much of it is aimed at adopting the right attitude:
1. Be an investor, not a speculator
“Let us define the speculator as one who seeks to profit from market movements, without primary regard to intrinsic values; the prudent stock investor is one who (a) buys only at prices amply supported by underlying value and (b) determinedly reduces his stock holdings when the market enters the speculative phase of a sustained advance.”
Speculation, Ben insisted, had its place in the securities markets, but a speculator must do more research and tracking of investments and be prepared for losses if they come.
2. Know the asking price
Multiply the company’s share price by the number of company total shares (undiluted) outstanding. Ask yourself, if I bought the whole company would it be worth this much money?
3. Rake the market for bargains
Graham is best known for using his “net current asset value” (NCAV) rule to decide if the company was worth its market price.
To get the NCAV of a company, subtract all liabilities, including short-term debt and preferred stock, from current assets. By purchasing stocks below the NCAV, the investor buys a bargain because nothing at all is paid for the fixed assets of the company. The 1988 research of Professor Joseph D. Vu shows that buying stocks immediately after their price drop below the NCAV per share and selling two years afterward provides an excess return of more than 24 percent.
Yet even Ben recognized that NCAV stocks are increasingly difficult to find, and when one is located, this measure is only a starting point in the evaluation. “If the investor has occasion to be fearful of the future of such a company,” he explained, “it is perfectly logical for him to obey his fears and pass on from that enterprise to some other security about which he is not so fearful.”
Modern disciples of Graham look for hidden value in additional ways, but still probe the question, “what is this company actually worth?” Buffett modifies the Graham formula by looking at the quality of the business itself. Other apostles use the amount of cash flow generated by the company, the reliability and quality of dividends and other factors.
4. Buy the formula
Ben devised another simple formula to tell if a stock is underpriced. The concept has been tested in many different markets and still works.
It takes into account the company’s earnings per share (E), its expected earnings growth rate (R) and the current yield on AAA rated corporate bonds (Y).
The intrinsic value of a stock equals:
E(2R + 8.5) x Y/4
The number 8.5, Ben believed, was the appropriate price/to/earnings multiple for a company with static growth. P/E ratios have risen, but a conservative investor still will use a low multiplier. At the time this formula was printed, 4.4 percent was the average bond yield, or the Y factor.
5. Regard corporate figures with suspicion
It is a company’s future earnings that will drive its share price higher, but estimates are based on current numbers, of which an investor must be wary. Even with more stringent rules, current earnings can be manipulated by creative accountancy. An investor is urged to pay special attention to reserves, accounting changes and footnotes when reading company documents. As for estimates of future earnings, anything from false expectations to unexpected world events can repaint the picture. Nevertheless, an investor has to do the best evaluation possible and then go with the results.
6. Don’t stress out
Realize that you are unlikely to hit the precise “intrinsic value” of a stock or a stock market right on the mark. A margin of safety provides peace of mind. “Use an old Graham and Dodd guideline that you can’t be that precise about a simple value,” suggested Professor Roger Murray. "Give yourself a band of 20 percent above or below, and say, “that is the range of fair value.”
7. Don’t sweat the math
Ben, who loved mathematics, said so himself: “In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give speculation the deceptive guise of investment.”
8. Diversify, rule #1
“My basic rule,” Graham said, “is that the investor should always have a minimum of 25 percent in bonds or bond equivalents, and another minimum of 25 percent in common stocks. He can divide the other 50 percent between the two, according to the varying stock and bond prices.” This is ho-hum advice to anyone in a hurry to get rich, but it helps preserve capital. Remember, earnings cannot compound on money that has evaporated.
Using this rule, an investor would sell stocks when stock prices are high and buy bonds. When the stock market declines, the investor would sell bonds and buy bargain stocks. At all times, however, he or she would hold the minimum 25 percent of the assets either in stocks or bonds — retaining particularly those that offer some contrarian advantage.
As a rule of thumb, an investor should back away from the stock market when the earnings per share on leading indices (such as the Dow Jones Industrial Average or the Standard & Poor’s composite index) is less than the yield on high-quality bonds. When the reverse is true, lean toward bonds.
9. Diversify, rule #2
An investor should have a large number of securities in his or her portfolio, if necessary, with a relatively small number of shares of each stock. While investors such as Buffett may have fewer than a dozen or so carefully chosen companies, Graham usually held 75 or more stocks at any given time. Ben suggested that individual investors try to have at least 30 different holdings, even if it is necessary to buy odd lots. The least expensive way for an individual investor to buy odd lots is through a company’s dividend reinvestment program (DRP).
10. When in doubt, stick to quality
Companies with good earnings, solid dividend histories, low debts and reasonable price/to/earnings ratios serve best. “Investors do not make mistakes, or bad mistakes, in buying good stocks at fair prices,” Ben said. “They make their serious mistakes by buying poor stocks, particularly the ones that are pushed for various reasons. And sometimes — in fact, very frequently — they make mistakes by buying good stocks in the upper reaches of bull markets.”
11. Dividends as a clue
A long record of paying dividends, as long as 20 years, shows that a company has substance and is a limited risk. Chancy growth stocks seldom pay dividends. Furthermore, Ben contended that no dividends or a niggardly dividend policy harms investors in two ways. Not only are shareholders deprived of income from their investment, but when comparable companies are studied, the one with the lower dividend consistently sells for a lower share price. “I believe that Wall Street experience shows clearly that the best treatment for stockholders,” Ben said, “is the payment to them of fair and reasonable dividends in relation to the company’s earnings and in relation to the true value of the security, as measured by any ordinary tests based on earning power or assets.”
12. Defend your shareholder rights
“I want to say a word about disgruntled shareholders,” Ben said. “In my humble opinion, not enough of them are disgruntled. And one of the great troubles with Wall Street is that it cannot distinguish between a mere troublemaker or “strike suitor” in corporate affairs and a stockholder with a legitimate complaint that deserves attention from his management and from his fellow stockholders.” If you object to a dividend policy, executive compensation package or golden parachutes, organize a sharcholder’s offensive.
13. Be Patient
“... every investor should be prepared financially and psychologically for the possibility of poor short-term results. For example, in the 1973-1974 decline the investor would have lost money on paper, but if he’d held on and stuck with the approach, he would have recouped in 1975-1976 and gotten his 15 percent average return for the five-year period.”
14. Think for yourself
Don’t follow the crowd. “There are two requirements for success in Wall Street,” Ben once said. “One, you have to think correctly; and secondly, you have to think independently.”
Finally, continue to search for better ways to ensure safety and maximize growth.
Do not ever stop thinking.
Source: http://sify.com/finance/equity/fullstory.php?id=13418474
Monday, December 29, 2008
Why Tanah Emas And Chin Well Should Never Had Proposed Its Dividends In The First Place!
Blogged the other day: More On The Flip-Flops Of Proposed Dividends.
Instead of relying on what's posted on our local news media, Divided over dividend payout, let's look at what was posted on Bursa Malaysia itself.
Here is Tanah Emas on 22nd December 2008: TANAMAS - REASONS FOR THE REJECTION OF THE PAYMENT OF FIRST AND FINAL DIVIDEND
- Further to Listing's Circular No.L/Q : 52128 of 2008, the Board of Directors of TECB had announced that the major shareholders, who are also the Directors of the Company have rejected the recommendation on the payment of First and Final Single Tier Dividend of 5 sen per share for the financial year ended 30 June 2008 to the shareholders.
This is due to:
a) the recent economic downturn and drastic drop in Crude Palm Oil price; and
b) the Company needs to conserve cash for its operations and business expansion opportunities.
As such, the previous announcements dated 27 November 2008 and 1 December 2008 pertaining to the dates of dividend entitlement and book closure are no longer applicable.
This was Tanah Emas announcement on the 27th November: First and Final Dividend
It even had an ex-date announced for the payment of the dividends!!
Yup I kid you not!
The dividends were proposed on August 28th. PROPOSED FIRST AND FINAL SINGLE TIER DIVIDEND OF RM0.05 PER SHARE FOR THE YEAR ENDED 30 JUNE 2008
This was TanahEmas quarterly earnings announced on the same date. Quarterly rpt on consolidated results for the financial period ended 30/6/2008
This was how much Tanah Emas has in its piggy bank.
16.317 million was all it had in its piggy bank.
A 5 sen per share dividend would amount to RM10.998 million!
Not a whole lot left after paying this dividend yes?
And this is how much Tanah Emas has in its borrowings.
And as stated in the earlier posting, More On The Flip-Flops Of Proposed Dividends.- Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
Here is Chin Well's announcement on Christmas Eve: CHINWEL - REJECTION OF THE PAYMENT OF A FIRST AND FINAL TAX EXEMPT DIVIDEND
Note also that Chin Well too had announced when the dividends would go-ex: First and Final Dividend
And like Tanah Emas, the dividend was mooted and mentioned back in August too: Quarterly rpt on consolidated results for the financial period ended 30/6/2008
And like Tanah Emas, Chin Well's cash balances were rather low and saddled with high debts!
And yes, I am baffled why Chin Well chose to make that dividend announcement back in August 2008!
Let's see a dividend of 6 sen would equate to 8.175 million.
Surely Chin Well should not have proposed such a dividend payout!
And again I repeat what I posted the other day: More On The Flip-Flops Of Proposed Dividends.
- Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
The fact that they did announced their dividends and the fact that they are now flip-flopping on its dividends shows exactly how unprofessional they are!
Rather embarrassing event for corporate Malaysia!
Saturday, December 27, 2008
More On The Flip-Flops Of Proposed Dividends.
Highlighted the other day: Chin Well Cancels Dividends
On today's Star Business, there's a long article from Erral Oh, Divided over dividend payout
- Saturday December 27, 2008
Divided over dividend payout
By ERROL OH
At AGMs earlier this week, the majority shareholders of oil palm grower Tanah Emas Corp Bhd and nuts and bolts maker Chin Well Holdings Bhd voted against the payment of dividends declared earlier. The shareholders, who are also directors, cited deteriorating industry and economic conditions and the need to hold on to cash. Did they do the right thing? C.S. TAN and ERROL OH look at both sides of the coin.
Change of heart should have been made known earlier
By Errol Oh
THERE are a couple of things about the recent developments at Tanah Emas Corp Bhd (Tanahmas) and Chin Well Holdings Bhd that are undisputable. First, no different from any other shareholder, the majority shareholders have every right to vote for or against the dividend resolutions.
In fact, by saying nay to the dividends, they are denying themselves a fair bit of income.
Second, the reasons given for the majority shareholders’ rejection of the resolutions are solid. We are indeed in the middle of a global economic slowdown and a commodity slump, and RM11mil (in the case of Tanahmas) and RM8.2mil (Chin Well) in cash will certainly come in handy when things get rougher.
However, there are some other aspects that are open to debate. There is the question of timing. At what point did the majority shareholders decide that they it was best for the companies not to distribute the dividends?
The two companies separately declared the dividends in August.
In late November, both companies issued their respective AGM notices, which indicated that the resolutions for the dividend payments will be tabled at the meetings. The notices of book closure, setting out the relevant dates for the distributions, also came out at the same time.
The minority shareholders couldn’t have possibly seen anything out of the ordinary. It was all routine stuff so far.
Then came the AGMs – Dec 22 for Tanahmas and Dec 23 for Chin Well. That was when the majority shareholders showed their hands. It’s absurd to think that they showed up at the meeting still undecided on which way they would vote. The decision to halt the dividends would have been made much earlier.
A probable catalyst was the turbulence in the world economy and the stock market in October. If that’s so, why not communicate to the market the change of heart and the intent to shoot down the dividend resolutions?
Under Bursa Malaysia’s listing requirements, a company can’t alter the dividend entitlement once the dividend has been declared. So, it was not an option to withdraw the resolution.
Still, the majority shareholders could have earned some goodwill by immediately signalling what it had planned to do at the AGMs. People do not like to feel that they might have been misled. Nor do they fancy finding out so abruptly that the dividends they were counting on are not to be.
Bear in mind that the majority shareholders have representatives on the board of directors, including those in an executive capacity.
This is precisely the type of situation that provokes questions about the wisdom of majority shareholders having a big say in a company’s management. When do they act as majority shareholders and when do they act as stewards?
Sure, there’s a fine balance between rewarding shareholders and safeguarding a company’s interests. But there’s also the delicate task of managing shareholder expectations.
The flip-flop has cast unflattering light on the other directors. Did they have prior knowledge of the majority shareholders’ intention to nix the dividend proposals? If they did, aren’t they obliged to announce it? If they didn’t, they knew no more than the minority shareholders, and that’s hardly comforting.
Proposal not castin stone untilapproval at AGM
By C.S. Tan
CHIN Well Holdings Bhd proposed a first and final tax-exempt dividend of 3 sen a share in August.
Two months later, the financial world changed in such a way that even those who do not follow it every day noticed it.
Stock markets plunged everywhere, making the news on front pages.
The markets mirrored the conviction of investors that the global economy would get a lot worse before it could get better.
In October, the Dow Jones Industrial Average fell 14% to below the psychological level of 10,000 while the Kuala Lumpur Composite Index fell 15% in that month. Since then, weak data has come out from companies, industries and economies in all the developed countries.
It explains the series of cancellations of proposals from purchases of commercial properties to takeovers and also to dividends.
Institutional investors and analysts expect companies to maintain their ordinary dividends while special dividends can be discontinued.
That, however, should apply only to “normal conditions.” Investors should expect that companies are likely to cut their dividends at this time.
Blue chip companies hesitate to do so for fear of a sell-off in their shares should they cut their dividends, but between that and ensuring they survive the recession, long-term survival should have priority.
So far, only two lower tiered companies have cancelled their dividend proposals and both did so at their AGMs last week.
Plantation company Tanah Emas Corp Bhd did so on Monday, followed by nuts and bolts manufacturer Chin Well on Wednesday.
The rejection of their proposed dividends came as a surprise to the market in terms of the manner and abruptness in which it was done.
The dividend proposal was valid from August and September, and probably into October as well. If Chin Well had withdrawn its proposal last month, it would still have been seen as an abrupt about-turn.
But it may have taken Chin Well these two months to review its operating and financial position since October, and its board may not have met until just before the AGM. Boards generally meet just four or five times a year, not monthly.
The rejection of the dividend proposal at the AGM may have been timely and the appropriate manner in which to do it. The board’s dividend proposal is not cast in stone, until shareholders approve it at the AGM. It is cast in stone after that. Once it is approved, the company must pay the dividend.
Hence, it was not wrong in the timeliness of the vote of the major shareholders to reject the dividend proposal.
Some of them are also directors who proposed the dividend in the first place, but they know the current business conditions more than the minority shareholders.
As the company put it, global conditions changed for the worse, commodity prices have dropped and there is also a “substantial drop” in the demand for its products. Commodity prices would refer to steel prices which affect the company’s product prices and thus its profit margins.
The company also has quite a lot of bank debt – about RM230mil – and its priority is rightly to ensure it survives this severe cycle. Furthermore, cash retained in the company still belongs to shareholders.
The majority view is that business conditions will be even worse early next year. Investors should expect more “surprises” of cancellations or cuts in dividends in the months ahead.
Companies that have yet to propose dividends would avoid the embarrassment of withdrawing it.
I certainly do not agree with what CS Tan is saying here.
Yes, the reason to withdraw the dividends is probably valid for both companies. Both these stocks are rather not in the best of financial health and given the current business economics worldwide, it's of course prudent that they withdraw their dividends.
However, what has happened is simply appalling.
As a listed entity, it's simply appalling to see the lack of professionalism in both companies. Why can't they THINK before announcing the proposed dividends?
Yes, can't they THINK before shooting their mouths off that they are going to reward their shareholders with dividends?
Is it so difficult to THINK?
Was it hard to see back in August that the world is in an economic crisis? Was it hard to see that the dividends SHOULD NEVER HAVE BEEN PROPOSED in the first place?
To flip-flop in such a manner shows how lacking the management mentality in both listed companies! EXTREMELY UNPROFESSIONAL!
And now that both companies have done such flip-flops on the proposed dividends, which sane investor would dare to invest in their companies?
Friday, December 26, 2008
The Great American Ponzi
Here's a wonderful posting by Jesse: A Question Worth Considering for the New Year...
- What is at the heart of the US financial crisis?
Is it that the US has been precipitously cut off from some foreign source of funding? Has there been an oil embargo, a supply shock imposed such as the one that triggered the financial crisis of the 1970's? Are the problems caused by some external change, some actor outside the system?
I think most will say the answer is 'no.'
The problems are internal to the US, to its financial system.
So, how would you fix a system that has broken from an internal flaw in this way?
Try more of the same, business as usual, apply fresh debt to a failed system based on a growing pyramid of debt without making any substantial changes?
The US financial system, the housing, equity and Treasury markets, are all Ponzi schemes, with the need for a constantly increasing source of fresh money to keep going. That funding is new debt, new dollars based on nothing produced, just the trust and confidence of the participants.
Would you fix the Madoff Ponzi scheme by giving Bernie more money, public money, to keep his payments flowing to his 'investors?'
I think most of us would say, no, no more money.
But what is the difference between that and what Paulson and Bernanke are doing today? Is there a graceful exit strategy? Have any serious reforms or changes been made or even proposed? Has there even been a frank disclosure and discussion of exactly what happened, and what is continuing to happen, beyond blaming the victims?
No. The key participants in the Ponzi scheme are continuing to take their gains out, in dividends and bonuses, front running the final collapse and admission that "its all gone, we're bankrupt."
Think about it.
What would you do if it is a Ponzi scheme, teetering on the edge?
Article On Hai-O On Star Business
I was bemused when I read the following article yesterday on Hai-O: Hai-O sales rise on lower petrol prices
Firstly the company's financial controller Hew Von Kin talks about the current company's prospects.
- PETALING JAYA: Hai-O Enterprise Bhd says consumer sentiment improved in November, thanks to lower petrol prices.
“October was our weakest month in the second quarter but sales showed improvement last month as the Government started to reduce petrol prices and consumers geared up for the festive season,” financial controller Hew Von Kin told StarBiz.
- “We expect the wholesale and retail divisions to weaken after Chinese New Year while the MLM division is likely to stay resilient as people seek part-time jobs to supplement their income,” he said, adding that new MLM memberships would offset the slower spending next year.
Hai-O launched a series of healthcare supplement products last weekend, which have received positive response so far.
“We plan to launch a range of skincare products in the first quarter of next year. We have already secured the approvals and are currently working on the packaging and design,” Hew said.
Then the following passage caught my attention.
- Last week, Hai-O reported a stronger net profit of RM10.9mil for the second quarter ended Oct 31, or almost 20% higher than the previous corresponding period of RM9.1mil.
Revenue jumped to RM87.3mil from RM80.5mil a year ago, thanks to higher contribution from the wholesale and MLM divisions. For the first half year, net profit was RM24.5mil on revenue of RM200.2mil.
On a quarterly basis, second-quarter net profit was lower by 20% from the first quarter’s net earnings of RM13.6mil.
In the filing to Bursa Malaysia, the company said the weaker quarter-on-quarter results were due to smaller contribution from MLM.
However, the retail business achieved better sales in the second quarter from the first, thanks to members’ sales promotions and higher margins from its house brand products.
Hai-O’s internal growth target for the financial year ending April 30, 2009 was to achieve 5% in sales, it said.
As posted in Review of HaiO's Latest Quarterly Earnings
- Which means, if one looks at the very immediate picture, HaiO's earnings are deteriorating at an extremely tremendous pace. The last three quarters, its earnings has went from 18.942 million to 13.602 million to only 10.889 million!
And that 5% growth rate. That statement as a stand alone was grossly inaccurate. Truth is, Hai-O had stated CLEARLY that they are forced to reduce their growth rate from 20% to a mere 5%!
As stated in its own earnings notes.
- Due to the current global financial turmoil and weak market condition, the Company had revised downward its growth rate from 20% to 5% as mentioned above. However, the Company will strive for better performance in this challenging environment and work towards higher growth rate.
For a company who was projecting almost 20% growth and being forced to revise downwards to a mere 5% due to weak market condition, totally differs that saying a company is forecasting a 5% growth. For as a stand alone, it does not tell the whole story!
And the article ends by saying.
- OSK Investment Bank, in a report, said next quarter’s performance would stay strong driven by the retail division, which would benefit from the Chinese New Year celebrations next month.
“Hai-O’s attractive incentives will continue to drive the expansion of its MLM network and help the group to expand into new markets, like Indonesia, which will kick-start in March,” OSK said.
Hai-O is cash-rich with a war chest of almost RM48mil and generates good dividend yield of about 13%.
Again I am bemused.
Yes, Hai-O currently has a war chest about 48 million.
However, let's be more accurate here!
This war chest is getting smaller, yes?!!!!!!
As posted earlier in my posting, Review of HaiO's Latest Quarterly Earnings
Compare the cash/short term investments versus the same period last year. Impressive?
Want to compare to previous quarter, Quarterly rpt on consolidated results for the financial period ended 31/7/2008?
Now that depicts a totally different picture, doesn't it?
Wednesday, December 24, 2008
Chin Well Cancels Dividends!
Published on Star Biz: Chin Well cancels dividend
- Wednesday December 24, 2008
Chin Well cancels dividend
The company says it wants to conserve cash
PETALING JAYA: Bolts and nuts maker Chin Well Holding Bhd yesterday became the second company in as many days to scrap plans to pay dividends to shareholders this year, citing the need to conserve cash amid the worsening global economic situation.
The stock hit a 5½-year low of 65 sen yesterday before bouncing back to end the day up two sen at 73 sen. Turnover was thin, with 61,000 shares changing hands. The stock has fallen 34% year-to-date.
“The shareholders of the company had unanimously approved all resolutions (at the AGM) yesterday except for the resolution on the first and final dividend of 6% (or three sen per share) for year ended June 30, 2008 (FY08),’’ Chin Well told Bursa Malaysia yesterday.
Penang-based Chin Well made a net profit of RM27.25mil, or 10.03 sen per share, in FY08. It had on Nov 28 said it would pay a dividend of three sen per share to shareholders next month.
The book closure announcement was no longer applicable, the company said yesterday.
Chin Well’s main shareholders, who are also executive directors of the company, cited worsening global economic conditions, falling commodity prices and substantial drop in demand for the group’s products, as well as the need to “conserve and save on the group’s cashflow” as reasons to reject the dividend payout proposal.
On Monday, palm oil planter Tanah Emas Corp Bhd’s main shareholders rejected plans to return part of the company’s profit as dividends to shareholders.
I cannot believe what I am reading here.
Doesn't Chin Well knows that cancellation of a proposed dividend is utterly sinful in the minds of investors?
No sane investor would want to invest in your company if your company flip flops on decisions such as dividends!
Can I Make It In The Stock Market As A Trader?
Are you a trader who has not much success in the stock market?
Have you bought and read tons of books and yet cannot find any success?
Here's a recommended reading article by Dr. Brett. Can I Trade for a Living? The Quest for Trading Success (do read in full and not only the following highlighted passage)
- The missing element? Skill development. Training. A systematic program of learning that emphasizes pattern recognition, an understanding of market movement across time frames, intermarket relationships, sound execution of trade ideas, and risk management.
Mindset is critical in sustaining motivation, interest, and focus during the learning curve, and mindset is crucial in the consistent application of one's skills. The wrong frame of mind and emotional/cognitive/physical state can disrupt the best of skills, but the best of mental outlooks cannot substitute for developed skills. No positive mindframe and "method that suited me" can provide competencies--in any performance field.
Jetstar Says There Is NO Discussion Of Merger With AirAsia!
Rather embarrassing yet again for AirAsia.
Blogged yesterday: AirAsia Merger With Qantas's Jetstar?
- The talks are still in preliminary stages and it is learnt that AirAsia’s boss Datuk Seri Tony Fernandes and Qantas new chief executive officer Alan Joyce have been mulling over it. They last talked on the issue last week, a source said. ( see AirAsia-Jetstar merger brewing )
Today, Business Times rebroadcasts the following news posted on Bloomberg: Jetstar denies merger plan with AirAsia
- SINGAPORE: Jetstar Asia Airways Pte Ltd, the Singapore-based budget carrier backed by Qantas Airways Ltd, denied a report saying it was in talks with AirAsia Bhd (5099) on a possible combination.
There is "no discussion on any merger", Jetstar chief executive officer Chong Phit Lian said in an e-mail reply to Bloomberg queries. The two are working on commercial arrangements, such as transferring passengers between each others' flights when delays occur, she added.
AirAsia, Southeast Asia's biggest discount airline, and Jetstar may be in exploratory talks on a possible merger, a Malaysian newspaper reported yesterday, citing people it didn't identify.
Sepang, Malaysia-based AirAsia's chief executive officer Datuk Seri Tony Fernandes didn't answer calls to his mobile phone or reply to an e-mail seeking comment.
AirAsia closed half a sen lower at 92.5 sen in Kuala Lumpur trading, after earlier rising as much as 2.2 per cent. The shares have declined 43 per cent this year. Jetstar is closely held, with Qantas owning the largest stake. - Bloomberg
Didn't answer any calls?
Don't you get the feeling that lately AirAsia is trying desperately to talk itself up in the media?
There was the audacious plan to privatise itself but what was more daring, a GO takeover price was boldly announced! ( Is it wrong to speculate that perhaps AirAsia was trying to create a support for its stock price?)
And now a merger with Jetstar?
Now who is that source mentioned by Star Biz in its article AirAsia-Jetstar merger brewing
Yes who?
Did the source simply created this merger story to drive up the stock price?
Don't we want to see the end of this nonsensical 'according to sources' type of reporting here in Malaysia?
Tuesday, December 23, 2008
Why Is Maybulk So Active In the Share Market?
Yes, why is Maybulk so active in the share market?
Caught the following announcement on Bursa Malaysia: Dealings in quoted securities pursuant to Paragraph 9.21 of the Listing Requirements
- Malaysian Bulk Carriers Berhad ("MBC” or "the Company”) wishes to announce that the MBC Group has, for the period from 31 January 2008 to 22 December 2008, purchased quoted securities from the open market. These purchases have exceeded 5% of MBC's latest audited consolidated net assets ("NA") as at 31 December 2007, details of which are set out below:-
1. The aggregate purchases for the period from 31 January 2008 to 22 December 2008 amount to RM91.38 million. This represents 5.15% of NA;
2. The total cost of all investments in quoted securities as at 22 December 2008 is RM143.80 million;
3. The total book value of all investments in quoted securities as at 22 December 2008 is RM122.12 million;
4. The market value of all investments as at 22 December 2008 is RM122.93 million; and
5. There were sales of quoted securities during the current financial year and the losses on disposal amounted to RM11.23 million.
This announcement is dated 23 December 2008.
Aren't you shocked at what it is doing?
Don't you think that the amount is way too much?
Someone once mentioned that Maybulk's management is highly 'reputable'. Well that the fact that Maybulk chose NOT to disclose what they bought and the fact that they bought more than 5% of its total Net Assets as of its audited accounts as at 31st Dec 2007 places a massive question mark over the management. Won't you agree?
And honestly, what does the management of the company thinks they are? Is Maybulk a securities trading firm?
Does the management reckons that they are super traders or super investors?
Well, the fact that they loss some rm 11.23 million speaks volumes about their stock market skills!
Seriously, don't you reckon that Maybulk should stop this?
Look they aren't good, are they? And if so, why dabble in the share market?
Does Maybulk have so much money to lose in the share market?
And if you are a minority shareholder, do you honestly like what you see?
Aren't you appalled by all this?
AirAsia Merger With Qantas's Jetstar?
Published on Star Biz: AirAsia-Jetstar merger brewing
- PETALING JAYA: Something may be in the air between Qantas Airways Ltd and AirAsia Bhd. If things work out, a merger between AirAsia and the Australian carrier’s units Jetstar and JetstarAsia may be in the offing.
The talks are still in preliminary stages and it is learnt that AirAsia’s boss Datuk Seri Tony Fernandes and Qantas new chief executive officer Alan Joyce have been mulling over it. They last talked on the issue last week, a source said.
I stopped reading after that.
How's this for yet another irresponsible reporting?
Who is that 'a source'?
Am I wrong to question if the source is even real? Am I wrong to question if this is yet another ploy to use the media to support AirAsia share price?
Why I am so sceptical?
Well, can I be blamed after AirAsia's recent buyout fiasco?
See recent postings on the recent GO fiasco: Did Tune Air Said It Was Thinking Of Making a GO for Air Asia? , Air Asia Now Remains TIGHT-LIPPED On It's Privatisation Plan Details! , Huh? AirAsia Buyout Still An Option????? and Tune Air Says Unable To Secure Financing
George Bush's White House Blasts New York Times For Irresponsible Reporting!!
Over the weekend, New York Times ran the following article: White House Philosophy Stoked Mortgage Bonfire
The following is a passage of what was written..
- Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.
There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.
But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.
From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.
He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.
Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.
As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”
The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.
“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”
Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.
“The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”
For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security. The housing market was a bright spot: ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.
Lawrence B. Lindsey, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.
“No one wanted to stop that bubble,” Mr. Lindsey said. “It would have conflicted with the president’s own policies.”
Yup, totally unreal.
And here is what George Bush's White House had to say: Statement by the Press Secretary on Irresponsible Reporting by New York Times
- Most people can accept that a news story recounting recent events will be reliant on '20-20 hindsight'. Today's front-page New York Times story relies on hindsight with blinders on and one eye closed.
The Times' 'reporting' in this story amounted to finding selected quotes to support a story the reporters fully intended to write from the onset, while disregarding anything that didn't fit their point of view. To prove the point, when they filed their story, NYT reporters were completely unfamiliar with the President's prime time address to the nation where he laid out in detail all of the causes of the housing and financial crises. For example, the President highlighted a factor that economists agree on: that the most significant factor leading to the housing crisis was cheap money flowing into the U.S. from the rest of the world, so that there was no natural restraint on flush lenders to push loans on Americans in risky ways. This flow of funds into the U.S. was unprecedented. And because it was unprecedented, the conditions it created presented unprecedented questions for policymakers.
In his address the President also explained in detail the failure of financial institutions to perform normal and necessary due diligence in creating, buying and selling new financial products -- a problem that almost no one saw as it was happening.
That the NYT ignored such an important economic speech to the American people and the complex causes of the crises is gross negligence.
The Times story frequently repeats a charge by the Administration's critics: a 'laissez faire' attitude toward regulation. We make no apology for understanding the concept of regulatory balance. That is, regulation should be stringent enough to protect the greater public good and safety but not overly strong so that it unnecessarily inhibits innovation, creativity and productivity gains that are the sole source of increasing Americans' standards of living. But while repeating this charge, the reporters gave glancing attention to the fact that it was this Administration that pushed for strengthened regulation and oversight, greater transparency, and housing reform.
The story also gives kid glove treatment to Congress. While the Administration was pushing for more transparent lending rules and strengthening oversight and supervision of Fannie and Freddie, Congress for years blocked attempts at stronger regulation and blocked reform of the Federal Housing Administration. Democratic leaders brazenly encouraged Fannie and Freddie to loosen lending standards and instead encouraged the housing GSEs to play a larger and larger role in the housing market -- even while explicitly acknowledging the rising risks. And while the story notes the political contributions of some banks to Republicans, it neglects that political contributions from Fannie Mae and Freddie Mac overwhelmingly supported Democratic officials -- in particular the chairmen of the banking committees. In fact, even in the midst of what by then was a housing crisis, it took Congress nearly a full year to pass specific legislation called for by the President in the summer of 2007, especially legislation to reform oversight of Fannie Mae and Freddie Mac.
There are many more reporting failures in this story -- failure to consider the impact of monetary policy; ignoring the regional nature of housing markets; and ignoring the Bush Administration's historic proposal to overhaul the nation's regulatory system, for example. But then a review of these issues would wave complicated the reporters' myopic point of view that only Bush Administration policies could possibly be responsible for the housing and finance crises.
Huh? Am I reading it correctly? Cheap money flowing into the US?
- -- a problem that almost no one saw as it was happening
Yet another ??????????
Goodness me, I seriously cannot believe what I am reading here. Just what are they talking about?
Monday, December 22, 2008
Enemy Of Mine: Are We Our Own Enemy?
Here is a great article posted on Morningstar.com back in 2005.
- Behavioral finance has become a cottage industry in recent years, spawning an array of academic papers and learned tomes that attempt to explain why people make financial decisions that are contrary to their own interests.
The concept is not new, however. Benjamin Graham used to portray Mr. Market (and who is the market other than you and I?) as a fellow prone to mood swings, from wildly optimistic to irrationally pessimistic. The key for Graham--and for his disciple, Warren Buffett--is patience.
As Buffett said in a 1999 interview with BusinessWeek, "Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." His partner at Berkshire Hathaway Charlie Munger, never misses an opportunity to recommend Robert Cialdini's book “Influence”, which examines why people give in to pressure from others.
Yet, despite all the warnings, investors continue to exhibit several key behaviors that tend to get them into trouble. Let's go over a few of these counterproductive activities, so that we'll have fodder for the next round of New Year's resolutions.
Checking Portfolios Too Often
Let me be the first to say that I'm guilty here. I look at my stocks [shares] at least a couple of times a day, so I know first-hand what a psychologically painful experience it can be. The problem is that people are generally loss-averse--that is, they experience negative feelings from a $50 loss that are stronger than the positive feelings they get from a $50 gain.
This concept formed the basis for prospect theory, developed by Nobel laureate Daniel Kahneman and Amos Tversky in 1979. Richard Thaler and Shlomo Benartzi went the next step and showed that frequency of evaluation was key to how well an investor could endure losses. Those who do their mental accounting over short time spans, even if they're investing for the long term, earn lower returns.
Again, this is nothing new. Buffett has said that he wouldn't mind if the market shut down for years at a time. For many of us, though, every day becomes another chance to suffer the agony of our investment decisions. Nassim Taleb, who runs a hedge fund (Empirica Capital) that makes its living by enduring short-term pain, points out in his book “Fooled by Randomness” that probability dictates that the market will show a positive return on only a little over half of the days it's open. If losses hurt twice as much as gains, then people who check their portfolios daily will suffer much more than they'll benefit. Thaler and Benartzi calculate that the "psychic cost" of evaluating your portfolio on an annual basis is 5.1% per year, versus 0.6% for a 10-year evaluation period, based on changes in the implied equity-risk premium. Measuring performance on a daily basis seems certain to drive the risk premium even higher, costing investors considerably more than 5.1%.
Do yourself a favor and try to resist the urge to calculate your portfolio value in real time. The quotes may be free, but the total cost can be huge.
Trading Too Often
Frequent evaluation leads, naturally, to frequent trades. Terrance Odean and Brad Barber studied activity in 66,000 accounts at a large discount broker from 1991 to 1996 and came to this conclusion: "Trading is hazardous to your wealth."
They found that individuals who trade frequently (with monthly turnover above 8.8%) earned a net annualized return of 11.4% over that time, while inactive accounts netted 18.5%. Trading costs, in the form of commissions and losses on the bid-ask spread, accounted for most of the difference. Those costs have likely fallen since 1996, as more discount brokers have pressured commission prices and decimalization has reduced spreads, but friction costs remain a drag on overall returns.
But surely investors got some benefit from trading less-desirable stocks for better ones, right? Nope. In fact, Odean and Barber found that, excluding transaction costs, newly acquired stocks actually slightly underperformed the stocks that were sold! That bears repeating: By trading frequently, individuals hurt not only their performance net of fees, but they also hurt their performance before fees.
Why would this be? Odean and Barber believe that it reflects investors' overconfidence in their ability to assess information. It's clear that rapid traders are making unreasonable bets--one would expect that they would trade only when the benefit would offset at least the cost of trading, but that was clearly not the case in this data set. But does high turnover reflect self-assurance, or could it betray the lack of it?
Investors in Odean and Barber's study were much more likely to sell winners. This appears to reflect the desire to "take some profits," while not wanting to accept defeat in the case of the losers. (Philip Fisher writes in his excellent book “Common Stocks and Uncommon Profits” that "more money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason.") Such a tendency would be in keeping with myopic loss aversion: People may view losses as more likely in a stock that's up than one that's down. This attitude would also mesh with another common trait, framing evaluations on meaningless benchmarks, such as what price you bought a stock.
Perhaps, then, investors aren't confident in their understanding of their investments and simply worry that they could lose their gains. They may feel more comfortable jumping into an investment that others currently recommend.
Getting Distracted by Shiny Objects
There are thousands and thousands of stocks out there. Investors cannot know them all; in fact, it's a major endeavor to really know even a few of them. But people are bombarded with stock ideas from brokers, television, magazines, Web sites, and other places. Inevitably, some decide that the latest idea they've heard is a better idea than a stock they own (preferably one that's up), and they make a trade. Unfortunately, in many cases the stock has come to the public's attention because of its strong previous performance. When this is followed by a reversion to the mean, new investors get burned.
This is not to say that an investor should necessarily hold whatever investments he or she currently owns. Some stocks should be sold, whether because their underlying businesses have declined or the stocks simply exceed their intrinsic value. But it is clear that many individual (and institutional) investors hurt themselves by making too many buy and sell decisions for too many fallacious reasons. We can all be much better investors when we learn to select stocks carefully and then block out the noise.
Saturday, December 20, 2008
Dr. V. Y. Reddy Finallys Gets His Credit!
Here is a great weekend reading article which focus on how India avoided the banking crisis. Most importantly, it focus on how Dr. V. Y. Reddy, India's banking governor, helped keep India's banks in order.
- How India Avoided a Crisis
By JOE NOCERA
Published: December 19, 2008
“What has taken a number of us by surprise is the lack of adequate supervision and regulation,” Rana Kapoor was saying the other day. “This was despite the fact that Enron had happened and you passed Sarbanes-Oxley. We don’t understand it. Maybe it’s because we sit in a more controlled economy but ....” He smiled sweetly as his voice trailed off, as if to take the sting off his comments. But they stung nonetheless.
Mr. Kapoor is an Indian banker, a former longtime Bank of America executive with a Rutgers M.B.A. who, along with his business partner and brother-in-law, Ashok Kapur, was granted government permission four years ago to start a private bank, which they called Yes Bank. In the United States, Yes Bank is the kind of name a go-go banker might give to, say, a high-flying mortgage lender in the middle of a bubble. (You can even imagine the slogan: “Yes is part of our name!”) But Yes Bank is not exactly the Washington Mutual of India. One news release it hands out to reporters who come calling is an excerpt from a 2007 survey by The Financial Express: “#1 on Credit Quality amongst 56 Banks in India,” reads the headline.
I arrived in Mumbai three weeks after the terrorist attacks that killed 200 people — including, tragically, Yes Bank’s co-founder Mr. Kapur, who had served as the company’s nonexecutive chairman and was gunned down while having dinner at the Oberoi Hotel. (His wife and two dinner companions miraculously escaped.)
My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India. How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner? Didn’t we understand that you can’t lend money to people who lack the means to pay it back? The questions were asked with a sense of bewilderment — and an occasional hint of scorn. Like most Americans, I didn’t have any good answers. It was a bubble, I would respond with a sheepish shrug, as if that were an adequate explanation. It isn’t, of course.
“In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (A few days after I spoke to her, Ms. Kochhar was named the bank’s new chief executive, in a move that had long been anticipated.) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.”
And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country’s first specialized mortgage bank, practically the first words out of his mouth were these: “We don’t do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don’t make those kinds of loans. Our nonperforming loans are less than 1 percent.”
Yet two years ago, the Indian real estate market — commercial and residential alike — was every bit as frothy as the American market. High-rises were being slapped up on spec. Housing developments were sprouting up everywhere. And there was plenty of money flowing into India, mainly from private equity and hedge funds, to fuel the commercial real estate bubble in particular. Goldman Sachs, Carlyle, Blackstone, Citibank — they were all here, throwing money at developers. So why did the Indian banks stay on the sidelines and avoid most of the pain that has been suffered by the big American banks?
Part of the reason is cultural. Indians are simply not as comfortable with credit as Americans. “A lot of Indians, when you push them, will say that if you spend more than you earn you will get in trouble,” an Indian consultant told me. “Americans spent more than they earned.”
Mr. Parekh said, “Savings are important. Joint families exist. When one son moves out, the family helps them. So you don’t borrow so much from the bank.” Even mortgage loans tend to have down payments in India that are a third of the purchase price, a far cry from the United States, where 20 percent is the new norm. (Let’s not even think about what they used to be.)
But there was also another factor, perhaps the most important of all. India had a bank regulator who was the anti-Greenspan. His name was Dr. V. Y. Reddy, and he was the governor of the Reserve Bank of India. Seventy percent of the banking system in India is nationalized, so a strong regulator is critical, since any banking scandal amounts to a national political scandal as well. And in the irascible Mr. Reddy, who took office in 2003 and stepped down this past September, it had exactly the right man in the right job at the right time.
“He basically believed that if bankers were given the opportunity to sin, they would sin,” said one banker who asked not to be named because, well, there’s not much percentage in getting on the wrong side of the Reserve Bank of India. For all the bankers’ talk about their higher lending standards, the truth is that Mr. Reddy made them even more stringent during the bubble.
Unlike Alan Greenspan, who didn’t believe it was his job to even point out bubbles, much less try to deflate them, Mr. Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing. Only when the developer was about to commence building could the bank get involved — and then only to make construction loans. (Guess who wound up financing the land purchases? United States private equity and hedge funds, of course!)
Then, as securitizations and derivatives gained increasing prominence in the world’s financial system, the Reserve Bank of India sharply curtailed their use in the country. When Mr. Reddy saw American banks setting up off-balance-sheet vehicles to hide debt, he essentially banned them in India. As a result, banks in India wound up holding onto the loans they made to customers. On the one hand, this meant they made fewer loans than their American counterparts because they couldn’t sell off the loans to Wall Street in securitizations. On the other hand, it meant they still had the incentive — as American banks did not — to see those loans paid back.
Seeing inflation on the horizon, Mr. Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Mr. Reddy was creating liquidity even before there was a global liquidity crisis.
Did India’s bankers stand up to applaud Mr. Reddy as he was making these moves? Of course not. They were naturally furious, just as American bankers would have been if Mr. Greenspan had been more active. Their regulator was holding them back, constraining their growth! Mr. Parekh told me that while he had been saying for some time that Indian real estate was in bubble territory, he was still unhappy with the rules imposed by Mr. Reddy. “We were critical of the central bank,” he said. “We thought these were harsh measures.”
“For a while we were wondering if we were missing out on something,” said Ms. Kochhar of Icici. Banks in the United States seemed to have come up with some magical new formula for making money: make loans that required no down payment and little in the way of verification — and post instant, short-term, profits.
As Luis Miranda, who runs a private equity firm devoted to developing India’s infrastructure, put it: “We kept wondering if they had figured out something that we were too dense to figure out. It looked like they were smart and we were stupid.” Instead, India was the smart one, and we were the stupid ones.
Ms. Kochhar said that the underlying risks of having “a majority of loans not owned by the people who originated them” was not apparent during the bubble. Now that those risks have been made painfully clear, every banker in India realizes that Mr. Reddy did the right thing by limiting securitizations. “At times like this, you tend to appreciate what he did more than we did at the time,” said Mr. Kapoor. “He saved us,” added Mr. Parekh.
As the credit crisis has spread these past months, no Indian bank has come close to failing the way so many United States and European financial institutions have. None have required the kind of emergency injections of capital that Western banks have needed. None have had the huge write-downs that were par for the course in the West. As the bubble has burst, which lenders have taken the hit? Why, the private equity and hedge fund lenders who had been so eager to finance land development. Us, in others words, rather than them. Why is that not a surprise?
When I asked Mr. Kapoor for his take on what had happened in the United States, he replied: “We recognize it as a problem of plenty. It was perpetuated by greedy bankers, whether investment bankers or commercial bankers. The greed to make money is the impression it has made here. Anytime they wanted a loan, people just dipped into their home A.T.M. It was like money was on call.”
So it was. And our regulators, unlike theirs, just stood by and let it happen. The next time we’re moving into bubble territory, perhaps we can take a page from Mr. Reddy’s book — sometimes it’s better to apply the brakes too early than too late. Or, as was the case with Mr. Greenspan, not at all.
Friday, December 19, 2008
BOJ Cuts Rates!!
Is this unexpected? Nope!
It's a World CuT!
BOJ Cuts Rates, Pumps Funds to Ease Credit
- The Bank of Japan cut its key policy rate to 0.10 percent on Friday and moved to pump funds into the market to ease a corporate credit crunch as the yen's sharp rise and crumbling demand batter the economy.
A dramatic rate cut by the Federal Reserve on Tuesday, which took U.S. rates below Japan's, and the yen's subsequent rise to a 13-year high against the dollar had ratcheted up government pressure for BOJ action to help an economy already in recession.
Japan's government forecast earlier on Friday that the economy would not grow in the fiscal year from April 1, although a slew of stimulus packages would keep it from contracting.
That contrasted with bleaker private sector predictions that the deepening global malaise will hit the export-driven economy hard. The government acknowledged, though, that Japan's recovery might be delayed if global conditions worsened.
"Looking at employment and companies' financial conditions, in a broad sense the economy is in a very severe state," Finance Minister Shoichi Nakagawa told a news conference.
Abuse Of Stock Blogs!!!
Here is a posting which is surely worth noting!
Introducing John Hempton: the Plunderer from Down Under
December 17th, 2008 by Judd Bagley
- While an examination of the recently-unsealed products of discovery in the Fairfax Financial (NYSE:FFH) vs. SAC Capital, el al, lawsuit reveals the extensive involvement of most all the usual players — both in the world of hedge funds and business journalism — one name, mostly unknown to those outside Fairfax circles, appears quite prominently: John Hempton of Sydney, Australia.
Hempton, it appears, conceived of and initially orchestrated the entire Fairfax fiasco. At the time, he was a senior analyst at Australia’s Platinum Asset Management hedge fund. Last year he left Platinum to join Global Value Investors, though on May 15 of this year, Hempton started a blog and began calling himself semi-retired; leading me to presume that some time in early May, Hempton and GIV parted ways.
Though possibly mere coincidence, Herb Greenberg abandoned his MarketWatch gig on May 1, 2008 while Bethany McLean announced her departure from Fortune three days later. Greenberg and McLean, as it turns out, both play notable roles in the apparent Hempton-inspired conspiracy.
A reading of Hempton’s early efforts to win converts to his thesis that Fairfax was a ticking time bomb waiting to implode suggests his conclusions were based on what he viewed as sound principles; he really was convinced, and composed multiple, lengthy missives outlining his reasoning. I suspect Hempton’s mistake was then convincing some of the worst people on Wall Street, whose methods fill the pages of this blog, and whose influence probably turned his project from a speculative to a criminal enterprise, dragging Hempton down with it.
That’s not to say that any of this absolves Hempton of blame.
For one, a 2002 email sent to Rocker Partners employee Monty Montgomery makes it clear that Hempton is prominent stock message board poster Brolgaboy (and brolgaboy1 on Yahoo Finance).
I asked Hempton to comment on or clarify this email, but he refused.
That may be because he knows that, thanks to the Yahoo Dissembler Sorting Algorithm bug, it’s possible to know with certainty that in addition to brolgaboy1, Hempton is also Yahoo posters jamiewoodford1, scudzy_short, zipperdydoodah, and (my favorite) mr_byrnes_sith_lord.
Between them, these accounts have many hundreds of posts on Yahoo Finance, to say nothing of the hundreds more posted to several other boards.
Here’s where I really begin to lose patience with John Hempton.
On August 15, 2005, Hempton created and began posting taunting messages under the name mr_byrnes_sith_lord. This was three days after DeepCapture.com contributor and Overstock.com CEO Patrick Byrne announced a lawsuit against Gradient Analytics and Rocker Partners hedge fund for conspiring to get rich by destroying his company. At that time, Byrne further announced that he had evidence of a central figure — whom Byrne metaphorically compared to the shadowy “Sith Lord” of the Star Wars series — coordinating these attacks in ways nobody had previously considered possible.
Also on August 15, 2005, Hempton created the Sith Lord blog, which he further used, over the space of two months, to deride Byrne for claiming that short-selling hedge funds might operate in a coordinated way to destroy public companies.
In case you’ve missed it, the extreme irony here is that at least initially, in the case of the attack on Fairfax Financial, Hempton himself filled a version of the very role he attacked Byrne for daring to claim exists.
More than just irony, this, my friends, is a perfect example hubris as defined by the ancient Greeks: an act of extreme pride and arrogance that humiliates the victim, and ultimately the perpetrator as well.
Source: http://www.deepcapture.com/introducing-john-hempton-the-plunderer-from-down-under/
On top of the page, do you see the following:
- Analysis of the abuse of social media — blogs, Wikipedia, message boards, etc — for the purpose of enabling illegal stock market manipulation.
Quote: for the purpose of enabling illegal stock market manipulation!.
Forget that NOT!!
Do you see this happening around us?
Thursday, December 18, 2008
Bruce Berkowitz Tips Pfizer And Sells Berkshire!
Here's an interesting interview with Bruce Berkowitz published on WashingtonPost.com.
- A Bargain Hunter Stands Tall
Manuel Schiffres, Executive Editor,
Kiplinger.com
Monday, December 8, 2008; 12:00 AM
As a wretched 2008 draws to a close, Bruce Berkowitz displays mixed emotions. On the one hand, Fairholme fund, which he's run since its late-1999 launch, is again beating the stock market (by eight percentage points in early November). On the other hand, the fund is on track for its worst year ever (down 28%). And yet the swoon in share prices that is responsible for Fairholme's losses also brings a smile to Berkowitz's face. The candy store is wide open, and the bargain-hunting Berkowitz, 50, feels like a kid again.
Despite the 2008 loss, Fairholme's long-term record remains solid. From its inception through November 7, the fund returned 11% annualized. During the same period, Standard & Poor's 500-stock index lost 3% a year. Fairholme, which typically owns only about 25 stocks, has trailed the index in only one calendar year.
What really stands out about Berkowitz's performance, though, is how he escaped the ignominious fate of so many other value managers over the past year. He applied strict value criteria when he assessed stocks, and he adhered to the simple (but wise) rule of not investing in anything he couldn't understand. So Berkowitz was never tempted by the likes of AIG, Bear Stearns or Lehman Brothers, no matter how cheap their stocks had seemingly become.
To learn more about how Berkowitz operates, we visited him in his Miami office, located the length of a football field from Biscayne Bay.
KIPLINGER'S: What were you doing as the markets gyrated so dramatically in the fall?
BERKOWITZ: Although the fall in stock prices hurt our performance, it has been a blessing. We've been buying companies at prices that even when I was in my most pessimistic mood, I didn't think we would see so quickly. These are 1974-type valuations, and what's fascinating is that stocks fell to these levels not because of earnings issues but because of the sheer magnitude of the forced liquidations. So this is still a bargain hunter's dream.
We are selling that which is cheap to buy that which is cheaper, in order to make more money in the future and to help manage taxes for our shareholders. And we're pairing our stock positions with senior subordinated debt.
So you're buying the bonds of companies whose stock you own?
Yes. Some of the stocks we hold are so cheap that we fear the companies will be taken over at too cheap a price. So we're buying discounted bonds that have anti-takeover triggers, meaning the price of the bonds will immediately rise to 100 cents on the dollar on a change of control. And if we like the stock, we don't mind owning bonds that are yielding 15%, 16%, 17%.
A lot of well-known value investors fell on their faces the past year or two. Why did Fairholme hold up as well as it did?
Maybe it's because I don't invest in things I can't understand. Eighteen years ago, after the financial stocks got killed, I was a big buyer of Wells Fargo, Freddie Mac and MBIA. They were simpler businesses then -- and they were cheap and understandable. You could read an annual report or a 10-K and you knew what you were getting.
Or take American International Group. If you looked at an AIG annual report six or seven years ago, you saw one paragraph on derivatives. You look at an AIG annual report today and you see 15 pages on derivatives. I don't think company insiders fully understand what's going on, let alone outsiders. So if I don't understand something, I've learned to walk away.
Do you try to anticipate which sectors will do best?
We tend to react rather than to predict. We look at companies, count the cash, and then try to kill the company.
Kill?
We spend a lot of time thinking about what could go wrong with a company -- whether it's a recession, stagflation, zooming interest rates or a dirty bomb going off. We try every which way to kill our best ideas. If we can't kill it, maybe we're on to something. If you go with companies that are prepared for difficult times, especially if they're linked to managers who are engineered for difficult times, then you almost want those times because they plant the seeds of greatness.
What's the worst that could happen to Sears, one of your biggest holdings?
It gets slowly liquidated, or Eddie Lampert, its chairman, takes the company private. But I don't think he'd do that to shareholders.
We didn't buy Sears based on the business. There's too much retail in the U.S. If the retail works, then it's a grand slam home run. We invested because of the company's real estate holdings. It has some fabulous locations -- a Kmart in Bridgehampton, N.Y., and a Sears on PGA Boulevard in West Palm Beach, Fla., for instance. The real estate alone is conservatively -- and I mean conservatively -- worth $90 per share [the stock traded at $53 in mid November].
How do you find opportunities?
By ignoring the crowd, we find opportunities in stocks that people are running away from. Earlier this decade, when oil and gas prices were much lower and people were very down on the sector, we found a few companies that we thought did exceptionally well in almost all price environments. We focused on Canadian Natural Resources. It wasn't well known in the U.S., but it was run by a man named Murray Edwards, who is a human computer.
You've cut back on that position, haven't you?
Yes. When the stock approached $100 a share and people started saying oil had to go to $200 a barrel, we dramatically cut that position. But lately we're seeing some energy stocks at levels that assume oil prices of $35 a barrel, and so, in a very short period of time, we've reversed course again on energy stocks.
Are your health-insurance and drug stocks examples of your contrarian bent?
We bought Wellcare Health Plans after the FBI raided the company in October 2007 in an investigation of overbilling practices. The stock quickly went from $120 to the $20s. We took a couple of months to study it and started buying in the $30s. We saw that the company had a good reputation, its customer service was great, insurance brokers were still sending business to the company, and it was still growing.
Wellcare shares tanked November 13 after the company said it was being hurt by higher medical costs and was in default on some debt covenants. WellCare is fine. Nothing has changed. If we are wrong on the company, we do not deserve to be in business. What an opportunity!
And now you also have major positions in UnitedHealth and WellPoint.
UnitedHealth and WellPoint serve one out of every five insured. They are the insurance system of the United States, and they'll continue to be the insurance system. These companies were the darlings of the investment world not long ago. Whether their stocks are down because of forced liquidations or because of fear that the government is going to put caps on what they can charge, I don't understand the rationale for why these stocks are trading where they are. UnitedHealth will earn between $3 and $3.50 per share of free cash in 2008. That's a significant amount.
Do you pay any attention to earnings?
No. I look at free-cash-flow yield.
And free-cash-flow yield is?
The free cash a company generates divided by its market capitalization. If we can get a double-digit free-cash-flow yield, I'm interested, especially if we can't kill the company and especially in a world of 3% or 4% risk-free yields.
Why, of all health companies, did Pfizer become your top holding?
We counted the cash. Pfizer generates $17 billion a year in free cash flow -- an unbelievable amount. At the current price, the stock trades at about seven times free cash flow per share. And that's from a company with a triple-A balance sheet.
Investors are staying away from Pfizer because they think that losing patent protection on drugs like Lipitor will kill the company. They believe it's not going to find another drug like Lipitor and that free cash flow will just fall off a cliff. Most people have no idea how many patents the company has, the size of its new-drug pipeline and the other moves it's making. There's a lot more cost-cutting ahead.
Moreover, I see Pfizer becoming a merchant bank to the pharmaceutical industry. Pfizer is the perfect partner for smaller companies that may have good new drugs but need cash to fully develop those drugs, go through the FDA approval process and distribute them in the market.
Isn't the loss of patent protections a legitimate concern?
The drug companies were really stupid in the past. They essentially gave away the business in their mature products, which some people vulgarly call generics. They're not going to do that anymore. Why shouldn't Pfizer have its own generic version of Lipitor? People don't understand that a generic formula is not exactly the real McCoy. When it comes to chocolate, people don't put an unbranded piece of chocolate in their mouth. But you're okay ingesting a generic drug whose formula may differ from the real thing that you used to use? We think Pfizer can be the world's number-one provider of established-brand products.
Have you met with Pfizer's people?
After I first bought the stock. Given the availability of so much information on the Internet, I'm not so interested in meeting management today. You can get seduced too easily. I'm more interested in finding out how a person has behaved in the past. If I can listen to a few of the CEO's speeches and read the transcripts of earnings calls, that is more important than talking to him. A smart, dishonest person can fool you, especially when he's talking about his own business.
One of your big holdings is Leucadia National, which some have described as a mini Berkshire Hathaway.
Yes, I've been involved with the company and its key people for 15 years. They're very smart, very sensible, honest and decent businesspeople, and Leucadia has a better record than Berkshire. But I don't really want to talk much about them because they've asked me not to.
They're secretive?
They just want to live normal lives. They want to be able to go into the local pizzeria just like anybody else and sit down with their friends. And when the CEO, Ian Cumming, and the president, Joseph Steinberg, retire, they'll probably give all the money to their shareholders and call it a day, and I like that.
How soon will that be?
I'd say in another ten years.
You've been trimming your stake in Berkshire.
Yes. I'm doing that because I'm taking Warren Buffett at his word. He says Berkshire has gotten so big that at best it will do two or three percentage points a year better than the S&P 500. Don't get me wrong. Two or three points better than the S&P over a long period of time is pretty good.
One of your other major holdings is St. Joe, the biggest private landowner in Florida. Will the Florida real estate depression kill St. Joe?
It was being killed by a bad CEO, who is no longer there. The new guy, Britt Greene, is good. The company owns more than 600,000 acres of land in northwest Florida. About 50% of it is within 15 miles of the Gulf Coast. It is the largest piece of good, privately owned land left in the U.S. And the first new international airport since Denver is right now being plunked in the middle of St. Joe's land in Bay County, about 41 miles from Tallahassee.
And St. Joe own everything around this airport?
Yes. The weather is great, the beaches are gorgeous, and the ecosystem is comparable to the rainforest. Every real estate guy in the world would love to own this land, but they all depend on borrowed money, and they don't have it now. Granted, the company doesn't have the free cash flow, but it's debt-free and we're buying beach land for swamp values.
We paid, on average, $32 or $33 for our shares, and I know Joe is worth more than what we paid. It has a stock-market capitalization of $2.6 billion. Over the next ten years, the state alone is going to put $2.6 billion of infrastructure into the land. Suppose you owned a plot of land on a beach and the state came up to you and said, "I'd like to build a road to your house. I'd like to give you the water system and electricity. I'd like to plant some trees, make it all nice. By the way, I'm going to plunk down a little airport right next to your house so that you can get in and out easily. And we'll also maintain the land, forever." You could consider that to be free cash flow.
What's been your biggest mistake?
Probably IDT, a telecommunication company. It was a total misjudgment of the character of management. Our biggest mistakes have always involved overestimating management.
Do you still own it?
We still own some. We spend a lot of time on mistakes and asking why we make them. It's great for the investment process. I've met IDT's CEO, Howard Jonas. I thought he did some very creative, smart things, but the investment just turned out to be a value trap .
Source: http://www.washingtonpost.com/wp-dyn/content/article/2008/12/08/AR2008120801167_pf.html
Review of HaiO's Latest Quarterly Earnings
Hai-O reported its earnings tonight.
Net earnings came in at 10.889 million.
If you look at the above summary from Dow Jones newswire and compare it versus the same period last year, Hai-O's earnings is looking marvelous! Simply superb!
However, looks can be very deceiving.
It was just in Sept 2008, I made the following posting, Short Note On Hai-O Earnings
Quote:
- Quarterly earnings was at 13.602 million, which is a huge worry, for its previous quarter in June 2008, HaiO reported reported earnings of 18.942 million.
Which means, if one looks at the very immediate picture, HaiO's earnings are deteriorating at an extremely tremendous pace. The last three quarters, its earnings has went from 18.942 million to 13.602 million to only 10.889 million!
This is alarm bells for me!
And if one sole reason to buy HaiO was because HaiO because of its growth story, well its growth story is no longer there. So would one's justification to hold this stock remain true?
How?
I took a quick look-see at some important yardsticks in its balance sheet. I wasn't impressed.
Compare the cash/short term investments versus the same period last year. Impressive?
Want to compare to previous quarter, Quarterly rpt on consolidated results for the financial period ended 31/7/2008?
And yes, HaiO's debts is growing slowly but surely!
Now when you compare these debts to the posting I made on HaiO back in April 2008, Review Of Hai-O
Look at the table posted again.
Compare those ttm numbers versus what we are seeing now. Like what you see?
And here is HaiO's attempt to explain why so terrible.
- Material changes for the current quarter as compared with the immediate preceding quarter
For the second quarter under review, the Group recorded lower profit after taxation of RM 11.15 million as compared to the immediate preceding quarter of RM 13.58 million. The lower profit was mainly attributable to lower revenue achieved by the MLM division, due to the Ramadan festive season in the second quarter which had slowed down the sales activities. However, the retail division had recorded higher revenue and profit as compared to the immediate preceding quarter, contributed mainly by the success of its members’ sales promotion and higher margin contribution from its house brand products.
And this is what the company is now saying about its current prospects.
- Due to the current global financial turmoil and weak market condition, the Company had revised downward its growth rate from 20% to 5% as mentioned above. However, the Company will strive for better performance in this challenging environment and work towards higher growth rate.
Chris Puplava Calls It Turning Japanese
Posted yesterday: With US Fed Rates At 0.25% (or Zero), Would US Turn Into A Japan Redux?
FinancialSense market commentator, Chris Puplava, made the following editorial, Turning Japanese?
- With the two major headwinds of slowing credit growth and an unfavorable demographic trend facing the U.S. economy, sub par economic growth and a continuation of the current secular bear market will dominate the years ahead. The U.S. is likely to mirror the Japanese experience, though probably to a lesser extent due to a more aggressive central bank and strong fiscal policy. It already appears the U.S. is indeed following the experience of Japan as our stock market (S&P 500) has followed closely with the path of the Japanese Nikkei 225 index. Real stock prices for both the S&P 500 and the Nikkei 225 have displayed uncanny resemblance as seen below, with the real S&P 500 from 1984-2008 overlaid with Nikkei 225 experience from 1974-2008.
The experience in Japan could very well play out in the U.S. as the rally Japan experienced from late 1998 to 2000 would correspond with a cyclical bull market beginning in the first half of 2009 through 2010. This coming cyclical bull market will be supported by a massive fiscal policy by the Obama administration and continued QE by the Fed as well as an oversold market. As the rest of the world begins to recover, foreign governments and investors will be diverting more of their assets towards strong emerging market growth as the case for emerging markets is not dead but simply taking a breather (and thus indirectly for commodities). Foreigners will also become increasingly concerned with the Fed’s balance sheet as well as record U.S. budget deficits for the next two years, which will likely weigh on the US dollar as the decade closes. By the Fed keeping long-term interest rates low through the purchase of buying U.S. Treasuries, the Fed will have to look the other way as the dollar weakens. A weaker USD will lead to higher import inflation and higher commodity prices. This renewed inflation threat may contribute to another recession down the road, which is likely why the Fed is considering issuing its own debt to help mop up the liquidity they’ve thrown at the system.
- The current rally may have some legs left in it to push the markets back up to their November highs, but further downside action and consolidation are likely ahead before the bears head back to their caves. Support for further downside action comes from the FSO Financial Stress Index, which has greatly recovered from the lows seen in October, though still at the extreme levels seen in the last bear market. Clearly the Fed and Treasury’s efforts are starting to pan out, but what is also clear is that they still have work to do to return normalcy and stability to the markets. We are getting closer to a bottom, though the time to deploy sidelined cash will be in 2009 as risk still remains elevated.
See also: Bernanke's Japanese edge
Wednesday, December 17, 2008
With US Fed Rates At 0.25% (or Zero), Would US Turn Into A Japan Redux?
Houston, we are at ground zero: Fed Cuts Rates to Near 0%, Vows to Bolster Economy
- The Federal Reserve slashed its target for overnight interest rates to a record low of zero to 0.25 percent, and said it would employ "all available tools" to battle a year-long recession.
The surprise move to lower its target for the benchmark federal funds rate from one percent puts the Fed in uncharted territory. Financial markets had expected the Fed to lower rates by no more than three-quarters of a point, to 0.25 percent.
In its statement, the Fed underscored its committment to use extraordinary measures, including using its balance sheet to support the credit markets.
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Fed said.
The cut in the federal funds rate pushes it to its lowest level on records dating to July 1954, and the central bank said it would likely keep it at "exceptionally low levels for some time."
"There is no more room to cut rates, as the target cannot go negative," said economist Chris Rupkey of Bank of Tokyo-Mitsubishi. "Quantitative easing will be the new way for the Fed to stimulate the economy going forward."
In addition to the rate cut, the Fed said it was prepared to expand already announced large purchases of debt issued by government-sponsored mortgage agencies to support the battered US housing market.
Commentary from dearest Kathy, Fed Cuts Interest Rates to 0.25% and Formally Enters QE
- It is no surprise to see the US dollar selling off aggressively as it is now the lowest yielding G10 currency. This was the right move for a central bank that wants to be proactive and no longer just reactive. There is no point for the Federal Reserve to play games anymore by denying what is already being priced into the markets. Cutting interest rates to 0.25 percent was inevitable and they rather deliver this stimulus now than later. Fed funds were trading as low as 0.15 percent going into the FOMC meeting. The Federal Reserve expects to keep interest rates at “exceptionally low levels for some time,” and to employ all available tools going forward including the purchase of long term Treasuries. In other words, the Federal Reserve is telling us that they are formally moving to Plan B, which is Quantitative Easing.
So are we going to see a Japan Redux?
Back in September, I made the following posting: Comparing Past Japan's Financial Crisis With Current US Financial Crisis
I think it's appropriate that I reproduce what was highlighted then.
Here's an absolute cracker. The following article, Responding to Financial Crises: Lessons to Learn from Japan’s Experience from PIMCO compares the past Japan's financial crisis with current US Financial Crisis and focuses on the similarities and the differences between the two crisis.
Here are some interesting issues pointed out by Mr. Koyo Ozeki
Summary: The Four Phases of Japan’s Financial Crunch
Japan’s financial crisis persisted for nearly 14 years, from the burst of the economic bubble in 1991 until around 2004, but throughout that timeline there were transitions in the state of the markets and the nature of the crisis. Broadly speaking, we can divide the progression into four phases (Chart 1).
Phase 1 (1991–94): The real estate bubble collapsed, triggering an economic shock. The government responded typically with economic stimulus packages, such as public works projects.
Phase 2 (1995–96): Signs of instability appeared in the financial system. Even as banks failed due to financial difficulties, the government failed to come up with a comprehensive policy package that would address financial system issues.
Phase 3 (1997–99): The bankruptcy of major banks triggered a financial emergency. Through establishment of new laws and budgetary measures, the government nationalized failed banks and injected taxpayer money into large financial institutions. Even so, it was unable to resolve the situation.
Phase 4 (2000–04): The system again reached a crisis point due to the massive volume of excess debt held by corporations. The Financial Revitalization Program (“Takenaka Plan”) promoted the disposal of non-performing loans, and the government supplied public funds to tottering Resona Bank. These measures finally helped bring the crisis to an end.
==> The Q&A section was interesting.
Part 3: Questions and Answers Regarding Government Response
Q: Why did it take so long to resolve the crisis?
A: It took nearly 14 years from the burst of the Japanese bubble economy in 1991 until the financial crisis finally came to an end. There are several reasons for this unusually long timeframe.
Hopes for a turnaround in property prices: From the collapse of the bubble economy until the mid-1990s, most people assumed that real estate prices would eventually turn upward again. Policy makers were also focused on encouraging an economic and market recovery through fiscal stimulus measures such as public works projects.
Existence of colossal latent stock profits: At the start of the 1990s, Japanese banks had stock portfolios with unrealized profits amounting to nearly twice their net worth. This acted as a buffer for loss write-offs, encouraging a complacent stance that they could hold out until the real estate market made its comeback. The plunge in the stock prices in 2000 severely eroded these latent profits, and appraisal losses began to have a negative impact on profits. Banks and financial authorities gradually came to recognize the risks regarding the shares in their portfolios, and proceeded to trim their holdings.
Massive scale of the problem: Japan’s cumulative bad debt totaled an estimated 25–30% of GDP, while the value actually written off by financial institutions amounted to nearly 100 trillion yen (US$910 billion) or 20% of GDP. The large banks alone accounted for 75 trillion yen (US$680 billion) of this total (Chart 10). This exceeds the combined value of their net worth of 20 trillion yen (US$180 billion) and 14 years worth of net operating profits at 50 trillion yen (US$450 billion). They realized profits from their share holdings to supplement the portion that could not be covered by net operating profits. Though this conclusion is made in hindsight, it is clear that banks simply did not have the financial strength to dispose of these vast losses in a short period, and they had no choice but to take their time to write off debt using their annual earnings and unrealized profits.
Q: Why did the capital injections in 1998–99 fail to solve the problem?
A: At the time of the taxpayer money injections in 1998–99, authorities maintained the position that most of the major banks were fundamentally healthy, despite the fact that they were aware of the damage being done to bank capital by bad debt. At the same time, a credit crunch was becoming a serious issue as the banks turned increasingly reluctant to lend, and authorities provided public funds to ease the credit situation. They set their policy goals with this in mind, such as requiring banks to boost their lending to small businesses. These cash injections might be characterized as preventive actions, but because the policy had multiple objectives, it did not act as a genuine incentive to comprehensive bad debt disposal.
Q: Is rapid disposal really the key to early resolution of problem?
A: In responding to a crisis, authorities must 1) rapidly analyze the nature of the problem, 2) evaluate its scale, and 3) devise necessary measures. It is difficult to identify the precise causal relationship between financial system measures and a bottoming out in asset prices, but one lesson that can be learned from Japan’s financial crisis is that the delay in recognizing the problem during Phases 1 and 2 (1991–96) made the subsequent fallout even worse, and an underestimation of the situation’s severity and the authorities’ trial-and-error approach in Phase 3 (1997–99) caused the delay in settling the problem.
Q: How effective were the BoJ’s zero interest rate and quantitative easing policies?
A: Phase 4 of the crisis (2000–04) was a problem of surplus debt at private corporations. Under the surface, however, corporate fundamentals were improving rapidly (Chart 11). The ratio of net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) in the corporate sector as a whole took a swift turn for the better, improving from 5.3 times in 1999 to 3.0 times by 2005. Reduction of capital spending mainly made debt repayment possible.
==>
Part 4: Implications for the Subprime Loan Crisis
Differences between U.S. Subprime Crisis and Japan’s CrisisBoth the subprime loan turmoil in the U.S. and the financial crisis in Japan resulted from a bubble created by the presence of surplus liquidity. However, there are several differences.
- 1. Complex structure of U.S. bubble: Whereas Japan’s bad debt problem stemmed from commercial real estate and excess corporate debt, the U.S. subprime problem involves a more complicated mixture of bubbles related to the housing market, financial institution business models and financial products for investors.
- 2. Speed of valuations: Japan’s bad debt was mostly bank lending, and valuations took some time as regulators conducted asset inspections. In contrast, the subprime loan problem involved securitized products, so market valuations were completed relatively quickly. The valuation of housing loans by commercial banks in the U.S. could take longer than securitized products, though, so we should keep a close eye on future developments.
- 3. Creditor nation vs. debtor nation: Japan is a creditor nation and does not rely on overseas financing, so its bad debt situation was an internal problem. The U.S. is a debtor nation, which complicates the matter. Also, U.S. housing loans and other securitized products are widely held by overseas investors, so the risk can easily spread to global markets. This will naturally impact how the government responds to the problem.
- 4. Scale of the problem: Japan’s bad debt problem on a cumulative basis amounted to a whopping 25–30% of the nation’s GDP (Chart 14), whereas the subprime problem is an estimated 5–10% of U.S. GDP. The difference in scale will likely affect the cost and speed of resolving the situation.
Do read the rest of the article here
Tuesday, December 16, 2008
KLCI, see ya at 691: One Report, Two Views, Same Papers
Published on today's Business Times: KL mart may hit bottom early 2009: Citi
- KL mart may hit bottom early 2009: Citi
Published: 2008/12/16
Citi Investment's top buys are AMMB, BCHB, IGB Corp, KLCC Property, Tanjong plc and IOI Corp while its top sells are Public Bank and Maybank
"With the macro risk rising, the market could fall below the 1.4 times price-to-book ratio (P/B) it hit during the 2000-01 recession ... taking a more cautious approach, we are now using our benchmark the average Asia P/B of 1.2 times - implying a further decline to 691 points," Citi Investment Research said in its report last Friday.
The research house expects the bear market to hit the bottom as early as the first quarter next year.
"In three of the last four recessions, the bear market ended in or immediately after the worst quarter of GDP growth. Our CITI Investment Research expects the benchmark Kuala Lumpur Composite Index (KLCI) to fall by another 18 per cent to 691 points, as earnings per share (EPS) growth expectations continue to fall amid the uncertain market.
economist forecasts GDP to bottom at around two per cent in the first quarter 2009, down from 2.6 per cent in the fourth quarter of 2008. If history repeats itself, first quarter 2009 is the earliest the market could bottom," it said.
It also revised downwards its projections on EPS for 2009. Companies in the utilities sector are expected to see a 23.7 per cent decline in EPS, banks (-8.3 per cent), telecoms (14.4 per cent), plantations (-20.6 per cent) and tobacco (-10.5 per cent).
It advised investors to go for stocks that has low P/B or with high earnings visibility.
"Be they cyclical or defensive, stocks trading at trough P/Bs or have strong earnings visibility are on our top buys list - AMMB, BCHB, IGB Corp, KLCC Property, Tanjong plc and IOI Corp. Our top sell ideas are Public Bank and Maybank," it added.
Yesterday afternoon, the following article did appear on Business Times too. KL bourse may fall for another quarter. It was a reproduction of a Bloomberg news article.
- MALAYSIA'S stock market may continue to fall for at least another quarter as earnings shrink and a possible drop in domestic spending threatens economic growth, Citigroup Inc said.
The domestic market typically recovers from a slowdown during or after the worst quarter of economic expansion, Wai Kee Choong, Citigroup's Malaysia head of research, said in a report. The index will trough at "the earliest" next quarter, when there's a risk of a "sharp" fall in economic growth, he said.
Corporate earnings in Malaysia will drop 11 per cent in 2009, wrote Choong, who previously forecast a 4 per cent decline. The biggest losers will be media companies, plantation owners and utilities, Citigroup said.
The Kuala Lumpur Composite Index has lost 41 per cent this year, better than the main indexes in Indonesia, Singapore and Thailand. Still, investors haven't fully priced in slower-than- expected economic growth in Malaysia, and the nation's stocks may now be overpriced, according to Citigroup.
The measure is valued at 9.8 times reported earnings, the highest among Southeast Asia's benchmark stock indexes.
Investors should sell shares in Public Bank Bhd, Malaysia's biggest bank by stock-market value, and Malayan Banking Bhd, which may be hurt by higher credit costs, Citigroup said.
The Kuala Lumpur Composite Index, which fell in the first three quarters of this year, climbed less than 0.1 per cent to 852.48 at 11:31 am. Citigroup said its new target for the index is 691.
In the current slowdown, Malaysia's slowest growth in gross domestic product might occur in the first quarter of 2009, with expansion of 2 per cent, Choong said. The government expects growth to slow to 3.5 per cent for the whole of 2009 from about 5 per cent this year.
Sime Darby Bhd, the world's biggest palm-oil producer and Malaysia's largest company by market value, and IOI Corp, Malaysia's second-largest plantation company, have already said profit in their current financial year will fall. - Bloomberg
Two news article reporting what was commented on a Citigroup equity report.
How?
KLCI, see ya at 691!!!
Second Mortgage Crisis In US: Alt-A
Highlighted the following back in Sept 2008: John Mauldin on US Housing: Are We Near The Bottom Yet?
- Alt-A is the New Subprime
By now, everyone in the world is aware of how bad the subprime mortgage business was. But now it is time to get ready to hear the same tale, told again, about Alt-A mortgages. These are mortgages made to borrowers with better credit scores than subprime borrowers, but who could not or decided not to document their income. One estimate is that 70% of Alt-A borrowers may have exaggerated their incomes (Wholesale Access). More than half of those were people who exaggerated their incomes by 50% or more! (Mortgage Asset Research Institute)
How much are we talking about? Around 3 million US borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding. $400 billion of that was sold in 2006. Almost 16% of securitized Alt-A loans issued since January 2006 are at least 60 days late. Many of these loans (around $270 billion) were interest-only or with a low teaser rate, and the resets were at 3- and 5-year lengths. These are called Option ARMs. That means starting next year we are going to see a wave of mortgages resetting to new rates. And it is no modest increase. Rates can jump 4-8% or more from teaser rates. Some Option ARMs are resetting at 12.25%. That can double a payment.
Wachovia and Washington Mutual were big sellers of Alt-A loans, and had $122 billion and $53 billion, respectively, on their books at the end of the second quarter. Is it any wonder their stocks are under pressure? That is why it is so hard to quantify how many more write-offs there will be. You don't write down a mortgage until it starts to develop problems. These problems may not show up for a few years. I continue to stress I do not want to own a financial stock that has exposure to mortgage paper. Write-downs are going to continue to come for a long time.
This means there will be a steady wave of foreclosures for the next two years in communities all over the US. As long as these homes keep coming onto the market, they are going to exert downward pressure on prices. Foreclosure sales are up by 109 from this time last year.
That was John Mauldin's warning then on Alt-A mortgages!
And things have seriously deteriorated!
On today's HousingWire.com Fitch: Alt-A Mortgages Deteriorating More Rapidly than Expected
- Fitch: Alt-A Mortgages Deteriorating More Rapidly than Expected
By PAUL JACKSON
December 15, 2008
Citing “a rapid deterioration of U.S. Alt-A RMBS performance,” Fitch Ratings again took the hatchet to its previous assumptions for Alt-A mortgages on Monday morning, revising its surveillance methodology and updating loss projections for all U.S. Alt-A RMBS.
Fitch said it now expects losses on all Alt-A collateral to far exceed the estimates of its ‘moderate stress’ scenario in its late ratings update earlier this year. “Market developments, ongoing home-price declines and loan performance trends in the Alt-A sector over the prior six months have effectively eliminated the possibility of this stress scenario,” said Fitch in a statement.
The rating agency said it now expects average cumulative losses om 2005, 2006 and 2007 vintage Alt-A transactions to hit 2.72, 6.78 and 9.58 percent, respectively, up dramatically from expectations at the agency earlier this year.
Fitch cited a “rapid increase in 60+ day delinquencies experienced over the past six months,” despite servicers’ collective efforts to hold off on actual foreclosure sales — likely implying that a halt to foreclosures is having little effect in resolving borrower delinquencies. Between May and October 2008, Fitch said that 60+ day delinquencies for the 2007 vintage increased from 8.80 percent to 14.65 percent; 2006 and 2005 vintages also experienced steep increases rising from 10.30 percent to 14.24 percent and 6.57 percent to 8.79 percent, respectively.
While delinquencies are continuing to pile up, cumulative losses are not — at least, not yet.. “The small increase in cumulative losses relative to the rising level of 60+ day delinquencies reflects, in part, the lengthening foreclosure/liquidation timeline being experienced throughout all vintages,” analysts at the agency wrote.
All of which means that it’s time to get ready for a whole new slew of downgrades to Alt-A in the coming few weeks. Fitch warned in its note Monday that it expects that it will downgrade many senior bonds to below investment grade — just in time for fourth quarter earnings.
On WWJ.com: A Second Mortgage Disaster On The Horizon?, Whitney Tilson explains the dangers in Alt-A and ARM.
- One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.
"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."
In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work, analyzing the millions of mortgages that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the sub-primes, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgages.
"It was data we'd never seen before and that's what made us realize, 'Holy cow, things are gonna be much worse than anyone anticipates,'" Tilson says.
The trouble now is that the insanity didn't end with sub-primes. There were two other kinds of exotic mortgages that became popular, called "Alt-A" and "option ARM." The option ARMs, in particular, lured borrowers in with low initial interest rates - so-called teaser rates - sometimes as low as one percent. But after two, three or five years those rates "reset." They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.
"The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall," Tilson explains. ( do read rest of article here )
Do also check out John Mauldin's Outside the Box featured article by Gary Shilling: Semi-Annual U.S. Economic Outlook: Collapsing On Schedule
Monday, December 15, 2008
Goldman Sachs Expected To Post Massive Losses
Posted on UK Independent: Goldman faces $2bn loss – its first since 1929
- As the banking giant prepares to unveil shock figures, Morgan Stanley braces itself to add its own bad news
By Simon Evans
Sunday, 14 December 2008
Goldman Sachs, the US investment bank, is this week expected to post its first loss since the Wall Street crash of 1929 when it unveils full-year results on Tuesday.
In the week when many Square Mile bank staff find out if they have scooped a bonus this year, Morgan Stanley is expected to complete a miserable Christmas picture when it also reports a loss, one day later.
Alex Potter, banking analyst at stockbroker Collins Stewart, said: "For these two remaining November year-end reporters, the past three months will have been pivotal to their year as well as to the 2009 outlook. This period encompassed the Lehman failure, as well as the nationalisations of Fannie Mae, Freddie Mac and AIG."
Analysts expect Goldman to say that it lost close to $2bn (£1.4bn) in the last quarter of 2008, compared to a $3.18bn profit during the same period last year.
Big losses are expected at the bank's proprietary property arm, Whitehall, which owns, among other investments, New York's Rockefeller Center. Sources suggest that Goldman will reveal writedowns of more than $2bn on the fund.
Big losses are also believed to have been recorded in its key principal investments portfolio, with some estimates suggesting they could come in as high as $3.5bn.
Goldman laid off 250 staff in Europe last week, the majority of the cuts coming at its London offices in Fleet Street, as part of a drive to slash the group's headcount by 10 per cent.
Morgan Stanley is expected to post only its second loss since it went public in 1986 – around $300m for the fourth quarter is forecast – although some estimates suggest that figure could be as high as $900m.
The ratings agency Standard and Poor's has estimated that Morgan Stanley owns $7.7bn of commercial real estate loan assets – none of which has been written down.
Morgan Stanley's numbers will come days after Bank of America's chief executive, Ken Lewis, revealed that the bank, which snapped up ailing rival Merrill Lynch earlier in the year, is looking to lay off as many as 35,000 jobs in the next three years. It is anticipated that the move will save as much as $7bn.
Last week Spanish bank Santander said it was laying off 1,900 jobs in the UK. Around 250,000 posts have gone so far this year in financial services, including at Citigroup, which is cutting 75,000 jobs, and JP Morgan, which is shedding around 7,000 staff – around 10 per cent of its workforce.
*Ed Annunziato, the former head of European investment banking at Merrill Lynch, is to head a new financial institutions arm at Tricorn Partners, the corporate finance boutique run by Square Mile veterans Guy Dawson and Justin Dowley.
On New York Times: Goldman Is Expected to Report an End to a Profitable Run
Some of the comments made:
- “I think if there is one message to be taken away from what is likely to be the worst quarter in Goldman Sachs’s history, it is that no one is immune,” said Michael Mayo, an analyst at Deutsche Bank.
- “I have a more important issue than the loss in the quarter. And that is, how do you fund the balance sheet going forward?” said Glenn Schorr, an analyst at UBS. “Who is going to give you unsecured debt and at what price? I think they might need to either continue to shrink the balance sheet or buy a bank or an asset manager. Or else they are just hoping the respirators the government has them on are good enough and will be around long enough to help them make it through.”
On the UK Guardian: Shaken Goldman Sachs anticipates first loss in years
- Lloyd Blankfein, chief executive of Goldman Sachs, was defiant at an investor meeting last month. The US banking giant was, he said, 'uniquely placed' to survive the current financial crisis. 'We have emerged from every... transformational event stronger and with our core franchise, culture and values intact. The other side of this crisis will be no different,' he insisted.
Not everyone shares his conviction, however, and the detractors will be given extra ammunition on Tuesday, when Goldman is expected to announce the first quarterly loss since it went public in 1999 caused by further huge write-offs on the value of its investments and a fall in revenues as investment banking, sales and trading activity all take a further downturn. Among the most pessimistic is Richard Staite, US banking analyst with Atlantic Equities, who forecasts that it will make a net loss of $2.3bn, compared with $3.2bn profit last time. That is still a far more resilient performance than rivals such as the failed Lehman Brothers, Merrill Lynch, which was swallowed by Bank of America, or Citigroup, which has had to be bailed out by the government. But it still undermines Blankfein's conviction that its integrated banking strategy, providing a range of services from advice to investing in partnership with its clients, can survive the worst financial crisis since the 1929 crash.
'We believe the Goldman franchise remains intact and there is little evidence of a loss of market share,' wrote Staite in a research note. 'However, the current trading environment is exceptionally challenging and there remains uncertainty over the business model, in particular access to funding.'
Goldman's problem is that it is dependent on the wholesale banking market, under which banks raise finance by borrowing from each other or from institutional investors. Since the financial crisis took hold last year, that market has in effect died and many commentators believe it will not recover to anywhere near its previous size. Blankfein accepts that the dearth of wholesale funding is an issue but says it is a problem for the market as a whole 'not [our] business model'. But Goldman's decision to become a bank holding company, with all the extra regulation that involves, indicates he accepts the need for access to a wider range of funding sources.
Already, the bank has transferred $130-$150bn of deposits from elsewhere in the organisation and there has been speculation that it will launch internet accounts, or credit cards, in a bid to build the deposits further. Blankfein told the Merrill Lynch conference that it was looking at three sources for deposit expansion: organic growth, through its private wealth management operation, by distributing its products through third parties, such as brokers or through acquisitions.
But Staite warns that expanding the deposit base 'will be a slow process if done in an organic manner and the acquisition of a retail bank still seems unlikely'. The bank is also building its asset management business, where the fees are much more predictable than acting as broker for hedge funds, or advising on mergers and acquisitions. But that strategy has been undermined by dismal results from some of the hedge funds such as its Goldman Sachs Liquidity Partners 2007, which fell by 55.3 per cent in the year to the end of October.
Blankfein makes much of its record: its asset management business has grown funds under management from $258bn in 1999 to $863bn at the end of October, while it has expanded its overseas operations. And he boasts that it has signed up 100 new clients in the past year, half of them previously advised by rivals.
But, with activity in financial markets likely to remain subdued and funding scarce, the pressure is on Blankfein to come up with a strategy for the new era - and investors will be hoping for some hints at Tuesday's results briefing.
Most analysts have ruled out the prospect of it acquiring a retail bank: that would not only fundamentally change Goldman's advisory ethos, it would also expose it to rules for offering universal banking services that its high-flying executives would rather not contemplate. Those high-flying executives are suffering like other bankers - Blankfein and his board colleagues have said they will forgo their bonuses this year. The proportion of revenues being put aside for bonuses elsewhere is higher than last year - Morgan Stanley estimates that salaries and bonuses will take up 49 per cent of its revenues, up from 44 per cent last year. But the plunge in profits means total pay will still be 43 per cent down on last year.
There will be fewer people around to share it: Goldman has already said it is cutting 10 per cent of its workforce and there could be more to come. Lauren Smith, banking analyst at Keefe Bruyette and Woods, wrote in a research note: 'The only relief on an operating basis for Goldman... will be felt from headcount reductions and the resizing of businesses. Asset repricing continues, liquidity remains tight and the delevering of balance sheets will continue. The combination of these factors does not paint a particularly pretty picture for the near term.'
Saturday, December 13, 2008
Oh My, The Baltic Dry Index Rose Yet Again!
Oh Rogers we do have a bounce!
Yes, the Baltic Dry Index rose again.
Get this, this was the 4th day in a row!
I kid you not.
And here is the past month chart of the index showing the nice bounce.
Could this be it?
A ray of HOPE?
The bounce we are all waiting for?
However, if one looks at the bigger picture, the CURRENT movement this week ISN'T even registering anything on the yearly chart!!!
How?
Past Baltic Dry Index references here
Friday, December 12, 2008
Scary Indicators Told By US West Coast Import/Export Traffic
The following was posted on Calculatedrisk, West Coast Ports: Export Traffic Falls to 2006 Levels
- Inbound traffic has peaked for the year as retailers have already imported most of the goods for the holiday season. Inbound traffic was 11% below last November. This slowdown in exports (inbound traffic to the U.S.) is hitting Asian countries hard.
But even more concerning for the U.S. is that export traffic is declining sharply. For the LA area ports, outbound traffic continued to decline in November, and was 18% below the level of November 2007. Export traffic is now at about the same level as in late 2006. So much for the export boom!
You need to see the chart posted in that article here
Yes, it's pretty darn scary.
And with the decline in export and import traffic, it's not a mystery why the global shipping index has plunged way deep. ( see other articles posted here )
And with the decline in export and import traffic, how can one be optimistic now about the recovery in global trade?
And when the global trade don't improve, how could the economy improve?
And when the economy don't improve, how will the financial markets improve?
Russia Crisis Worsens
Highlighted a month ago: Another Russian Crisis?
Just read the following article on Bloomberg News. Things have escalated!
- Russians Buy Jewelry, Hoard Dollars as Ruble Plunges
By Emma O’Brien and William Mauldin
Dec. 11 (Bloomberg) -- Moscow resident Tima Kulikov banked on the full faith and credit of the U.S. government, not the Kremlin, when he sold his biggest asset for cash.
The 31-year-old director of a social networking Web site initially agreed to sell his apartment for rubles, then cringed at the thought of the currency weakening as it sat in a lockbox pending settlement of the contract. It wasn’t until the buyer showed up with $250,000 stacked in old mobile-phone boxes and stuffed in his pockets that Kulikov closed the deal.
“The exchange rate we agreed on wasn’t great, but I did it because the money’s going to lie there for a month,” Kulikov said. “Put it this way, the ruble’s more likely to have problems than the dollar.”
Russians are shifting their cash into foreign currencies and buying things they don’t need as the economy stalls and the central bank weakens its defense of the ruble, signaling a larger devaluation may be on the way. The currency has fallen 16 percent against the dollar since August, when Russia’s invasion of neighboring Georgia helped spur investors to pull almost $200 billion out of the country, according to BNP Paribas SA.
The central bank today expanded the ruble’s trading band against a basket of dollars and euros, allowing it to drop 0.8 percent, said a spokesman who declined to be identified on bank policy.
With the specter of the 1998 debt default and devaluation in mind, Russians withdrew 355 billion rubles ($13 billion), or 6 percent of all savings, from their accounts in October, the most since the central bank started posting the data two years ago. Foreign-currency deposits rose 11 percent.
Oligarchs Pinched
Those withdrawals are increasing pressure for the ruble’s devaluation, according to Basil Issa, an emerging- markets analyst at BNP Paribas in London.
Property is now a protective investment, not just a status symbol, said Sergei Polonsky, founder of real estate developer Mirax Group, which is building Moscow’s tallest skyscraper.
“Lately our clients are mostly those who buy real estate not to live in but to secure their investments,” Polonsky said. “No one wants to be left with pieces of paper.”
The 25 wealthiest Russians on Forbes magazine’s list of billionaires, including Oleg Deripaska and Roman Abramovich, lost a combined $230 billion from May to October as asset values plummeted, according to Bloomberg calculations.
‘Feel Happy’
For the burgeoning middle class, investments of choice range from electronics to gold jewelry. Evroset, Russia’s largest mobile-phone chain, is telling people to buy anything they can.
“It’s better to feel happy that you own something than to fear losing the money you have earned,” Chairman Yevgeny Chichvarkin says in a letter posted at 5,200 Evroset stores. “If you need a car, buy a car! If you need an apartment, buy an apartment! If you need a fur coat, buy a fur coat!”
Sales at Technosila, the third-biggest consumer electronics chain, have doubled since September as customers rush to swap rubles for flat-screen TVs and laptops, spokeswoman Nadezhda Senyuk said by phone from Moscow, where the company is based.
Jewelry sales are also accelerating, particularly items made of gold and diamonds, said Vladimir Stankevich, advertising director at Adamas, Russia’s third-largest jewelry retailer.
“More cash appeared on the market and there’s an opinion among shoppers that gold is a good investment in times of crisis,” Stankevich said.
Natalya Kulikova has a different approach. The 31-year-old sales manager said she’s opened accounts in rubles, euros and dollars at three different banks -- one foreign and two domestic -- to guard her savings.
“My main goal is to save money,” she said.
Putin Pledge
Those who don’t want to spend are keeping more money at home or in safe-deposit boxes because the government guarantee on bank accounts is limited to 700,000 rubles, said Yulia Tsepliaeva, chief economist in Moscow at Merrill Lynch & Co.
Alfa Bank, Russia’s biggest non-state lender, said demand for boxes has increased about 40 percent since October, and there are few available.
“The Russian experience with saving is not that good and people prefer to consume and enjoy rather than save in pre-crisis situations,” Tsepliaeva said. “Buy cash dollars and put them in mattresses or safe deposit boxes but not in accounts because most crises are accompanied by banking crises.”
A decade ago, many lost their life savings after the ruble plunged 71 percent against the dollar. Those fears prompted Prime Minister Vladimir Putin to pledge not to allow “sharp jumps” in the exchange rate, during a call-in television show Dec. 4.
‘Ideal Time’
Troika Dialog, Russia’s oldest investment bank, is betting the central bank will allow a one-time devaluation of the ruble of about 20 percent in January, following New Year’s and Orthodox Christmas celebrations.
“With the holidays at the beginning of January, companies won’t be fully working and people will be spending more money,” said Evgeny Gavrilenkov, Troika’s chief economist and a former acting head of the government’s Bureau of Economic Analysis. “That means demand for rubles will increase and that means it’s an ideal time to allow a devaluation.”
Russia has drained almost a quarter of its foreign-currency reserves, the world’s third-largest, since August as it tries to slow the ruble’s decline. The central bank has widened the trading band five times in the past month, effectively reducing its defense of the currency amid plunging oil prices.
Devaluation Skeptic
Urals crude, Russia’s main export earner, has slumped 72 percent since reaching a record $142.94 a barrel July 4. It fell below $40 for the first time in three years last week, compared with the $70 needed to balance the country’s budget.
The government will avoid a large, one-step devaluation because it wants to prevent a run on the banks and lure back foreign investors, said Chris Weafer, chief strategist in Moscow at UralSib Financial Corp.
“I’m skeptical a 10 to 15 percent devaluation will provide a significant boost for the economy because the sector that it will most benefit, manufacturing, is just too small,” he said.
The ruble will probably be allowed to drop in small steps to as low as 33 per dollar by the middle of 2009, from about 28 now, Weafer estimates. It will end next year at 26.8 because of a recovery in oil prices and a weaker U.S. currency, he said.
Svetlana Guseva isn’t taking any chances.
The 32-year-old mother of two from the southern city of Sochi plans to take her 8-year-old daughter, Dasha, to Moscow for the New Year’s holiday, a trip that will cost twice her family’s monthly income of about 30,000 rubles.
“This way at least we’ll have some memories,” she said.
Thursday, December 11, 2008
OilCorp and Its Trade Receivables
Received the following comments from Jasonred79 on Regarding The Plunge Of OilCorp Shares Today!
- Dude, let's be more "conservative" and "fair" in judging oilcorp...
Let's give the various scenarios for 10%, 20%, 30% default. (personally, I think you are definitely right about the super high receivables meaning that they will NOT manage to collect most of that money)
Every 10% default means... RM50 million loss. Which is 5 years of earnings if you are kind to them and assign them an average annual profit of RM 10million a year.
(if you assign them an annual loss, they're screwed regardless of anything else)
CURRENT liabilities of 450 million is quite bad!
Their cash in hand totals RM30 million!
In other words, if they have to pay back 10% of their current liabilities immediately... THEY ARE INSOLVENT!!!
Moo, we don't even need to talk large numbers like 50% default on debts...
A mere 10% (which is a reasonable accounting number) in certain everyday areas, would be enough to wipe them out.
Oh yes... I notice that RM62 million of their asset shiit is "property development costs".
Wonder what happens if they have to write that off over time?
Jason,
Many thanks for your comments.
Here is the snapshot of OilCorp's Receivables again.
If you compare the 498 million in receivables for OilCorp's most recent reported quarterly earnings to the same corresponding period a year ago, OilCorp had 465 million in receivables. An increase of some 33 million in receivables in 'one' fiscal year.
Now look at OilCorp sales revenue. It's only a paltry 76 million and its previous quarter was some 81 million.
Now to have only sales revenue of less than 100 million, don't you think it's rather incredible to have trade receivables amounting to 498 million?
I do think so. Very much in fact.
And if I have to truly valuate this company, I do think to assume that half of these receivables could go bad is but a fair assumption. In fact, I do think it's rather generous.
However, do understand that this is my own personal opinion, which obviously could be flawed, as usual.
Now since the quarterly earnings I looked at was OilCorp 2008 Q3 earnings, let's look for OilCorp 2006 Q3 earnings.
Here it is: Quarterly rpt on consolidated results for the financial period ended 30/9/2006
Look at the size of the sales revenue then. It was only around 56+ million!
Let's think about it for a minute.
Sales of around 56+ million, how could OilCorp's receivables be at some 498+ million?
And this was only some 8 quarters ago!
Ok, now let's open that link: Quarterly rpt on consolidated results for the financial period ended 30/9/2006
'Two' fiscal years ago or 8 quarters ago, OilCorp's trade receivables were at 224 million.
It's receivables this very day is at 498 million.
An increase of some 274 million!!
Now in my earlier posting, Regarding The Plunge Of OilCorp Shares Today!, I mentioned the following:
- What if due to 'unknown' circumstances, OilCorp could not collect half, yes just half, of these debt owing to them and needs to write it off as bad debts? (Is this not possible? Check past earnings. If these receivables could be collected, the amount should never be so much! Yes?).
Well half of that 498.257 million is some 249+ million!
Do you still think it's unfair?
Sorry I do not.
And yes I have blogged on this stock before back in 2007: OilCorp
And if you are interested, this stock even tried to do the nonsensical 1 for 10 stock split when the stock was trading at 1.30 (see forum posting: here at sahamas )
Well now the stock is now around 40 sen.
Pretty soon it 'might' get its wishes to trade around 13 sen!
LOL!
Ok, that was nasty on my behalf!
Cheers!
Bill Gross Says T-Bill At Zero Is Overvalue And Has No Returns
Here's Bill Gross commentary on the US T-Bill on Bloomberg.
- Pimco’s Bill Gross Regrets Not Buying Treasuries Amid Rally
By Kathleen Hays and Michael J. Moore
Dec. 10 (Bloomberg) -- Bill Gross, manager of the world’s biggest bond fund, says he regrets not buying Treasuries in what is shaping up to be the best year for U.S. government debt since 2000.
“If we had our druthers, if we went back 12 months and we had known then what we know now, it would have been all invested in Treasuries,” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview from Newport Beach, California. “The question going forward is ‘Is it the winner over the next 12 to 24 months?’ We don’t think so.”
Gross’ $129.5 billion Total Return Fund lost 2.1 percent in the three months through Sept. 30, compared with a 0.49 percent slump by the benchmark it uses to measure performance, according to Pimco’s Web site. Mortgage securities and investment-grade corporate debt accounted for 93 percent of its holdings. The Total Return Fund has not held Treasuries since last December.
Treasuries of all maturities have returned 11.9 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master Index, the best performance since the securities gained 13 percent in 2000.
Gross said he continues to invest in corporate debt that is backed by the U.S. government, including the debt of American Express Co. and Sallie Mae Inc. The 64-year-old money manager also said Treasury Inflation Protected Securities represent “one of the best values” for investors seeking high-quality debt “once this delevering process winds down.”
‘Bubble Characteristics’
“Treasuries have some bubble characteristics, certainly the Treasury bill does,” Gross said. “A Treasury bill at zero percent is overvalued. Who could argue with that in terms of the return relative to the risk? There is no return.”
The Treasury sold $30 billion of four-week bills yesterday through an auction at zero percent, while three-month bill rates turned negative for the first time since the U.S. began selling the debt in 1929.
Gross expects the Federal Reserve to cut its target rate to 0.5 percent when policy makers meet next week and will likely signal that interest rates will remain low for a “considerable” period of time.
“There’s some risk” for the dollar to weaken, said Gross. “Certainly the government and the Fed cannot continue to talk about trillions of dollars of expansion of the Fed’s balance sheet without the risk of the dollar going south. It is fair to say other economies are doing much the same thing. The dollar doesn’t have to go south if all the economies reflate at the same time.”
Pimco, a unit of Munich-based Allianz SE, has about $790 billion in assets under management. The Total Return fund has gained 4.63 percent over the last five years, ranking it among the top one percent of all comparable funds, according to Bloomberg data.
Source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=asgkk4AucjU8
See also: Zero! US T-Bills Fall To Zero! and Tips: How To Make 13 cents In 3 Months!!!!
Wednesday, December 10, 2008
Meredith Says Banks Outlook Is Grim!
Here's someone to listen to!
Posted on CNBC:
- Influential bank analyst Meredith Whitney remains bearish about the economy, and her outlook for the banks that "lubricate the economy" is grim.
"The big banks are going to be on life support for at least 18 months, if not 36 months,"
Oppenheimer's executive director of equity research told CNBC Wednesday morning. "The big banks will not fail, but the big banks will not grow, in my opinion, for at least another two years."
She echoed other analysts who see the funds from the TARP program being used to fill holes, and do nothing to stimulate the economy.
"You've had massive asset deflation," she said. "There's more of this to come." - And that, she said Wednesday, is the next major trauma in the credit crisis.
- "Just over 70 percent of American households have credit cards, but over 90 percent of those households revolve at least one time a year, so they're using it as a cash flow management vehicle," she explained. "The banks now are starting to cut those lines back. That will impact spending."
Regarding The Plunge Of OilCorp Shares Today!
Quite some chatter over OilCorp today.
Here is a short clip from Dow Jones Newswire.
- OilCorp (3697.KU) hits limit down threshold, down 38.5% to 48 sen on requotation; stock suspended since May 20 pending reaudit of company's accounts for 2008 after discovery of discrepancies. Clarifies audited group PATAMI for FY07 is MYR3.975 million vs unaudited result of MYR15.41 million. Deviation of more than 10% between the two figures attributed to adjustments made to various costs and "adjusting events." Oilcorp also submitted yesterday 2007 annual report and quarterly results up to period ended Sept. 30, 2008. For 9-month period ended Sept 30, Oilcorp posted loss of MYR2.3 million from MYR262.4 million in revenue vs revised net profit of MYR11.9 million from revenue of MYR277.1 million in previous year. "The selldown is not surprising. Investors are just looking to conserve whatever cash they can. There's just way too much selling pressure after so many months of suspension," says dealer
I decided to take a peep.
Just a small tiny weenie peep.
Long term borrowings......... 187,934
Trade and other payables.... 254,851
Short term borrowings......... 216,305
Well that's what they owe 'others'. A cool 659 million!
And what they have to offer is the following...
Ahem.. fixed deposit if 26.725 million and cash balances of 3.477 million.
That's not a lot compared to what is being owed by them and most worrying is the 498.257 million in trade receivables!!!!
The size of it is simply unbelievable!
Look at its share capital. It's only some 219 million!
Think for a moment.
What if due to 'unknown' circumstances, OilCorp could not collect half, yes just half, of these debt owing to them and needs to write it off as bad debts? (Is this not possible? Check past earnings. If these receivables could be collected, the amount should never be so much! Yes?)
Well half of that 498.257 million is some 249+ million!
Which is more than its share capital!!!!!!!!!!!!!
How?
This is totally unreal yes?
And to make it worse, OilCorp 'can' only manage a PAT (profit after tax) Loss of 3.3 million!
How?
And remember as it is, OilCorp owes 'others' some 659 million!!!
And if remember correctly, some local 'experts' called this a 'fundamental' stock!!
More On MMC And Its Senai Airport Terminal Purchase!
Posted earlier: MMC And Its Senai Airport Terminal Purchase!
Just saw this article on TheEdgeDaily. It's excellent!
- 10-12-2008: Institutional shareholders should scrutinise Senai deal
Commentary by M Shanmugam
As the economy skids, companies are conserving cash to weather the storm ahead. Some have called off deals to buy property, and they included IOI Corp Bhd which in the process lost a deposit of RM73 million.
On the other hand, others such as YTL Corp have splurged billions scooping up power generation and property assets in Singapore.
MMC Corp, it appears, is following the YTL example by proposing to pay RM1.7 billion cash to acquire Senai Air Terminal Services Sdn Bhd (SATS), which holds Senai Airport and 2,718 acres of land around the Senai Airport.
Based on the announcement, MMC has undertaken to advance RM417.2 million which is owed by SATS to the vendors. The vendors in the deal are Semarak Sestu Sdn Bhd and Suria Kemboja Sdn Bhd which own SATS. Both companies are believed to be linked to MMC’s major shareholder Tan Sri Syed Mokhtar Albukhary.
Last week, MMC announced that the price tag for the airport and land had been reduced from RM1.95 billion to RM1.7 billion. With the reduction in price, the proposal is to be transacted in cash as opposed to shares previously.
Irrespective of whether the deal is done in cash or shares, there is every reason for minorities to scrutinise the proposal.
In the first place, does MMC need more land? Even if it does, why must the deal be done now, especially in cash? Is it necessary for MMC to undertake the deal at this juncture when asset prices are fast coming down?
To be sure, YTL Corp splurged S$4.3 billion (RM10.33 billion) gobbling up assets in Singapore over the past one year. But then, MMC’s coffers are nowhere near YTL’s level. Also, the quality of assets that YTL has scooped up makes it likely that they will contribute to its earnings in the next one year or so.
When will Senai Airport and the land around it contribute to the bottom line of MMC positively? Also, what is the true valuation of Senai Airport and land that comes together with it?
Let’s take a look back. In 2003, Malaysia Airports Holdings Bhd (MAHB) sold the airport, which comprised a runway measuring 3.3km in length and one passenger terminal that is able to accommodate 2.5 million passengers per annum. The previous year, Senai handled 874,278 passengers, 28,759 aircraft movements and 3,849 tonnes of cargo.
When MAHB sold the airport and its operations for RM80 million, the unaudited net book value of Senai Airport was RM76.8 million while the turnover and operational losses were RM8.8 million and RM300,000 respectively.
According to MMC’s announcement, Senai Airport is situated on a 1,226-acre site, has a 3.5km runaway and nine aircraft parking bays, four of which are connected to the terminal.
The unaudited net tangible asset (NTA) of the SATS Group and loss after tax as of June 30, 2008 are RM295.5 million and RM24.8 million. SATS has commenced the construction of an aero mall which will include a hotel, restaurants and entertainment facilities.
The airport and its operations are now valued at RM580 million. On what basis has the value increased to RM580 million? Even if the work in progress on the aero mall is worth that much, does MMC need such assets?
The proposed purchase of the 2,718 acres for RM9.45 per square foot (sq ft) is also questionable.
Based on previous reports, the land was acquired from Lee Rubber at less than RM3 per sq ft. Now it is sold for three times the amount transacted less than two years ago. The status of the land has probably been converted from agriculture to industrial.
But MMC does not need that piece of land, especially now. It is a long term development and MMC already has enough long term projects in its hands now. It has its hands full with the Port of Tanjong Pelepas and the Jizan Economic City in Saudi Arabia.
Why does it need more long term assets?
MMC used to be majority owned by Permodalan Nasional Bhd. It was an asset rich company and concentrated mainly on natural resources. Today it is majority controlled by Syed Mokhtar and its cash flow is mainly from Malakoff Bhd, an independent power producer (IPP).
Both the port and Malakoff are operating in regulated environment where things can change and affect cash flow. The Senai Airport and the land around it is something that requires a lot of capital before it pays off. Without strong cash flow, MMC will be sitting with a lot of assets but no cash to develop them. Worse still, there will be no dividend pay-outs.
If PNB and other institutional shareholders do not stop the deal, they only have themselves to blame.
Source: here
Oh, PNB do you see what the market is seeing?
Do you?
Bill Miller Featured on WSJ: The Stock Picker's Defeat
Posted last week: Bill Miller Claims That A Market Bottom Has Been Made!
Today Bill Miller is featured on WSJ.com. The Stock Picker's Defeat
Some of the points highlighted.
- Mr. Miller was in his element a year ago when troubles in the housing market began infecting financial markets. Working from his well-worn playbook, he snapped up American International Group Inc., Wachovia Corp., Bear Stearns Cos. and Freddie Mac. As the shares continued to fall, he argued that investors were overreacting. He kept buying.
- What he saw as an opportunity turned into the biggest market crash since the Great Depression. Many Value Trust holdings were more or less wiped out. After 15 years of placing savvy bets against the herd, Mr. Miller had been trampled by it.
Yes, the chart of his fund, LMVT, was highlighted in my posting last week here
- "The thing I didn't do, from Day One, was properly assess the severity of this liquidity crisis," Mr. Miller, 58 years old, said in an interview at Legg Mason Inc.'s Baltimore headquarters.
Mr. Miller has profited from investor panics before. But this time, he said, he failed to consider that the crisis would be so severe, and the fundamental problems so deep, that a whole group of once-stalwart companies would collapse. "I was naive," he said.
- A year ago, his Value Trust fund had $16.5 billion under management. Now, after losses and redemptions, it has assets of $4.3 billion, according to Morningstar Inc. Value Trust's investors have lost 58% of their money over the past year, 20 percentage points worse than the decline on the Standard & Poor's 500 stock index.
These losses have wiped away Value Trust's years of market-beating performance. The fund is now among the worst-performing in its class for the last one-, three-, five- and 10-year periods, according to Morningstar.
- "Every decision to buy anything has been wrong," Mr. Miller said over lunch at a private club housed inside Legg's headquarters. In the 16th-floor dining room, Mr. Miller sat with his back against the wall, a preference he says he picked up as a U.S. Army intelligence officer in the 1970s. "It's been awful," he said.
MMC And Its Senai Airport Terminal Purchase!
Published on Star Business: MMC shares fall on weak sentiment
- Wednesday December 10, 2008
MMC shares fall on weak sentiment
By LOONG TSE MIN
PETALING JAYA: Shares in MMC Corp Bhd fell yesterday on weak sentiment, after the company announced revised terms for its proposed acquisition of Senai Airport Terminal Services Sdn Bhd (SATS).
MMC shares fell 8%, or 10 sen, to RM1.15.
AmResearch said in a report yesterday that it expected sentiment on the stock to remain weak due to concerns over corporate governance risks and a likely contraction in future earnings if the deal were to materialise.
MMC announced on Friday that the price for its proposed acquisition of SATS and the surrounding 2,718 acres had been lowered to RM1.7bil, a discount of 12.8%.
However, the purchase would now be paid for entirely in cash.
AmResearch analyst Alex Goh said in the report: “This is a negative development as this involves the sale of MMC’s assets to fund the acquisition.
“MMC may end up swapping a profitable business with a currently loss-making airport operation on top of a huge undeveloped land, which will take years to mature.”
MMC is a related party to SATS through Tan Sri Syed Mokhtar Al-Bukhary, who is a major shareholder of both companies and also a substantial owner of the surrounding land.
AmResearch is lowering its fair value on MMC to RM1 per share, pegged to financial year 2009 price/earnings ratio of six times compared with its earlier fair value of RM2.22 per share based on a sum-of-parts valuation of RM4.40 a share.
The research house is also uncertain when the group can turn SATS’ operations around given the global economic downturn. However, it added that this could be mitigated if MMC managed to dispose of part of the Tanjung Bin land for cash.
A local head of research, who maintains a “buy” call on the counter, disagreed with AmResearch’s view.
“Why downgrade now when the price is lower? The acquisition is only a small part of MMC’s overall business and may have synergy with MMC’s (other logistics businesses) Port of Tanjung Pelepas and Johor Port assets.
MMC owns 70% of the Port of Tanjung Pelepas and 100% of Johor Port.
I FULLY AGREE 108% with AmResearch views. **Yeah I agree more than 100%**
Nice to see Star Business publishing those comments, however...
I do not understand the reporting by Star biz on the last few passages.
- A local head of research, who maintains a “buy” call on the counter, disagreed with AmResearch’s view.
“Why downgrade now when the price is lower? The acquisition is only a small part of MMC’s overall business and may have synergy with MMC’s (other logistics businesses) Port of Tanjung Pelepas and Johor Port assets.
Why un-named? So shy?
Comeon, if those comments come from a HEAD OF RESEARCH why afraid to be quoted?Comments like those makes NO SENSE when the source is not quoted!
So is the acquisition small? Can one compare with MMC's overall business and calls the Senai Airport purchase small? Can this HEAD OF RESEARCH justify the purchase in terms of returns? Yeah, what kind of return of investment are we even talking about? And can this HEAD OF RESEARCH justify the RPT in this deal? Yeah, RPT! It's like left hand selling to the right hand. Where is the justification to MMC's minority shareholders?And on Business Times, the article was even better!
So firstly we have MMC shares being punished yesterday due to the RPT nature of a rather unjustifiable purchase of Senai Airport Terminal.Look at what Business Times has to offer below. (Comments in Green is mine)
- Strong interest in PTP stake
By Shahriman JohariPublished: 2008/12/10
MMC Corp Bhd (2194), an operator of ports and power plants, may sell part of Malaysia's second largest container port to fund expansion plans, sources said. (Sources again?)
The group, controlled by Tan Sri Syed Mokhtar Albukhary, has received strong interest from local and foreign parties to buy a stake in the Port of Tanjung Pelepas (PTP).
"It is understood that one foreign party has even offered to take control of the port. That shows how much they value the business," one of the sources told Business Times. (one of the sources ah? Only one? )
MMC needs to raise at least RM1.7 billion to buy airport operator Senai Airport Terminal Services Sdn Bhd (SATS), that also owns a big piece of land in Johor.
MMC now holds 70 per cent of PTP, with the rest held by Danish shipping giant Maersk Line.
Another source said an independent valuer has priced the port at around RM9 billion. (Full of sources!!!)
Assuming MMC sells a fifth of PTP at this value, it could raise about RM1.8 billion. It would also still have control of the port, which is the 17th busiest container port in the world.
Sources said that several large shipping lines including Taiwan's Evergreen Marine Corp have made their interest known, while some local institutional investors are also in the running.
MMC's ports business, which also includes Johor Port Bhd, is the group's second biggest profit contributor after its power plants.
In the year to December 31 2007, the ports division posted an operating profit of some RM418 million, its annual report showed. It did not give a breakdown of how much PTP earned for that year.
MMC officials declined comment when contacted.
Last week, MMC said that talks on the disposal were at an advanced stage.
MMC has now proposed to buy SATS from Syed Mokhtar at a lower price and will pay in cash instead of shares.
It had wanted to buy SATS for RM1.95 billion in an all-share deal when the stock was trading around RM2.80 apiece.
However, it now has more than halved, which means that if the deal was done at a lower share price it would dilute MMC's shareholders (other than the main shareholders).
MMC's earnings per share would also fall due to the bigger number of shares.
"The current share price is not reflective of MMC's inherent value which now trades at a multiple of approximately only 0.7 times book value per share of RM1.94.
"The cash consideration will eliminate earnings dilution resulting from issuing a sizeable number of shares at the current depressed price," it said in a statement last week.
The new price includes RM580 million for airport operations and RM1.1 billion for SATS' 1,099ha of freehold land slated for development as a logistics city.
However, the revised deal has been criticised by analysts who said the sale could be "value destroying" as it reduces profit from its core business. They also pointed out to governance risks as the deal is a related party deal while SATS has yet to make money.
Shares of MMC fell eight per cent to close at RM1.15 yesterday. (my article source is here )
Zero! US T-Bills Fall To Zero!
Posted last night: Tips: How To Make 13 cents In 3 Months!!!!
Apparently now buyers don't even want that 13 cents!
ROFLMAO!!!!
Published on CNBC news: Treasury Yield Falls to Zero As Investors Seek Safety
Some comments from that article:
- The U.S. Treasury Department said it sold four-week bills at a high rate of 0.000 percent, a level never before seen, in a $30 billion auction.
When Treasury bill rates turn negative it shows that investors are so concerned about the safety of other assets that they are willing to effectively pay the U.S. government a fee to look after their money.
LOL! The US Treasury is getting money for nothing!!! ( I wonder if the chicks are free? )
- "There is just a continuing flight to safety with money that needs to be invested," said Lou Brien, a market strategist with DRW Trading Group in Chicago. "Money funds want it to be invested rather than under the mattress, which is continuing to push rates lower."
Money that needs to be invested????
Comeon.... if you get ZERO returns for your money, would you call that investing?
I wonder...
- "There's still a ton of fear," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "People are now paying the government to take their money. Something is wrong."
Still, "for the Treasury, it's great financing," said Rudy Narvas, senior strategist at 4Cast Ltd in New York. "For everyone, it's not a good sign that things will get better ...That's fool optimism.A quick recovery is not going to happen."
- The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.
Doh! Doh! Doh!
Tuesday, December 09, 2008
FedEx Sees Weaker Global Economic Trends To Worsen!
Posted on Yahoo Finance yesterday: FedEx Corp. Reports Expected Second Quarter Earnings
- “Second quarter results benefited from rapidly declining fuel prices and continued cost management,” said Alan B. Graf, Jr., executive vice president and chief financial officer. “However, demand for our services weakened sequentially throughout the quarter and global economic trends continue to worsen, substantially reducing our second half outlook. We are adjusting our expense plans to more closely align with the weaker business conditions, and are now targeting capital spending of $2.5 billion for fiscal 2009, down from $3.0 billion at the start of the year.”
Not a good indicator.
Tips: How To Make 13 cents In 3 Months!!!!
Publish on Bloomberg News: hreasury Sells Three-Month Bills at the Lowest Rate Since 1929
- By Michael J. Moore and Liz Capo McCormick
Dec. 8 (Bloomberg) -- The Treasury sold $27 billion in three-month bills at the lowest rate since it starting auctioning the securities in 1929 amid record demand for the safety of U.S. debt during the worst financial crisis since the Great Depression.
The bills were sold at a high discount rate of 0.005 percent, the Treasury said today in Washington. At last week’s auction, the bills drew a rate of 0.05 percent. The government received bids for the bills totaling more than triple the amount sold.
“It’s all about capital preservation,” said John Canavan, a fixed-income analyst in Princeton, New Jersey, at Stone & McCarthy Research Associates. “People are afraid to put their money anywhere else so they aren’t terribly concerned about returns.”
The Treasury also sold $27 billion in six-month bills at a high discount rate of 0.30 percent, the lowest since at least 1958. At last week’s auction, the six-month bills drew a rate of 0.43 percent.
The rate on three-month bills peaked at 16.75 percent in May 1981, according to Federal Reserve data. Today’s rate was the lowest since the government began issuing the three-month bills in 1929, according to Stephen Meyerhardt, a spokesman for the Bureau of Public Debt in Washington.
“There are also deflation concerns,” Canavan said. “Although we are at a near-zero yield, if you are expecting a deflationary environment over the next few months, then the real return is a little bit better.”
Record Lows
Yields on two-, 10- and 30-year securities declined last week to the lowest levels since the Treasury began regular sales of the debt after a report showed U.S. employers eliminated jobs in November at the fastest pace in 34 years and the Fed contemplated buying U.S. debt as the recession deepened.
President-elect Barack Obama said Dec. 6 he will boost investment in roads, bridges and public buildings to create or preserve 2.5 million jobs in the biggest public-works spending package since the 1950s.
The return to investors is 0.005 percent for the three- month bills, with a $10,000 bill selling for $9,999.87. The return to investors is 0.3 percent for the six-month bills, with a $10,000 bill selling for $9,984.83.
Treasury bills, which represent short-term government borrowing, are sold at a discount from maturity value. The amount paid to investors at maturity reflects the difference between the price paid for a bill and the par value.
Indirect Bids
The Treasury sells all its bills, notes and bonds on a single-price basis, in which securities are awarded at the highest rate needed to sell all the securities.
In the three-month maturity, 82.98 percent of the bids that were filled came in at the high discount rate of 0.005 percent. The low rate submitted was zero percent, the median rate was zero percent, and the investment rate was 0.005 percent. The price was 99.998736.
Indirect bidders, a group that includes foreign central banks, bought 57.6 percent of the three-month bills and 27.1 percent of the six-month bills. Primary dealers bought 42.1 percent of three-month bills and 72 percent of the six-month bills.
Waaaa.... 0.005 percent!!!!!!!
- The return to investors is 0.005 percent for the three- month bills, with a $10,000 bill selling for $9,999.87.
Let's see... for 3 months... 10,000 minus 9,984.87 equals a whopping 13 cents!!!
What a deal!
Just show me the Moola!!!!!
Nassim Taleb's Interview With Charlie Rose
If you enjoyed the posting on Nassim Nicholas Taleb's (author of ‘The Black Swan ), And The Bystanders Get Whacked In The Current Crisis, here is an interview of Nassim Taleb and Charlie Rose.
Time To Retink Accounting Reporting?
Posted on Business Times: Time to rethink reporting?
- Some quarters argue that the numbers that come out in quarterly reporting, especially during an economic downswing like now, may not fairly or accurately reflect a company's true value
MANY companies listed on Bursa Malaysia have reported a steep drop in quarterly profit, or even losses, as a result of current market turmoil.
While their results this quarter were clearly under pressure, the fundamentals behind some of these companies remain firmly intact.
Some quarters believe it may be timely for Malaysia to make its listed companies report their financial results on a half-yearly basis instead of quarterly.
Their argument is that quarterly reporting encourages short-term focus on immediate results by both management and investors.
As such, the numbers that come out, especially during an economic downswing like now, may not fairly or accurately reflect a company's true value..... (read rest of article here )
I don't buy such arguments.
The current earnings reporting reflects how a company is performing currently.
And yes, CURRENTLY, the business economics have turned really bad for many business sectors but what the article is suggesting is really lacking.
Are they telling us to discount the weakness and pretend that what is happening is not real?
Are we living in a delusional world?
Do we want to live in one?
- MANY companies listed on Bursa Malaysia have reported a steep drop in quarterly profit, or even losses, as a result of current market turmoil.
Think of that statement for a moment.
Some of these companies that are reporting losses now, why are they reporting the losses?
Doesn't it clearly reflect the lack of the companies' competitive advantage or the lack of the management? Or perhaps were theses companies highly geared?
See also: Half-yearly versus quarterly reporting: Which shall it be?
- TAN SRI MEGAT NAJMUDDIN MEGAT KHAS, president of the Malaysian Institute of Corporate Governance and chairman of SEG International Bhd.
I think it is a good idea, and should be taken into serious consideration. Companies should be given an option to report quarterly or half-yearly. If companies report their numbers once every six months, investors and the public can get a clearer picture and better understanding of a company's financial health.
ANNUAR MARZUKI ABDUL AZIZ, chief financial officer of PLUS Expressways Bhd.
I think it is better to report quarterly. In such economic times, investors, stakeholders cannot be left in the dark for too long. Besides, as long as there is a proper system and process in place, quarterly reporting is not all that troublesome as compared to half-yearly reporting.
JOSEPH TAN, chief financial officer of F&N Holdings Bhd.
"It would be less work for us. But these days, certain investors are concerned over how companies perform. Quarterly numbers will give them more input. But it really depends on a company's business. For FMCG (fast-moving consumer good) companies like us, the industry changes very quickly. So, quarterly reporting will help reflect those changes to investors very quickly.
And The Bystanders Get Whacked In The Current Crisis
Interesting commentary from Nassim Nicholas Taleb, author of ‘The Black Swan, published on UK FT.com
- Bystanders to this financial crime were many
By Nassim Nicholas Taleb and Pablo Triana
Published: December 7 2008 19:18 Last updated: December 7 2008 19:18
On March 13 1964, Catherine Genovese was murdered in the Queens borough of New York City. She was about to enter her apartment building at about 3am when she was stabbed and later raped by Winston Moseley. Moseley stole $50 from Genovese’s wallet and left her to die in the hallway.
Shocking as these details surely are, the lasting impact of the story may lie elsewhere. For plenty of people reportedly witnessed the attack, yet no one did much about it. Not one of the almost 40 neighbours who were said to have been aware of the incident left their apartments to go to Genovese’s rescue.
Not surprisingly, the Genovese case earned the interest of social psychologists, who developed the theory of the “bystander effect”. This claimed to show how the apathy of the masses can prevent the salvation of a victim. Psychologists concluded that, for a variety of reasons, the larger the number of observing bystanders, the lower the chances that the crime may be averted.
We have just witnessed a similar phenomenon in the financial markets. A crime has been committed. Yes, we insist, a crime. There is a victim (the helpless retirees, taxpayers funding losses, perhaps even capitalism and free society). There were plenty of bystanders. And there was a robbery (overcompensated bankers who got fat bonuses hiding risks; overpaid quantitative risk managers selling patently bogus methods).
Let us start with the bystander. Almost everyone in risk management knew that quantitative methods – like those used to measure and forecast exposures, value complex derivatives and assign credit ratings – did not work and could provide undue comfort by hiding risks. Few people would agree that the illusion of knowledge is a good thing. Almost everyone would accept that the failure in 1998 of Long Term Capital Management discredited the quantitative methods of the Nobel economists involved with it (Robert Merton and Myron Scholes) and their school of thought called “modern finance”. LTCM was just one in hundreds of such episodes.
Yet a method heavily grounded on those same quantitative and theoretical principles, called Value at Risk, continued to be widely used. It was this that was to blame for the crisis. Listening to us, risk management practitioners would often agree on every point. But they elected to take part in the system and to play bystanders. They tried to explain away their decision to partake in the vast diffusion of responsibility: “Lehman Brothers and Morgan Stanley use the model” or “it is on the CFA exam” or, the most potent argument, “modern finance and portfolio theory got Nobels”. Indeed, the same Nobel economists who helped blow up the system at least once, Professors Scholes and Merton, could be seen lecturing us on risk management, to the ire of one of the authors of this article. Most poignantly, the police itself may have participated in the murder. The regulators were using the same arguments. They, too, were responsible.
So how can we displace a fraud? Not by preaching nor by rational argument (believe us, we tried). Not by evidence. Risk methods that failed dramatically in the real world continue to be taught to students in business schools, where professors never lose tenure for the misapplications of those methods. As we are writing these lines, close to 100,000 MBAs are still learning portfolio theory – it is uniformly on the programme for next semester. An airline company would ground the aircraft and investigate after the crash – universities would put more aircraft in the skies, crash after crash. The fraud can be displaced only by shaming people, by boycotting the orthodox financial economics establishment and the institutions that allowed this to happen.
Bystanders are not harmless. They cause others to be bystanders. So when you see a quantitative “expert”, shout for help, call for his disgrace, make him accountable. Do not let him hide behind the diffusion of responsibility. Ask for the drastic overhaul of business schools (and stop giving funding). Ask for the Nobel prize in economics to be withdrawn from the authors of these theories, as the Nobel’s credibility can be extremely harmful. Boycott professional associations that give certificates in financial analysis that promoted these methods. Remove Value-at-Risk books from the shelves – quickly. Do not be afraid for your reputation. Please act now. Do not just walk by. Remember the scriptures: “Thou shalt not follow a multitude to do evil.”
Source: here
Friday, December 05, 2008
Tune Air Says Unable To Secure Financing
This is what Tune Air said.
- We refer to the announcements made on 7 October 2008 and 17 November 2008.We wish to announce that Tune Air Sdn Bhd (“Tune Air”), our major shareholder, had vide its letter dated 5th December, 2008 informed us that due to the tight credit market conditions, it is unable to secure financing on acceptable terms and conditions from financial institutions to fund the potential privatisation exercise of AirAsia. Hence, Tune Air is unable to form a firm intention to proceed with the potential privatisation exercise of AirAsia.
Unable to secure financing on acceptable terms?
Well since Tune Air was kind and so transparent to announce to the markets its intended GO price ( rather unique in the world, eh?), perhaps Tune Air would be so generous and TRANSPARENT to show the market what exactly does it mean by ACCEPTABLE TERMS AND CONDITIONS.
Why not?
Share with everyone and let us know how lousy the financing offer they got.
Can ah?
Huh? AirAsia Buyout Still An Option?????
Just posted on BusinessTimes or rather from Bloomberg news: AirAsia says buyout still an option
- AIRASIA Bhd, Southeast Asia's biggest discount airline, said a takeover by the carrier's largest shareholder is among several alternatives being considered after the Edge reported a buyout had been scrapped.
``It's still an option that's there, as are other options,'' chief executive officer Datuk Seri Tony Fernandes, who owns about 20 per cent of AirAsia, said in an interview with Bloomberg Television today in Kuala Lumpur. He said any bid had always been ``subject to market conditions.''
Fernandes and AirAsia's other major shareholders in October said they may buy the airline as its stock dropped toward its original listing price of 2004. While Malaysian Airline System Bhd and Singapore Airlines Ltd are cutting routes, AirAsia is expanding and buying more aircraft, raising concerns it's adding too much capacity amid a global recession.
``Airlines are a risky business,'' said Damien Horth, an analyst at UBS AG in Hong Kong. ``It seems strange to be attempting a leveraged buyout, which adds further risk.'' He has a ``sell'' rating on AirAsia stock.
AirAsia on October 7 said Tune Air Sdn Bhd, its major shareholder, may buy all AirAsia shares and de-list the carrier. Tune Air, whose shareholders include Fernandes, owns about 31 per cent of AirAsia, according to Bloomberg data. The ``indicative'' price for a buyout was RM1.35 a share, AirAsia said at the time.
The shares today dropped as much as 6.7 per cent to 90 sen and traded at 91 sen at 11:02 am in Kuala Lumpur, valuing the Sepang, Malaysia-based carrier at RM2.16 billion (US$593 million).
`Record Quarter'
Fernandes said there's no sign demand is waning in the economic slowdown. The carrier as of October 31 had taken delivery of 52 of the 175 single-aisle aircraft it's ordered from Airbus SAS. Fernandes started the airline in 2001 with two airplanes.
``We will have a record fourth quarter,'' he said, without saying by which measure. ``We're not seeing any downturn in passenger numbers. People still want to travel.''
January bookings are ``very strong'' and those for February ``look good,'' he said.
AirAsia last week reported its first loss since becoming publicly traded due to charges related to foreign-exchange fluctuations and fuel hedging.
The RM465.5 million loss in the three months to September 30 compared with a profit of RM180 million a year earlier. Sales in the period rose 43 per cent to RM658.5 million. - Bloomberg
Come on... who are we kidding?
Look at the chain of events.
Back in Oct, TuneAir made the incredible announcement suggesting that they might make a GO for AirAsia at 1.35.
See posting Did Tune Air Said It Was Thinking Of Making a GO for Air Asia?. Look at the comments made by Mr. Erral Oh on Star Bizweek.
Comments aside, what I felt strongly that Tune Air and AirAsia by their transparency and bold announcement of the GO price had created a support for AirAsia stock price. In a weak stock market environment, the announcement of the GO price forced market to rethink AirAsia and its share price.
The stock DID not fall and held on steadily.
A month later, AirAsia reported their incredibly weak earnings report and in that quarterly earnings report, it showed how highly leveraged it was, its incredible long term commitments and a very stretched balance sheet.
So let's now imagine what if the GO and the GO price was not boldly announced... how do you reckon the stock would have fared?
And today... AirAsia still insist that the GO is an option???
Well AirAsia is now 91 sen.
How much does AirAsia wants to offer?
Here's a report I got from a friend.
Know What You Are
I like the following quote mentioned by blogger Kirk in his daily link fest.
- You have to know what you are, and not try to be what you’re not. If you are a day trader, day trade. If you are an investor, then be an investor. It’s like a comedian who gets up on stage and starts singing. What’s he singing for? He’s a comedian. Steven A. Cohen
Again On AirAsia's Deferred Tax Issue
Received the following set of comments to my posting Huh? Now AirAsia Wants To Take Over SIA??
- Maverick said...
Lol .....!!!!
Will TonyF ever learn?
If you take the Shareholders fund and deduct the tax deferred (the tax deductions they are allowed to use when they make future profits) then what is leftover is not much more than 1 billion RM, roughly what the minority investors put in the company at the IPO.
In other words, they havent made any sizeable profit at all over all these years.
And TonyF announced already that we havent seen the last thing about those derivatives, more pain to come
I would have replied to Maverick on the posting itself but I wanted to focus (by showing some pictures) on the shareholders fund and the deferred tax issue.
AirAsia was listed end 2004.
Here is its 2005 Q4 quarterly earnings: Quarterly rpt on consolidated results for the financial period ended 30/6/2005
To focus on that set of earnings would be rather unfair to AirAsia. So I would focus on AirAsia 2006 Q4 earnings.
Quarterly rpt on consolidated results for the financial period ended 30/6/2006
*side note: click on all the images for a bigger view*
Total deferred tax for fy 2006 = 13.613 million.
And the following is a screen shot of AirAsia's Balance sheet.
A year later, Quarterly rpt on consolidated results for the financial period ended 30/6/2007 ( Note the change Change of Financial Year End announcement)
Now let's look at their p&l statement.
Ahem!
Deferred tax for AA is now 225.127 million BUT note their previous year, fy 2006 deferred tax has been amended to 117.703 million. I will use this figure instead of 13.613 million.
And here is a screen shot of their Balance sheet.
Side note: The deferred tax is classified under as Non Current Assets. Yes, many would argue against such accounting procedures ( see also AirAsia's deferred taxes issue and More on AirAsia's Deferred Tax Issue. And I would note from the first posting "We believe that AirAsia has a strong case for its non-provision of deferred taxes. With capital allowances and investment allowances likely to come to RM18bn in total, the company will not have to pay cash taxes for decades." )Let's now look at their latest quarterly earnings: Quarterly rpt on consolidated results for the financial period ended 30/9/2008
And here is AirAsia latest Balance Sheet.
Right now, the total deferred tax is at a whopping 627.971 million.
And if you minus the deferred tax from AirAsia's net earnings... what do you get?
Can you see Maverick's point here?
( Maverick also gave the following link: http://sahathevan.blogspot.com/2008/12/is-airasia-in-breach-of-any-of-its-loan.html )
Huh? Now AirAsia Wants To Take Over SIA??
WOW!
I just caught this piece of news:
- AirAsia boss aspires to 'take over' SIA
by Tim Leonard
KUALA LUMPUR (Dec 5, 2008): Budget airline AirAsia boss Datuk Seri Tony Fernandez yesterday said his long-term objective is to one day “take over” Singapore Airlines.
Speaking at the Global Brand Forum Malaysia at the Palace of the Golden Horses, the maverick entrepreneur revealed his company’s ambitions at the end of a slide presentation.
To the amazement of those present, he showed two pictures – one of aircraft livery and the other of AirAsia’s new uniform for its stewardesses – and told his audience what he he would name his new company – “Singapore AirAsia”.
Fernandez, who was later presented with the Malaysian Icon Award by Deputy Prime Minister Datuk Seri Najib Razak for his contribution to the country, kept the audience in stitches throughout his one-hour presentation.
“And this is the uniform the stewardesses onboard Singapore AirAsia will wear,” he said, pointing to a picture of a smiling woman wearing a combination of the famous SIA baju kebaya and striking red AirAsia skirt.
While many in the audience laughed it off, industry observers took the view that it was a signal from Fernandez, following news reports of Malaysia Airlines having talks on a possible merger or a strategic alliance to form a global airline with British Airways and Qantas.
A Malaysian newsportal said that owing to global economic pressures, the airline industry was going through a consolidation period, with talks of mergers, acquisitions and bankruptcies dominating the business pages.
Najib said he was proud of Fernandez’s achievements, not only for his company but for the country as well. (news source: here )
Tell you what, I will give AirAsia A+ for what it has achieved as a brand name but that's about it.
AirAsia as a stock? AirAsia as an investment grade stock?
Sorry babe but I do not rate AirAsia at all!
All I see a local company who has gone way over its ambitions and BASED ON what AirAsia has reported in its last quarterly earning notes ( see AirAsia Posted Massive Losses! and Regarding AirAsia Forex Losses.) , I would err by stating that the state of its financial health is rather very unhealthy. It's burning cash extremely fast and the loan build-up is way out of hand. And worst still its long time financial commitment is simply beyond my comprehension.
However, do NOt get me wrong here.
It's good to have ambitions.
Ambitions equations to one's personal life goals. Everyone should set themselves goals. Without them, without goals, life is rather meaningless.
However, for AirAsia case, I do believe that before they set such lofty goals, perhaps they should take a good look at their own financial health first.
Yes, get your own house in order first.
Then only then, go set yourselves higher goals to achieve.
As it is, I believe many would find this article simply ludicrous!
And this is my opinion too.
Big Name Hedge Funds Like Citidel Suffers Massive Losses!
And the Big Boys are suffering Big Time!
Posted on Reuters: Hedge funds chalk up more losses, big names suffer
- By Svea Herbst-Bayliss
BOSTON, Dec 4 (Reuters) - Some of the biggest names in hedge funds lost money in November, including Dan Loeb and Kenneth Griffin, but John Paulson was among the few who made money for their investors.
Hedge fund investors around the world lost money for the sixth straight month as many in the industry reported steepening declines, investors said on Thursday.
Dan Loeb, an activist investor known for his sharply worded letters to poorly performing companies, told investors that his Third Point Offshore fund lost 28.24 percent in the first 11 months of the year after the fund slipped 2.6 percent in November.
James Pallotta's Raptor Global Fund lost 1.51 percent last month, leaving the fund off 17.36 percent for the year.
Martin Hughes' Tosca Fund Ltd fell 5.15 percent and is now down 67.54 percent for the year.
And Kenneth Griffin's Citadel Investment Group, which boasts one of the industry's longest winning records, lost roughly 13 percent last month, swelling its year-to-date losses to about 47 percent, investors said.
The numbers came as investors suffered through more sharp stock market gains and losses that left many managers ill-prepared, if they were long or short, investors said.
Funds also felt the impact of frozen credit markets.
While many hedge fund managers are still compiling their numbers for the month, early indications show the average fund lost 2.25 percent, leaving it down 21.31 percent for the year, according to data from data tracking company BarclayHedge.
Groups that monitor performance like Hedge Fund Research and Hennessee Group are expected to announce November returns in a few days.
Fed up with the industry's worst-ever returns, endowments, pension funds and private investors demanded more money back, which forced even more selling among hedge funds, managers said. In October, industry assets shriveled 9 percent to $1.5 trillion, their lowest level in two years, according to data from Hedge Fund Research. Data for November is not available yet.
"Money is coming out of the system, and people are redeeming because they need the money," said Antonio Munoz, who runs EIM Management USA, a fund of hedge funds.
While many fund managers are nursing heavy losses there are also a few bright spots.
Fund manager John Paulson, one of the first investors to bet that housing prices could decline on a national basis, made more money for his investors in November when his roughly $5 billion Advantage Ltd fund gained 2.04 percent. That leaves the fund up roughly 21 percent since January, according to an investor.
Paulson's roughly $10 billion Advantage Plus Ltd fund rose 3.19 percent in November and is now up 33.52 percent year-to-date.
Louis Bacon's Moore Global Investment Fund gained 3.74 percent through Nov. 26, leaving the fund down only 4.76 percent for the year so far.
And Bruce Kovner's Caxton Global Investment fund is up 11.52 percent for the year.
The following article on Bloomberg talks more on Ken Griffin's Citidel: Citadel Funds Lose 13% in November, 47% This Year
- By Saijel Kishan and Katherine Burton
Dec. 4 (Bloomberg) -- Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, lost 13 percent in November, bringing the decline for the year to 47 percent, according to two people familiar with the matter.
Losses at the Citadel’s two biggest funds came from investments in convertible bonds, high-yield bonds and bank loans, and investment-grade bonds, which were hedged with credit default swaps that protect the buyer in the event of a default. These same wagers started the funds’ tumble in mid-September.
“Digging out of this hole may be tough for them,” given the lack of trading in the credit markets, said Michael Rosen, principal at Santa Monica, California-based Angeles Investment Advisors LLC, which advises clients on hedge-fund investments.
The Kensington and Wellington funds, which together manage $10 billion in assets, have received requests from investors who want to withdraw about $1 billion by the end of the year, said the people, who asked not to be identified because the information is private.
Griffin, 40, had posted just one losing year since starting the firm in 1990, dropping 4 percent in 1994. Katie Spring, a spokeswoman for Citadel, declined to comment on the returns, which were reported earlier today by the Wall Street Journal on its Web site.
The hedge-fund industry has posted its worst performance on record this year, with average losses of about 22 percent this year through November, according to data compiled by Chicago- based Hedge Fund Research Inc.
The Citadel funds have made money in stocks and on so-called macro trades -- wagers on stock indexes, bonds, commodities and currencies based on macroeconomic trends.
Three other Citadel funds, whose returns are tied to the firm’s market-making business, have climbed about 40 percent this year. Those funds manage about $3 billion.
Even with Citadel’s drop in assets, the firm has not breached the terms of its contracts with lenders, one of the people said.
Thursday, December 04, 2008
And Bank Of England Cuts The UK Banke Rates To Just 2%!!
Just out on Bloomberg News: Bank of England Cuts Key Interest Rate to 2%, Lowest Since 1951
- By Jennifer Ryan
Dec. 4 (Bloomberg) -- The Bank of England cut the benchmark interest rate to the lowest level since 1951 as lenders rationed credit, pushing the U.K. economy deeper into a recession.
The Monetary Policy Committee, led by Governor Mervyn King, reduced the bank rate by 1 percentage point to 2 percent, the central bank said in London today. The move matched the median forecast of 61 economists in a Bloomberg News survey. Sweden’s central bank also cut its rate today by the most since 1992.
King discussed the possibility of lowering the interest rate to zero for the first time on Nov. 25 and said the biggest challenge he faces is renewing the flow of credit in the economy. Service industries, manufacturing and construction shrank at the fastest pace on record last month and house prices dropped 2.6 percent, the most since 1992.
“There’s no sign that any of the data is in any way bottoming out, and it justifies big moves in interest rates,” said Grant Lewis, an economist at Daiwa Securities SMBC Europe Ltd. in London and a former U.K. Treasury official. “There are further cuts in the pipeline.”
Investor speculation of interest-rate reductions pushed the pound to a record low of 86.75 pence per euro today. The currency was at 86.67 pence per euro as of 11:49 a.m. in London.
The interest rate now matches the lowest in the central bank’s history. It was last at 2 percent when Winston Churchill’s victory in a general election made him prime minister for the second time.
ECB Decision
The U.S. Federal Reserve cut its key rate to 1 percent last month. The European Central Bank will reduce its benchmark by a half point to 2.75 percent at 1:45 p.m. in Brussels today, according to the median estimate of 56 economists in a Bloomberg News survey.
The Bank of England’s move was the latest in a series of steps across the world today. Sweden’s Riksbank lowered its key rate by 1.75 percentage points to 2 percent. New Zealand’s central bank cut its rate by a record 1.5 percentage points to 5 percent, and Bank Indonesia reduced its rate to 9.25 percent from 9.5 percent.
The U.K. benchmark may fall to zero early next year, forcing policy makers to consider other means of restarting bank lending and reviving the economy, former policy maker Willem Buiter said this week. Such steps may include expanding money supply and using it to finance government deficits or buying securities such as bonds or stocks, he said.
‘Acute’ Problems
“U.K. rates could end up American-style because the problems in the financial sector are so acute,” said Lewis, the Daiwa economist.
King said Nov. 25 that “close coordination” with the government is needed if the interest rate reaches zero and said the “most pressing” challenge facing policy makers is getting financial institutions to resume lending. Banks approved just 32,000 mortgages in October, matching the least since 1999.
Interest rates below 1.5 percent “wouldn’t leave them with much scope for further cuts,” said Peter Dixon, an economist at Commerzbank AG in London. “We may have to see the bank looking at other measures.”
Policy makers face a growing risk of missing their 2 percent inflation target as economic growth slows. King refused to rule out the risk of deflation when he presented forecasts in November, which showed a danger that consumer prices may start to fall across the U.K. economy. An index showing prices charged by services companies fell to the lowest since 2001 last month.
Economic Outlook
Recent reports indicate the outlook for Britain’s economy is worsening. Stagecoach Group Plc, owner of the U.K.’s biggest rail franchise, said yesterday it may cut jobs as earnings experience “downward pressure.” Bellway Plc, a homebuilder, said today its order book has halved after banks granted fewer mortgages and a separate report showed U.K. car sales plunged 37 percent in November from a year earlier, the most in 28 years.
The U.K. economy may contract by 1.1 percent next year, the most since 1991, the Organization for Economic Cooperation and Development said Nov. 25. Gross domestic product fell by 0.5 percent in the third quarter, the first drop in 16 years.
Services from banks to recruiters contracted at the fastest pace in at least 12 years in November, and manufacturing and construction shrank, surveys by the Chartered Institute of Purchasing and Supply showed this week. House prices fell 2.6 percent on the month, HBOS Plc said today.
“This economy needs all the help it can get at the moment,” said Malcolm Barr, an economist at J.P. Morgan Chase & Co. who forecasts the benchmark rate will fall to 1 percent by May. “Their own analysis of the issue shows they need rates to be a lot lower.”
The Global World Cut is surely ON!!!
And the winner is the one to cut to ZERO??
And The Ringgit Goes Slip Sliding Away Against The US Dollar
Published on Business Times:
- Ringgit may hit 3-year low: StanChart
Published: 2008/12/04
MALAYSIA's ringgit may decline to a three-year low against the dollar should it fall below so-called support at 3.6410, said Standard Chartered Plc, citing technical charts that predict price movements.
The support level at 3.6410 is a 76.4 per cent retracement of the ringgit’s advance from a low of 3.80 in July 2005 to a high of 3.127 in April 2008, said Thomas Harr, a senior currency strategist at Standard Chartered, referring to a series of numbers known as the Fibonacci sequence. Support refers to an area where buy orders may be clustered.
“If you see a break of this last Fibonacci level, then there basically are no levels before 3.80,” Singapore-based Harr said in a Bloomberg News interview. “The ringgit will continue to be under pressure.”
The ringgit traded at 3.6395 per dollar as of 3:39 pm in Kuala Lumpur, compared with 3.6400 yesterday, according to data compiled by Bloomberg. The currency has weakened 9 per cent this year, headed for its first annual loss since 1999.
Malaysia’s government scrapped the ringgit’s peg of 3.80 to the dollar in July 2005, allowing it to trade freely in a managed float against a basket of currencies of the nation’s major trading partners.
Fibonacci analysis is a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of one indicates a currency may move to the next. A failure suggests a trend may stall. Other Fibonacci points include 50 per cent and 61.8 per cent.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is where sell orders may be clustered, while support is where there may be buy orders. - Bloomberg ( Source: here )
And here is the market closing notes on the ringgit.
- FOREX: Ringgit Closes At 3.63 Against US Dollar
KUALA LUMPUR, Dec 4 (Bernama) -- The ringgit closed flat today against the US dollar on thin commercial demand from foreign and local traders, dealers said.
At close, the local currency was quoted at 3.6380/6410 with very little difference from yesterday's closing of 3.6380/6420.
The dealer said players took a cautious stance over the speculation of the European Central Bank's decision to cut interest rate by half a percentage point today.
"If they cut interest rate, it will help the dollar to go higher," he said.
The local unit was mixed against other major currencies.
It was lower against the Singapore dollar at 2.3784/3813 from 2.3779/3826 yesterday but higher against the yen at 3.9144/9188 from 3.9156/9212 previously.
The ringgit rose against the British pound to 5.2849/2904 from 5.3708/3785 yesterday and also against the euro to 4.5795/5844 from 4.5966/6020. (Source: http://bernama.com.my/bernama/v5/newsmarket.php?id=376432 )
Will the ringgit be an issue?
For me it will be a massive issue!
Far too many local corporates had taken far too huge loans denominated in the USD!
Bill Miller Claims That A Market Bottom Has Been Made!
On Reuters, Legg Mason's Miller: "Bottom's been made" in stocks
- NEW YORK, Dec 3 (Reuters) - Legg Mason's Bill Miller, a celebrated investor but whose stock picking is far off the mark this year, said on Wednesday the "bottom has been made" in U.S. equities.
He recommends that the Federal Reserve buy stocks and junk bonds to avert a deeper financial crisis, adding "the taxpayer would make a killing" as markets rebound.
Speaking at Legg Mason's annual luncheon for media, Miller said that all long-term investors believe that stocks today are cheap, but credit markets must regain health before equity markets can rally.
It "looks as if the bottom has been made" in U.S. stocks, he said.
Miller told Reuters the year has been "terrible, a disaster and awful," yet he held out his past performance in down markets as a reason why he should not be counted out.
"We've performed in most of the financial panics that we've had -- the last one being the three-year bear market ending in 2002 -- we outperformed all the way through that," he said.
"So even though we lost money, we lost a lot less money than the market did," Miller added.
However, Miller acknowledged that his performance has been worse than in past downturns.
"When you're underperforming and losing more money than the market in a down market, then that's a much more problematic situation. We've performed far worse than I would've predicted we would," he said.
For the year, Miller's flagship Value Trust LMVTX.O fund was down 59.7 percent as of Tuesday, compared to a 41 percent decline in the reinvested returns of the S&P 500 index, according to Lipper Inc., a unit of Thomson Reuters.
Performance over the year-to-date, one-, three- and five-year periods for Value Trust put it at the bottom of the barrel among its peers, Lipper data shows.
The severe sell-off has provided ample opportunities.
"This market is very unusual because since the end of the second quarter, it has been a pure scramble for liquidity which accelerated obviously post-Lehman Brothers and people sold without regard to value at all," Miller said.
"So at the end of the end of this quarter, every sector in the market has companies that represent what we think are exceptional value."
I don't get the rationale for asking the Feds to buy stocks and junk bonds!!! I seriously don't!
Anyway, I have featured Bill Miller many times on this blog before. Here are some selected postings.
- Bill Miller's Letter to Shareholders 2007
- Bill Miller again
- Poker and Investing!
- Stocks Are Cheap!
- Bill Miller's Q3 Shareholder's Letter
So Bill is calling that the market has made the bottom.
However, I would like to point out this posting of mine made on August 2007, Stocks Are Cheap!
- According to data compiled by Bloomberg, stocks are now the cheapest they have been in 16 years. The S&P 500 is valued at 15.4x estimated earnings, the lowest since January 1991. Again, a pretty good time to be a buyer of stocks!
Even after this decline in the stock market, over the past 12 months the market is up 17% with dividends reinvested, which is well above the long-term average.
I began the year quite bullish and remain so. ( here is the source link to Bill's comments: here )
Yup. Bill has been calling that the stocks a cheap for so long.
And if you ask me, this is exactly why his fund is doing so poorly now.
The following chart of his fund, LMVTX, says it all.
Dry Bulk Shipping: The Market Is Almost Non-Existent!
Published on Purchasing.Com: Plunging ocean freight rates have carriers in survival mode
- And even if demand comes back in 2009, there is still a strong chance of overcapacity due to the shipbuilding order boom that took place when rates were at their peak. According to the Wall Street Journal, in the last two years 50 million tons of capacity have been added to the global fleet of 420 million tons. “But in 2009 and 2010, over 175 million tons is due to come into service. Some of these orders will need to be cancelled if shipping rates are to rise.”
- "The market is almost non-existent," said Herman Billung, CEO of Golden Ocean in a Reuters report. "The situation is pretty serious and illustrating what is going on in the whole dry bulk industry,"
The Baltic Dry Index is now at 672.
How optimistic can one be about the turnaround in global economy when the market is almost non-existent in the shipping industry?
When ships don't move, what's it implying about global trade?
Doesn't this means global trade is almost non-existent too?
Wednesday, December 03, 2008
And The Global World CuT Continues!
Posted yesterday: Aussie Cuts Rates Big Time Again - The Global World Cut Is On!!
Today Thailand joins the game!
Published on Reuters: Global interest rate cuts to spearhead crisis fightback
- By Kitiphong Thaichareon and Angus MacSwan
BANGKOK/LONDON (Reuters) - Thailand led a global charge to cut interest rates on Wednesday, with countries from Europe to New Zealand expected to follow in the next few days to fight an unrelenting financial crisis.
South Korea took steps to help local banks through a cash crunch and U.S. Treasury Secretary Hank Paulson was reportedly debating if he should ask lawmakers in Washington for the second half of a $700 billion bank rescue package.
Russian state bank VEB reportedly asked the Kremlin for a $34 billion cash injection in the latest sign that the major emerging market was also feeling the heat of a crisis that has forced the United States, Japan and Europe into recession.
Pressure for big rate cuts in Europe and Britain grew with a survey that showed the euro zone's services economy fell deeper into recession in November than first thought.
The Bank of Thailand slashed its main interest rate for the first time in 16 months to help an economy hit both by the global downturn and political unrest, cutting its main interest rate by a bigger-than-expected 100 basis points to 2.75 percent.
Australia slashed rates on Tuesday and the euro zone, UK, Sweden and New Zealand all make rate decisions on Thursday.
The Markit Eurozone Purchasing Managers Index for services companies, which covers banks to bars in the euro zone, plunged to 42.5 in November from October's 45.8 level, the lowest in the survey's 10-year history.
It also showed inflationary pressures eased, making it easier for the European Central Bank to cut rates sharply.
"There is ample room for the ECB to cut rates ... We think 75 basis points will be the compromise, but we would not rule out a cut by 100 basis points," said Juergen Michels at Citi.
The equivalent survey for Britain showed its dominant services sector shrank in November at its fastest pace since the series began in 1996, boosting expectations the Bank of England will slash interest rates by a full point on Thursday.
The Federal Reserve, which is also expected to cut U.S. rates again later this month, will release its closely-watched Beige Book of economic conditions later in the day.
In Seoul, the Bank of Korea discussed buying more bonds off banks and easing rules on how much cash they must keep in reserve.
South Korea's banks have been hard hit by the global crunch and concerns about the country's exposure to the crisis have forced the won down 35 percent against the dollar this year.
CHINA COOLS ON HELPING OUT
The Wall Street Journal reported U.S. Treasury Secretary Paulson might approach Congress next week to ask for the second half of a $700 billion bank rescue package.
Paulson was on his way to Beijing to talk to Chinese officials. But he may not receive big promises of further investment, especially from China's sovereign wealth fund, which expressed a lack of confidence in the U.S. regulatory situation.
Investors have looked to China for leadership because of its high growth rate and long-term economic potential but Beijing is focused on protecting its own rapidly-slowing economy.
The chairman of China Investment Corp. said the sovereign wealth fund was "not brave enough" to invest in foreign financial firms and lacked confidence in the shifting U.S. financial regulatory terrain.
"It's changing every week. How can I be confident?," CIC chairman Lou Jiwei said in Hong Kong.
In the United States, automakers prepared to plead the case to Congress that they had a viable future.
Ford Motor Co wants a $9 billion credit line. General Motors Corp asked the U.S. government to save it from failure by extending $12 billion in loans and another $6 billion in a credit line.
Politicians worry that without government aid, the companies could collapse and millions of jobs would be lost.
In Moscow, business daily Vedomosti said VEB bank, Moscow's agent in distributing some of its $200 billion crisis rescue package, has asked the government for an injection of 950 billion roubles ($34 billion).
Global stocks spluttered and euro zone government bond yields hit a three-year low as gloomy economic news highlighted the case for more aggressive interest rate cuts.
The FTSEurofirst 300 index of top European shares fell 1.5 percent in early trade with Britain's FTSE 100 index down 0.9 percent. Japan's Nikkei managed to eke out a 1.8 percent gain following a rebound on Wall Street on Tuesday.
"Markets are not focusing on any of the good news and the good news is rates are being cut, commodity prices are coming down, stimulus packages are being put together and banks are being supported. But the market's feeling very depressed," said Justin Urquhart Stewart, investment director at Seven Investment Management.
British merger partners Lloyds TSB and HBOS pledged to pass on interest rate cuts or increase lending to small businesses as pressure built on banks to boost lending.
British Prime Minister Gordon Brown will tell banks later on Wednesday to lend to credit-starved small firms and families to help them through a recession.
The Global World Cut is ON again!!!
And the winner is the one to cut to ZERO??
Warnings Made on The US Dollar
Published on FT.Com: UN team warns of hard landing for dollar
- UN team warns of hard landing for dollar
By Harvey Morris in New York
December 1 2008 08:48
The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.
In their annual report on the world economy published on Monday, the economists said the dollar’s sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.
The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.
“Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession,” the report said.
Publication of the annual survey by the UN’s Department of Economic and Social Affairs, its trade organisation Unctad and UN regional bodies, was brought forward by a month in the light of the financial crisis. It was launched in Doha to coincide with the UN-sponsored development financing conference in the Qatari capital.
The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US’s external debt had risen to new heights that could provoke a dollar collapse.
The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.
Rob Vos, a Dutch economist who heads the UN’s policy and analysis division and who is responsible for the annual economic review, said the global economic pain could be eased if governments co-ordinated a spate of stimulus packages that were already under way.
“There has been a sea change in attitudes in favour of intervention and concerted action,” he told the Financial Times. He welcomed statements from US president-elect Barack Obama’s transition team in support of spending on infrastructure.
Tuesday, December 02, 2008
Aussie Cuts Rates Big Time Again - The Global World Cut Is On!!
On CNBC news: http://www.cnbc.com/id/28006771
On Bloomberg: Australia Extends Biggest Rate-Cut Round Since 1991
- Dec. 2 (Bloomberg) -- Australia’s central bank cut its benchmark interest rate by one percentage point, extending the biggest round of reductions since the nation was last in a recession in 1991.
Governor Glenn Stevens lowered the overnight cash rate target to a six-year low of 4.25 percent in Melbourne today, the fourth reduction in as many months. Four of 21 economists surveyed by Bloomberg News forecast today’s move and 15 tipped a three-quarter point cut.
Stevens said monetary policy is now “expansionary” to help restore consumer and business confidence, which has been battered by this year’s 44 percent slump in the benchmark stock index and the biggest drop in house prices since 1978. Three percentage points of cuts since September save borrowers with an average A$250,000 ($159,000) home loan more than A$500 a month.
Today’s decision “is a vital element in the effort to ward off recession in Australia,” said Heather Ridout, chief executive of the Australian Industry Group, which represents the nation’s biggest companies.
The Australian dollar traded at 63.78 U.S. cents at 4:48 p.m. in Sydney from 63.74 cents just before the Reserve Bank of Australia’s announcement. The two-year government bond yield rose 12 basis points, or 0.12 percentage point, to 3.05 percent.
The S&P/ASX 200 stock index slumped 4.2 percent to 3,528.20 today. Banks led the declines.
‘Cut Warranted’
“Weighing up the international and domestic developments of recent months, the board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting,” Stevens said in a statement.
While Australia’s economy has been more resilient than “other advanced economies,” recent evidence indicates that “a significant moderation in demand and activity has been occurring,” he added.
Gross domestic product growth probably slowed in the three months through September to 0.2 percent from the second quarter, when it expanded 0.3 percent, economists forecast. That would cut annual growth to 1.9 percent, the smallest gain since the second quarter of 2002. The GDP report will be released tomorrow.
Stevens and his board also cut the benchmark rate by a quarter point in September, followed by a one percentage point reduction in October and a three-quarter point adjustment last month. Today’s meeting is the last scheduled gathering of policy makers until Feb. 3.
Global Reductions
Central banks around the world are slashing interest rates in response to a global slump in demand. The Reserve Bank of New Zealand will probably cut its benchmark by a record 1.5 percentage points to 5 percent on Dec. 4, according to 10 of 17 economists surveyed by Bloomberg.
The Bank of England and the European Central Bank will also lower borrowing costs this week, according to separate surveys.
The Bank of Japan said today it would adopt temporary measures to help companies obtain cash as a deepening recession makes banks reluctant to lend.
“I hope we don’t slip into negative growth, but you have to accept that it’s possible,” National Australia Bank Ltd. Chairman Michael Chaney said yesterday. “It’s in the interests of everybody for demand to be sustained at a reasonable level.”
Unlike the U.S., Japan, Europe and the U.K., Australia’s economy has so far avoided a recession, boosted by a mining boom that has kept unemployment close to the lowest level in more than three decades. The jobless rate was 4.3 percent in October.
Budget Deficit
To buttress the economy, Prime Minister Kevin Rudd said last week that he may allow the government’s budget to slip into deficit for the first time since 2002.
The government agreed with state leaders on Nov. 29 to spend A$15.1 billion, mainly on health and education, to generate 133,000 jobs. Rudd is also giving A$10.4 billion in cash grants to the elderly, first-home buyers and families.
Rudd’s spending package, this year’s 27 percent drop in the Australian dollar and “significant policy stimulus will be supporting demand over the year ahead,” Stevens said today.
Australia’s three largest banks reduced their variable home-loan rates after today’s central bank announcement.
Commonwealth Bank of Australia, the nation’s biggest provider of mortgages, cut the interest rate for its standard variable mortgages by 1 percentage point to 6.7 percent. National Australia trimmed by the same amount and Westpac Banking Corp. adjusted its rate by 80 basis points.
Property Market
Next year will “see a significant shift in sentiment towards property investments, with many Australians taking advantage of the lower interest rates,” said Warren McCarthy, managing director of real estate company LJ Hooker.
Recent reports show the economy is slowing as consumers and businesses trim spending. Company investment growth cooled in the third quarter, business confidence plunged in October to a record low and consumers were pessimistic in November for a 10th straight month. House prices fell 1.8 percent in the third quarter, the most in 30 years.
“We welcome this substantial rate relief,” Australian Treasurer Wayne Swan told parliament today in Canberra. “This is a vital rate cut, delivered at a time when all our joint efforts are directed toward strengthening the economy.”
The Reserve Bank expects the inflation rate will fall back within its target range of between 2 percent and 3 percent in 2010.
The Global World Cut is ON again!!!
And the winner is the one to cut to ZERO??
Make No Doubt About It - Chinese And Global Manufacturing Are Slumping!
Posted yesterday: China's Steel Industry Slows Down
On CNBC news, Chinese Industry Slumps as PMI Hits Record Low
- The downturn in China's manufacturing sector gathered pace last month as falls in new orders and production drove the official purchasing managers' index (PMI) to a record low
The index, which is based on a survey of industrial firms across China, fell to 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing (CFLP) said on Monday.
The index is designed to give a timely snapshot of the state of the manufacturing sector, which has been a major driver of China's headlong economic growth in recent years.
A reading over 50 indicates an expansion of activity in the manufacturing sector, while one below 50 suggests a
deterioration.
"November's PMI shows that the Chinese economy is slowing down at an accelerating rate. The signs of economic contraction are more evident," said Zhang Liqun, a government economist who comments on the survey for the logistics federation.
Zhang said the government had taken many aggressive steps to counter the slowdown, but these would take time to have an impact.
"China's economy will bounce back to a comparatively high growth rate in the spring of 2009 as the effects of the various measures show through," he added.
And Dr. Marc Faber says that China's stimulus package won't work. See video clip here: http://www.cnbc.com/id/15840232?video=945548876
And the manufacturing slowdown is not only a Chinese problem!
On Bloomberg news: U.S. Economy: Manufacturing Shrinks Most in 26 Years
- Dec. 1 (Bloomberg) -- American manufacturing contracted in November at the steepest rate in 26 years, leading Europe and Asia into an industrial slump as a recession that began in the U.S. in December 2007 spread around the globe.
The Institute for Supply Management’s factory index dropped to 36.2, below economists’ forecasts, and its gauge of raw- material costs plunged to the least in six decades, intensifying concern over deflation. The Tempe, Arizona-based group’s report came as factory indexes in China, the U.K., euro area, and Russia all fell to record lows.
The U.S. entered a recession a year ago this month, according to a declaration today by the National Bureau of Economic Research panel that dates American business cycles. The economic slowdown and decline in inflation are putting pressure on policy makers to keep lowering interest rates and boost stimulus plans.
“This downturn in the global economy is probably more synchronized than we have ever seen,” said Jonathan Basile, an economist at Credit Suisse Holdings in New York. Policy makers should “open the flood gates” for more action, he said.
Stocks worldwide tumbled and yields on U.S. Treasury securities fell to the lowest ever on concern a lack of financing will stunt consumer and business spending.
The ISM index was projected to drop to 37, according to the median of 61 economists’ forecasts in a Bloomberg News survey. Estimates ranged from 33.5 to 40. A reading of 50 is the dividing line between expansion and contraction.
And the possible suggestion is that..
- “The U.S. manufacturing report made it clear it’s going to take a while before we get out of this recession,” Mamoru Shimode, chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “The stronger yen will directly hit Japanese manufacturers’ earnings, and their stocks are likely to lead declines in the Tokyo market today.” (Source: here )
Monday, December 01, 2008
Betting On The Casino Industry?
Posted on Marketwatch: Trump Entertainment to miss interest payment
- CHICAGO (MarketWatch) -- Facing tough competition and sliding revenue amid the economic meltdown, Trump Entertainment Resorts will have to skip a $53.1 million interest payment scheduled for Monday on its 8.5% senior secured notes due 2015 in order to maintain sufficient liquidity.
The Atlantic City, N.J., casino operator, with about $1.25 billion worth of the notes outstanding, said late Friday that it has a 30-day grace period to pay up and will meanwhile seek talks with its lenders to revamp its capital structure and improve its liquidity.
A panel of independent directors will oversee the talks, the company said.
If it doesn't make the payment in the 30-day grace period, Trump Entertainment said, holders of a quarter of the notes and lenders under a $490 million senior secured loan to a company subsidiary will be able to accelerate the maturities of those obligations.
Donald Trump, the television personality and New York real estate investor, is non-executive chairman and the largest shareholder of Trump Entertainment, which operates three Atlantic City casinos: The Trump Taj Mahal and the Trump Plaza on the Boardwalk and the Trump Marina in the Marina district. The last is being sold to Coastal Development for $270 million in a deal that has seen the price lowered and the closing deadline delayed.
Trump Entertainment "is separate and distinct from Mr. Trump's privately held real estate and other holdings, which the company understands encompasses substantially all of his net worth," the company said.
After his casinos twice ran into bankruptcy, Trump was removed from having any operating role in them as part of the deal that brought the company out of Chapter 11 the last time around.
And it could happen again: Earlier this month, Fitch Ratings warned that after the company drew a remaining $25 million available on its credit facility this quarter to help fund an expansion, "it will have little to no access to committed external funds."
The ratings agency also said that "given Trump's heavy debt load and the expected operating pressure in Atlantic City over the next 12 months, it is crucial for Trump to close the Trump Marina sale in order to avoid a restructuring, in the absence of another transaction."
On Nov. 7, Trump Entertainment reported that it swung to a third-quarter loss of $139.1 million, or $4.39 a share, from a profit of $6.6 million, or 21 cents, in the year-earlier period. Continuing operations produced a loss of $3.49 a share against profit of 7 cents. Revenue fell 8.4% to $198.3 million.
The company cited slower consumer spending, competition from Pennsylvania, and a smoking ban as the primary factors in the latest results. The number of customers was relatively stable, but spending per person declined, the company said.
The company said then that it was controlling its costs and that its 21 top-paid executives had agreed to a 5% salary cut.
Shares of Trump closed at 31 cents Friday, giving the company a market capitalization of approximately $10 million. The stock price scraped as low as 25 cents earlier this month after trading near $6 this time last year. (read rest of article: here )
China's Steel Industry Slows Down
Read the following feed at Metals Place: China's steel industry slows down
- Following Years of Rapid Growth, Production Retreats as Global Demand Dwindles
China's steel industry, which in the boom of the past few years has become the biggest in the world, is now facing a long, cold winter.
Demand is declining both in the home market and abroad. China's steel exports, which had been expanding at an extraordinary pace of 60% a year, are now falling. Weakening Chinese exports of home appliances and machinery have cut demand for steel, as has a collapse in the Chinese housing market that triggered sharp declines in construction.
The current downturn is the sharpest and deepest for China's steel industry in at least a decade, with its output plunging 17% in October. Some executives don't think the boom times will ever return.
"We think that the era of high profits for steel companies has already come to an end," said Yang Siming, chairman of Nanjing Iron & Steel Group, a midsize producer based in eastern China.
Because China's steel industry grew so rapidly in recent years -- it is now five times bigger than it was during the last contraction, producing more than a third of the world's steel -- the downturn is being felt throughout China and across the world.
Big miners like BHP Billiton and Rio Tinto have been hammered by the collapse in Chinese demand for iron ore and other minerals used in steel, as have producers of coal, which steelmakers consume rapidly. With prices and shipments for key products declining, BHP is now focusing on preserving its finances, and on Tuesday the company abandoned its bid to take over Rio Tinto.
Waning demand has also pushed steelmakers in other Asian nations to cut back production as well as prices, as they welcome BHP's latest decision regarding Rio Tinto.
Japan's Nippon Steel Corp., the world's second-biggest steelmaker by output after ArcelorMittal, said it will extend production cutbacks to more than two million metric tons in its fiscal second half through March from one million tons, and didn't rule out more cuts in the future.
President Shoji Muneoka said the Japan Iron and Steel Federation "has strongly insisted that a takeover of Rio Tinto by BHP would hinder healthy competition in the market for steel materials. So, we welcome that BHP has practically dropped the takeover plan after the EU commission sent them a letter to oppose it."
Taiwan's China Steel Corp., which sells as much as 75% of its production in the domestic market, said it will cut domestic steel prices in the first quarter of 2009. The price cuts, to be announced Wednesday, will be the first in nearly three years following 11 consecutive quarters of price increases.
China Steel Chairman Chang Chia-Juch said BHP Billiton's decision to drop its takeover bid for Rio Tinto is "very good for the steel industry," as it will ensure more competitive pricing of raw materials such as iron ore.
China Steel also said it expects 2008 production to be as much as 10% below last year's production of 10.19 million tons, and plans to push forward a maintenance shutdown at one of its blast furnaces to the first quarter, essentially cutting output by another 25% during the quarter.
In India, steel prices have come down by about one-third since July and have halved since the beginning of the year.
Indian steel companies including state-run Steel Authority of India cut prices between 15% and 20% earlier this month and analysts feel another cut is likely soon.
Steel imports, meanwhile, slowed in October, down to one-third from the previous month, Indian government data showed. Analysts said imports are still cheaper than local steel by about 5% to 10% as China's steel prices have slumped in the past couple of months.
The current downturn also means reduced business for the ports, railways and shipping lines that carry such commodities like coal and iron ore. The Baltic Dry Index, a global measure of costs for transporting bulk goods, is already down more than 90% from its levels in June this year, in large part because of lower expectations for Chinese demand.
A retrenchment in the steel industry could help shift the profile of China's economy, which has been focused on energy-guzzling heavy industry in recent years. The expansion of steel production has underpinned China's transformation into an industrial giant, but it also has been a big contributor to the surge in the nation's use of coal and oil and its emissions of pollutants and greenhouse gases. A smaller steel industry could mean a cleaner, more efficient China that is less of a strain on the world's resources.
"If steel production growth slows from recent trends to below 10% and the sector sees some healthy consolidation, by 2012 China will have saved more than one billion tons of coal and cut a France-sized hole in its annual carbon-dioxide emissions bill," said Trevor Houser, an energy analyst with Rhodium Group.
When the current crunch ends largely will depend on how quickly housing and infrastructure construction recover, something the government is trying to speed up with a huge stimulus package announced earlier this month. But the crunch is already causing strain: Almost all producers are cutting production and scaling back their once-ambitious plans.
Mr. Yang's company, based in the outskirts of the eastern city of Nanjing, started seeing demand for steel weaken in July, and began cutting some output in August. Although Nanjing Steel has been reducing inventory and trimming raw-material purchases, monthly profit has collapsed to about 50 million yuan ($7.3 million) in October from more than 400 million yuan in June, Mr. Yang said.
China's steel industry today is highly fragmented, rife with weaker players that have survived only because of soaring growth. Mr. Yang and other steel executives think that a shakeout is coming that will weed those companies out, and ultimately strengthen the industry. "Some small companies will not survive," said Mr. Yang. "I think that this adjustment is necessary. Otherwise companies will just continue expanding without limit, and things would be even worse later on."
Last month, FerroChina Ltd., a China-based steelmaker whose stock trades in Singapore, said a downturn in its business had left it unable to repay some of its loans. The company and its units now face 206 lawsuits from creditors seeking repayment of some 4.82 billion yuan, and is trying to come up with a restructuring plan.
The China Iron & Steel Association says that 23 of the steel companies it tracks lost money in September, and the industry's average profit margin fell to 1.4% from 7.6% in the first half of this year.
U.S. industry and government officials have long argued that China's steel industry has expanded too much, too fast, thanks to lax government policies that allowed both efficient and inefficient producers to get bigger. The current downturn might simply cause temporary closures by small mills that will come back when times are good. But Chinese officials privately agree with the need for real consolidation, and could take this opportunity to force mergers of steel companies, many of which are at least partially state-owned.
"The government has wanted to consolidate the industry, but while all the companies were making profits they haven't been able to do it," says Michael Komesaroff of Urandaline Investments, an Australian commodities consultancy. He notes that in Japan, the top five companies together account for 80% of the nation's steel output, while in China, you have to add together the top 66 companies to get to 80% of the market.
"Now that margins for the small players are so thin, or even negative, everyone will want to consolidate," he says. "This downturn gives China a chance of producing a genuine global champion in the metals industry."
Nanjing Steel's Mr. Yang wants to make sure his company is among those left standing. Nanjing Steel is only a midsize company by China's current standards, but it ranks 53rd in the world in terms of annual output.
The Chinese company prides itself on producing higher-quality product than most in the industry -- its steel has gone into the iconic "Bird's Nest" Olympic stadium in Beijing, as well as a wind farm in Wisconsin -- and thinks it could benefit from consolidation. "There is still room for some companies -- those with good products and a higher level of management -- to make an appropriate profit," he says. Nanjing Steel doesn't rule out the possibility of buying up some financially distressed competitors next year, he said.
Some combinations have already started. The local government in Shandong province earlier this year arranged the merger of two firms, Jinan Iron & Steel and Laiwu Steel Group. Officially, the policy is to support consolidation in the steel industry, though in a way that avoids large-scale layoffs.
Beijing is concerned about widening unemployment, one factor that could weigh against rapid consolidation. But Assistant U.S. Trade Representative Tim Stratford, who visited Beijing in October for trade talks on steel, said Chinese officials were asking about U.S. retraining programs for laid-off steelworkers. "They recognize it's cheaper to assist displaced workers than to subsidize ongoing operations of steel plants," he said.
The total output of China's steel industry is likely to shrink marginally this year, perhaps by 1% to 2%, and be roughly flat in 2009, according to industry executives and analysts. But coming after seven straight years of growth more than 15%, that is a sharp correction.
"A decrease would be pretty radical," says Mr. Stratford. "They haven't planned for that." – The Wall Street Journal
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