This Company's Earnings Soared 27-fold

Here's a financial news report that should win an award!

• YHS’ 2Q net profit up 27-fold
  Written by Loong Tse Min
  Friday, 31 July 2009 10:54
  
  PETALING JAYA: Drinks and food products maker YEO HIAP SENG (M) BHD (YHS) posted a 27-fold jump in net profit to RM2.1 million in its second quarter (2Q) ended June 30 from RM79,000 a year earlier, mainly due to higher sales in all sectors, festive sales in Indonesia and favourable foreign exchange rates.
  
  Revenue rose 10% to RM142.25 million from RM129.33 million due to higher turnover in all sectors, including export sales. Earnings per share rose to 1.4 sen from 0.05 sen.
  
  It declared an interim dividend of three sen per share less tax, totalling RM3.44 million.
  
  Cumulatively, for the six months to June 30, YHS posted a net loss of RM6.59 million versus a net profit of RM1.3 million a year earlier, mainly due to the impairment of an investment recognised in 1Q.
  
  Revenue fell 3.5% to RM271.09 million from RM280.8 million.
  
  In its 1Q, YHS had written down RM7.81 million in an investment in quoted securities. Coupled with lower sales and competitive pricing, the company had posted a quarterly pre-tax loss of RM8.91 million.
  
  YHS said the economic situation had improved but competition continued to be severe with aggressive pricing. “The company will continue to take necessary measures to protect its market share,” it said.
  
  
  This article appeared in The Edge Financial Daily, July 31, 2009. (source: here )

How on earth could they come out with such an header??? Sigh!!!

I will not add further except the following screen shot of YHS recent quarterly earnings.

Oh yeah... market is hot.

So Why Is IOI Corp Raising RM 1.2 Billion?

Posted this morning: IOI Corp: If Investors Are Not Happy

Saw some extra comments made on the Financial Edge Daily's version: IOI’s Lee: Dividend payouts not in jeopardy

• On the use of the RM1.2 billion proceeds, Lee said, “The funds will be kept for investment opportunities.”
  
  On whether any investment targets had been identified, he said: “Not yet. When we have, we’ll let you know.”

Huh?

Raise fund so that they can have extra cash?????

Holy cow!

What if they do another Menara Citibank fiasco and lose rm 73 million???

Not possible????

Is such corporate practise even acceptable?

Can they do a corporate fund raiser without knowing their investment targets???

Sigh!

Why can't they decide their investment target and let their minority shareholders know first????

Yeah, and if IOI investors are not happy.....

I wonder what award they got last night!

Sigh!

Where is MSWG?

Sigh!

You know, when you were small, not too long ago, and you wanted some extra pocket money for that new ______ , you would ask your parent yes?

And would our parent just hand us the moolah, without asking why?

And if our parents asked us why... can we turn around and tell our parents "Well Dad, if you are not happy........ "

Can you ever imagine this happening?

Featured Report: OSK On Astro All Asia Again!

Sometimes when you continue writing on a subject, your readers get tired of it and you, the writer also get sick of it too.

However, sometimes, it really gets so ...... stunning, that you are really left speechless.

I was left speechless when I saw OSK's report on Astro All Asia.

Back on 21st July 2009, I wrote the following. Featured Report: OSK Research On Astro All Asia
And today, if I am not mistaken, it's only 31st July 2009.

Anyway, as I had summarised, the following were the recommendations from OSK on Astro since Dec 2008.

1. 16 Dec 2008. Trading Buy Maintained 2.90.
2. 4th Feb 2009. Downgrade to Neutral. TP downgraded to 2.20.
3. 17th Feb 2009. Neutral maintained. 2.20.
4. 4th March 2009. Neutral maintained. 2.20.
5. 18th March 2009. Neutral maintained. TP downgraded to 2.00.
6. 17th April 2009. Trading Buy upgrade. TP upgraded to 2.92.
7. 21st May 2009. Trading Buy maintained. 2.92.
8. 1st June 2009. Trading Buy maintained TP upgraded to 3.50.
9. 15th June 2009, Trading Buy maintained 3.20-3.50.
10. 20th July 2009. Trading Buy maintained. TP upgraded to 4.20.

Yes, their last report was titled 'Windfall for Shareholders?' (I wonder what's the question mark for. Isn't it redunant since OSK takes into consideration that it would most likely to happen?)

Here's the link to the previous screenshot again. here

And here's their today report.

• In a swift move that is not totally unexpected, Astro said it will be raising the subscription price for its popular sports package by RM12/mth w.e.f. Aug 1. We estimate the price hike would increase our FY10/11 core earnings by 8.3%-16.2%, all else being equal. Historical precedence would suggest little down-trading activities from price hikes and where we expect the re-pricing to mitigate the pressure from escalating content cost going forward. Maintain TRADING BUY rating with a revised target price of RM3.92 based on DCF (WACC-10.5%).

I do not know to laugh of loud or cry.

The very same analyst that made the wild calls since Dec 2008, had forgotten that his last call, was on 20th July 2009 ( I wonder how many days ago) and on that day, he rated Astro to be a trading buy with a price target of 4.20.

Now he revised the price target to 3.92.

From 4.20 to 3.92, that's a rather hefty revision DOWNWARDS, yes????

And see how nicely he just mentioned as a 'revised price target'.

Now this isn't too accurate, eh?

Some might call it being snakey too!

If anyone did not read or follow his previous calls, would they have known that this is a price revision downwards????

And yeah... hey, it's still a TRADING BUY Maintained!

No one does it better hor?

And for the record again...

1. 16 Dec 2008. Trading Buy Maintained 2.90.
2. 4th Feb 2009. Downgrade to Neutral. TP downgraded to 2.20.
3. 17th Feb 2009. Neutral maintained. 2.20.
4. 4th March 2009. Neutral maintained. 2.20.
5. 18th March 2009. Neutral maintained. TP downgraded to 2.00.
6. 17th April 2009. Trading Buy upgrade. TP upgraded to 2.92.
7. 21st May 2009. Trading Buy maintained. 2.92.
8. 1st June 2009. Trading Buy maintained TP upgraded to 3.50.
9. 15th June 2009, Trading Buy maintained 3.20-3.50.
10. 20th July 2009. Trading Buy maintained. TP upgraded to 4.20.
11. 31st July 2009. Trading Buy maintained. TP revised to 3.92.

IOI Corp: If Investors Are Not Happy

Posted a few days ago: Comments On IOI's Right Issue: Version II

Now from an investor point of view, we all knew that IOI said it made huge profits the last year. More precisely from quarterly earnings ended 31/12/2007 to quarterly earnings ended recently on 31/3/2009, IOI said it made some 2.276 Billion in net earnings.

And yet the company said it wants to raise some 1.2 billion in a new rights issue.

Surely, it's not logical and neither is it any comforting for its shareholders.

Why the rights issue? What happened to all the big money made?

And then there was the Menara Citibank fiasco. Article entitled: IOI Corp wins bid for Menara Citibank? A rm586 million to buy an office building. And it ended up in a horror story. Yup, it lost some rm73 million when IOI abruptly decided NOT to proceed with the deal. Yes, the press was not impressed at all. IOI Corp should better explain why it’s losing its RM73mil deposit.

The following comments were raised in that article.

• So, why is that changed in three months? Was there an exodus of tenants from Menara Citibank? Did the rental income drop? Was there a collapse in office space prices? Why is the acquisition not strategic anymore?
  
  Why could not IOI Corp have foreseen these problems earlier? After all, the subprime crisis was already upon us. Why did it pay the deposit which it now has most likely lost if it had felt there could be problems?
  
  IOI Corp’s explanation is poor at best and we really don’t know what it is at worst. Investors certainly expect a lot more from this company, once the darling of the stock market. And so should regulators. Minority shareholders certainly have a right to be seriously upset.
  
  Coming so soon after its recent debacle where it reported foreign exchange losses of over RM312mil for the quarter to end-September, the latest episode will put another dent in its reputation, largely unsullied until the forex episode.

And needless to say there wasn't any clear explanation till this very day.

And on Business Times IOI Corp chief says rights plan won't affect dividend payout

• IOI Corp Bhd does not expect its proposed rights issue to affect its ability to pay dividends in the short term and says its major shareholder is ready to pick up shares that are not taken up.
  
  "Not really. Well, if they (investors) are not happy, then we (Progressive Holdings Sdn Bhd) can take it up," IOI Corp (1961) executive chairman Tan Sri Lee Shin Cheng said yesterday.

Did not like what I read at all.

Sorry... just me.

This rights issue is not about it affecting its ability to pay dividends.

It's all about IOI Corp being transparent on why such a huge rights issue coming on the back of a period where IOI made a lot, lot of money. Where did the money go? Why does IOI need the rights issue?

And to say.. if investors are not happy, they will take up the rights issue ... is simply lacking in taste.

How can he say like this? I mean this is rather arrogant, yes?

So if investors are not happy, should they sell their shares?

Lack Of Interest In US Treasury Action!

On CNBC: Weak Treasury Auctions Raise Worries About US Debt Burden

• The U.S. Treasury sold $39 billion in five-year debt Wednesday in an auction that drew poor demand, raising worries over the cost of financing the government's burgeoning budget deficit.
  
  It was the second lackluster showing in as many days, convincing analysts that the stellar results of debt auctions just a few weeks ago were a fluke and that Thursday's $28 billion seven-year offering could suffer a similar fate....

Concerns and worries.

Do see this posting also: Who Is Going To Lend US Money To Fund Its $2 Trillion Deficit

End Of Recession?

Here's an interesting report: The End Of Recession?

And Calculated Risk posting in response is worth reading too. A Few Comments on Housing Reports

Goldman Sachs: The Engineer Of Every Market Manipulation

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression ..... here

The videos on youtube.

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

Goldman's role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

The history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates. By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman.

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliché that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline the committee to save the world. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank-holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all of this — the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

See Matt Taibbi react to Goldman Sachs' excuse

RCE Capital's Private Placement

You could not ask to write a much better script. :)

Last night the Edge Financial Daily uploaded this.

• RCECap fixes placement price
  Written by The Edge Financial Daily
  Monday, 27 July 2009 22:26
  
  KUALA LUMPUR: RCE CAPITAL BHD has fixed the issue price for its private placement of 71.09 million shares of 10 sen each at 55.03sen per share.
  
  In a statement today, RCE Capital said the price was a discount of 10% to the five-day weighted average market price from July 20 to 24 of 61.15 sen per share.
  
  It said the private placement was expected to be completed by mid-August.

Private placement fixed at 55.03 sen.

Hmm.... my a private placement. Now this is a good reason to buy up the share.

And this morning, the Edge Financial MADE another posting.

• RCE Capital up in very active trade
  Written by Joseph Chin
  Tuesday, 28 July 2009 09:49
  
  KUALA LUMPUR: Shares of RCE CAPITAL BHD was the most active counter in early trade on July 28 in the absence of corporate news except that it had fixed the placement shares at 55.03 sen each.
  
  At 9.44am, it was up three sen to 65.5 sen with 7.31 million shares done.
  
  The company announced on July 27 the private placement of 71.09 million new shares of 10 sen each to investors was fixed at 55.03 sen.
  
  RCE Capital said the issue price was arrived at after applying a discount of 10% based on the 5-day weighted average market price of RCE shares from July 20 to 24 of 61.15 per share.
  
  With the price-fixing of the placement Shares, the company said it expected the private placement to be completed by mid-August.

Hmm.... private placement. Benefiting those placement buyers. Let's get active yo!

And then K&N Kenanga decides to issue a buy report on RCE.

Its buy target 70 sen. LOL!

Talk about sweet, sweet timing.

Life is simply grand.

Let's push up the shares so these private placement buyers could get rich fast!

Sweetness!

Share BuyBacks: Parkson Holdings Part II

It's been a long time since I had updated on Parkson's share buybacks.

I've compiled a table and loaded it into this posting. Do note that due to sheer size of the table and that I am but human, error in data entry could happen. It's too huge for me to check back. :P

*************

As per my entries, it would appear that Parkson had spend some 93 million in share buybacks.

Average cost is around 4.42.

Oops.... how much is Parkson trading now? hmmmm..... LOL! Yeah... see, I am posting something positive, eh?

Ho ho ho.... how? Value woh... buy ah?

**************
Anyway... cough... cough... cough....

if the current share price of Parkson isn't taken into consideration... aren't you shocked at the monetary value of the share buybacks?

At least 93 million woh.

When I first blogged on this issue, almost exactly a year ago, Pakson Holdings Share Buybacks, Parkson back was sitting on a whopping 'paper loss' of around some 6.4 million. Now it's sitting on 'paper gains'. (Success story? LOL! See, I do give credit when credit is due)

How now my dearest?

:D

***************

harlooo... this is just a mere observation. And if you insist it's a tip... lol.... don't blame me if you don't lose money.

**************

ps... do you think it's ironic? Parkson has stopped buying back their shares since end March 2009. Their shares had been moving higher and higher since then. LOL! Maybe as some uncle would proclaim... Parkson is jinko to their own shares! LOL!

Maxbiz: The Dog Ate My Assets!

Do you remember them school days. You forgot your homework and as kids, we would come out with some of the daftest and silliest excuses in our attempt to cover up.

I was less than impressed when I highlighted Maxbiz and its missing 40 million assets in the posting, Honey Did You See My Missing 40 Million Assets?

On the Edge Financial Daily, Maxbiz fails to trace missing assets and by jolly, they did lose a car (as suggested in the earlier blog post!)!

Sorry but it's not even funny.

It's simply ludicrous.

What on earth is happening in this company?

• KUALA LUMPUR: Maxbiz Corp Bhd said today its missing assets of RM40.3 million could have generated sufficient returns to cover a RM1.8 million loan given to its subsidiary Mayford Garments Sdn Bhd (MGSB) by RHB Bank Bhd.
  
  It said a winding-up order was made against MGSB on Feb 28, 2007 by RHB Bank as the company had defaulted on the RM1.8 million loan. Maxbiz said attempts were being made to resolve the matter with RHB Bank.
  
  The missing assets comprised plant and machinery, a motor vehicle, office equipment, furniture and fittings, with a net book value of RM40.29 million as at Dec 31, 2006. The asset cost was RM64.44 million as at that date.
  
  Maxbiz said directors who were appointed on June 26, 2007 and Nov 26, 2007 had failed to communicate with the former directors of MGSB over the missing assets. It has lodged police reports over the matter.
  
  Maxbiz said it had written off its entire investment of RM47.11 million in MGSB last year.

How could plant and machinery go missing?

And these missing assets comprising of plant and machinery, motor vehicle, office equipment, furniture and fittings carried a net book value of rm40.29 million??????????????

??????

( Off topic: See this is why I personally would not invest using book value yardsticks. There is always a chance of the company inflating their book value. )

And needless to say, when I visited Bursa website for more info on Maxbiz, I get such announcements.

• MAXBIZ CORPORATION BERHAD ("MAXBIZ") - Monthly Status Announcement on Default in Payment Pursuant to Practice Note No. 1/2001
• Quarterly rpt on consolidated results for the financial period ended 31/3/2009

This announcement in May 2009 was worth noting: MAXBIZ CORPORATION BERHAD ("MAXBIZ" or "the Company") - Deviation of Results

• Pursuant to Paragraph 9.19 (34) of the Listing Requirements of Bursa Malaysia Securities Berhad, the Board of Directors of MAXBIZ wishes to announce that the Company's loss after taxation for the financial year ended 31 December 2008 has deviated by 1135% from the unaudited loss after taxation of RM6.227 million as announced on 2 March 2009. The audited loss after taxation stated in the audited accounts now stands at RM76.926 million.

WISHES to announce? Duh! Rather poor choice of word, no? I mean, is the company so happy that there is such a massive deviation in earnings????

Omigosh... from 6.227 million losses corrected to rm76.926 million!!!!!!!!!!!!!!

!!!

More On IOI Corp

Posted yesterday. Comments On IOI's Right Issue: Version II

In that posting I highlighted one simple issue.

From Feb 2008 quarterly earnings (for period ended 31/12/2007) to Feb 2009 quarterly earnings (31/12/2008), IOI announced it made some 2.2 Billion in earnings. And despite making so much money, rm2.276 Billion in this period, IOI's net debt actually increased by 1.918 billion.

My inquisitive mind, asked where did the money go.

Got the following comment.

• jitseng said...
  The money to stock buys back.The used about 1.6b

Now if I search Bursa website, I would find this announcement dated 22/6/2009. Notice of Shares Buy Back - Immediate Announcement

In it, it states that the cumulative shares bought back was 291,244,500.

Now I give it a benefit of a doubt, and make a simple goofy assumption that all the shares bought back was during this period and I would also assume what jitseng is saying is correct.

So assuming IOI spend some 1.6 billion in share buybacks.

Now I am more dumbfounded because I would look at it in an even more simplistic manner.

This company made some 2.2 Billion in profits and then it spends some 1.6 billion in share buybacks.

Errr..... wazzap doc?

Does this sound like a good business economics at all?

Does such a corporate exercise makes business sense at all?

Is The Local Retailer Not In The Market?

Some had been concerned with the lack of volume in the local market.

Without volume, it means that there is not much buying interest.

And without the buying interest, how high can the stock market go?

On Star Biz on Saturday Whither stock market?

• Of volumes and liquidity
  
  A dealer who has been trading the Malaysian market over the last 10 years says it is getting increasingly difficult to do so. He adds that foreign transactions have been insignificant. Over the last two weeks, locals made up some 80% of the volumes.
  
  “Yes, you see 1 billion volumes being transacted in the last two weeks, but there’s no real liquidity in the market. Retailers are definitely not in. They are actually very few participants in the market. It is just the institutions that are supporting the market,” the dealer says.
  
  On this note too, he says foreigners do not view Malaysia as an attractive market.
  
  “They cannot short our market because it goes up very easily. Under the FBM 30 index, the top 5 stocks already make up some 50% of weightage. Once these stocks move, the index goes up, hence there is no opportunity to short. And for the foreigners to buy now, there is no upside. Hence what do they do? Exit the market of course,” says the dealer.

Firstly, who the dealer? Dealer from which company?

Anyway, this unknown dealer does have a point or two.

• ......... but there’s no real liquidity in the market. Retailers are definitely not in. They are actually very few participants in the market. It is just the institutions that are supporting the market,”

Is this point valid?

Is there a lack of volume?

If so... is the retailers not in the market?

Why?

Comments On IOI's Right Issue: Version II

Posted Comments On IOI's Rights Issue yesterday.

Got the following comments...

• 棕油网 said...
  moola, please refer to three items into one,
  
  there are short term fund 1,905,639
  short term deposit 268,556
  cash and bank 341,407
  
  just look back to Humeind, their piggy cash slump after exchange with Evergreen Fibreboard, but later the director gave a clue to the cash position.

Yeah, I goofed up. :p2

I missed out the short term fund and my attempt in the corrections looks so freakingly messy.

Hence this posting.

Let me start over again.

Feb 2008, Quarterly rpt on consolidated results for the financial period ended 31/12/2007

Total cash should be 427.109 + 531.574 + 692.897 = 1651.580 million (or 1.65 Billion)

Short term + long term borrowings = 205.697 + 3363.589 = 3569.186 million (3.569 Billion!)

Which means from a cash/debt position, IOI's is in a net debt position of 3.569 - 1.651 = 1.918 Billion.

Now let's look at the money earned during this period

1. Quarterly rpt on consolidated results for the financial period ended 31/12/2007
Net earnings: _______________ 581.191 million

2. Quarterly rpt on consolidated results for the financial period ended 31/3/2008
Net earnings: _______________ 601.639 million

3. Quarterly rpt on consolidated results for the financial period ended 30/6/2008
Net earnings: _______________ 597.284 million

4. Quarterly rpt on consolidated results for the financial period ended 30/9/2008
Net earnings: _______________ 290.500 million

5. Quarterly rpt on consolidated results for the financial period ended 31/12/2008
Net earnings: _______________ 168.586 million

6. Quarterly rpt on consolidated results for the financial period ended 31/3/2009
Net earnings: _______________ 37.362 million

Adding it all up (did you note the drastic decline in earnings?), I got 2276.562 million (or 2.276 Billion) (hope I did not goofed up again. )

So during this period, IOI made 2.276 Billion.

However, as per IOI's last reported quarterly earnings was on 15th May 2009, Quarterly rpt on consolidated results for the financial period ended 31/3/2009, it showed that IOI cash balances were 268.556 + 341.407 + 1905.639 = 2515.602 million (or 2.515 Billion)

Short term + long term borrowings = 37.771 + 5682.610 = 5721.381 million (5.721 Billion!)

Which meant, from a cash/debt position, IOI's net debt = 5721.381 - 2515.602 = 3205.779 million (or 3.205 Billion!).

Compare to 31/12,2007, IOI was in a net debt of 1.918 billion.

Which means despite earning 2.276 Billion in this period, IOI's net debt increased by 1.918 billion.

Where did the money go?

Yes, I am aware that during a major acquisition or in IOI's case, the privatisation of IOI Properties, cash position does weaken.

Would this be the case?

Now IOI Properties privatisation was completed in April 2009. Now I would use Feb 2009 earnings as a reference point (would I be goofing up here?). Quarterly rpt on consolidated results for the financial period ended 31/12/2008

Total cash = 1005.374 + 397.354 + 445.530 = 1848.258 million or 1.848 Billion.

Short term + Long term borrowings = 73.453 + 3816.098 = 3889.551 million or 3.889 Billion.

Net debt = 3.889 - 1.848 = 2.041 billion.

Ahh...

Which meant that IOI's cash/debt position did not deteriorate as suggested.

However, if we minus the May's earnings, IOI still made a lot of money.

How much? Try 2276.562 - 37.362 = 2.239 Billion.

Yet again... despite making sooooooooooo much money, IOI's balance sheet did NOT reflect the richness gained from the CPO bull run.

Another issue, as seen in May 2009 earnings, IOI was in a net debt of 3205.779 million. In Feb 2009, it was 2.041 billion.

Which meant IOI net debt increased by some 1.164 Billion.

And all this from IOI's Privatisation. (Would I be a goofer to say this?)

Now isn't it ironic that IOI's proposed rights issue amounts to some 1.2 billion?

Would I be goofy to suggest that this rights issue is paying for the privatisation of IOI Property?

How?

Would you be happy?

Comments On IOI's Rights Issue

On Star Business. in the article, Report: New IOI debt sign of ‘more subdued outlook’, several research houses gave their opinions.

I was not impressed with the last few passages.

• ........... A local brokerage said while the rights issue might not be ideal, it was probably the easiest and fastest way to raise the required funds in the current tight capital market.
  
  IOI was likely to use the proceeds to refinance some of its convertible bond issues, of which one is due in 2011 and another in 2013, it said.
  
  A bank-backed research house, meanwhile, believed IOI was building its war chest for major acquisitions given that it was in a healthy financial position.
  
  IOI’s free cashflow for FY10 is estimated at about RM1.5bil versus capex needs of RM500mil. As at May 8, unutilised proceeds from the third exchangeable bonds totalled RM732mil.
  
  Regional plantation companies also seemed to be on a fund-raising spree, the research house said, noting that Wilmar International Ltd was listing its China operations in Hong Kong while Indofood Agri-Resources was mulling a 1 trillion rupiah bond issue.

Not too impressed with this un-named bank-backed research house.

Which research house is this?

Why give such comments and chose to be an unknown?

How accurate is the healthy financial position mentioned by this unknown bank-backed research house?

Me?

I would question the healthy financial position.

Let me prove what I am saying.

Earlier this year, I wrote the following posting. IOI Earnings Results And Flashback On What Has IOI Done The Past One Year

Let me re-cycle some stuff.

Here's the objectivity of this simple exercise. Since 2008, the CPO had the mother of all bull runs. All planters made insane profit. Money were like falling from the sky. Yes?

So a comparison from a quarterly reports then and compare to present day, and see how healthy is IOI's financial position.

Would this not be logical?

Anyway, from that posting... , I want to use the quarterly earnings reported on Feb 2008.

:: ..... I start with looking at what was on IOI's books back exactly a year ago, Feb 2008, Quarterly rpt on consolidated results for the financial period ended 31/12/2007

Short term funds+cash and bank balances = 427.109 + 531.574 = 958.683 million.

*** Errata !!! ***.

Missed out the short term funds. Looks like my eyes are short! :p2

Total cash should be 958.683 + 692.897 = 1651.560 million.

Short term + long term borrowings = 205.697 + 3363.589 = 3569.186 million (3.569 Billion!) ( you can verify this on this screenshot here )

Net debt position = 3569.186 - 1651.560 = 1917.626 million

IOI's last reported quarterly earnings was on 15th May 2009. Quarterly rpt on consolidated results for the financial period ended 31/3/2009

Short term funds+cash and bank balances = 268.556 + 341.407 = 609.963 million.

*** Erata !!! ***

Total cash should be 609.963 + 1905.639 = 2515.602 million

Short term + long term borrowings = 37.771 + 5682.610 = 5721.381 million (5.721 Billion!)

Net debt = 5721.381 - 2515.602 = 3205.779 million

How?

*** Errata ***

Cash balances of 958.683 million had diminished to 609.963 million!
Loans ballooned from 3.569 Billion to 5.721 Billion!!

IOI as at 31/12/2007 was in a net debt of 1917.626 million. IOI latest earnings as at 31/3/2009 saw IOI having net debt of 3205.779 million.

I do not know but would this be the definition of a healthy financial position when cash had diminished and loans ballooned? when during a period when IOI saw CPO crude prices hit record highs, their net cash position actually deteriorated?

Now consider this also.

Anyone want to count the 'money' made by IOI during this period?

1. Quarterly rpt on consolidated results for the financial period ended 31/12/2007
Net earnings: _______________

2. Quarterly rpt on consolidated results for the financial period ended 31/3/2008
Net earnings: _______________

3. Quarterly rpt on consolidated results for the financial period ended 30/6/2008
Net earnings: _______________

4. Quarterly rpt on consolidated results for the financial period ended 30/9/2008
Net earnings: _______________

5. Quarterly rpt on consolidated results for the financial period ended 31/12/2008
Net earnings: _______________

6. Quarterly rpt on consolidated results for the financial period ended 31/3/2009
Net earnings: _______________

So where all the money go when IOI was making big money?

Dividends? Maybe IOI paid out a lot of dividends?

Second interim dividend
Interim Dividend
Interim Dividend
Interim Dividend

And then there was the privatisation of their listed subsidiary, IOI Properties. ( see Big Ouch For IOI Properties! )

How?

If you are an IOI Corp shareholder, how would you evaluate your investment?

Don't you find it incredible that after the biggest ever bull run in the CPO prices that IOI Corp want to raise some 1.22 billion in a rights issue?

How my dearest?

***************************
Many thanks to 棕油网 for pointing out that I had made some error. :D

Maxis Listing? Not Likely!

:D

On Business Times, the following caught my attention.

• "Even if they agree, I doubt it will be relisted anytime soon, because the valuation is lower than the market peak when it went private. I doubt it will be the shareholders' first choice," Juniper Securities head of research Pong Teng Siew told Business Times yesterday. (source: here )

Now this is a rather valid point.

Valuation now is LOWER than when Maxis went PRIVATE.

Meaning to say, if Maxis were to go public now, this means the owners will be selling the shares back to the public at a much lower price than the owners paid when they privatised Maxis.

Sell lower than they bought?

oO

Simply put... RUGI BUSINESS lah if they re-list.

LOL!

Now this puts a smile on my face.

How Is Our Stock Market Doing?

Yo!

Market so 'panas'!!!



How now my dearest?

Care to join the fun?

Or are you simply desire-less?

Would You Be Happy IF Maxis Is Listed Once More?

On the Business Times.

• Market abuzz over possible Maxis relisting
  
  By Chong Pooi KoonPublished: 2009/07/23
  
  News of a potential relisting of Maxis Communications Bhd, the country's biggest mobile phone operator valued at some RM40 billion before it was taken private in 2007 by tycoon T. Ananda Krishnan, saw the market all abuzz yesterday.
  
  It has drawn mixed reaction from analysts, with some doubting that the deal would help the company since Bursa Malaysia is still way off its historical high even after the recent rally.
  
  "Why now? Ordinarily, you'd say now is not the best time (for an initial public offering (IPO))," said Khair Mirza, a senior telecommunications analyst with Maybank Investment Bank.
  
  "Still, the company's requirement to raise fund through the debt market could be cheaper if it were listed," he told Business Times.
  
  However, some analysts said the plan makes sense because being a public-listed company will allow Maxis to raise cheaper funds for expansion from the bond market.
  
  In a media briefing on his working visit to Saudi Arabia yesterday, Prime Minister Datuk Seri Najib Razak said he had suggested Maxis be relisted to help attract investors to the local stock exchange.
  
  The premier had discussed the Maxis IPO proposal with King Abdullah Abdulaziz Al Saud as Saudi Telecom Co, which owns 25 per cent of Maxis, is a government-linked company.
  
  The potential listing is expected to boost the profile of the Malaysia-Saudi partnership while enlarging the size of the local stock market. A large and global IPO like Maxis will also help profile Malaysia to international investors.
  
  Maxis, whose management was meeting to work out a response to the Prime Minister's statement, decided late last night not to issue a press statement.

Would I be jumping for joy on such news?

NO, NO, NO, NOOOOoooooooooooooooooooooo!

I find it utterly shambolic that a listed company can list and delist as per their wimps and fancy.

Does the company think that the Bursa is revolving door? A hotel Kuala Lumpur where one can check in and out anytime they like?

Yup, it will utterly make a mockery for the stock exchange if this would happen!

List, delist, list, delist....... (macam mana ni? kambing or going? )

And how about the minority shareholders, the long term investors?

How can an investor invest long term when the company has the option of listing and delisting anytime?

My say?

If they want to delist after listing, fine. Just don't let them re-list again man!

Sorry but this is my flawed opinion.

But sadly, the stock exchange, as a listed entity, from a business perspective, such a listing would only generate revenue. And more revenue means more cash. Why would Bursa say 'no' from a business perspective?

Sigh.

Such is the quality of our stock exchange.

Hence, I reckon that despite Maxis making a fool of the exchange previously by delisting, I do have a strange sick feeling that such an exercise could very well happen.

Hope and I pray very hard that I am wrong!

Honey Did You See My Missing 40 Million Assets?

On the Edge Financial News.

• Maxbiz lodges report over RM40m missing assets
  Written by Financial Daily
  Wednesday, 22 July 2009 11:35
  
  KUALA LUMPUR: Maxbiz Corporation Bhd has lodged a police report over missing assets valued at over RM40 million.
  
  In a statement yesterday, Maxbiz said the missing assets belonged to its wholly owned subsidiary Mayford Garments Sdn Bhd, which had been served with a winding-up order by the High Court here.
  
  It said the Batu Pahat commercial crime division had started investigations on Monday to recover the assets.
  
  
  This article appeared in The Edge Financial Daily, July 22, 2009. ( link source: here )

WOW!

How can assets worth 40 million be missing??? ( macam mana ni? siapa telan? )

40 million woh!

I mean.. ok... perhaps one can 'LOSE' a car or maybe two.... but... but... butt... we are talking about missing 40 million worth of assests!

Yes this is truly mind boggling!!

Yes we can!

Featured Report: OSK Research On Axiata

The following article on the Edge Financial Daily, OSK upgrades Axiata to buy caught my attention.

• OSK Research yesterday upgraded its recommendation for Axiata Group Bhd to buy from trading buy with a higher price target of RM3.40 on expectations of better earnings from its two main subsidiaries Celcom (M) Bhd and PT Excelcomindo Pratama (XL).
  
  “We expect XL to report a headline net profit in 2Q09 on the recovery in mobile spending and a gain in the rupiah of some 12% year-to-date.
  
  “Our recommendation on the stock is upgraded to a buy from trading buy on growing conviction on the earnings delivery of its overseas mobile assets and our view of diminishing medium-term concerns over its balance sheet,” OSK Research said in a note....

I was aroused. LOL! I was excited yo!

I wondered. Would OSK be consistent in their recommendation?

Or perhaps would I be seeing their incredible flip-flop on price targets as seen in recent postings like Featured Report: OSK Research On Astro All Asia or Featured Report: OSK on Pelikan Holdings or What Hope For Malaysian Investing Public When Research House Makes Such Calls?

Let's track back on OSK recommendation on Axiata since the start of the year....

I think I will add in the last report made in 2008. At least we know how their recommendation ended last year. :D

And just for the record, on 28th April 2008, OSK initial coverage on Axiata (or TM International - old name) had Axiata as a buy with a TP of 9.20.

OSK ended 2008 with a Neutral call on Axiata. Price target was 4.20.

8th January 2009.

Feb 6th 2009. Axiata falls to 3.18. OSK held firm despite market chatter on possible writedown on Idea for Axiata. :D (consistent so far yo! )


19th Feb 2009. YIKES!!!!!!!!!!!!!


Recommendation is stated as NEUTRAL and target price remained at 4.20 but they threw in a screw or curve ball!!!

If you look at the second arrow above this NAUGHTY LINE stood out like sore thumb! Quote "Our forecast and target price are under review pending the release of its results on Feb 26. TMI remains a long-term BUY."

Macam mana ni?

The recommendation is NEUTRAL and the last I knew, neutral is neutral is neutral. A neutral does not equate a long term buy!

Perhaps I am from another planet!!

And then I was also confused. (as usual. :p2 )

On 6th Feb 2009, Axiata was 3.18 and the so-called Neutral price was 4.20. Well that's an upside reward of 1.02 or 32% based on a reference price of 3.18. 32% precent woh! How come the recommendation was NEUTRAL? ( macam mana ni? )

You know that at the end of every OSK report, they have this explanation of their recommendation calls and this is the snap shot of it....

So as per their report: "Neutral: Share price may fall within the range of +/- 10% over the next 12 months"

hmmm....... :p2

Feb 26th 2209. Axiata announced its quarterly earnings. Its losses was more than 515 million!

And with the rights issue, OSK correctly reduced the target price.

However as usual I was baffled. Why? I was baffled with their insistent on having Axiata at NEUTRAL! (Yeah, OSK is the only one in town who can cut target price by some 28% and yet can still maintain their recommendation. oO )

• RECOMMENDATION
  
  Maintain NEUTRAL. Target price cut to RM3.00. We slash our FY09/10 forecasts by 14-28%, mainly to reflect weaker EBITDA margins on average of 37% versus 38.5% previously due to the higher operating cost environment for most of its overseas assets. Our revised projections see TMI posting a slight earnings contraction of 4% for FY09 before recovering to 19% in FY10, driven in the main by lower interest charges following the de-leveraging of its balance sheet.
  
  We believe the market may have already priced in the risk to certain extent of a dilutive recapitalization exercise, with TMI’s share price hitting a record low of RM3.02 earlier this month. That the pricing of the rights shares has yet been fixed could potentially result in further dilution should its share price weaken further. As such, we now attached a 20% discount to our SOP target of RM3.76 to derive our new target price of RM3.00.
  
  We would turn buyers of the stock should the share price dip below RM2.70.

March 24th, Axiata fixed the rights issue at 1.12. It was a rights to buy five new shares for every four shares held. (hope my england is a ok. :p2 )

March 25th. Price is now 2.61. Their call? Take profit. TP downgraded to 2.50!

I kid you NOT!

What kind of recommendation is take profit????? ( Macam mana ni? Axiata had been plunging since listing... got what profit to take????? )

Wait it's now only March 2009. Less than one year ago, OSK had Axiata at a buy with a TP of 9.20!

Lucky I got that report to share.

March 2009... Global markets were bouncing and our market too was 'panas'.

And guess what was OSK next recommendation?

Upgrade to NEUTRAL with TP remaining at 2.50! LOL! I kid you not! Have a look yo!


LOL!

One month later.... came another shocker!!!!!!!!!!!!

28th April 2009. OSK downgrades Axiata once again! LOL!

Axiata then traded around 2.10 and OSK gave it a TP of 1.73. oO

And once again.... what's the meaning of TAKE PROFIT? (apa ni?)

Where's my chart of Axiata?


The above chart shows the performance of AXATA from listing till 30th April 2009. It would be pretty hard to take profit, yes? ( unless of course one is a super duper trader. Oh.. do remember to ask iCap on this one during the upcoming AGM. :D )

And oh yeah, do check this past posting on 25th March 2009: What A Trading Day For TMI. Axiata or TMI had a brutal day that fine March day.

May 20th, OSK then upgrade Axiata to a trading buy to 2.70!

• ... upgrade our recommendation to a TRADING BUY from TAKE PROFIT as our previous concerns over the overhang arising from the listing of its rights shares appear to be unjustified. Our sum-of-the-parts target price is now raised to RM2.70 (from RM1.73), factoring in the independent contribution from Idea and after rolling over our valuation on Celcom to FY10.

June 18th. Trading buy maintained at 2.70.


July 8th 2009. Trading Buy maintained at 2.70.



And as most are aware, Axiata had been rather hot lately. Yesterday, OSK made another update on Aziata. And guess what? They raised their TP for Axiata to 3.40.


So how now my dearest?

Axiata TP is now 3.40 woh!

You want or not, cheh?

:p2

Recommendation history and price target.

1. 24th Dec 2008. Axiata 3.58. Maintain Neutral at 4.20.
2. 08th Jan 2009. Axiata 3.60. Maintain Neutral at 4.20.
3. 06th Feb 2009. Axiata 3.18. Maintain Neutral at 4.20.
4. 19th Feb 2009. Axiata 3.36. Maintain Neutral at 4.20.
5. 28th Feb 2009. Axiata 3.06. Maintain Neutral. TP lowered to 3.00.
6. 25th Mar 2009. Axiata 2.61. Take profit. Downgrade. TP lowered to 2.50.
7. 30th Mar 2009. Axiata 2.38. Upgrade to Neutral. TP at 2.50.
8. 28th Apr 2009. Axiata 2.10. Take profit. Downgrade. TP lowered to 1.73.
9. 20th May 2009. Axiata 2.32. Upgrade to trading buy! TP at 2.70.
10. 18th Jun 2009. Axiata 2.28. Trading buy maintained. TP at 2.70.
11. 08th Jul 2009. Axiata 2.42. Trading buy maintained. TP at 2.70.
12. 21st Jul 2009. Axiata 2.98. BUY upgrade. TP at 3.40.

Featured Report: OSK Research On Astro All Asia

How a stock target price is raised from 2.00 to 4.20 in 5 months.

I chuckled as I was reading OSK's report on Astro All Asia. I do remember back in March OSK had a TP of only 2.00 for Astro. Anyway, with Astro hot in the news and the stock tumbling down, I thought it would do justice to highlight how OSK had been recommending Astro since Dec 2008.

If one had been following Astro, when Astro announced its earnings back in Dec, many were again disappointed with the amount of the losses from its overseas ventures.

• 16-12-2008: Astro posts RM250m 3Q net loss
  by Lim Shie-Lynn
  
  KUALA LUMPUR: Astro All Asia Networks plc made a net loss of RM250.4 million from a profit of RM34.02 million for its third quarter (3Q) for the financial year ending Jan 31, 2009 (3Q09) on start-up losses in its overseas investments and further provisions in relation to its Indonesian venture. ....... (clip from Edge Financial Daily)

16th December 2008.

• Stripping out the additional provisions made in 3QFY09 for the carrying value of certain broadcasting equipment and IP rights in Indonesia, Astro’s 9MFY08 core net earnings were in line with our expectations. We have left our FY09 forecast largely unchanged while cutting our FY10 forecast by 31%, assuming a further deterioration in the economic outlook. Accordingly, our DCF target price has been lowered to RM2.90 based on a WACC of 12%. We maintain our TRADING BUY call.

Yes, despite the clear deterioration, OSK stuck with their bold trading buy (maintained) at 2.90. ( I do recall that they were being more optimistic. Aseambankers had Astro at 2.50 and RHB had Astro only at 2.05)

Come 4th Feb 2009. Astro was trading around 2.14!

And guess what?

OSK did a downgrade. I kid you not!

And the TP was lowered from 2.90 to 2.20.

• FY10 forecast cut further, 20% discount reinstated on SOP target. We downgrade the stock to a NEUTRAL from TRADING BUY given the dearth of re-rating catalysts and lingering concerns over additional provisions to be made in Indonesia in the medium-term. While Astro’s share price seems to have priced in the inherent risks on earnings to a certain extent, we think the market is not in a hurry to re-rate its shares for fear of more disappointments. Recall the negative surprise in its 3QFY09 results, whereby management had guided for further write-offs to the tune of RM75m in the final quarter for unsettled business in Indonesia......

On 17th Feb 2009. Astro falls to just 2.06. OSK maintains the recommendation and had the TP at 2.20.

On 4th March 2009, Astro is now 1.99 and OSK held firm. :D



March 17th 2009. Astro announced its earnings. They lost some 28.8 million!

OSK lowers their target price to just 2.00 but maintains their Neutral. Astro was only trading around 1.88 then!


But market was starting to get hot in March yes?

Let's highlight the call recommendations since Dec 2008.

1. 16 Dec 2008. Trading Buy Maintained 2.90.
2. 4th Feb 2009. Downgrade to Neutral. 2.20.
3. 17th Feb 2009. Neutral maintained. 2.20.
4. 4th March 2009. Neutral maintained. 2.20.
5. 18th March 2009. Neutral maintained. 2.00.

On April 2009, Astro was moving much higher already.

Come 17th April 2009, Astro was trading at 2.41 and OSK upgraded Astro to a TRADING BUY with a TP of 2.92. (Back to Dec 2008 valuations eh? :p2 )

And the justification given? Astro was expected to retain its EPL rights. LOL! I mean suddenly EPL rights became an issue and because of this, Astro is suddenly worth some 92 sen more!

LOL!

I wonder... if one day... if Astro ever loses its EPL rights, would OSK come out and downgrade Astro value by 92 sen?

21 May 2009, Astro now trades at 2.68. OSK maintains its call and target prices.

Then came that MAXIS story. LOL!

I kid you not. Posting that should be read: Maxis And Astro Slams OSK Speculative Report.

1st June 2009, Trading Buy maintained. TP increased to 3.50!!

Some two weeks later, Astro announced its report. Strange since Astro denied that BS Maxis thingee, OSK did not 'take back' the upgraded price. Instead it had a muddled target price between 3.20 and 3.50. LOL! I kid you not once more.


And what was so incredible was the header 'GROWTH SUSTAINED'!

I sure was confused!

The previous earnings reported in March 2009 saw Astro losing some 28.8 million! And the previous quarter before that in December 2008, Astro lost some 250 million.

Like this also can?

What growth was OSK talking about?

Fast forward to yesterday, OSK gave Astro another upgrade in its TP to 4.20!!


Now when I look back since Dec 2008.

1. 16 Dec 2008. Trading Buy Maintained 2.90.
2. 4th Feb 2009. Downgrade to Neutral. TP downgraded to 2.20.
3. 17th Feb 2009. Neutral maintained. 2.20.
4. 4th March 2009. Neutral maintained. 2.20.
5. 18th March 2009. Neutral maintained. TP downgraded to 2.00.
6. 17th April 2009. Trading Buy upgrade. TP upgraded to 2.92.
7. 21st May 2009. Trading Buy maintained. 2.92.
8. 1st June 2009. Trading Buy maintained TP upgraded to 3.50.
9. 15th June 2009, Trading Buy maintained 3.20-3.50.
10. 20th July 2009. Trading Buy maintained. TP upgraded to 4.20.

Nobody does it better eh?

:D

What's Up Astro?

Blast from the past.

6th August 2007.

• 06-08-2007: Credit Suisse maintains ‘outperform’ on Astro
  by Gan Yen Kuan
  
  KUALA LUMPUR: Credit Suisse has maintained its “outperform” rating on Astro All Asia Networks plc despite market concerns over losses from its Indonesian and Indian subsidiaries, citing Astro’s still-intact Malaysian cash flows.
  
  Investor concern over the losses is apparent as Astro’s share price has tumbled to its lowest since its IPO in October 2003. On July 26, the stock fell below its institutional IPO price of RM4.06. It closed at RM3.82 last Friday.
  
  In a report dated Aug 1, Credit Suisse said Astro was a major laggard, having tumbled 30% year-to-date despite an increasing market. It said Astro’s foreign shareholdings were down to 12%, the lowest since the IPO. Foreign shareholding reached 22% in 2004.
  
  Following a meeting with Astro’s management, Credit Suisse said they had stressed the attractive long-term growth potential of the two overseas markets.
  
  It said the management was committed to its progressive dividend policy and had stated that the payout rate would be around 50% of its Malaysian earnings.
  
  “The Malaysian pay TV unit has two million subscribers and continues to generate a strong cash flow. We are projecting RM700 to RM850 million of free cash flow for FY09-FY10,” it said.
  
  Credit Suisse said its discounted cash flow (DCF) target price of RM7.10 assumed continued growth in Malaysia, Indonesia turning profitable after five years and losses of RM600 million from India with zero profit contribution.
  
  In a worst-case scenario, its DCF valuation could fall to RM5.60, assuming continued growth in Malaysia and continuing losses in India and Indonesia for five years.
  
  “Excluding Indonesia and India, the Malaysian business is trading on FY2009 and FY2010 of 19 times and 14 times respectively.
  
  “We would be looking for entry points after 2Q results in September (which could stay weak), as the full benefits of the recent price hike will likely only kick in thereafter,” it said.
  Meanwhile, Macquarie Research said Astro was likely to institute more frequent price adjustments going forward as opposed to the current practice of a RM5 to RM10 increase every two to three years.
  
  “This should provide greater stability to domestic margins and greater earnings visibility,” it said in a research note dated Aug 2.
  
  “While we share management’s long-term vision for Astro, we believe that mounting losses from the ramp-up in India and Indonesia are likely to cap share price performance in the shorter term,” it said. ( Source: http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_39a1e7f7-cb73c03a-d647d800-9661a1b4. - link could be broken due to revamp on Edge's website. )
  

A RM7.10 price target for Asro back in 2007? LOL! It was one of them articles that bemused me.

Here's a report posted on eBursa from S&P Research, a couple of weeks later.

• Astro All Asia Networks Plc
  
  Recommendation: BUY
  
  ASTR MK Price: MYR3.38 12-Month Target Price: MYR4.00 Date: August 20, 2007
  
  Analyst: Alexander Chia, ACA
  
  Results Review & Earnings Outlook
  
  • Astro’s 1QFY08 (Jan.) results were below our expectations for the 2nd consecutive quarter. While revenue was broadly within expectations reaching 22% of our previous FY08 forecast, net profit disappointed reaching just MYR32 mln (13.5% of previous forecast). The lowerthan- expected profit was attributed to higher-than-expected losses from its Indonesian venture as well as rising content costs.
  
  • Revenue for the quarter of MYR583 mln was flat QoQ but rose 11% YoY mainly as a result of higher subscription revenue from its multichannel TV business (MCTV). MCTV subscribers rose by 73,000 during the quarter to reach 2.27 mln while residential subscriber average revenue per user (ARPU) was steady at MYR77. Radio and library licensing revenues were 11% and 39% lower QoQ as a result of lower advertising revenue and lower licensing revenues from Shaw titles, respectively. Astro’s share of losses from its 20%-owned Indonesian JV reached MYR40 mln for the quarter which was higherthan- expected
  
  • While we expect the impact of the pay TV subscription price increase to kick-in during subsequent quarters, we have revised our net profit forecasts for FY08 and FY09 lower by 33% and 30% to MYR158 mln and MYR224 mln, respectively, to reflect increased programming costs and higher Indonesian JV losses as well as the recently proposed Pay TV JV in India that is expected to require five to six years to break-even. Management has guided for Astro’s share of the India JV loss to reach nearly MYR600 mln over a five-year period.
  
  Recommendation & Investment Risks
  
  • We are upgrading our recommendation to Buy (from Hold) as a result of the recent price correction, but lower our 12-month target price to MYR4.00 (from MYR5.20) after imputing our new forecasts and updating our valuation parameters.
  
  • Our target price is based on a Discounted Cash Flow (DCF) valuation [key assumptions: WACC range of 10.5%-12% (unchanged), explicit cash flows for years 1-5, cash flow CAGR of 12.5% in years 6-10, and terminal growth of 3.5% (unchanged)] for its Malaysian operations.
  
  Although long-term prospects for its businesses in Indonesia and India are good, we have not attributed any value to these two ventures given the uncertainties involved and the long lead time required to reach break-even. After including the forecast FY08 net dividend of MYR0.055 (unchanged) we derive our MYR4.00 target price.
  
  • Management does not expect their overseas investments to affect Astro’s ability to continue paying dividends.
  
  • Risks to our recommendation and target price include potential increases in churn, higher-than-expected content costs and higherthan- expected losses from Astro’s investments in Indonesia and India.
  
  

One of features I like about S&P reports is that they have this thing called RECOMMENDATION AND PRICE TARGET HISTORY (OSK Research really needs to have this feature! ).

Yup, Astro All Asia has fared rather poorly since it's IPO. Pity them long term IPO investors. They had recognise the monopoly nature of Astro All Asia's business economics in Malaysia but alas, they did not expect Astro All Asia to make them poor business ventures into Indonesia and India.

Today Astro studying revamp proposals

Revamp or restructure are both such nice words to use in the business world. Some would just use 'correction of past mistakes' to be more precise.

• Tuesday July 21, 2009
  Astro studying revamp proposals
  By B.K. SIDHU and LEONG HUNG YEE
  
  The exercise may include separation of overseas operations
  
  KUALA LUMPUR: Astro All Asia Networks plc is considering various proposals to restructure the company in efforts to put in place an efficient capital and corporate structure. The exercise may include a separation of its overseas operations, as well as a possible one-time special dividend payoff.
  
  At a press conference after the company’s AGM yesterday, deputy chairman and group CEO Ralph Marshall said the board had not decided on any of the proposals that its bankers had put forth and that no timeframe had been set for any possible restructuring.
  
  Over the weekend, several media reports speculated Astro was considering a plan to divest its unprofitable international operations in a deal valued at about RM9bil.

Several media reports??????

Or was it just the Edge Weekly?

LOL!

I guess it was another of them 'based on sources' reporting. :D

• The reports said Astro’s two main shareholders, privately-held Usaha Tegas Sdn Bhd and Khazanah Nasional Bhd, would buy the company’s unprofitable international operations in a deal which might see Astro paying a one-off dividend of RM1 per share.
  
  The reports also suggested Astro would sell its Indian operations.
  
  Marshall dismissed the reports as “pure speculation,” saying “it may include the separation of the international operations from the Malaysian operations but we do not know yet as the advisers are evaluating all the proposals.’’

LOL!!!!!

Typical.

Pure speculation!! :D

• “Astro is under-leveraged and this gives us a great opportunity to establish a very robust capital structure for the future,’’ he said.
  
  Astro shares reacted to the reports with the price rising to a 14-month high of RM3.68 when the counter resumed trading after a short suspension yesterday morning. The shares then succumbed to selling pressure in late afternoon and closed 20 sen lower on a volume of 11.7 million shares, making it the third biggest loser for the day.
  
  Astro had bought over 20% of India’s Sun Direct TV (which offers 170 channels nationwide) two years ago and also owns and operates 23 FM radio stations in India.
  
  In China, Astro has a marketing service company and Hong Kong Celestial Pictures which owns the Shaw Brothers film library.
  
  In Indonesia, Astro is pursing all legal means to resolve issues arising from its venture there.
  
  “A separation seems plausible and makes business sense but there is no way the Indian operations will be sold out of Astro group as India offers huge growth potential,” a source said.

Wonder who this source is?

Growth potential?

Growth in terms of revenue or in terms of profit?

Last I know, Astro just announced its first quarterly profit after 5 consecutive quarters of HUGE losses!

• “If parked under Astro, the Indian operations may need to be financially supported in the next four to five years, so a separation lifts that burden,’’ the source added.
  
  Astro TV chief executive officer Rohana Rozhan said: “The Malaysian operations are clearly the cash-cow of the Astro group. Separating all the other overseas operations allows Astro to focus on its resources to grow and enhance returns from the Malaysian operations.’’
  
  Astro has been evaluating proposals for some time now and to create an efficient capital and corporate structure, it can de-list from Bursa Malaysia, stay the way it is and support its overseas expansion or separate the overseas operations in India, Hong Kong and China by hiving them off to another company.
  
  The major shareholders of Astro will own a stake in the company that will house the overseas operations.
  
  As a sweetener for any such deal to go through, the shareholders need to be rewarded and that is why a one-time special dividend may well be in the offing.
  
  T. Ananda Krishnan, via Usaha Tegas, may be repeating what he did for Maxis Communications Bhd where he de-listed Maxis to allow it to take on more debts to grow its Indian operations.
  
  For Astro, it may or may not be de-listed, but the entry of new partners for the separate unit is not to be discounted so that it can fund its future expansion.

Astro delisted? Ouch! Astro IPO investors since 2003 would NOT be happy at all!

And thanks to such news report, Astro is now trading much lower since Friday!

Gold Prices May Rise 20% to 30% By Year-End??

On Star Business:

• Tuesday July 21, 2009
  
  Gold prices may rise 20% to 30% by year-end
  
  KUALA LUMPUR: Gold prices are expected to rise 20% to 30% with its spot price hitting US$1,100 per ounce by year-end, on expectations of a rebound in the global consumption of commodities and on rising demand for gold amid declining new supplies, according to OSK-UOB Unit Trust Management Bhd.
  
  The current spot price for gold ranges from US$910 to US$920 per ounce.

Let's be more accurate. Comex gold was up 1$1.30 and closed at $948.80 per ounce yesterday.

• OSK-UOB Unit Trust chief executive officer Ho Seng Yee noted that the annual production of new gold had been falling since 2001.
  
  “However, gold demand has been increasing through traditional demand for jewellery and new investment demands,” he said during the launch of the OSK-UOB Gold and General Fund yesterday.
  
  Ho reckoned that the increase in demand for commodities, including gold, by emerging economies such as China and India was setting the base for a prolonged commodity bull cycle.
  
  “Although commodity demand has fallen in line with the recent economic weakness, we feel that the low per capita consumption levels in the developing world would provide support for a rebound in global commodity demand,” Ho said.
  
  Singapore-based UOB Asset Management Ltd director of equities Robert John Adair noted that historically, gold had performed well despite different economic scenarios such as inflation or deflation.
  
  “It is also a good hedge against paper currency, which has historically been seen to weaken during times of financial crisis,” he said, adding that the US dollar would likely weaken if unemployment rates in the US continued to rise.
  
  “The value of (US-based) assets is likely to fall if consumers lose their jobs and are not able to service their loans.
  
  "This would weaken the US dollar, which has not lost its value since the start of the financial crisis,” Adair said.

Well in a way yes but as an investor, one needs to take into consideration the USD/MYR exchange rate too! This factor should NOT be discounted.

• The OSK-UOB Gold and General Fund is a feeder fund that invests at least 95% of its net asset value in United Gold and General Fund, the target fund, which is managed by UOB Asset Management.
  
  “The fund aims to achieve returns on investment mainly in securities of corporations whose business is, or is substantially in, the mining or extraction of gold, silver as well as precious metals besides oil, gas and coal,” Ho said.
  
  In the past, the target fund has provided returns of 14% to 15% per annum on an annualised basis, according to Ho.
  
  The OSK-UOB Gold and General Fund, which has an approved size of 800 million units, is being offered at an initial price of 50 sen per unit.
  
  The offer period is from July 21 to Aug 10 and the initial minimum investment amount is RM1,000. ( Source: here )

Gold may rise 20-30% by year end????????

Massive prediction.

Gold price is now $948.80.

A 20-30% increase means gold should be $1138 to $1233 by year-end.

LOL!

Who wanna bet against such prediction??? :p2

ps. here is kijang prices.

It Might Never Be The Same Again

On Business Times: Brace for massive economic adjustment, don tells Asia

• US CONSUMER demand, which supports current external demand for most countries including Malaysia, is not likely to revert to its previous strength when the economy recovers, says a leading Harvard University economist.
  
  Professor Kenneth S. Rogoff said because of this, there needs to be massive adjustment for the world, which "Asia is not braced for".
  
  "The consumption market that had contributed 70 per cent to the income of the US economy, will not happen again," he said, adding that Chinese consumer demand is not large enough to mitigate the fall.
  
  Rogoff, who is Thomas D.Cabot Professor of public policy and economics at Harvard, reckoned that the growth rate of the US economy will look like something from the 1970s, with a 1.5 to 2 per cent growth in the coming year.
  
  "It is not just because of the financial crisis that the US growth has slowed. The political transition taking place has seen a big push for more European-type policy in healthcare and redistribution of income," he said at a seminar organised by RAM Holdings Bhd in Kuala Lumpur yesterday.
  
  He warned that Americans are probably going to face staggering higher personal tax rates of more than 50 per cent from 10 per cent now in five to 10 years from now, to fund not only the financial crisis but also new social programmes.
  
  A former chief economist at the International Monetary Fund, Rogoff forecast that the US economy is also not likely to enjoy a strong decade come 2010 onwards.
  
  Global economy, after a record deep recession and panic, will also slow to 3.75 to 4 per cent, or lower, in 2010, he added.
  
  He said although the economic crisis is now seeing the tail end of a fall in output number, the US economy is still at a delicate phase and would need another year of transition before the unemployment rate stabilises.
  
  Recognised for his sharp remarks in Singapore last year when predicting the fall of Lehman Brothers, Rogoff also said that a second stimulus package for the US was necessary following the US$900 billion (RM3 trillion) that was announced earlier.
  
  The US economy could post a growth between 1.5 and 2 per cent in the coming year.
  
  Dismissing a V-shaped recovery (fast fall, fast rise), he said recovery in the US will be slower this time.
  
  Asian economies, with their strong underlying dynamics and improving output numbers, will give tremendous resilience in the crisis.

A very interesting thought. Many just talked about the possibility of economy recovery but many do not address the possibility that the incredible US consumer spending driven by the housing boom and liquidity boom back in 2006 to 2007 might never be seen again.

Now if the consumer or customer is not buying like before, who would the exporting nations in Asia sell to?

Can they consume it all themselves?

And if they can't consume themselves, how then for the economy of these exporting nations?

And because of these, some would urge not to base earnings expectations on 2006-2008 numbers. These past numbers could represent peak numbers and peak numbers sometimes take many, many years before they can be reached again.

Would it not be prudent to lower one's expectation?

Would it be wrong to say that it might never be the same again?

Honey, Do You Have 2.16 Billion Spare Change For AirAsia X?

On the Edge Financial Daily AirAsia X seeks RM2.16b financing

• “I’m personally keen to work with Malaysian banks that are progressive and keen to expand into international aviation financing,” he said in a recent interview.

How?

Yet another indicator that AirAsia is having some funding issues?

I don't know much but what I do know is that one can not simply over borrow.

When times are good, it's so easy to expand with BORROWED money. However, when times are bad...... over leveraged simply kills!

Featured Report: OSK on Pelikan Holdings

Pelikan was a stock that I had followed. The stock has had one nice run since March. Here are the postings I had made since March 2009.

• Some Comments On Pelikan Holdings
• More On Pelikan Again
• Yes, CIMB Did Downgrade Pelikan To Underperform

Today OSK featured a report on Pelikan.

Once again I was bemused at how quickly the 'value' of this company had changed from OSK's perspective.

Let's have a look at how OSK style of valuation on Pelikan Holdings since Jan 2009.

• Maintain NEUTRAL. We maintain our FY09 and FY10 forecasts at RM81.7m and RM86.8m for now,pending the release of its 4QFY08 results. The TP is unchanged at RM1.23 as the stock lacks near term catalysts, given that most of the European economies (its biggest export market) are in recession. While consumers may down trade to cheaper stationeries under the current environment, the business is somewhat defensive, further underpinned by Pelikan’s strong branding.

Jan 15th 2009. Maintain Neutral at 1.23.

March 2nd 2009. Pelikan announced huge quarterly losses.

• We cut FY09/10 forecasts by 30%, after factoring in lower sales, further contraction in margins and adjustments to depreciation and interest rates. TP has been reduced to RM1.00.

The cut their forecasts by a massive 30% and the Target Price (TP) has been reduced to 1.00 from 1.23.

However, since Pelikan had already fallen to a mere 0.97 sen, I guess there was some justification when OSK called Pelikan a neutral, despite the massive reduction in earnings forecasts and target prices.

However, the stock was punished severely by the market. Come 16th March 2009, Pelikan traded as low as 0.59 sen.

And OSK had no commentary.

On 14th April 2009, Pelikan had recovered to 0.89. OSK then decided to publish another report.

They cut the earnings and the target price is now only 0.80. Despite all this, again they maintain their call as NEUTRAL.

• Cutting earnings. We do not expect Pelikan’s performance to recover in the mid term as long as consumer sentiment in Europe remains subdued. Hence, we are slashing our FY09/10 forecast by an average of 38%, pegged at trough 0.45x P/BV. Based on the current share price, Pelikan is trading at the low valuation 0.5 P/BV. While this may indicates that the stock has been oversold, we are maintaining our NEUTRAL call as we believe that the selling pressure will persist on worse-than-expected results in the coming quarterly earnings and its still-high foreign shareholding level of 26%.

May 28th 2009. Pelikan announced its quarterly earnings and OSK had this to say.

• Maintain NEUTRAL. We maintain our earnings forecast but increased our TP to RM1.07 as we peg the stock at a higher PE of 6.5x FY10 EPS and 0.8x P/BV as we expect the economy to recover gradually in 2H09 and hence a recovery in its profit, leveraging on its strong worldwide brand and the fact that it is involved in selling basic necessities.

Earnings forecasts were maintained and they mainted their call at NEUTRAL but their target price had been increased from 0.80 to 1.07.

That's a 33.8% increase in target price (hope my calculator is not faulty!)

And they call it a NEUTRAL.

LOL!

And today, with Pelikan already trading at 1.24, OSK are calling it a BUY with a target price of 1.85!

I kid you not. :p2

• .... Given that much of the downside has been priced in, we now upgrade the stock to a BUY with a revised TP of RM1.85 (4-year historical average PE and P/BV of 9.5x and 1.5x respectively on FY10 forecast).

Huh?

Downside had been priced in?

Didn't Pelikan trade as low as 0.59 back in March? Now it's 1.24. LOL!

So let's summarise.

1. Jan 15th 2009. Maintain Neutral. Target Price at 1.23.
2. March 2nd 2009. Maintain Neutral. Target Price at 1.00.
3. April 14th 2009. Maintain Neutral. Target Price at 0.80.
4. May 28th 2009. Maintain Neutral. Target Price at 1.07.
5. July 20th 2009. BUY call. Target Price at 1.85.

How now my dearest?

Since Jan 2009, OSK had a target price for Pelikan from 1.23 to 0.80 to 1.85.

My oh my. Just love how OSK play with their target prices. LOL!

:D

This posting might interest you also: What Hope For Malaysian Investing Public When Research House Makes Such Calls?

Last Chance For CIT?

On CNBC: CIT Strikes Deal for $3 Billion Rescue to Avoid Bankruptcy

• CIT Group's board is scheduled to meet on Sunday evening to consider a $3 billion financing deal from seven of the company's top ten bondholders, sources familiar with the talks told CNBC.
  
  The liquidity facility carries a 2.5-year term and portions will be available immediately. The funds should help the company stave off a chapter 11 bankruptcy filing at least in the short-term, the source said.
  
  CIT is also planning a cash tender offer for outstanding senior notes in August as part of a broader recapitalization plan.

On WSJ Bondholders Plan CIT Rescue

• By JEFFREY MCCRACKEN and SERENA NG
  
  CIT Group Inc. was close to securing $3 billion in last-minute rescue financing from its bondholders Sunday in a deal that should keep the struggling firm -- once the largest issuer of small-business loans in the U.S. -- out of bankruptcy court, people familiar with the matter say.
  
  The deal, which was being considered by CIT's board Sunday night, charges CIT very high interest rates, and it doesn't permanently fix the company's long-term financing needs, say people involved in the transaction. But it buys time for the lender to restructure itself, and minimizes bondholders' losses. Bondholders calculated they would lose more if CIT filed for bankruptcy and sold assets at fire-sale prices than if they offered the rescue.
  
  If the deal is completed, it could help reduce CIT's debt load, strengthen its capital position and alleviate pressure on CIT to pay down $1 billion in debt that comes due in August. It may also preserve the U.S. Treasury's $2.33 billion investment made as part of the Troubled Asset Relief Program.
  
  The development appeared to vindicate U.S. regulators, who balked at appeals to help CIT. And it suggested that, unlike in recent months, private capital is available to plaster over cracks in the financial system.
  
  Still, CIT and its bondholders hope that their effort to stabilize the company will cause bank regulators to look more favorably on a CIT plan to transfer more of its loans from the holding company to its bank in Utah. CIT has trouble borrowing money, but its bank can finance itself by taking in deposits. To transfer more assets to the bank, however, CIT needs an exemption from the Federal Reserve and a nod from the Federal Deposit Insurance Corp.
  
  The final term sheet still needs to be reviewed by the various financial and legal advisers, said the people familiar with the matter. And there is the chance that a final deal could falter over last-minute negotiations.
  
  Under the proposal, CIT would likely pay interest rates 10 percentage points above the London interbank offered rate, said these people. (As of Friday, three-month Libor stood around 0.5%.) CIT has also agreed to pledge some of its highest-quality loans as collateral on the $3 billion package.
  
  The new loan could act like a "bridge" to a series of debt-exchange offers that CIT would launch in order to get bondholders to swap some of their bonds for equity in the company or for new debt that matures later.
  
  For years, CIT funded itself largely by selling bonds -- only to find itself in deep trouble when credit markets froze up amid the depths of the financial crisis a year ago. It has been trying to rely more on deposit funding from its bank, but the transition has been slow, and regulators are concerned about the risk involved.
  
  At least one analyst viewed the deal as a stopgap measure. "Even if they put together a deal today and postpone a bankruptcy filing, CIT may be back in the same place in the not-too-distant future because unemployment rates, business-loan delinquencies and corporate default rates are climbing," said Martin Weiss, president of Weiss Research, an investment consulting firm in Jupiter, Fla. "The outlook for the next six months looks pretty rough for many banks, including CIT," he said.
  
  Late Thursday night, CIT officials believed they had secured a $2 billion rescue-financing plan from J.P. Morgan Chase & Co. But that fell through by Friday morning, said these people.
  
  J.P. Morgan would have considered lending if CIT were first to seek bankruptcy protection, but the bank "couldn't get comfortable with a deal outside (bankruptcy) court," said one person familiar with the matter.
  
  CIT's advisers, which includes Evercore Partners, then launched talks with its bondholders, led by investment firm Centerbridge............

And the following article explains who and what CIT stands for: What is CIT, and what if it does fail?

• By CANDICE CHOI The Associated Press - Published: July 19, 2009
  
  You may not have heard of CIT Group Inc., but there's a good chance you've shopped in stores that it helps keep in business.
  
  The New York-based bank is one of the nation's largest lenders to small and mid-sized businesses. Despite the scope of its customer base, however, CIT emerged from meetings with federal regulators Wednesday failing to secure the cash infusion it needs to avoid bankruptcy. In turning CIT Group away, the Obama administration is betting that any ripple effect from the company's demise wouldn't pose a critical risk to economic recovery.
  
  CIT Group is now rushing to raise billions of dollars in financing from debt holders, but Wall Street doesn't appear confident that the company will pull through. On Thursday, investors sold off shares and drove down the stock price 75 percent. As the company fights for survival, here are some questions and answers about how small businesses and the broader economy are affected by CIT Group.
  
  Q: First of all, what is CIT Group?
  
  A: It's a century-old company that primarily provides lending to small and mid-sized businesses. To a much lesser extent, it also provides advisory services and leases out property such as airplanes and rail cars.
  
  The company has been bought and sold a number of times over the years. Most recently, it was acquired in 2001 by Tyco International, which at the time was embroiled in an accounting scandal. To pay down debt, Tyco spun off CIT Group in an initial public offering in July 2002. CIT has been an independent public company since then.
  
  Q: Who does CIT serve?
  
  A: CIT says it serves more than 1 million business customers, most of them small or mid-size businesses.
  
  The company's clients run the gamut, but tend to be in industries considered riskier in the small business landscape, such as restaurants and retail. Dunkin' Donuts franchisees and Dillard's Inc. are among the company's clients.
  
  It's not clear what percentage of the country's small business lending market CIT Group holds, but the company is the ninth-largest commercial and industrial lender in the United States, according to Foresight Analytics.
  
  As of March 31, CIT Group held 1.7 percent of the $1.4 trillion in commercial and industrial loans on bank balance sheets.
  
  Q: What role do small businesses play in the broader economy?
  
  A: Small businesses provide about half of all private-sector jobs. According to the U.S. Small Business Administration, small firms generated 60 percent to 80 percent of net new jobs every year over the past decade.
  
  Small businesses — defined as having fewer than 500 workers — made up 99.9 percent of the 27.2 million businesses in the country in 2007, according to the SBA. Just 17,000 were large businesses.
  
  The odds aren't great for small firms, however. The SBA says that while two-thirds of new businesses survive at least two years, only 31 percent survive at least seven years.
  
  Q: If CIT files for bankruptcy, would its clients' credit lines be immediately shut down?
  
  A: That depends on the type of bankruptcy CIT would enter.
  
  To reorganize under Chapter 11 bankruptcy, CIT Group would need to line up financing sources to enable operations to continue. In the event that financing can't be found, however, the company might have to liquidate its business and close down under Chapter 7 bankruptcy. That would mean clients would likely not be able to tap credit lines.
  
  The impact of the latter scenario would be diminished since CIT has already been cutting back on lending in recent months. In March, CIT had $5.3 billion in credit lines to customers, down from $6.1 billion at the end of 2008.
  
  Q: Where else could CIT's clients get loans if the company failed?
  
  A: There are 8,300 banks in the U.S., most of them healthy enough to offer loans to small businesses, said Bob Seiwert, senior vice president of the American Bankers Association's Center for Commercial Lending and Business Banking.
  
  "The market over time will fill the void. The challenge for CIT borrowers would be finding new lenders in a time frame that works for them," Seiwert said.
  
  Since many of CIT's customers are in riskier industries, Seiwert said it could be harder for them to find loans given the tight credit market.
  
  Q: How did CIT get into its current predicament?
  
  A: At the height of the credit bubble, CIT Group made the mistake of straying into subprime lending and student loans, said Kathleen Shanley, an analyst with corporate bond research firm Gimme Credit.
  
  The company quickly recognized its mistake and pulled back from those segments more than a year ago, but the damage was done. CIT tapped much of its own credit lines in March of last year, and ever since has had trouble finding funding, Shanley said.
  
  The problem was exacerbated by CIT's reliance on credit markets for financing, said Matthew Anderson, an analyst with Foresight Analytics. Unlike traditional banks, CIT can't lean on customer deposits when it needs money.
  
  And now, CIT is facing $7.4 billion in debt that's due in the first quarter of next year.
  
  At the same time, CIT has a higher delinquency rate on its loans than other banks. CIT's delinquency rate for commercial and industrial loans was 5.4 percent at the end of the first quarter, compared with an average of 3.5 percent for all banks in the country, according to Foresight Analytics.
  
  Q: What are the arguments for letting CIT Group fail?
  
  A: CIT already received $2.3 billion in federal aid last December after converting to a bank holding company. CIT and its representatives have warned that a failure to provide additional government help could prove fatal to the small businesses that rely on it for money.
  
  "The cost of a cash infusion is less than the negatives their failure would cause," said Scott Talbott of the Financial Services Roundtable, which represents CIT and other big financial firms.
  
  But CIT is one-eighth of the size of Lehman Brothers, which went into bankruptcy last fall after suffering massive credit losses. And Wall Street's concern about CIT Group was relatively subdued — major stock markets didn't really move much in response to the news about the company during the regular trading session.
  
  Optimism about good earnings from big technology companies ultimately outweighed the concerns and pushed the market higher.
  
  In other words, there doesn't seem to be widespread panic that a failure at CIT would do serious damage to the markets or the economy.
  
  Source: here

China Bank Loan Surges Is A Risk!

On the Edge Financial News. China bank loan surge a risk, warns CBRC

• China bank loan surge a risk, warns CBRC
  Written by Reuters
  Sunday, 19 July 2009 23:17
  
  BEIJING: China’s top banking regulator on July 19 warned of the risks from surging bank lending, singling out the dangers of unhealthy growth in the property market.
  
  “(We) must control the risk of real estate loans,” said Liu Mingkang, the head of the China Banking Regulatory Commission (CBRC), adding that measures must be taken to better evaluate the creditworthiness of borrowers.
  
  Liu said bank lending had helped stabilise the economy so far but made one of his strongest calls yet to banks to guard against taking excessive risks.
  
  “In the first half of the year, our country’s banking loans expanded rapidly and helped play an important role in stabilising the economy, but the loans growth has led to accumulated risks also increasing,” he was quoted as saying in a statement on the CBRC website (www.cbrc.gov.cn).
  
  His warning comes after June’s lending figures hit 1.53 trillion yuan (RM798 billion), higher than analyst expectations.
  
  The figure pushed the accumulative first-half new yuan loans by Chinese banks to 7.37 trillian yuan, far exceeding the government’s five trillion yuan minimum target for the entire year.
  
  The ballooning of loans has led to some concerns about a potential rebound in non-performing loans, though officials say banks remain sound with their leverage ratios well controlled.
  
  Liu spoke of financial institutions in the banking sector being “not prudent and impulsive” with their lending which had spurred such risks.
  
  He urged all banking and financial institutions to “strengthen risk management” to optimise their credit structures, abide by capital adequacy ratios and better manage liquidity. — Reuters

Does one solve a problem by creating another possible problem?

Does one solve a bubble by creating another bubble?

They say a picture is worth a thousand words. Let me use the following posting again, Why One Should Not Get Overly Excited Over Singapore GDP Numbers. In it I had hijacked Macro-Man's chart posted in his posting Helicopter Wen?.

Yeah, HELICOPTER WEN.

Can you say Holy Cow?

Yup, that's how much money was spun by the helicopter Wen!

And this is exactly why many quarters are extremely wary on what's happening in China and many like Professor Pettis, whose site is blocked in China, wasn't impressed by China’s high reserve and GDP growth numbers and of course, many are bemused by the overblown growth hopes for Asia.

And again this blog asks Would China Have A Debt Problem?

Goldman Sachs Could Trade Above $400.00

So Meredith is giving Goldman Sachs a price target of $186.

Meredith's estimate Goldman Sachs fy 2009 earnings is $16.59 (up from $10.80).

And her estimates for Goldman Sachs for fy 2010 is $19.65.

Of course, her numbers is well above what the other pros from Wall Streets but mind you, Meredith was the closest in her estimates of $4.65 a share the other day (the street estimates were around $3.48). GS did $4.93.

Me?

As usual, since I am no pro and do note I could be so wrong also, I think her estimates could be conservative. By 2010, as much as my dislike of how Goldman Sachs and the financial industry, I do believe that Goldman Sachs could perhaps generate earnings of $35.00 for its fiscal year 2010.

Yes, that much, I reckon!

Of course, this is my estimate and there is a strong likelyhood that I could be wrong.

But if I am correct, don't you reckon Goldman Sachs is worth a shot now?

Don't you think Goldman Sachs is worth a bargain at 156.00?

LOL!

Can't believe what you are reading?

Me too! I cannot believe what my fingers are doing right now. :p2

So how now my dearest?

Not too late to look for entry to buy this stock! :p2

Here's the time stamp. :D

Or how about Unker Buffy? As per posting, Berkshire's Sitting On A Tidy Profit From Its Investment In Goldman Sachs, Berkshire is sitting really pretty on its investment in GS and more so that Berkshire's investment generates an additional 10% dividend yield per annum. Brka is now trading at $90,245

ps. GS was only 149.00 then.

ps. I think there's a strong chance that Berkshire could see a four bagger in this investment within a five year time frame! Yes, a four bagger! Which means GS should be worth at least.....

The Changes Made In The Baltic Dry Index

Ok, the BDI is up again but that's not the reason for this posting. The following article posted on UK Guardian needs to be read.

Baltic index aims to boost derivatives trading

• By Jonathan Saul
  
  LONDON, July 1 (Reuters) - The Baltic Exchange said on Wednesday it had changed the way its chief sea freight index was calculated in a move aimed at boosting freight derivatives trading.

Aimed at boosting freight derivates trading?????????????

• The daily index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser, is compiled from data provided by members of the exchange from international ship broking companies.
  
  The main index, which was launched in 1985, will now monitor 20 major export routes for commodities excluding oil and is a key gauge of economic activity.
  
  The Baltic's main freight index is made up of four indices including the Capesize index, which represents rates for the largest class of merchant vessels carrying iron ore and coal.
  
  From July 1 the index will be calculated taking the timecharter components or daily hire rates of the four indices instead of the voyage rate, which had been used previously.
  
  A Baltic Exchange spokesman said timecharter routes were already being traded on the Freight Forward Agreement (FFA) derivatives market.
  
  "These are already liquid routes for FFAs and by just taking these it just makes it much easier to trade the dry index," he said.
  
  The Baltic Exchange's chief executive Jeremy Penn said there had been considerable interest from the wider investment community outside shipping seeking exposure to dry freight.
  
  "What we wanted to do therefore was to make it possible for primarily investment banks to offer exposure to the Baltic dry index to their client base but to be able to hedge the resultant risk back into the liquid FFA market," he told Reuters.
  
  "We are optimistic that this will be good news from the point of view of the existing FFA markets because it should boost volumes in the component parts of the BDI (main sea freight index) which regularly trade in the FFA."
  
  Duncan Dunn, senior director with broker SSY Futures, said the move was very positive.
  
  "By making the Baltic dry index tradable we hope to bring a good new flow of capital into the freight market," he said.
  
  "We are certainly hopeful that banks will get good levels of enquiry into the BDI."
  
  The London-based Baltic Exchange is made up of over 550 member companies including ship brokers, ship owners and operators, and freight derivatives traders.
  
  The exchange's members account for 30 percent of all dry freight fixtures and 50 percent of all oil tanker fixtures.
  
  Penn said the Baltic Exchange had previously considered a separate derivatives freight index.
  
  "The initial problem we had was that launching a new index would potentially dilute the impact that the BDI has around the world and we did not want to do that," he said.
  
  "By making a tiny adjustment to the BDI we have actually achieved what we wanted to achieve."

And What's Driving The Markets Higher?

Stocks closed much higher in the US Markets again. Many would be so happy. :D

On CNBC Stocks Close Higher, Helped by Roubini, Tech

• Stocks closed higher after a staging a late rally triggered partly by positive comments from the economist known as "Doctor Doom."
  After drifting for most of the session, the market began climbing when Reuters reported that Nouriel Roubini, a longtime pessimist, said the recession could be over by the end of the year.

Now what's most interesting was his ACTUAL comments.

• Nouriel Roubini, the economist whose dire forecasts earned him the nickname "Doctor Doom," said after markets closed Thursday that earlier reports claiming he sees an end to the recession this year were "taken out of context."
  
  "It has been widely reported today that I have stated that the recession will be over 'this year' and that I have 'improved' my economic outlook," Roubini said in a prepared statement. "Despite those reports ... my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context."
  
  Several business news outlets, picking up on a report initially from Reuters, earlier Thursday cited Roubini as saying that the worst of the economic financial crisis may be over.
  
  The New York University professor was quoted by Reuters as saying that the economy would emerge from the recession toward the end of 2009.
  
  Reports of his comments helped trigger a late rally in the stock market.
  
  Roubini added late Thursday that he sees no economic growth before the end of 2009.
  
  "I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If as I predicted the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year's end." ..... read rest of his comments here

LOL!

Looks like someone over at REUTERS were twisting and turning.

Just exactly like what we had seen the other day where Meredith Whitney's comments drove the markets higher. Yeah, the Whitney rally, as some are calling it now. But was she bullish on the economy? Or was she just bullish on the business economics of Goldman Sachs? Do watch the video posted in the posting: Meredith Whitney: Bearish On The Economy But Bullish On The Stock

And yeah, we have the Singapore's annualised GDP growth rate which suggests that it's out of recession. ( see Why One Should Not Get Overly Excited Over Singapore GDP Numbers )

And the markets flew up, up and awayyyyyyy......




Life's too good, eh? :D

Featured Report: RHB On Sino Hua-An

I got a copy of Sino Hua-An research report. Since I had blogged many times on this stock before, I was rather interested to read what this pro had to say.

Firstly, my past postings on Sino Hua-An can be read here. (Latest posting is listed first)

1. Update On Sino Hua-An
2. Massive Losses Posted by Sino Hua-An
3. Sino Hua An Q3 Earnings.
4. Still Who Wants Huann?
5. Who wants Sino Hua-An?
6. More On Sino Hua-Ann
7. Regarding Sino Hua-An

I was surprised by the 'upgrade'!

As you can see RHB Research upgraded Sino Hua-An to OUTPERFORM. What I am baffled by is the timing and pricing of this UPGRADE. As you can see, Sino Hua-An opening price is at 0.52. And the target price is a mere 0.60.

I was left scratching my head.

This is an EIGHT SEN stock upgrade!

I am very sure sceptics will be baffled and left wondering why RHB would be bothered with such a minuscule upgrade and considering the fact that Sino Hua-An stock priced had rallied rather so strongly since March 2009.

The following chart shows the recent performance of Sino Hua An.

Here is RHB's reasoning for its upgrade on the stock.


And then I was left more confused with what RHB analyst said next.

• Earnings forecasts. We are lowering FY12/09 net profit forecast by 23.0% to RM38.7m to reflect lower average selling price assumptions for Sino Hua-An’s by-products.

WOW!

RHB Research is lowering the fy12/09 net profit forecast by 23% to rm38.7m!!!!!

( Recap: For the first quarter fy2009, Sino Hua An reported a net loss of 23.6 million. See Update On Sino Hua-An )

The stock is estimated to make less money by some 23%.

Yet the stock is upgraded to OUTPERFORM!

Fair value upgraded price is 60 sen.

A mere 8 sen from 52 sen.

So how my dearest?

Are you enjoying what you are reading?

Do you want to buy this stock as recommended by RHB for a gain of 8 sen?

Why One Should Not Get Overly Excited Over Singapore GDP Numbers

On the Edge Financial Daily Singapore recovery positive for Malaysia

• KUALA LUMPUR: The rebound in Singapore’s economy and the implications of improved activity would have a positive impact on Malaysia, especially from ntra-regional trade and investments, says AmResearch Sdn Bhd.
  
  “Coupled with receding unemployment concerns, Singapore’s development would be certainly positive for Malaysia’s economy - especially for consumption spending, which contributes more than 60% of GDP.
  
  “We are maintaining our GDP estimate of -2% this year for Malaysia, before a mildly stronger growth of 3% in 2010,” said the research house on July 14.
  
  Singapore had on July 14 announced that its economy rebounded strongly by 20.4% quarter-on-quarter in the April-June period (2Q09) versus the market’s expectation of 13.4%. Year-on-year, gross domestic product (GDP) was down 3.7% in 2Q09 versus a revised -9.6% in 1Q09.
  
  The Singapore Government raised its 2009 GDP forecast to a contraction of between 4% and 6% year-on-year from the previous forecast of -6% and -9% on-year....

Getting all excited over an estimated GDP of -2% this year? :p2

Anyway, here's a Singapore recovery from recession sceptic.

• Singapore economic recovery draws on skewed statistics
  Wayne Arnold
  
  Last Updated: July 15. 2009 6:39PM UAE / July 15. 2009 2:39PM GMT
  
  Those pesky green shoots of recovery keep popping up, long before the spring thaw. The latest sprouts come from Singapore. The little trade-dependent island state reported this week that its economy, after falling 12.7 per cent in the first quarter, rocketed 20.4 per cent in the second quarter. Hooray, global trade has recovered! The recession must be over!
  
  Not so fast. Those numbers are exaggerated by several factors.
  
  First, there is the way Singapore calculates them. Instead of just saying the economy grew by a certain percentage in one quarter, Singapore annualises the growth rate, reporting it as though the growth was sustained for an entire year. If the economy expands about 5 per cent in one quarter, that is equivalent to an annualised growth rate of about 20.4 per cent.
  
  Singapore’s roughly 5 per cent expansion in the second quarter is still pretty good and does technically mean Singapore has managed to pull out of recession. But its economy was nonetheless 3.7 per cent smaller than it was in the same three months last year.
  
  That would not matter for most developed economies such as the US. They report economic growth on a quarter-on-quarter basis to give a sense of the more immediate trajectory of the economy. Developing nations, on the other hand, typically report growth on a year-on-year basis. That is partly because they do not have the ability to produce timely and reliable data and partly because seasonal factors, such as agricultural output, tend to skew results widely from one quarter to the next.
  
  Singapore is a developed nation, but it has a small economy. And while its GDP data in the past were a fairly reliable gauge of the trend, the data have in recent years become volatile and less predictable. That is because Singapore, faced with increasing competition in electronics manufacturing from China, managed several years ago to lure in major pharmaceutical manufacturers, the likes of Merck and Pfizer and GlaxoSmithKline.
  
  The drug manufacturing plants have proved a double-edged sword: while they have boosted overall economic output, they are highly automated, meaning they have not created a lot of jobs. And to the chagrin of economists, they have also turned out to be highly sporadic. For one quarter, they churn out lots of drugs. But when the batch is done, they go quiet while technicians clean them out and prepare them to produce something else. So Singapore’s GDP has become somewhat drug-dependent; zooming upwards as the drug production kicks in, and crashing when the dose wears off.
  
  So it was in the second quarter: a surge in pharmaceutical production accounted for much of a rebound in manufacturing. The sudden bounce was enough to convince Singapore to reduce how much it predicts the economy will shrink this year to between 4 per cent and 6 per cent, up from a forecast of a 9 per cent contraction. Singapore also cautioned that the outlook remained clouded by the situation in the US and Europe, where unemployment is still rising and consumer spending remains weak. Almost one of every 10 American working-age consumers is now jobless.
  
  As a result, the trade that is the lifeblood for Singapore, the rest of Asia and for other emerging markets such as those here in the Gulf has yet to recover. According to statistics from Singapore’s maritime and port authority, container traffic through Singapore’s port, one of the world’s largest, was down almost 20 per cent in the second quarter compared with the same period last year.
  
  That is consistent with another indicator of global trade that some economists say still bodes ill for the global economy, the Baltic Dry Index. This index tracks the average price of shipping coal, grain and other major raw materials, or “dry” bulk cargoes, by ship. Because ships take a long time to build and cannot be broken up easily, their supply stays fairly constant. Thus the price of shipping tends to depend more on demand, and so economists use the Baltic Dry index as a leading indicator of trends in global trade.
  
  After peaking in May last year at a record 11,974, the Baltic Dry Index began falling as exports collapsed and credit evaporated. By December, it had fallen 94 per cent to its lowest level since 1986. Bad days for shipping, yes. Dark days for the global economy, too.
  
  The good news is that the Baltic Dry Index has been recovering, rising to 4,291 by early last month as credit eases and trade resumes. In recent weeks, however, it began slipping again back below 3,000, indicating that things are not yet back to normal. (ps: the BDI has recorded some strong numbers the past two days. :p2 )
  
  But it seems safe now to say that the worst is over and that a fragile, feeble, patchy global recovery is getting underway. As Standard Chartered’s economists in Singapore conclude in their latest report, this is the end of the beginning of the crisis. “The absolute worst is over and in that context a ‘victory’ has been achieved, but there is still a long way to go,” they wrote.
  
  Asia, it is clear, will lead the recovery. Singapore’s numbers may exaggerate the trend, but the outlook for Asia’s emerging economies is brightening faster than those for the heavily indebted US and Europe. While the export demand from the West they had depended on for much of their growth has yet to recover, domestic consumers and government spending are buoying home-grown consumption.
  
  Demand from China, in particular, is helping to arrest declining exports elsewhere in Asia. Some are helped more than others. Those, such as Taiwan, that depend on shipping components to China for assembly and re-export to markets in the West, are not getting as much help from Chinese demand as, say, South Korea, which exports primarily finished goods.
  
  And since Asia is the UAE’s largest importer of oil, what happens there matters a lot to us here. But much, as you can probably tell, will depend on how things go in China, which is due to release its own second-quarter economic data today.
  
  Economists predict that, thanks to massive government stimulus and compulsory lending, China’s economy will manage to overcome still-slumping exports to post growth near 8 per cent in the second quarter. That may produce a modicum of warmth in China, but not enough to ignite a recovery globally. Whether it will protect green shoots elsewhere from the continued chill from Europe and the US may depend on how close they are sprouting to the source. ( Source: here )

China? China again? LOL!

How ironic is that my favourite article for the day comes from Macro-Man. Let me hijack the chart he posted in his posting Helicopter Wen?.

• Unfortunately, in an act reminiscent of Gordon Brown Stalin, the early 90's data has been wiped from the historical record. A cynic might suggest that this is because China's leadership doesn't want to remind people that one upon a time, money growth was this high and it didn't end well. Judge for yourselves.
  
  In any event, it's looking increasingly like the "miraculous" recovery in Chinese growth and equities is simply the result of cranking the ol' printing presses 24/7. While this seems highly likely to end in a banking crisis, hey- at least Voldy has plenty of FX reserves with which to recapitalize the banking system.
  
  In the meantime, Macro Man is left pondering; given the complaints from the Chinese and others about economic management in the US and elsewhere, where are the moans about the true world champion of money-printing, Helicopter Wen?

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

ps: In the posting Singapore Out Of Recession, did you check out the last link posted?

It's from Singapore MTI: Real GDP rose by 20.4% in 2Q2009 on a quarter-on-quarter seasonally adjusted annualised basis, in contrast with the 12.7% contraction in 1Q2009. Real GDP growth in 2009 is expected to contract by 4.0% to 6.0%.

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

And in another article on Business Times today S'pore retail sales down in May as wages, tourism fall

• SINGAPORE: Singapore's retail sales fell for an eighth month in May as jobs losses, wage cuts and fewer tourist arrivals depressed spending.
  
  The retail sales index dropped 10.3 per cent from a year earlier, after sliding a revised 11.4 per cent in April, the Statistics Department said yesterday. The median estimate of 11 economists surveyed by Bloomberg News was for a 10.6 per cent decline. Adjusted for seasonal factors, sales rose 0.8 per cent from April.
  
  Singapore's services industries have shrunk for three straight quarters, weakening an economy that is forecast to contract as much as 6 per cent this year. Visitor arrivals have slumped as the global slowdown curbs business and holiday travel, hurting sales at companies such as Singapore Airlines Ltd and FJ Benjamin Holdings Ltd.
  
  "We expect retailers to remain under pressure from cautious consumer sentiment and sharp price discounts offered by competitors," said Alvin Liew, an economist at Standard Chartered Bank in Singapore. "Expect sales of big-ticket items like cars to remain weak, while petrol sales are still on the decline."
  
  Singapore's tourist arrivals were 11.7 per cent lower in the first five months of 2009 compared with a year earlier. The drop in visitors is weighing on the hotel and restaurant industries, the government said yesterday.
  
  Average hotel room rates dropped 25 per cent in May from a year earlier to S$184 (S$1 = RM2.45), while occupancy in hotels fell 12.2 percentage points to 69 per cent in May, according to the Singapore Tourism Board. - Bloomberg

Yet another strong arguement against those GDP numbers. If Singapore is flying out of recession, why are these numbers so weak?????

Look at the slump in them retail numbers!!!

What's Next For CIT?

From CNBC: http://www.cnbc.com/id/31926789

• "Discussions with government agencies have ceased,'' the New York-based company said in a statement. "There is no appreciable likelihood of additional government support being provided over the near term.''

From GlobeAndMail Troubled CIT won't get bailout from Washington

• For days now, the commercial lender has argued it is too big to fail, and warned that if it was forced to seek bankruptcy protection, hundreds of thousands of small businesses would be left in the lurch, threatening the country's fragile recovery.
  But Washington's 11th-hour refusal to mount a rescue suggested the opposite: That lawmakers view CIT as too small to save, and that their growing exasperation with bailouts more than offset any fears they had about a larger ripple effect in the economy.
• CIT said its board is examining alternatives amid a cash crunch, but the prognosis looks grim. Rating agency Standard & Poor's predicted this week that CIT would teeter into bankruptcy if it could not secure further government support.
  
  The company already received $2.3-billion (U.S.) worth of aid money last year, but that is not nearly enough to help it repay looming debts and finance its lending operations. Customers have recently drawn down their lines of credit by more than $750-million, exacerbating the company's cash woes.
  
  CIT has $75-billion in assets, making it a fraction of the size of Lehman Brothers, which the government allowed to fail last September despite its sizable $639-billion in assets.
  
  Yet despite CIT's diminutive stature, its fate has become highly politicized, not least because it is seen as an important source of funding for the engine of the American economy: small and mid-sized businesses.
  
  CIT told Washington that 760 manufacturers and more than 300,000 retailers – along with several National Hockey League teams – could suffer a “crisis” if it did not receive a lifeline.
  
  That spurred several members of the U.S. Congress to plead for a bailout on its behalf.
  
  Barney Frank, chairman of the House financial services committee, said earlier yesterday he hoped the government could come up with a structured aid package for CIT.
  
  “If CIT doesn't get structured help, then it will have a very negative effect, I'm told, on small businesses around the country,” he said.
  
  U.S. President Barack Obama, however, appears willing to gamble that other banks will step in to fill the lending void, and take on CIT's stranded customers.

Chatter is out that Could Goldman pinch CIT!. Yes Goldman Sachs had 3 Billion worth of credit extended to CIT and the following article suggests that Goldman would not be hit.

• That’s because Goldman’s lending facility is basically a fully-collateralized repo facility. Any money drawn down by CIT is collateralized with physical collateral. That is, not securities of unknown value but things like real estate and aircraft. In addition, Goldman has taken out a small amount of credit default swaps intended to cover any decrease in the value of the collateral. ( source: http://www.businessinsider.com/discovered-how-goldman-hedged-its-exposure-to-cit-2009-7 )

See also That CIT Bailout Delima Is No Small Issue

I chuckled remembering how one declared that one should hold stocks for decades (yeah, twenty or thirty years) in an investment. Ideally it is a yes. However, there are so many exceptions to such a simplistic rule. And common sense rules over these exceptions. Holding long term does not solve a wrong stock selection. Holding long term does not help the investor if the business of the stock fails.

Here's the chart of CIT since 2002. It's only 17 short years.

Would this be the start of the next crisis? Well, here's another cracker from Jesse: Derivatives Crisis: More Bailouts On Deck?. He highlights an article featuring Mark Mobius.

• “Political pressure from investment banks and all the people that make money in derivatives” will prevent adequate regulation,
• The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product.Looming Crisis
• “Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency,” he said.
• A “very bad” crisis may emerge within five to seven years as stimulus money adds to financial volatility, Mobius said. Governments have pledged about $2 trillion in stimulus spending.
• “Banks have lobbied hard against any changes that would make them unable to take the kind of risks they took some time ago,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Bank Julius Baer & Co. in Singapore.

Why The US Is Even More Trouble Than The Unemployment Rate Indicates

From WSJ. Reasons why US in even more trouble than the 9.5% unemployment rate indicates

1. June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.
   
   
2. More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.
   
   
3. No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.
   
   
4. The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.
   
   
5. The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).
   
   
6. The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.
   
   
7. The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.
   
   
8. The goods producing sector is losing the most jobs -- 223,000 in the last report alone.
   
   
9. The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

The article then continues...

• Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.
  
  Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.
  
  How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.
  
  About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.
  
  It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.
  
  Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.
  
  Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.
  
  Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.
  
  This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.
  
  No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.

Source: http://online.wsj.com/article/SB124753066246235811.html

That CIT Bailout Delima Is No Small Issue

From CNBC, Crisis Flares Anew as Lender CIT Seeks Federal Aid

• In a sign the financial crisis isn't over, CIT Group, the No. 1 lender to small and mid-sized U.S. businesses, is scrambling to get help from the federal government.
• The government may have good reason to talk with CIT. Some analysts suspect a collapse of the company, whose 1 million clients include big names from the franchisee of Dunkin' Donuts to retailer Dillard's, could deal a devastating blow to the economy by cutting off financing just as businesses need it most.
• That in turn could force thousands of small and medium-sized companies to drastically cut costs or shut down — driving up unemployment and dashing hopes for a swift economic recovery.
• "They'd have to lay people off, downsize and maybe shut their doors," independent banking analyst Bert Ely said of CIT's clients. "It would hardly be positive for the economic recovery
• "If CIT were to go away, it would take a financing option away from our franchisees who want to buy stores or expand their networks," said Michelle King, spokeswoman at Dunkin' Brands, parent company of the Dunkin' Donuts chain.
• For the apparel industry, a collapse of CIT would have "near cataclysmic," consequences for its small to mid-sized clients, said Andrew Jassin, co-founder of Jassin-O'Rourke Group an apparel consulting company.
• The retail and apparel industries, which also include CIT clients like Dillard's and Bon-Ton Stores, is preparing for the critical back-to-school selling period and is in the midst of ordering merchandise for the holidays.
• "This could affect the lifeblood of the flow of goods to the stores," said Vincent Arscott, senior director of Fitch Ratings.
• Some analysts likened CIT's dilemma to a high-stakes game of chicken. They suggested that hiring the bankruptcy law firm was designed to pressure the government to step in with help.
  
  But by rescuing CIT, the administration may have to rethink whether to commit more taxpayer money to other firms that get into trouble or simply let them fail.
  
  If the government turns its back on CIT, "what does that say for ... other companies that the government has given the backstop to?" said Jesse Litvak, a trader at Jefferies.
  
  CIT, which in April posted a bigger-than-expected first-quarter loss, has been hit hard by the ongoing credit crisis as investors have shied away from purchasing all but the safest forms of debt, leading to a near disappearance of funding options.
  
  Unlike banks that rely on deposits for money, CIT gets funding by selling commercial paper and other types of debt.
  
  Without access to the TLGP program, CIT would have to find alternative funding that would likely need to be secured by its assets. The lender has $7.4 billion in debt coming due in the first quarter of 2010, plus other obligations.
  
  CIT's troubles will make it harder to refinance that debt in coming months, raising fears that it could default.

On Chicago Tribune CIT woes don't bode well for holiday

• CIT is a major cog in making sure orders get paid for and delivered to stores. Without CIT, retail shipments for the critical holiday shopping season could be in jeopardy and, in turn, set off a new wave of bankruptcies among retailers and vendors.
• Vendors that sell to Wal-Mart and Target as well as to smaller independent retailers rely on CIT for factoring services.
  
  Most of the vendors are mid-size manufacturers of apparel, textiles, furniture, home furnishings and electronics that generate less than $50 million in annual sales, according to CIT.
  
  "They are generally not very well capitalized," said Jonathan Lucas, chief sales officer at CIT, in a transcript of a May interview conducted at the company as part of a financial education series. "They do not have alternative sources of capital. We provide that source of capital."
  
  Most experts agree that without CIT, vendors will have to scramble for funding that is hard to come by in a tight credit market. But there is little consensus on the importance of its role in keeping the supply chain moving.
  
  "We believe that should CIT cease lending, probably a good portion of its lending done to creditworthy clients could be assumed by another bank," CreditSights, a New York-based research firm, said in a report Monday.
• "It's terrible for everybody," said Homi Patel, chairman and chief executive of Hartmarx Corp., the apparel manufacturer that filed for Chapter 11 in January and is being sold to a private-equity group.
  
  Hartmarx doesn't rely on CIT, Patel said. For vendors that do, it is a lifeline, especially in tough economic times.
  
  "If vendors don't have the advance on orders received from retailers, then they don't have cash to run the business," he said. "And if they don't have cash to run the business, a retailer won't place orders with them. It's a vicious cycle."

On the Globe and Mail Washington faces CIT bailout dilemma

• At a glance, CIT appears too small to really matter – $75-billion (U.S.) in assets and ranked 26th in the country. Experts and regulators say its demise would pose no systemic risk to the banking industry.
  
  But CIT happens to be a major player in the business of providing loans to small businesses, a sector considered crucial to reviving the job market and lifting the United States out of recession. In its pitch for government aid, the New York-based lender has argued that a collapse would put 760 manufacturers at risk and “precipitate a crisis” for 300,000 retailers.
  
  So the question now is, can the U.S. government afford to let CIT fail?
• CIT is facing a looming cash shortage as several series of bonds mature. Debt rating agency Standard & Poor's warned yesterday that the lender could go bankrupt without government aid.
  
  The case for a bailout is dubious, according to bank analyst Kathleen Shanley of GimmeCredit.com, a research firm that specializes in corporate debt. The government has already let much larger banks fail – Lehman Brothers ($639-billion in assets) and Washington Mutual ($309-billion in assets), which was seized by regulators last September and sold to JPMorgan Chase.
  
  The reality, according to Ms. Shanley, is that the FDIC “waiting room” is filled with troubled banks just like CIT, many just as deserving.
  
  “There is a long list of other troubled banks awaiting regulatory attention, some with more insured deposits at risk than at CIT,” Ms. Shanley said. “It may be time for regulators to admit that not all bank holding companies should be saved.”
  
  She pointed out that other business finance companies have failed “with no serious repercussions.”
• Barry Ritholtz, a market strategist with Fusion IQ, said a rescue for CIT would send the message that just about any company qualifies.
  
  “Bailing out CIT will make a mockery of systemic risk, as if it wasn't already subjected to humiliating abuse as an economic concept,” he argued.
• CIT boasts roughly a million customers, everything from daycare centres to Dunkin' Donuts and several National Hockey League teams. But analysts said its lending supports less than 1 per cent of all U.S. retail and manufacturing businesses.
  
  CIT may not be big, or systemically vital, but it has some powerful defenders in the U.S. Congress, where the plight of small business is a growing political issue.
  
  “If they could no longer lend, it would cause disruption across the country to countless small business,” Carolyn Maloney, a New York Democrat and chairwoman of the joint economic committee of Congress, said in a statement.

Long term investors getting creamed at CIT!

Less Gearing For AirAsia??

On Star Business: Reduced gearing for AirAsia

• Wednesday July 15, 2009
  Reduced gearing for AirAsia
  By LEONG HUNG YEE
  
  Move to part-defer taking delivery of aircraft in 2010 should lower debt obligations

Ermm... I am puzzled with this header.

The move by AirAsia in part-defer taking delivery of aircraft next year is only a move to shift its taking delivery of the aircraft towards the back end. End of the day, aircrafts delivery will still have to be accepted by AirAsia - unless of course, AirAsia defaults or negotiate a way to reduce its aircraft purchase contract.

What matters is the the capital commitment made by AirAsia when it placed out order for all these aircrafts. And less we forget the capital commitment is a whopping 27.2 Billion.

Now that's the problem isn't it?

Now the debt obligation will only lower when AirAsia finds a way to generate more cash or reduce its capital commitment.

In AirAsia Deferrs Aircraft Deliveries!, AirAsia became the largest customer of the Airbus A320-200 in December 2007 after it placed a firm order for a total of 175 aircraft, with an option for 50 more! Again questions has to be asked if AirAsia was simply too reckless when it placed all that massive order in 2007 for new aircrafts! Crudely put, why commit to such a massive order when it clearly did not have the financial ability to take delivery of all these planes.

Strains are now starting to show. First, the sale and leaseback of aircraft were done. Then we here that AirAsia wants to do a stock sale. And now part-defer of aircraft delivery.

Aren't these the clear strains on AirAsia?

So why did it made that huge order in 2007?

Was it reckless?

Capital funding comes at a huge price. And we all know that in business, acts of reckless capital commitments can easily bring down any given company.

And how can one repay the debts when the debts is actually increasing at an alarming rate all the time?

I do not know and since I am not a pro, I could always be wrong but these are just my plain simple understanding of things.

Anyway, here are the pro views mentioned in Star Business article today.

• PETALING JAYA: AirAsia Bhd’s decision to defer taking delivery of eight Airbus A320 aircraft next year is expected to bring its gearing level down, say analysts.
  
  AmResearch views the development positively, saying AirAsia would manage to avoid building up significant capital and finance costs in its books over a soft phase in passenger demand cycle.
  
  The research house said the move would also lift the market’s previous concerns on AirAsia’s aggressive expansion plan amid a weak demand environment, which could have resulted in a mismatch between slowing earnings growth and escalating costs.
  
  “Assuming the deferral were to materialise, we will lower our net gearing forecast to 2.7 times from 3.1 times in 2010 and 2.8 times from 3.6 times in 2011 – extending out the gearing up cycle over AirAsia’s growth phase.
  “Due to earlier assumptions of poor load factors, the elimination of depreciation and finance charges actually raise our net profit forecast by 9% to 16% to RM537mil in financial year ending Dec 31, 2010,” AmResearch said.
  
  On Monday, AirAsia said it was planning to defer taking delivery of eight A320s for 2010 and may defer taking delivery of another eight aircraft in 2011.
  
  The low-cost carrier was originally scheduled to take delivery of 24 aircraft next year and another 24 in 2011.
  
  OSK Research analyst Ng Sem Guan said the deferment could help the airline lower its “relatively high” gearing level.
  
  “Although AirAsia announced a proposed private placement recently, its gearing remains a concern,” he said, adding that the deferment reflected the less-than-exciting outlook for the carrier.
  
  “We think the deferment suggests that the outlook for the carrier is tougher than expected. The rebound in crude oil price and the fact that the company has unwound all its fuel hedge positions may pressure operating costs. This prompts us to revise downwards our FY10 earnings by 15.5%,” he said. ( ahem.. What Hope For Malaysian Investing Public When Research House Makes Such Calls? )
  
  However, Ng said AirAsia’s on-going fund raising exercise might provide some excitement for its share price performance.
  
  ECM Libra Investment Research said although the deferment of delivery of the eight aircraft next year might cap earnings for 2010, it would help lighten the the group’s debt obligations.
  
  “AirAsia’s gearing level is expected to be five times in FY10. However, the deferment of the aircraft delivery will reduce it a little to a gearing level of about 4.3 times. We also expect its cash balances to improve in FY10 as a result,” it said. (Gearing of 4.3 times acceptable? )
  
  The research house said it was less concerned about the earnings opportunity cost and was more positive about the effects the deferment would have on AirAsia’s balance sheet.

Strange that this news article did not seek comments from the pros who have negative views on AirAsia.

Now wouldn't it be helpful to the investing public gets to read all the contrasting view points on AirAsia?

Knowing both side of the coins is good, yes?

Here are the comments from RHB Research, a research house who had been negative on AirAsia. (added some comments in green bold)

• ♦ Cutting new delivery by a third next two years. Group CEO Datuk Seri Tony Fernandes was quoted by the press as saying that AirAsia plans to defer taking delivery of eight A320 aircraft for 2010 and may opt to do the same for another eight aircraft in 2011. AirAsia was supposed to take delivery of 24 A320 aircraft each in 2010 and 2011 based on the initial plans. The reason given was uncertainty with regards to the timeliness of the completion of the new LCCT, and not funding and cashflow issues. ( LOL! Not a cash flow problem? Comeon.... who is he kidding? )
  ♦ Forecasts. We are downgrading FY12/10-11 net profit forecasts by 12% and 28%, having cut our capacity growth in terms of available seat km (ASK) to 14% from 20% previously to reflect the lower aircraft delivery.
  ♦ Risks. The risks include: (1) Prolonged downturn in the global economy, and hence the regional air travel market; (2) A resurgence in prices of crude oil, hence jet fuel; and (3) Outbreaks of pandemic diseases.
  ♦ Investment case. Demand for air travel will remain weak on the back of the global economic slowdown and the current Influenza A (H1N1) outbreak. Not helping either, is the massive new capacity coming onstream from both full-service and budget airlines in the region over the short term that will intensify competition and depress yields. While cost pressure has eased tremendously with the sharp fall in crude oil prices, crude oil prices could resume its uptrend again. AirAsia is unhedged on its fuel requirements. We believe it is premature to turn positive on airlines, including AirAsia.
  ♦ Maintain Underperform. Indicative fair value is cut by 11% from RM0.70 to RM0.62 based on 9x revised FY12/10 EPS, at a 60% discount to benchmark 23x (the average historical 1-year forward PER for Ryanair during its growth stage) to reflect our concerns on AirAsia’s way over-stretched balance sheet. As at 31 Mar 09, AirAsia’s net debt and gearing stood at RM6.71bn and 3.71x that are not considered prudent under the current highly uncertain economic condition.
  

Joe Cassano: The Man Who Crashed The World

Here's another extremely interesting editorial from Michael Lewis.

• The Man Who Crashed the World
  Almost a year after A.I.G.’s collapse, despite a tidal wave of outrage, there still has been no clear explanation of what toppled the insurance giant. The author decides to ask the people involved—the silent, shell-shocked traders of the A.I.G. Financial Products unit—and finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the U.S. economy, and the global financial system to their knees.
  By Michael Lewis August 2009
  
  Six months ago, I received an odd phone call from a man named Jake DeSantis at A.I.G. Financial Products—the infamous unit of the doomed insurance company, staffed by expensively educated, highly paid traders, whose financial ineptitude is widely suspected of costing the U.S. taxpayer $182.5 billion and counting. At the time A.I.G. F.P.’s losses were reported, it became known that a handful of traders in this curious unit had sold trillions of dollars of credit-default swaps (essentially unregulated insurance policies) on piles of U.S. subprime mortgages, but its employees hadn’t yet become the leading examples of Wall Street greed. And so this was before Jake DeSantis and his colleagues found themselves suburban-Connecticut outcasts, before their first death threats, before the House of Representatives passed a bill because of them (taxing 90 percent of their large bonuses), before New York attorney general Andrew Cuomo announced he was going after their paychecks, and before Iowa senator Charles Grassley said that A.I.G.’s leaders should follow the Japanese example and “either do one of two things, resign or go commit suicide.”
  DeSantis turned out to be a friend of a friend. He’d called because he didn’t know anyone else “in the media.” As a type he was instantly recognizable: a “quant,” a numbers guy who was allowed to take financial risks because of his superior math skills, but who had no taste for company politics or public exposure. He’d grown up in the Midwest, the son of schoolteachers, and discovered Wall Street as a scholarship student at M.I.T. The previous seven years he’d spent running A.I.G. F.P.’s profitable stock-market-related trades. He wasn’t looking for me to write about him or about A.I.G. F.P. He just wanted to know why the public perception of what had happened inside his unit, and the larger company, was so different from the private perception of the people inside it, who actually knew what had happened. The idea that the employees of A.I.G. F.P. had conspired to maximize their short-term gains at the company’s longer-term expense, for instance. He and the other traders had been required to defer about half of their pay for years, and intertwine their long-term interests with their firm’s. The people who lost the most when A.I.G. F.P. went down were the employees of A.I.G. F.P.: DeSantis himself had just watched more than half of what he’d made over the previous nine years vanish. The incentive system at A.I.G. F.P., created in the mid-1990s, wasn’t the short-term-oriented racket that helped doom the Wall Street investment bank as we knew it. It was the very system that U.S. Treasury secretary Timothy Geithner, among others, had proposed as a solution to the problem of Wall Street pay.
  
  Even more oddly, the public explanation of A.I.G.’s failure focused on the credit-default swaps sold by traders at A.I.G. F.P., when A.I.G.’s problems were clearly broader. There was the mortgage-insurance unit in North Carolina, United Guaranty, that had taken on all sorts of silly risks in the past two years, lost several billion dollars, and replaced their C.E.O. There were the fund managers at A.I.G., the parent company, who had blown nearly $50 billion on trades in subprime mortgages—that is, they had lost more than A.I.G. F.P., whose losses stood around $45 billion. And there was a pattern: all of this stuff had happened since 2005, after an accounting scandal forced C.E.O. Maurice “Hank” Greenberg to resign. Greenberg, who had headed A.I.G. since 1968, was a bullying, omnipotent ruler—one of those bosses who did not so much build a company as tailor it to his character and render it incapable of being run by anyone else. After he was forced out, Greenberg said, “The new management wanted to prove that they could continue to grow without former management” and so turned a blind eye to all sorts of risks. So how come most of the senior management at A.I.G. was left in place by the U.S. Treasury after the bailout? Why were officials, both public and private, so intent on leading others to believe all the losses at A.I.G. had been caused by a few dozen traders in this fringe unit in London and Connecticut?
  
  I had no idea, was busy doing other things, and had no special interest in Jake DeSantis’s predicament. I listened politely, made my excuses—and went back to whatever it was I’d been doing. But then, on March 19, the new C.E.O. of A.I.G., Edward Liddy, went to Washington to testify. The story broke—or, rather, rebroke, as it had been reported two weeks earlier, without stirring much notice—that A.I.G. F.P. had just shelled out $450 million in bonuses to the 400 employees of A.I.G. F.P., including to Jake DeSantis. It must have been an otherwise slow news day because all hell broke loose, in a way it hadn’t before and hasn’t since in this financial crisis. The perception was that the very same people who had made these insane, greed-driven decisions that might cost the U.S. taxpayer $182.5 billion were still paying themselves big bucks! An exchange between C.E.O. Liddy and Florida congressman Alan Grayson captured the spirit of that moment:
  
  grayson: Mr. Liddy, you said before that there’s 20 or 25 people who were involved in the credit default business. What are their names, please?
  
  liddy: I don’t have their names at my disposal, sir. grayson: Well, I’m sure you remember a few of the names. I mean, they did cause your company to crash.
  
  liddy: You know, I’ve been at the company, as you know, for six months. I don’t know all the people that were in AIG F.P., and many of them are gone.
  grayson: Well, there or gone, it doesn’t really matter. I want to know who they are. Names, please.…
  
  liddy: If it’s possible to provide you the names, we will. We will cooperate with you.
  
  grayson: That’s good, but I want to know the names that you know right now.
  
  liddy: I don’t know them, sir.
  
  grayson: Not a single one. You’re talking about a group, a small group of people who caused your company to lose $100 billion, as you sit here today, you can’t give me one single name.
  
  liddy: The single name I would give you is Joseph Cassano, who ran …
  
  grayson: That’s a good start. You already gave that name. Give me another name.
  
  liddy: I just don’t know them. I do not know those names. I don’t have them all at my command.
  
  grayson: Well, how can you propose to solve the problems of the company that you’re now running if you don’t know the names of the people who caused that problem? … I would expect you’d at least know more than one name. How about two names? Give us one more name.
  
  liddy: I’m just not going to do that, sir, because that will provide—that’ll be the—that could be a list of people that we could do—individuals who want to do damage to them could do that. It’s just not …
  
  grayson: Well, listen, these same people could now be working right now today at Citibank. Is it more important to protect them, the ones who caused the $100 billion loss, or protect us? Which is more important to you right now?
  
  For a brief moment you had a glimpse of how harshly financial people might be treated if Wall Street ever lost its political influence. Just days before, Larry Summers had gone on the morning talk shows to explain that a contract is a contract and the government couldn’t just go in and void it and take back A.I.G.’s paychecks, but that “every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve System.” Then Obama himself went out of his way to denounce the greed at A.I.G. F.P. and say he was looking for a way to get the bonus money back—and even that failed to slake the public anger. “On A.I.G.,” a journalist asked Obama at a press conference, “why did you wait—why did you wait days to come out and express that outrage? It seems like the action is coming out of New York and the attorney general’s office. It took you days to come public with Secretary Geithner and say, Look, we’re outraged. Why did it take so long?”
  
  “It took us a couple of days because I like to know what I’m talking about before I speak,” Obama said testily. “All right?”
  
  It’s unlikely that he actually did know what he was talking about, except in the broadest outlines. Nor, for that matter, did the people who had engineered the bailout. How could they? At no point did anyone from the U.S. Treasury or the U.S. Congress, or any of the various New York State authorities that had gotten involved, call them up, much less visit A.I.G. F.P.—as, say, someone might who was genuinely curious to know what, exactly, had happened there. Not even A.I.G. C.E.O. Ed Liddy had bothered to make the drive from Manhattan to Wilton, Connecticut, where many of the offending trades had been done, and most of the offending bonuses were being paid, to ask questions of the people still on the scene—people who could have told him a great deal about what had happened and why. Everyone seemed to be operating on whatever they read in the newspapers—and the people inside A.I.G. F.P., who had the best view of the action, did not appear to be talking to reporters. Depending on which account you read, you thought they had lost $40 billion, or $100 billion, or $152 billion. They had done this by selling credit-default swaps on subprime-mortgage bonds—which is to say they had insured Goldman Sachs, Deutsche Bank, Merrill Lynch, and the rest against Americans with weak credit histories defaulting on their mortgages. But why? Apparently, because they were greedy: the premiums they took in from the insurance allowed them to pay themselves big bonuses, which they’d grown so accustomed to that they now were reduced to stealing from the U.S. taxpayer. And that, it seemed, was that.
  
  The day after Liddy’s testimony, I got another call from Jake DeSantis. (I was still the only person “in the media” with whom he felt any connection.) He was upset. He’d turned down offers of more money from other people. He’d stayed only because the company had begged him to help clean up the mess: the bonus he was paid was the result of profits he had generated by selling off his trades in global equities—profits which almost surely would have been losses had he not hung around. He’d had nothing to do with the trades that lost money; the handful of people who’d known about them, when they happened, were long gone, and even they had been guided by a certain understandable logic. Now A.I.G.’s new leader, who had accepted these bonuses and run them by both the Treasury and the Federal Reserve, flies down to Washington and tells the world that he found the bonuses “distasteful.”
  
  “You go to church and you go to soccer practice and people look at you funny,” said DeSantis. “This is changing people’s views on who I am as a person.” He’d decided to resign, write a letter to Liddy, and, as he put it, “release it to the media.”
  
  It sounded like the sort of thing that might work on a TV show. “What does that mean: ‘Release it to the media’?” I asked. That, he said, was why he’d called me: he thought I knew how. Having no clue, I put him in touch with the editor of the New York Times op-ed page, who published Jake DeSantis’s letter of resignation on March 25 at the top of his page under the headline: dear a.i.g., i quit! In it Jake repeated what he’d told me, offered a bit of his life story, and confessed the size of his after-tax bonus ($742,006.40). He also explained that he had for a year spent up to 14 hours a day helping to dismantle the company and that he and the others who had nothing to do with the losses had agreed to do so based on the promise their contracts would be honored.
  
  It’s never easy to prove that a piece of writing causes anything, but Jake’s letter was an instant sensation. Bits of it were reprinted in major publications around the world. Within a few days it was the most sent, most blogged, and most read item on the Times’s Web site, and remained so for the entire month. Three point nine million browsers clicked on it and read it, and the tone of the public discussion changed. New York attorney general Andrew Cuomo stopped saying he intended to hound the millions paid to the people who worked at A.I.G. F.P., and started saying he was more interested in the $12.9 billion A.I.G. had paid out to Goldman Sachs, and others, to cover the massive bets against U.S. subprime mortgages that they had made with A.I.G. The House tax bill stalled in the Senate. I didn’t really know Jake DeSantis, but I thought, That was just incredibly brave. He stepped out alone in front of the mob and compelled it to disband, at least for the moment. But I never heard back from him. After a few days of not being able to open a newspaper or go to a Web site without seeing some reference to Jake DeSantis and his letter, I phoned him. “Oh hey,” he said cheerily. “They published my letter.”
  
  No shit, Jake.
  
  “Has it worked out O.K.?” I asked.
  
  “Oh yeah,” he said, “but I had to move my family out of our house.”
  
  He had woken up the morning his piece ran to find media trucks jamming the end of his driveway. He took his family out back through the woods—“We live in the middle of nowhere”—and secreted them at a friend’s house. “I’ve been going back and standing on the porch down the road and pretending to be a gawking neighbor,” he said, “but they’re all still there blocking the end of the driveway. They’re waiting for me to come back, I guess.” His voice mail, he said, was also jammed. “All these media people keep calling,” he said. “Like who?” I asked. “We don’t watch TV, so I don’t know who they are,” he said. I pressed him. “Well, there’s one guy who has been calling a bunch. Matt Lauer. I don’t know who he’s with.” The only caller he could completely identify was Katie Couric: “She called our mayor personally and tried to butter her up to get her to tell her where I am,” he said. (A Couric producer says, “Katie placed a brief call to the mayor, expressed interest in the interview, and nothing further happened.”) He suspected, probably rightly, that the media wanted him to play the role of the greedy Wall Street trader who had stolen millions and now claimed to feel misunderstood. “O.K.,” he said. “I can do this and probably not make an ass of myself. But I can do nothing and not make an ass of myself. I’ll stick with that.”
  
  With that, A.I.G. F.P. went dark again, which, I now realized, was a shame. DeSantis had established, sort of, what the people in his unit didn’t do. He’d left unexplained what exactly they did do.
  
  Here is an amazing fact: nearly a year after perhaps the most sensational corporate collapse in the history of finance, a collapse that, without the intervention of the government, would have led to the bankruptcy of every major American financial institution, plus a lot of foreign ones, too, A.I.G.’s losses and the trades that led to them still haven’t been properly explained. How did they happen? Unlike, say, Bernie Madoff’s pyramid scheme, they don’t seem to have been raw theft. They may have been an outrageous departure from financial norms, but, if so, why hasn’t anyone in the place been charged with a crime? How did an insurance company become so entangled in the sophisticated end of Wall Street and wind up the fool at the poker table? How could the U.S. government simply hand over $54 billion in taxpayer dollars to Goldman Sachs and Merrill Lynch and all the rest to make good on the subprime insurance A.I.G. F.P. had sold to them—especially after Goldman Sachs was coming out and saying that it had hedged itself by betting against A.I.G.? Since I had him on the phone I asked Jake DeSantis for what Congressman Grayson had asked Edward Liddy: names. He obligingly introduced me to his colleagues in London and Connecticut, and they walked me through what had happened—all of them speaking to someone from the outside for the first time. All, for obvious reasons, were terrified of seeing their names in print, and asked not to be mentioned by name. That was fine by me, as their names are not what’s interesting. What’s interesting is their point of view on the event closest to the center of the financial crisis. For while they disagreed on this and that, they all were fairly certain that if it hadn’t been for A.I.G. F.P. the subprime-mortgage machine might never have been built, and the financial crisis might never have happened.
  
  The Soul of a New Machine
  
  A.I.G. F.P. was created back in 1987 by refugees from Drexel Burnham, led by a trader named Howard Sosin, who claimed to have a better model to trade and value interest-rate swaps. Nineteen-eighties financial innovation had all sorts of consequences, but one of them was a boom in the number of deals between big financial firms that required them to take each other’s credit risks. Interest-rate swaps—in which a party swaps a stream of income from a floating rate of interest for one from a fixed rate of interest—was one such innovation.
  
  Once upon a time Chrysler issued a bond through Morgan Stanley, and the only people who wound up with credit risk were the investors who had bought the Chrysler bond. Now Chrysler might sell its bonds and simultaneously enter into a 10-year interest-rate-swap transaction with Morgan Stanley—and just like that Chrysler and Morgan Stanley were exposed to each other. If Chrysler went bankrupt, its bondholders obviously lost; depending on the nature of the swap and the movement of interest rates, Morgan Stanley might lose, too. If Morgan Stanley went bust, Chrysler along with anyone else who had done interest-rate swaps with Morgan Stanley stood to suffer. Financial risk had been created, out of thin air, and it begged to be either honestly accounted for or disguised.
  
  Enter Sosin, with his supposedly new and improved interest-rate-swap model (even though Drexel Burnham was not at the time a market leader in interest-rate swaps).
  
  There was a natural role for a blue-chip corporation with the highest credit rating to stand in the middle of swaps and long-term options and the other risk-spawning innovations. The traits required of this corporation were that it not be a bank—and thus subject to bank regulation and the need to reserve capital against the risky assets—and that it be willing and able to bury exotic risks on its balance sheet. There was no real reason that company had to be A.I.G.; it could have been any AAA-rated entity with a huge balance sheet. Berkshire Hathaway, for instance, or General Electric. A.I.G. just got there first.
  
  In a financial system that was rapidly generating complicated risks, A.I.G. F.P. became a huge swallower of those risks. In the early days it must have seemed as if it was being paid to insure against events extremely unlikely to occur—how likely was it that all sorts of companies and banks all over the globe would go bust at the same time? Its success bred imitators: Zurich Re F.P., Swiss Re F.P., Credit Suisse F.P., Gen Re F.P. All of these places were central to what happened in the last two decades; without them the new risks being created would have had no place to hide, but would have remained in full view of bank regulators. All of these places have been washed away by the general nausea now felt in the presence of complicated financial risks, but there was a moment when their existence seemed cartographically necessary to the financial world. And A.I.G. F.P. was the model for them all.
  
  The division’s first 15 years were consistently, amazingly profitable—there wasn’t the first hint that it might be running risks that would cause it to lose money, much less cripple its giant parent. Its traders were able to claim that they were “hedged,” and even if the term was misleading, they never sold exactly the same thing as the thing they had bought—there was always some slight difference. The risks it ran were probably trivial in relation to its capital, because the risks that the financial system wanted to lay off on it were, in fact, not terribly risky. One indication of this is that, even in the middle of the calamity, the 95 percent of A.I.G. F.P. that had nothing to do with subprime-mortgage bonds continued to generate profits. By 2001, A.I.G. F.P. could be counted on to generate $300 million a year, or 15 percent of A.I.G.’s profits.
  
  Meanwhile, the people who worked at A.I.G. F.P. got rich. Exactly how rich is hard to say, but there are plenty of hints. One is that a company lawyer—a mere lawyer!—took home a $25 million bonus at the end of one year. Another is that in 2005, when Howard Sosin and his wife divorced, she received more than $40 million of an estate valued at $168 million—and Sosin had left A.I.G. in 1993, receiving $182 million from the company! He had been replaced that year as C.E.O. by a gentler soul named Tom Savage, who had allowed Hank Greenberg to take some of the sugar out of F.P., but even then the small band of traders had, arguably, a sweeter deal than any money managers in the world. The typical hedge fund kept 20 percent of profits; the traders at A.I.G. F.P. kept 30 to 35 percent. The typical hedge fund or private-equity fund has to schlep around and raise money all the time, and post collateral with big Wall Street firms for all the trades they do. The traders at A.I.G. F.P. had essentially unlimited capital on tap from the parent company, along with the AAA rating, rent-free. For the people who worked there, A.I.G. F.P. was a financial miracle. They were required to leave 50 percent of their bonuses in the company, but they were happy to do so; many of them, viewing it as the best way to grow their own savings, invested far more than the minimum back in the company. When it collapsed, the employees lost more than $500 million of their own money.
  
  How and why their miracle became a catastrophe, A.I.G. F.P.’s traders say, is a complicated story, but it begins simply: with a change in the way decisions were made, brought about by a change in its leadership. At the end of 2001 its second C.E.O., Tom Savage, retired, and his former deputy, Joe Cassano, was elevated. Savage is a trained mathematician who understood the models used by A.I.G. traders to price the risk they were running—and thus ensure that they were fairly paid for it. He enjoyed debates about both the models and the merits of A.I.G. F.P.’s various trades. Cassano knew a lot less math and had much less interest in debate.
  
  It’s impossible to deliver the full flavor of a man’s character without talking to him, and relying instead upon a bunch of people who remain afraid of seeing their names in print. That Joe Cassano is the son of a police officer and was a political-science major at Brooklyn College seems, in retrospect, far less relevant than that he’d spent most of his career, both at Drexel and A.I.G. F.P., in the back office, doing operations. Across A.I.G. F.P. the view of the boss was remarkably consistent: a guy with a crude feel for financial risk but a real talent for bullying people who doubted him. “A.I.G. F.P. became a dictatorship,” says one London trader. “Joe would bully people around. He’d humiliate them and then try to make it up to them by giving them huge amounts of money.”
  
  “One day he got me on the phone and was pissed off about a trade that had lost money,” says a Connecticut trader. “He said, ‘When you lose money it’s my fucking money. Say it.’ I said, ‘What?’ ‘Say “Joe, it’s your fucking money!”’ So I said, ‘It’s your fucking money, Joe.’”
  
  “The culture changed,” says a third. “The fear level was so high that when we had these morning meetings you presented what you did not to upset him. And if you were critical of the organization, all hell would break loose.” Says a fourth, “Joe always said, ‘This is my company. You work for my company.’ He’d see you with a bottle of water. He’d come over and say, ‘That’s my water.’ Lunch was free, but Joe always made you feel he had bought it.” And a fifth: “Under Joe the debate and discussion that was common under Tom [Savage] ceased. I would say what I’m saying to you. But with Joe over my shoulder as the audience.” A sixth: “The way you dealt with Joe was to start everything by saying, ‘You’re right, Joe.’”
  
  According to traders, Cassano was one of those people whose insecurities manifested themselves in a need for obedience and total control. “One day he came in and saw that someone had left the weights on the Smith machine, in the gym,” says a source in Connecticut. “He was literally walking around looking for people who looked buff, trying to find the guy who did it. He was screaming, ‘Who left the fucking weight on the fucking Smith machine? Who left the fucking weight on the fucking Smith machine?’” If that rings a bell it may be because you read The Caine Mutiny and recall Captain Queeg scouring the ship to find out who had stolen the strawberries. Even by the standards of Wall Street villains, whose character flaws wind up being exaggerated to fit the crime, Cassano was a cartoon despot.
  
  Oddly, he was as likely to direct his anger at profitable traders as at unprofitable ones—and what caused him to become angry was the faintest whiff of insurrection.
  
  Even more oddly, his anger had no obvious effect on the recipient’s paycheck; a trader might find himself routinely abused by his boss and yet delighted by his year-end bonus, determined by that same boss. Every one of the people I spoke with admitted that the reason they hadn’t taken a swing at Joe Cassano, before walking out the door, was that the money was simply too good. A man who valued loyalty and obedience above all other traits had not any tools to command them except money. Money worked, but only up to a point. If you were going to be on the other side of a trade from Goldman Sachs, you had better know what, exactly, Goldman Sachs was up to. A.I.G. F.P. could attract extremely bright people, whose success depended on precision of both calculation and judgment. It was now run, roughly, by a man who didn’t fully understand all the calculations and whose judgment was clouded by his insecurity. The few people willing to question that judgment wound up quitting the firm. Left behind were people who more or less accommodated Cassano. “If someone is a complete asshole,” one of them puts it to me, “you seek his approval in a way you don’t if he’s a nice guy.”
  
  All of which raises an obvious question: Who put a man like Joe Cassano in charge of such an enterprise as A.I.G. F.P.? The simple answer is Hank Greenberg, the C.E.O. of A.I.G.; the more complicated one is A.I.G. F.P.’s board, consisting of many smart people, including Harvard economist Martin Feldstein. “Tom Savage proposed Joe to replace him,” says Greenberg, “and we had no reason to think he wasn’t able to do the job.”
  
  A.I.G. F.P.’s employees for their part suspect that the only reason Greenberg promoted Cassano was that he saw in him a pale imitation of his own tyrannical self and felt he could control him. “So long as Greenberg was there, it worked,” says one trader, “because he watched everything Joe did. After the Nikkei collapsed [in the 1990s], a trader in Japan lost 20 million. Greenberg personally flew to Tokyo and took him into a room and grilled him until he was satisfied.” In March 2005, however, Eliot Spitzer forced Greenberg to resign. And, as one trader puts it, “the new guys running A.I.G. had no idea.” They thought the money machine ran on its own, and Cassano did nothing to discourage the view. By 2005, A.I.G. F.P. was indeed, in effect, his company.
  
  But even here the story’s messier than its broad outlines. For a start, the guy who had the most invested in A.I.G. F.P. was Joe Cassano. Cassano had been paid $38 million in 2007, but left $36.75 million of that inside the firm. His financial interest in A.I.G. F.P. struck those who worked for him as secondary to his psychological investment: the firm was, by all accounts, Cassano’s sole source of self-worth, its success his lone status symbol. He wore crappy clothes, drove a crappy car, and spent all of his time at the office. He had made huge piles of money ($280 million!), but so far as anyone could tell he didn’t spend any of it. “Joe wasn’t a trader and now he wasn’t a risktaker, in his personal life,” says one of the traders. “With the money he didn’t have in the company he bought Treasury bonds.” He had no children, no obvious social ambition; his status concerns seemed limited to his place in the global financial order. He entertained a notion of himself as the street-smart guy who had triumphed over his social betters—which of course implied that he wasn’t quite sure that he had. “Joe had Goldman envy,” one trader tells me—which was strange, as Cassano’s brother and sister both worked for Goldman Sachs. “His whole life was F.P.,” another trader says. “Without F.P. he had nothing.” That was another reason, in addition to fear, that the highly educated, highly intelligent people who worked for Joe Cassano were slow to question whatever he was doing: he was the last person, they assumed, who would blow the place up.
  
  The more subtle change inside A.I.G. F.P. occurred not long after Cassano assumed control. In 1998, A.I.G. F.P. had entered the new market for credit-default swaps: it sold insurance to banks against the risk of defaults by huge numbers of investment-grade public corporations. As Gillian Tett tells it in her new book, Fool’s Gold, bankers at J. P. Morgan, having invented credit-default swaps, went looking for an AAA-rated company to assume the bulk of the risk associated with them, and discovered A.I.G. The relationship began innocently enough, by Wall Street standards. The risk in these early deals was indeed small: it was unlikely that large numbers of investment-grade companies in different countries and different industries would default on their debt at the same time. (Even now A.I.G. F.P.’s $450 billion portfolio of corporate credit-default swaps, which dwarfs the $75 billion portfolio of subprime-mortgage credit-default swaps, has avoided losses.) But it made explicit what until then had only been implicit: A.I.G. F.P. was the most receptive dumping ground for new risks created by big Wall Street firms.
  
  And in the early 2000s, the big Wall Street firms performed this fantastic bait and switch in two stages. Stage One was to apply technology that had been dreamed up to re-distribute corporate credit risk to consumer credit risk. The banks that used A.I.G. F.P. to insure piles of loans to IBM and G.E. now came to it to insure much messier piles that included credit-card debt, student loans, auto loans, prime mortgages, and just about anything else that generated a cash flow. “The problem,” as one trader puts it, “is that something else came along that we thought was the same thing as what we’d been doing.” Because there were many different sorts of loans, to different sorts of people, the logic applied to corporate credit seemed to apply to this new pile of debt: it was sufficiently diverse that it was unlikely to all go bad at once. But then, these piles, at least at first, contained almost no subprime-mortgage loans.
  
  Toward the end of 2004, that changed dramatically—but just how dramatically A.I.G. F.P. was extremely slow to realize. In the run-up to the financial crisis there were several moments when an intelligent, disinterested observer might have realized that the system was behaving strangely. Maybe the most obvious of these was the effects of U.S. monetary policy on borrowing and lending. The combination of the dot-com bust and the 9/11 attacks had led Alan Greenspan to pump money into the system, and to lower interest rates. In June 2004 the Fed began to contract the money supply, and interest rates rose. In a normal economy, when interest rates rise, consumer borrowing falls—and in the normal end of the U.S. economy that happened: from June 2004 to June 2005 prime-mortgage lending fell by half. But in that same period subprime lending doubled—and then doubled again. In 2003 there had been a few tens of billions of dollars of subprime-mortgage loans. From June 2004 until June 2007, Wall Street underwrote $1.6 trillion of new subprime-mortgage loans and another $1.2 trillion of so-called Alt-A loans—loans which for some reason or another can be dicey, usually because the lender did not require the borrower to supply him with the information typically required before making a loan. The subprime sector of the financial economy clearly was responding to different signals than the others—and the result was booming demand for housing and a continued rise in house prices. Perhaps the biggest reason for this was that the Wall Street firms packaging the loans into bonds had found someone to insure against what turned out to be the rather high risk that they’d go bad: Joe Cassano.
  
  A.I.G. F.P. was already insuring these big, diversified, AAA-rated piles of consumer loans; to get it to insure subprime mortgages was only a matter of pouring more and more of the things into the amorphous, unexamined piles. They went from being 2 percent subprime mortgages to being 95 percent subprime mortgages. And yet no one at A.I.G. said anything about it—not C.E.O. Martin Sullivan, not Joe Cassano, not Al Frost, the guy in A.I.G. F.P.’s Connecticut office in charge of selling his firm’s credit-default-swap services to the big Wall Street firms. The deals, by all accounts, were simply rubber-stamped by Cassano and then again by A.I.G. brass—and, on the theory that this was just more of the same, no one paid them special attention. It’s hard to know what Joe Cassano thought and when he thought it, but the traders inside A.I.G. F.P. are certain that neither Cassano nor the four or five people overseen directly by him, who worked in the unit that made the trades, realized how completely these piles of consumer loans had become, almost exclusively, composed of subprime mortgages.
  
  The Big Switch
  
  Gene Park worked in the Connecticut office and sat close enough to the credit-default-swap traders to have a general idea of what they were up to. In mid-2005 he’d read a front-page story in The Wall Street Journal about the mortgage lender New Century. He noted how high its dividend was and thought he might like to buy some of its stock for himself. As he dug into New Century, however, Park saw that it owned all these subprime mortgages—and he could see from its own statements that the quality of the loans was frightening. Just after that he got a phone call from a penniless, jobless old college friend who had been offered a package of loans to buy a house he couldn’t afford. At the same time, Park saw Al Frost announcing new credit-default-swap deals at an alarming rate. A year before, Frost might have had one half-billion-dollar deal each month; now he was doing 20, all on piles of consumer loans. “We were doing every single deal with every single Wall Street firm, except Citigroup,” says one trader. “Citigroup decided it liked the risk and kept it on their books. We took all the rest.” When traders asked Frost why Wall Street was suddenly so eager to do business with A.I.G., says a trader, “he would explain that they liked us because we could act quickly.” Park put two and two together and guessed that the nature of these piles of consumer loans insured by A.I.G. F.P. was changing, that they contained a lot more subprime mortgages than anyone knew, and that if U.S. homeowners began to default in sharply greater numbers A.I.G. didn’t have anywhere near the capital required to cover the losses. He told Andy Forster, Cassano’s right-hand man in London, who brought this up at a meeting, but Cassano dismissed the concerns as overblown.
  
  Oddly, this dramatic increase in the amount of risk A.I.G. F.P. was assuming came at exactly the moment when it lost the reason for its existence. The day after Hank Greenberg was forced to resign, in March 2005, the credit-rating agencies downgraded A.I.G. from AAA to AA. The AAA rating was the competitive advantage; without it, the natural course of action would have been to close or dramatically shrink A.I.G. F.P.’s business. Instead, Cassano grew it.
  
  Toward the end of 2005, Cassano promoted Al Frost, then went looking for someone to replace him as the ambassador to Wall Street’s subprime-mortgage-bond desks. As a smart quant who understood abstruse securities, Gene Park was a likely candidate. That’s when Park decided to examine more closely the loans that A.I.G. F.P. had insured. He suspected Joe Cassano didn’t understand what he had done, but even so Park was shocked by the magnitude of the misunderstanding: these piles of consumer loans were now 95 percent U.S. subprime mortgages. Park then conducted a little survey, asking the people around A.I.G. F.P. most directly involved in insuring them how much subprime was in them. He asked Gary Gorton, a Yale professor who had helped build the model Cassano used to price the credit-default swaps. Gorton guessed that the piles were no more than 10 percent subprime. He asked a risk analyst in London, who guessed 20 percent. He asked Al Frost, who had no clue, but then, his job was to sell, not to trade. “None of them knew,” says one trader. Which sounds, in retrospect, incredible. But an entire financial system was premised on their not knowing—and paying them for their talent!
  
  By the time Joe Cassano invited Gene Park to London for the meeting in which he would be “promoted” to the job of creating even more of these ticking time bombs, Park knew he wanted no part of it. He announced that, if he was made to take the job, he’d quit. (Had he taken it he would now be a magazine cover.)
  
  This, naturally, infuriated Joe Cassano, who, says one trader, thought Park was being lazy, dreaming up reasons not to do the deals that would require work. Confronted with the new development—his company was insuring not consumer credit generally but subprime mortgages—Cassano didn’t blink. He simply claimed that the fact was irrelevant: for the bonds to default, U.S. house prices had to fall, and Cassano didn’t believe house prices could ever fall everywhere in the country at once. After all, Moody’s and S&P still rated this stuff AAA!
  
  Still, Cassano agreed to meet with all the big Wall Street firms and discuss the logic of their deals—to investigate how a bunch of shaky loans could be transformed into AAA-rated bonds. Together with Park and a few others, Cassano set out on a series of meetings with Morgan Stanley, Goldman Sachs, and the rest—all of whom argued how unlikely it was for housing prices to fall all at once. “They all said the same thing,” says one of the traders present. “They’d go back to historical real-estate prices over 60 years and say they had never fallen all at once.” (The lone exception, he said, was Goldman Sachs. Two months after their meeting with the investment bank, one of the A.I.G. F.P. traders bumped into the Goldman guy who had defended the bonds, who said, Between you and me, you’re right. These things are going to blow up.) The A.I.G. F.P. executives present were shocked by how little actual thought or analysis seemed to underpin the subprime-mortgage machine: it was simply a bet that U.S. home prices would never fall. Once he understood this, Joe Cassano actually changed his mind. He agreed with Gene Park: A.I.G. F.P. shouldn’t insure any more of these deals. And at the time it didn’t really seem like all that big of an issue. A.I.G. F.P. was generating around $2 billion year in profits. At the peak, the entire credit-default-swap business contributed only $180 million of that. He was upset, it seemed, mainly that he had been successfully contradicted.
  
  What no one realized was that it was too late. A.I.G. F.P.’s willingness to assume the vast majority of the risk of all the subprime-mortgage bonds created in 2004 and 2005 had created a machine that depended for its fuel on subprime-mortgage loans. “I’m convinced that our input into the system led to a substantial portion of the increase in housing prices in the U.S. We facilitated a trillion dollars in mortgages,” says one trader. “Just us.” Every firm on Wall Street was making fantastic sums of money from this machine, but for the machine to keep running the Wall Street firms needed someone to take the risk. When Gene Park informed them that A.I.G. F.P. would no longer do so—Hello, my name is Gene Park and I’m closing down your business—he became the most hated man on Wall Street.
  
  The big Wall Street firms solved the problem by taking the risk themselves. The hundreds of billions of dollars in subprime losses suffered by Merrill Lynch, Morgan Stanley, Lehman Brothers, Bear Stearns, and the others were hundreds of billions in losses that might otherwise have been suffered by A.I.G. F.P. Unwilling to take the risk of subprime-mortgage bonds in 2004 and 2005, the Wall Street firms swallowed the risk in 2006 and 2007. Lending standards had fallen, property values had risen, and the more recent loans were thus far riskier than the earlier ones, but still they gobbled them up—for if they didn’t, the machine would have ceased to function. The people inside the big Wall Street firms who ran the machine had made so much money for their firms that they were now, in effect, in charge. And they had no interest in anything but keeping it running. A.I.G. F.P. wasn’t an aberration; what happened at A.I.G. F.P. could have happened anywhere on Wall Street … and did.
  
  As recently as August 2007, A.I.G. F.P. traders were feeling almost smug: all these loans made in 2006 and 2007 were going bad, but the relatively more responsible 2005 vintage that they had insured didn’t look as if it would suffer any credit losses. They were, they thought, the smart guys at the poker table. Joe Cassano even went on an investor conference call and said, famously, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 on any of those transactions.”
  
  Say It Ain’t So, Joe
  
  What no one realized is that Joe Cassano, in exchange for the privilege of selling credit-default swaps on subprime-mortgage bonds to Goldman Sachs and Merrill Lynch and all the rest, had agreed to change the traditional terms of trade between A.I.G. and Wall Street. In the beginning, A.I.G. F.P. had required its counter-parties simply to accept its AAA credit: it refused to post collateral. But in the case of the subprime-mortgage credit-default swaps, Cassano had agreed to several triggers, including A.I.G.’s losing its AAA credit rating, that would require the firm to post collateral. If the value of the underlying bonds fell, it would fork over cash, so that, for instance, Goldman Sachs would not need to be exposed for more than a day to A.I.G. Worse still, Goldman Sachs assigned the price to the underlying bonds—and thus could effectively demand as much collateral as it wanted. In the summer of 2007, the value of everything fell, but subprime fell fastest of all. The subsequent race by big Wall Street banks to obtain billions in collateral from A.I.G. was an upmarket version of a run on the bank. Goldman Sachs was the first to the door, with shockingly low prices for subprime-mortgage bonds—prices that Cassano wanted to dispute in court, but was prevented by A.I.G. from doing so when he was fired. A.I.G. couldn’t afford to pay Goldman off in March 2008, but that was O.K. The U.S. Treasury, led by the former head of Goldman Sachs, Hank Paulson, agreed to make good on A.I.G.’s gambling debts. One hundred cents on the dollar.
  
  A pair of ancient maples shade Joe Cassano’s London home. It’s a tasteful, almost inconspicuous place on a square, one of the best in London, just around the corner from Harrods. Only the living-room drapes are left open, to let in the spring light. Four black porcelain elephants decorate the windowsill. Behind them a shadow moves through the room.
  
  Cassano resigned from A.I.G. F.P. early last year, but he didn’t simply leave. He continued to turn up at his desk and spend the day staring at his Bloomberg TV. The traders thought it strange; only later did they learn that A.I.G. was still paying him $1 million a month to consult. As far as anyone could tell, he had nothing to do. And then one day he simply stopped showing up. From time to time they spotted him cycling past their Mayfair office. Every now and again some British newspaper snapped a picture of him exiting his house with his racing bike. Apart from that he had as good as vanished. His absence is as frustrating as it is expected—the people best positioned to explain this financial disaster have all similarly vanished from view. It would be nice if Joe Cassano came out of hiding and tried to explain what he did and why, but there is little chance of that.
  
  The people still left inside A.I.G. F.P. like to list just how many things had to go wrong for their business to implode. Any one of a number of things might have sufficed to avert their catastrophe: our political leaders might have decided against the Wall Street argument not to regulate credit-default swaps; the ratings agencies might have resisted the Wall Street argument to rate subprime bonds AAA; Wall Street banks, in 2006 and 2007, might have declined to replace A.I.G. F.P. in the role of subprime risktaker of last resort; and on and on. Their list is mostly a catalogue of large, impersonal forces. But impersonal forces require people to conspire with them. Joe Cassano was the perfect man for these times—as responsible for a series of disastrous trades as a person in a big company can be. He discouraged the dissent of subordinates who understood them better than he did. He acted with the approval of A.I.G., but he also must have known that A.I.G. wasn’t able to evaluate his trades. Once he was persuaded to stop insuring subprime-mortgage bonds, the logical course of action was to reverse the deals he had already done. In 2006 he might have found a way to do this, if he had been willing to accept the costs involved, but he wasn’t. Had he been, the machine he helped to create would have kept running—by then it had a life of its own—and the losses would have simply wound up more concentrated inside the big banks. But he’d have saved his company. No one would be blaming Jake DeSantis for blowing up the world.
  
  And yet the A.I.G. F.P. traders left behind, much as they despise him personally, refuse to believe Cassano was engaged in any kind of fraud. The problem is that they knew him. And they believe that his crime was not mere legal fraudulence but the deeper kind: a need for subservience in others and an unwillingness to acknowledge his own weaknesses. “When he said that he could not envision losses, that we wouldn’t lose a dime, I am positive that he believed that,” says one of the traders. The problem with Joe Cassano wasn’t that he knew he was wrong. It was that it was too important to him that he be right. More than anything, Joe Cassano wanted to be one of Wall Street’s big shots. He wound up being its perfect customer. ( Source: here )

Berkshire's Sitting On A Tidy Profit From Its Investment In Goldman Sachs

Here is the chart of Goldman Sachs.

It was just on 24 September 2008, Warren Buffett Gives Goldman Sachs A Vote Of Confidence!

• Goldman (GS, Fortune 500) will sell $5 billion of preferred stock to the insurance and investment giant, which will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, the company announced Tuesday. Berkshire (BRKA, Fortune 500) has five years to exercise the warrants.

At around 149.00 plus or minus a buck or two, this would translate to a nice paper gain of 29.5%. Not forgetting the fact that this stake carried a 10% yield dividend.

Of course as can be seen in the above chart when Goldman Sachs sank to 50, Buffett was criticised heavily.

See past posting also: Warren Buffet Talks About Goldman Sachs Investment: Transcript of CNBC Interview

ps: worth a read Spitzer Agonistes Redux

Singapore Out Of Recession

On Channelnewsasia.com, Strong growth suggests Singapore emerging from recession

• Strong growth suggests Singapore emerging from recession
  Posted: 14 July 2009 1340 hrs
  
  SINGAPORE - Singapore said Tuesday its economy grew for the first time in a year in the second quarter, suggesting the city is emerging from its worst recession and offering hope for other battered Asian economies.
  
  Powered by electronics and biomedical exports, the economy soared 20.4 percent in the three months to June compared with the first quarter on a seasonally adjusted annualised basis, the Ministry of Trade and Industry said.
  
  A Dow Jones Newswires poll of 10 analysts had tipped an average 14.1 percent economic expansion. It was the first quarter-on-quarter growth in five quarters.
  
  Gross domestic product (GDP) is now expected to contract 4-6 percent for the year, better than an earlier projection of 6-9 percent, but the ministry warned that any recovery would be weak due to the fragile global economy.
  
  Trade-driven Singapore last sank into a recession in 2001 when the economy shrank 2.4 percent, its worst slump since gaining statehood in 1965.
  
  It became the first Asian economy to slip into recession in the second half of last year after a financial and economic crisis that started in the United States hit demand for its exports.
  
  Tuesday's data meant that Singapore is the first of the Asian countries hit by recession to release statistics pointing to a recovery.
  
  Compared with the previous year, however, output in the June quarter was down 3.7 percent, indicating that any recovery would be fragile.
  
  "The economy is growing again," said David Cohen, an economist with research house Action Economics. "Growth won't be very strong but it should remain in an upward trajectory," he told AFP.
  
  Tuesday's data compare with a 14.6 percent quarter on quarter contraction in the three months to March.
  
  DBS Group called it a "stunning turnaround" in line with its forecast.
  
  CIMB-GK Research economist Song Seng Wun said the June quarter rebound boosted hopes that the worst is also over for China, South Korea, Hong Kong, Taiwan and other Asian economies affected by the global crisis.
  
  These economies are expected to report their second-quarter performances in the next few weeks.
  
  "Because Singapore has an open economy and has the highest exports to GDP ratio, its performance reflects any improvement or deterioration in global demand," Song said.
  
  South Korea's expected recovery could ride on the back of firmer orders for its gadgets like mobile phones and flat screen panels, he said.
  
  Any rebound in Taiwan is likely to be boosted by demand for electronic items, while China will get help from its domestic stimulus package, he added.
  
  Action Economics' Cohen predicted the Singapore data "will be the first in a series of upbeat GDP reports for the second quarter from Asian economies."
  
  "Maybe this will provide some reassurance to the markets which have been jittery in the last few weeks about the sustainability of the recovery. It shows that Asian economies have turned the corner in the second quarter."
  
  Song said the question for Asia is whether the rebound will be sustained.
  
  He noted that leading industrialised countries make up half of the world economy and many of them are still reeling from the recession, limiting their demand for Asia-made goods.
  
  Singapore's trade ministry also cautioned that "the outlook for the rest of the year remains largely unchanged: of a weak recovery susceptible to downside risks."
  
  While the key manufacturing sector contracted by 1.5 percent in the June quarter, much narrower than the 24.3 percent shrinkage in the previous three months due to the spike in pharmaceuticals and electronics, the services sector was down 5.1 percent, it said.
  
  Rising unemployment and reduced consumer spending in major export markets such as the United States and Europe reflected the continued weakness in the global economy, the ministry noted.

My only comment was what's highlighted in red bold. :D

See also Singapore out of recession in 2Q , Singapore growth suggests recession lifting and http://www.forbes.com/2009/07/14/briefing-asia-closing-markets-equity-singapore.html

Now from Singapore MTI: Real GDP rose by 20.4% in 2Q2009 on a quarter-on-quarter seasonally adjusted annualised basis, in contrast with the 12.7% contraction in 1Q2009. Real GDP growth in 2009 is expected to contract by 4.0% to 6.0%.

OSK Report On JAKS Resources

You are a research house. You have a stock trading at around 0.77. You reckon it's worth 1.23. What do you do?

1. Make a buy call.
2. Neutral.
3. Sell

Unable to decide?

Here is the said stock chart.

How?

If the stock is trading at 0.77 and you think it's worth 1.23, surely you would make a BUY call, yes?

Well, if you are OSK, you could the following statement.

• We derive an indicative trading target of RM1.23 for the stock but do not have a call on the company!

I am so confused. OSK managed to produce a huge 7 page report but would not commit to any CALLS on the stock despite the huge disparity between the current traded stock price and their target price. Well I wonder why.

As I was reading the report, the revenue/net profit historical trend chart caught my attention.


Hmm... at first I thought JAKS was making good money with the long GOLDEN bars drawn on the chart. Then I looked closer. The GOLDEN bards represented revenue.

Then I noted the value stated on the right of the horizontal axis. I saw where the zero was. And then I noted the thin line across the chart represented net profits and I saw how many times the profit line went below zero!

Oh... JAKS is not a company with a strong historical track record.

So I wondered what was OSK's earnings forecast for JAKS.


Hmm ... as per OSK numbers, JAKS lost 6 million in FY 2006, JAKS made 12.4 million in FY 2007 and JAKS made 2.9 million in FY 2008. And OSK forecast for FY 2009 is 22.6 million!!!

Rather optimistic because ....... err..... Quarterly rpt on consolidated results for the financial period ended 30/4/2009

That was JAKS last reported earnings on 29th June 2009. JAKS half year 2009 earnings is a loss of 3.82 million.

Hmmm...... and OSK has a forecast of 22.6 million for JAKS for FY 2009!

Optimistic eh?

And then OSK tried to 'explain' how it got the fair value of 1.23.


Historical Average PER?

Historical Average PBV?

Gosh.. could someone explain to me. :p2

How?

I still do not understand hor.

If JAKS's fair value is worth so much at 1.23 and JAKS is only trading at 0.77, why OSK doesn't want to make a call on this stock? Yeah, did I not mention that OSK report on JAKS was rather long - 7 pages? ( Err.. write so long why no make call?)

What Hope For Malaysian Investing Public When Research House Makes Such Calls?

Here's a simple question.

If you are a research house and you lower a stock target price from 1.75 to 1.48, how should you classify your stock call?

1. Buy?
2. Neutral?
3. Sell?

Well, OSK calls it a TRADING BUY, Maintained!

LOL! I joke you not!

• Reiterate Trading BUY but at a lower fair value. The rebound in crude oil price is converse to the company’s decision to unwind all its fuel hedge positions in FY08, which also suggests operating cost will be higher. This prompts us to revise downwards our FY10 earning by 15.5% and our fair value to RM1.48. However, as the company’s ongoing fund raising exrcise may provide some excitement for its share price performance, we maintain our Trading BUY recommendation.

Price revised downwards by 15.5%

I am so confused, if it lowers the target price by so much, why can't OSK call it a sell?

Anyway, to recap, posted last month Here's A Nice Stock 'Tip' From OSK. If I take down all the buy calls from 2nd December 2008 to now, this is what I will get.

• 2nd December 2008. AirAsia is still a SELL with a target of 67 sen
• 9th December 2008. AirAsia is still a SELL with a target of 67 sen
• 23rd December 2008: AirAsia is now NEUTRAL with a target price of 0.93!!!!
• 29 May 2009, AirAsia is now a TRADING BUY with a target price of 1.78!!!!
• 14 July 2009. TRADING BUY maintained with a target price of 1.45!!!!

And my favourite Bahasa Malaysia phrase to reflect all of this, just has to be 'Macam mana ni?'.

In a span of just 8 months, how could a 'value' of a company move from 67 sen to 93 sen to 1.78 and back down to 1.45?

What hope does the Malaysian investing public have when a research house like OSK makes recommendations like this?

Should I Buy GLD ETF?

If you are interested in GLD, the gold ETF, take note of the following interesting posting made by Rob Kirby. Rob highlights GATA board member Adrian Douglas' paper titled The Alchemists in his FinancialSense market wrap commentary.

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

Douglas points out that,

• “this means is that contracts can essentially be settled without going through the COMEX warehouse. Futures contracts and a physical commodity equivalent can be exchanged outside of the exchange and an EFP form can be filed to the clearing department at the COMEX. What's more, the physical commodity doesn't have to meet the specification of the COMEX Gold Contract of being a 100 troy ounce bar or three 1Kg bars of .995 fineness.”

It used to be that the COMEX standard for good delivery gold was .995 fineness ONLY.

So, why was this standard altered?

Douglas also points out how the COMEX amended its rules back on Feb. 18, 2005;

• Exchange Rule 104.36, which governs exchange of futures for physicals ('EFP') transactions on the COMEX Division, refers to a 'physical commodity' as one of the required components of an EFP transaction but also indicates that the physical commodity need only be substantially the economic equivalent of the futures contract being exchanged.

I’d like everyone to stop and think about the verbiage this statement: “substantially the economic equivalent.”

Sounds pretty vague, doesn’t it?

Coin Melt Qualifies as a “Substantially Economic Equivalent”

22 Carat Coin Melt: Interestingly, anecdotal reports began surfacing around the world in recent years that gold bars of less than .995 fineness have been appearing with increasing regularity. It is also a matter of historical fact that the U.S. sovereign gold reserve is understood to be the world’s largest repository of gold less than .995 fineness; resulting from President Roosevelt’s gold confiscation back in 1933. Circulating gold coins were struck in 22 carat gold – the addition of hardening alloys gave the coins more durability. Could this twisted / ambiguous verbiage be the means by which Sovereign U.S. coin melt [22 Carat gold] was / is being mobilized in an attempt to satiate growing international demand for gold bullion?

If such were the case, that would necessarily imply that the U.S. Treasury / and the private Federal Reserve [they are one and the same, aren’t they?] have “swapped” their less than .995 fineness gold, eh?

Interestingly, back in October, 1997, James Turk reported;

• “We now have more evidence that all may not be well in Fort Knox. Many thanks go to Bill Rummel of Charleston, South Carolina for bringing the following to my attention.
  
  The US Treasury quietly made a subtle change to its weekly reports of the US International Reserve Position, which includes the US Gold Reserve. This change was first made on May 14th. The differences can be seen by comparing the report’s old format release on May 8th to the new format used the following week. Here are the links:
  http://www.treas.gov/press/releases/2007581342179779.htm http://www.treas.gov/press/releases/20075141738291821.htm
  
  Note the additional description of gold provided in the new reporting format. It says the US Gold Reserve is 261.499 million ounces and importantly, that the gold is now reported “including gold deposits and, if appropriate, gold swapped” [emphasis added].
  
  This description provides clear evidence that the US Gold Reserve is in play. Gold has been removed from US Treasury vaults and placed on deposit, presumably in the couple of bullion banks the Treasury has selected to assist with its gold price capping efforts.
  
  Gold placed on deposit gets loaned out by these bullion banks, and then sold into the spot market to try capping the gold price. The same thing happens with swaps, but the vague language in the note to the Treasury reports makes it uncertain whether they are in fact being used at the moment.

Speaking of ambiguous verbiage where gold is concerned, let’s not forget how the U.S. Treasury “reclassified” its definition of sovereign U.S. gold stocks back in 2001; first from Sovereign Gold to “Custodial Gold”; and then from “Custodial Gold” to “Deep Storage Gold.” The former change is highly suggestive of a change of ownership and the latter further suggesting that sovereign physical gold stocks have been mobilized.

The notion that sovereign entities would swap physical gold for yet-to-be-mined gold, or, gold-of-one fineness for another should come as no surprise to anyone. It is a matter of historical fact that “gold quality swaps” are part of the deceptive means by which sovereign entities shroud their price suppressive dealings in gold [definition footnoted on the bottom of page 6 here]:

• “Under a gold location swap, gold stored in a particular physical location is swapped with a market counterparty for specified period with gold stored in another physical location. Under a gold quality swap, gold of a particular quality [fineness] is swapped with a market counterparty for a specified period with gold of different fineness. In each case a fee is built into the transaction.”

Whether or not the U.S. Treasury is / has employed gold swaps, a picture is beginning to emerge that, given the obsequious COMEX rule changes, at least some of the world’s precious metals ETFs have perhaps been created with the expressed purpose of creating “stealth supply” - aiding in the suppression of the gold price.

As for the newly created precious metals ETFs, their biggest claim to fame is that they “track” the price of the underlying precious metal. The negatives, if they are not already apparent, are nicely summed up by James Turk when he pointed out the disadvantages of holding one of the most popular, highly touted gold ETFs – StreetTracks GLD:

1. GLD does not prove the gold exists [or its quality] with independent third party audits.
   
2. The same gold in GLD may be owned by two people because of short selling.
   
3. Even if GLD were in reality backed by gold, there are too many parties between you and the gold to claim that you really own it. So while you may have “access” to the gold price through GLD, you do not have access to any physical metal that it may be holding.

Remember folks, all ETFs are not created equal.

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

How?

ETF fan?

Interested in buying GLD?

AirAsia Deferrs Aircraft Deliveries!

On today's Star Business: AirAsia: Plane delivery to be partly deferred

• Tuesday July 14, 2009
  AirAsia: Plane delivery to be partly deferred
  By B.K. SIDHU
  
  AirAsia to hold back on eight aircraft each in 2010 and 2011
  
  KUALA LUMPUR: AirAsia Bhd plans to defer taking delivery of eight Airbus A320 aircraft for 2010 and may opt to do the same for another eight aircraft the following year, said its group chief executive officer Datuk Seri Tony Fernandes.
  
  “We are negotiating with Airbus SAS to push the orders to the back end. Our focus next year is to consolidate our aircraft type to all A320s and return the 13 B737 that we have leased from GE Commercial Aviation Services (GECAS),” he told StarBiz in an interview.
  
  AirAsia became the largest customer of the Airbus A320-200 in December 2007 after it placed a firm order for a total of 175 aircraft, with an option for 50 more. Deliveries are expected to run until 2014. For 2010 and 2011, the airline is slated to take delivery of 24 aircraft each year.

225 airplances. Isn't this a simple issue of ordering too many aircrafts? Overbought?

• As at end-June, the budget airline had 61 aircraft of which 48 are for its Malaysian operations, and the rest for Thai AirAsia and Indonesia AirAsia.
  
  Besides that, it also has a fleet of 16 B737, of which three are its own and 13 leased from GECAS.
  
  With the deferment, AirAsia is expected to push most of it new aircraft to its associates in Indonesia and Thailand, leaving very few new aircraft for its Malaysian operations, thus limiting its growth potential going forward although the two units will be able to expand more aggressively.
  
  “Deferring the delivery of these aircraft is an opportunity lost to AirAsia as it would mean forgoing an attractive 12-year aircraft financing package which is close to LIBOR (rates) negotiated just prior to the economic crisis. (But issues arising from) the uncertainty of the new LCCT to be completed by July 2011 far outweighs the opportunity lost in this attractive financing (package),’’ said Datuk Kamarudin Meranun, the deputy CEO of AirAsia.
  
  Fernandes denied that the plan to defer aircraft deliveries had to do with raising funds for the purchase of the aircraft, saying “the funding for this and next year is in order.’’

Hmmm..... the DENIAL that the deferral in aircraft deliveries had to do with raising funds.

Well, can he blame the sceptics when the investing public hears about AirAsia Stock Sale? And what about its sale and leaseback on some aircrafts? And what about its stretched balance sheet issue?

• In February this year, AirAsia mandated Barclays Capital, the investment banking division of Barclays PLC, to finance 15 of its new Airbus A320.
  
  “We are in negotiations with the supplier for all aircraft to have minimal or zero cash outlay and that will not put a strain on our cash.
  
  “We are not delaying the deliveries because of cashflow, we need the planes for our operations but there is an infrastructure risk out there that we cannot afford to take,’’ Fernandes said.
  
  All airlines had been hurt by the economic crisis, Fernandes pointed out, but “our cashflow is very healthy. In fact, we are working towards having RM1bil cashflow by the first quarter of 2011.’’
  
  AirAsia had RM224mil cash and RM6.93bil debts in its books at the end of March 31, most of it for aircraft financing.

That's his exact words for now but look at its cash versus debt as stated above!

• But for this year, Fernandes said “there will be no delays in taking the aircraft deliveries.’’
  
  AirAsia has taken delivery of five of 14 aircraft scheduled for this year.
  
  AirAsia has been expanding routes and frequencies when many airlines globally are cutting back, with the budget carrier aiming to expand to places like India, Middle East and North America.
  
  “Expansion is necessary but we will never stretch ourselves. Imagine this, if we were to slow down we could have been crushed by our competitors from Singapore. We believe in growing but in a sensible manner,’’ Fernandes said.

????????

So sorry but I just do not understand... how does he really view the fact that as at March 31st 2009, AirAsia had cash balances of only 224 mil (the previous quarter AirAsia had 593 mil and the quarter before that AirAsia had cash balances of 774 million. See posting on Feb 2009: AirAsia Reported Massive Losses Again!!. Is this not a clear sign that cash balances are declining?) and total debts of 6.9 billion. And with all the new aircrafts ordered, capital commitment stands at a whopping 27.2 billion. So expansion is necessary, I would agree, but with such a balance sheet, where cash is only 224 million versus total debts of US 6.9 billion and a capital commitment of 27.2 BILLION, how can one consider AirAsia to be not stretching itself?

Perhaps I am flawed for not able to understand.

• AirAsia was only one of a handful of airlines to post a profit in the first quarter.
  
  AirAsia’s earnings in its March quarter rose 26% to RM203.2mil from a year earlier due to higher passenger numbers from additional routes.

Anyway, besides the money issue, it was just back a couple of weeks ago, 24th June 2009, AirAsia made some rather bullish comments on the press here. Some of the points worth noting then were....

• "I continue to remain bullish. Any product that can reduce cost will make more profit," he said."
• I have been in the business for the last seven years. There has been perpetual headwinds such as the outbreak of SARS (Severe Acute Respiratory Syndrome in Asia in 2003) and tsunami. We will continue to grow," he added.
• Fernandes said AirAsia won't defer arrivals of its Airbus A320 aircraft while its route expansion plans remained on track despite the bleak outlook of the sector.
• "We are not affected by the swine flu outbreak. We have not deferred our plane orders. We are doing very well. We are growing our capacity," he said as the carrier planned to add Colombo to its route in August.

How?

Me? I am simply confused.

ps... and when the bulk of AirAsia's debt are in USD, a weakening ringgit is not helping AirAsia at all, yes?

Meredith Whitney: Bearish On The Economy But Bullish On The Stock

She spoke. She was bearish on a lot of stuff but she made the bullish call on the banking stock. Her first ever. And what we had was A big rally for stocks!

On CNBC hanks Stronger But Outlook Clouded by Job Loss: Whitney

First the video. Do watch it. She speaks a lot of 'important stuff' not mentioned in the article.

Here is the 'watered down' article on CNBC. ( Don't you just love the media! .... and boyahhh... the markets soared!!! )

• Unemployment is likely to rise to 13 percent or higher and will weigh on the economy for several years, countering government efforts to stabilize the banking industry, analyst Meredith Whitney told CNBC.
  
  While Whitney raised her short-term outlook for banks, causing stocks to open in positive territory after pointing lower earlier, she said the long-term outlook for the economy remains murky.
  
  Consumers will not be able to spend as they continue to lose jobs and credit conditions stay tight, she said in a live interview. The result will provide a vivid display of how critical housing and lending are to economic growth. Unemployment is currently at 9.5 percent but is expected to keep rising.
  
  "We underestimate how much the whole economy is dependent on the mortgage industry, and that has to change," Whitney said. "This is what happens when you delay the inevitable. We're buying time here, but we're not restructuring the economy."
  
  Prior to the interview, Whitney raised hopes for banks when she said Goldman Sachs
  is in for a hugely profitable quarter.
  
  She expanded her remarks during her CNBC appearance, saying the Wall Street titan probably will earn $4.65 per share for the second quarter, $20 for the year and more than $22 for 2010.
  
  Banking stocks will be good buys at least in the short term as the industry takes advantage of "the mother of all mortgage quarters," Whitney said.
  
  Little-noticed new Safe Harbor Mortgage Modification rules that went into effect May 20 prohibit mortgage investors from suing loan servicers. The legislation is significant in that it offers added protection for large servicers from investor litigation as the institutions modify mortgages for distressed homeowners.
  
  President Obama endorsed the changes as part of his administration's efforts to head off foreclosures, protect consumers and support the flailing mortgage industry.
  
  Whitney said the new rules will be a boon for larger banks, but the momentum may not last.
  
  "It's a trading call," she said, adding that "you don't want to be short these names."
  
  Banks as a whole could see a 15 percent gain in the short term, "then you flatline, then I think you have another leg down."
  
  Outside of Goldman, Whitney said Bank of America is "bar none" the cheapest of bank stocks compared to its tangible book value, and said JPMorgan Chase's earnings will provide a bellwether for institutions plagued by large consumer loan losses.
  
  It is joblessness, though, that poses the industry's greatest risk.
  
  "Unemployment continues to drive higher and the banks are not prepared for double-digit unemployment," she said. "That's going to be an issue for them that doesn't go away for the next year and a half."

Past postings: Transcript Of Meredith's Interview With Steve Forbes and Meredith Says Banks Outlook Is Grim!

Market Outlook For EEM: High Valuations Warning For Emerging Markets

On Bloomberg News: Emerging Markets Priciest Since 2007 When Shares Fell

• By Adria Cimino and Michael Patterson
  
  July 13 (Bloomberg) -- The last time stocks in developing countries got this expensive was in October 2007, just before the MSCI Emerging Markets Index began a 12-month tumble that erased half its value.
  
  The MSCI gauge trades at 15.4 times reported earnings, compared with 14 for the Standard & Poor’s 500 Index, according to weekly data compiled by Bloomberg. When developing nations last commanded a premium, the 22-country benchmark sank 54 percent in the next year.
  
  Groupama Asset Management, Palatine Asset Management and Standard Life Investments say the disparity means investors are paying too much for shares from China to India to Brazil at a time when the global economy is contracting. MSCI’s emerging- market gauge is valued at 1.7 times its companies’ net assets after a 34 percent surge last quarter, the highest on record compared with the MSCI World Index of 23 advanced economies, which trades for 1.5 times, data compiled by Bloomberg show.
  
  “Emerging-market stocks are at risk,” said Matthieu Giuliani, a Paris-based fund manager at Palatine, which oversees $5.56 billion. “You should only pay so much for growth.”
  
  Investors are already starting to show a lack of confidence in a continued rally. The MSCI developing-nation index dropped 8.3 percent from its 2009 high on June 1 through last week, while the MSCI World fell 7.4 percent and the S&P 500 retreated 6.8 percent. Emerging-market funds had $540 million of net outflows in the week to July 8, the second time in three weeks investors withdrew money, according to Cambridge, Massachusetts- based EPFR Global, which tracks funds with $10 trillion worldwide.
  
  Volatile Returns
  
  The MSCI emerging-market index declined 1.8 percent to 723.05 as of 4:58 p.m. in New York today. The MSCI World added 1.5 percent, while the S&P 500 increased 2.5 percent.
  
  All 22 emerging-market currencies tracked by Bloomberg depreciated against the yen in the past month, and 16 weakened against the dollar. The yen usually attracts investors during economic turmoil because Japan’s trade surplus makes the nation less reliant on overseas lenders, while the dollar benefits from its status as the world’s reserve currency.
  
  While developing nations’ economies grew an average 1.7 times faster than developed countries in the past 20 years, their stocks traded at a discount because their economies and returns were more volatile. Brazil’s annual inflation averaged more than 1,000 percent in the 1990s, and South Korea required a $57 billion bailout from the International Monetary Fund during the Asian financial crisis of 1997.
  
  Bull Markets
  
  The MSCI emerging-market index had 13 bull-market rallies of at least 20 percent and 12 bear-market declines of the same magnitude since its inception in December 1987, according to data compiled by Birinyi Associates Inc., the Westport, Connecticut-based research and money management firm founded by Laszlo Birinyi. That compares with five bull markets and four bear markets for the S&P 500 during the same period.
  
  Developing nations led the worldwide rally in equities last quarter, with China’s Shanghai Composite Index adding 25 percent and India’s Bombay Stock Exchange Sensitive Index jumping 49 percent. The gains outpaced a 20 percent rise in the MSCI World and a 15 percent advance in the S&P 500.
  
  The increase cut the dividend yield of the emerging-market gauge to 2.97 percent, compared with 3.49 percent for developed countries. MSCI’s emerging-market index fetches 1.1 times sales and 6.7 times cash flow, compared with 0.8 and 4.3 in the advanced gauge, data compiled by Bloomberg show.
  
  Record Share
  
  “Gains came too quickly in the context of a slow economic rebound,” said Romain Boscher, who helps oversee $119 billion as a director at Groupama in Paris. “Valuations are now high, and that leaves the door open for a drop. Emerging and developed markets are at risk.”
  
  Developing nations’ share of global equity value climbed to an all-time high this month as investors poured in a record $26.5 billion last quarter, according to data compiled by Bloomberg and EPFR.
  
  The infusion helped Beijing-based oil producer PetroChina Co. climb 17 percent in Hong Kong trading this year and overtake Exxon Mobil Corp. as the world’s largest company by market capitalization. PetroChina’s shares are valued at 11.3 times earnings, compared with 8.9 for Irving, Texas-based Exxon.
  
  PetroChina, which traded at a discount to Exxon as recently as April, is one of five Chinese companies ranked among the world’s 10 biggest by market value. The rest are in the U.S.
  
  Growth Premium
  
  Itau Unibanco Holding SA in Sao Paulo, Latin America’s largest bank by market value, trades at 2.7 times net assets, more than double the 1.1 price-to-book ratio for Banco Santander SA. The Santander, Spain-based lender got 33 percent of its net income from Latin America in the first quarter and is the world’s 10th-biggest financial company by market value.
  
  For Carmignac Gestion’s Eric Le Coz, emerging-market equities deserve a premium because the economies are the only ones projected to grow this year. Financial institutions in developing nations also avoided most of the credit freeze that caused almost $1.5 trillion of writedowns and credit losses since 2007, according to Bloomberg data.
  
  Le Coz’s firm is buying shares of Beijing-based China Construction Bank Corp., which trades for 2.5 times book value, and Bharat Heavy Electricals Ltd., the New Delhi-based manufacturer of power-plant equipment that’s valued at 31 times earnings.
  
  Not as Fragile
  
  The Washington-based IMF estimates developing economies will grow 1.5 percent as a group this year and 4.7 percent in 2010, while advanced economies will contract 3.8 percent in 2009 and expand 0.6 percent next year.
  
  Emerging markets “should be more expensive,” said Le Coz, who helps oversee $28 billion as a member of the investment committee at Carmignac in Paris. “In the past, emerging markets were fragile. Today that’s not the case.”
  
  Brazil, which defaulted on its foreign debt twice since 1983 and devalued its currency in 1999, now has an investment- grade credit rating from S&P and Fitch Ratings. Moody’s Investors Service said this month it may upgrade Latin America’s biggest economy.
  
  Chinese stocks are among the world’s best investments because the nation’s economic growth is poised to exceed forecasts, Barton Biggs, who runs New York-based hedge fund Traxis Partners LP, said in an interview on Bloomberg Television today.
  
  China surpassed Germany in 2007 to become the world’s third-largest economy. Russia has $409 billion of foreign exchange reserves and India has $253 billion, the world’s third- and fifth-biggest holdings, according to Bloomberg data.
  
  ‘Grave’ Prospects
  
  Developing nations traded at a discount to American equities from 2001 to 2006 even after their economies expanded at almost three times the pace, according to Bloomberg and IMF data. They moved to a premium in October 2007, the peak of a five-year advance that sent the MSCI gauge up fivefold. The index’s drop in 2008 was almost 16 percentage points steeper than the S&P 500’s 38 percent slide, the worst since 1937.
  
  When emerging-market valuations climbed above the U.S. in 1999 and 2000, it foreshadowed the end of a seven-year global rally. The MSCI developing-nation index sank 37 percent in the 12 months after March 2000, compared with a 23 percent slide in the S&P 500.
  
  The Washington-based World Bank spurred a worldwide sell- off last month after warning of “increasingly grave economic prospects” for developing nations and predicting the global economy will contract 2.9 percent this year, compared with a previous forecast of a 1.7 percent decline.
  
  Equities sank on July 2 as the U.S. government said the economy lost 467,000 jobs last month, 102,000 more than the median economist’s estimate.
  
  ‘Run Too Far’
  
  Emerging markets “are still dependent on exports and the health of wealthy countries,” Palatine’s Giuliani said. The European Union was the biggest export market for Brazil, Russia, India and China as of 2007, the last period the data were available, according to the Geneva-based World Trade Organization. The U.S. was the second-biggest market for Brazil, India and China.
  
  Shares in developing nations are the most vulnerable to further declines because prices “have run too far ahead” of a recovery in profits, according to Standard Life’s Jason Hepner.
  
  Profits Plunge
  
  Companies in the MSCI emerging-markets index that reported results since the end of the first quarter posted an average earnings drop of 92 percent, trailing analysts’ estimates by 14 percent, according to Bloomberg data. That compares with a 46 percent profit slide for Europe’s Dow Jones Stoxx 600 Index and a 31 percent fall for the S&P 500, Bloomberg data show.
  
  “We favor the more defensive markets like the U.S.,” said Hepner, an Edinburgh-based money manager at Standard Life, which oversees about $178 billion worldwide and has a “very light” position in emerging-market equities.
  
  While BlackRock Inc.’s Bob Doll projects developing-market equities will be the most attractive stock investments over the next few years, he says they may lead a short-term retreat as investors reduce expectations for an economic recovery.
  
  “A lot of risk assets are ahead of themselves,” said Doll, vice chairman and chief investment officer of global equities at New York-based BlackRock, which had $1.3 trillion under management as of March 31. “Almost always, what goes up the most, pulls back the most.”

In another article WSJ - Small Investors Pile into Emerging Markets, Junk Bonds, and Commodities

• Emerging Markets - aka decoupling all over again
  
  •Stock markets of developing countries like India and Brazil have gone through the roof since early March, reversing some of their declines from last year. The MSCI Emerging Markets Index is up about 34% for the first six months of the year, after losing 54.5% in 2008. Some niche markets have had wilder swings. Russia’s benchmark RTS index is up 56% for the year’s first half, after losing 72.4% in 2008. [May 24, 2009: NYT - As Economy Struggles, Russia's Market Has Surged]
  
  •What’s changed? Not only do investors have a greater appetite for risk these days, they’re also more optimistic about the economic outlook for some of these countries. In China, the world’s third-largest economy, the government’s massive stimulus is starting to take effect. While exports are still down, internal growth is gaining strength. Meanwhile, commodity prices have been on the rise, improving confidence in Brazil and Russia.
  
  •Despite hot performance for emerging-market funds so far this year—an average 33% return—some money managers say caution is in order. While they’re optimistic that emerging-market economies will grow at a much faster rate than the U.S. over the next several years, some worry about the recent explosive rally in these markets. “It’s been the lower-quality, the riskier companies that have done better this year,” says Simon Hallett, co-portfolio manager of the Harding Loevner Emerging Markets fund. “Emerging markets have probably overshot in the short term.”

Morgan Stanley too had something to say, US revival key to emerging market recovery: Morgan Stanley

• China’s role in the global economy is currently similar to that of the little Dutch boy who stuck his finger in the dyke to avert disaster. It is the only country where growth has returned to its underlying trend rate of 8% following last year’s economic meltdown. The demand impulse from China is now buoying exports and sentiment in several other economies.
  
  However, the boy could only stem the tide up to a point and fortunately other men soon arrived on the scene to fix the problem. As was the case in the Dutch legend, the global economy too needs the developed world to start contributing to world growth again for a broad-based recovery to materialise. And that in turn requires the US consumer to spend at least a small part of the stimulus funds pronto.
  
  Even China is betting on the US consumer making some sort of a comeback. While Chinese policymakers are indeed attempting to reorient the economy by encouraging more domestic consumption, such structural changes take a long time to pan out. Boosting infrastructure spending is the quickest way to shore up demand in the short-term and that’s what China has done over the past few months. A large part of the Chinese stimulus has gone towards increasing fixed asset investment even though investment as a share of GDP is already at abnormally high levels of more than 40%.
  
  China essentially remains the world’s main manufacturing base. And herein lies the problem with the global economic recovery story. It will be very difficult for China to maintain its 8% expansion pace if its export growth does not pick up by the end of the year as there’s a limit as to how much investment it can add to its already large and increasingly idle manufacturing base.
  
  The rise in economic optimism since March this year has largely been due to a turnaround in the manufacturing sectors in many countries, starting with China. Manufacturing activity that declined across the world by more than 15% in the year to March 2009 began to stabilise in the first quarter of 2009 with Asian countries taking the lead. Expectations rose that the snapback in industrial activity could be quite sharp as firms had aggressively cut production and their workforce late last year following the credit crisis.
  
  Some developing countries are indeed on track to post eye-popping growth numbers for the second quarter. Many Asian emerging markets probably recorded economic growth in excess of 10% on an annualised basis in the April-June 2009 quarter. For the developed world as well economists are projecting positive growth in the July-September quarter with the rate of inventory liquidation having peaked in the first half of 2009.
  
  Global equity markets were on a tear since March, tracking the sharp improvement in economic sentiment. But after pricing in all the positive developments on the global manufacturing front, the stock market rally stalled in June and is now showing signs of fading as the realisation dawns that any rebound in manufacturing activity may just be a short-term phenomenon if final demand does not resurface.
  
  Unfortunately, the news on the consumption front has been discouraging of late. It appears that the US consumer has used all the additional income from the stimulus packages to just rebuild the savings pool. The household savings ratio has risen from virtually zero in late 2007 to 6% currently. That’s a huge swing in a short span of time although it is still below the historical norm of 8%. No meaningful global economic recovery can shape up as long as the US consumer stays completely focused on increasing the savings ratio. After all, consumption drives growth, not manufacturing activity as the latter is undertaken only in anticipation of final demand.
  
  The most important data then to track in the weeks and months ahead are US retail sales numbers. While the US consumer is unlikely to return to the spendthrift ways of the past two decades for a long time to come, a modest increase in retail sales is now required to create some sort of a virtuous economic cycle. Over time, the US consumer needs to work off the excessive leverage and gradually increase the savings rate while the rest of the world makes the necessary structural adjustments to the growth model. In the long-run, final demand trends of the developed world will play a less significant role and the growth leadership has to be provided by the emerging market consumer. But decoupling is an incremental process and given the trade and capital flow linkages, developing countries cannot pull away from the developed world too far, too quickly.
  
  The decoupling theme staged some sort of a comeback this year after being derailed by the economic crisis in 2008. This is reflected in the relative performance of emerging markets versus developed markets: the gap between the indices of the two blocs is back at the levels last seen at the peak of the decoupling mania in late 2007.
  
  Equity market performance merely tracks economic sentiment on a real time basis and the large performance gap between the emerging and developed market indices indicates the differential in sentiment is stretched from a historical perspective. To be sure, there’s nothing to suggest that the differential can’t get wider. The valuations of stocks in developing countries are currently similar to those in the developed world after long trading at a discount and a case can be made that emerging market equities should trade at a premium as their future growth prospects are brighter. In the near-term however, it’s hard to justify much of a premium as the export dependency and the reliance on external capital to fund some of their growth is still high among many developing economies.
  
  Ironically, both the performance and valuation gap between the developing and the industrialised world could further widen in the coming months if risk appetite in the US and other developed countries rises. That in turn will lead to an even greater inflow of capital into emerging markets. For that to happen though economic optimism in the US must improve.
  
  It’s then all down to the US consumer to determine whether a global economic recovery gains traction by moving beyond the inventory rebuilding stage. If the US consumer remains in a funk and keeps on saving any additional income the world economy will at best follow an L-shaped economic path, implying that the cyclical bull market in equities is over. But even a modest revival in US consumer activity will be enough to create a positive feedback loop between production and consumption and extend the cyclical bull market in stocks till at least early 2010 when fresh challenges will emerge as the stimulus effects fade and excessive leverage in the system remains a drag.
  
  The bears argue that the consumer will keep on retrenching this year as the economic wounds of the past year are still raw and the debt overload high. They do have history on their side: it has typically taken around three years for the US economy to find its footing after suffering a major crisis. The first phase of the Great Depression lasted three years from 1929 to 1932. In a disturbing parallel, the stock market rallied by 30% in early 1931 as industrial activity seemed to be stabilising following a market crash of nearly 50% in the previous year. But the consumer deleveraging process continued unabated that subsequently took the economy and the markets for a deeper dive. Even during a mild recession in 2001 following the tech boom-bust cycle, it took till mid-2003 for consumer spending to accelerate despite industrial activity having bottomed in late 2001 and showing a rebound in early 2002.
  
  Of course, the difference this time around is that the world has never seen so much money thrown at a problem. The bulls are banking on that cash infusion to launch a sustained global recovery. China’s policymakers have already succeeded in stimulating their economy but beyond a point, it too needs the largest buyer of its goods — the US consumer — to start spending again. If that doesn’t happen soon enough, then the global economy faces the prospect a relapse.

Here's how EEM has been faring since December 2008.

Rather important. Compare this to postings made last month, Squeaky Bum Time For EEM and How Did EEM Fared So Far During Its Squeaky Bum Time?

Do also see the two contrasting view points made on emerging markets on the recent posting Market Outlook For Emerging Markets, where we have Mark Mobius being rather optimistic and fundamentalists like Claire Barnes acknowledging the deep concerns.

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

Interview With Charlie Munger

On FTimes. Monday Interview: Man on the money with Buffett

• .........Over the years, generations of investors, chief executives and journalists have wondered why Mr Munger has stayed happily in the background for almost half a century as Mr Buffett forged a reputation as the world’s greatest stock-picker.
  
  “Warren is peculiar, and I’m peculiar,” says Mr Munger, who is also Berkshire’s vice-chairman. “We’ve got our own peculiar operating model. Nobody else operates the same way or stays in the game in a major corporation as long as we have, so we’ve got a different model. And we like it that way.”
  
  Working 1,500 miles apart – Mr Buffett remains in his hometown of Omaha, Nebraska – the two “intellectual pals” have built up a stellar record by sticking to the basic principles of value investing: they buy companies in industries they understand, with managers they trust, at cut-rate prices. “We think all intelligent investing is value investing,” he says. “What the hell could it be if it wasn’t value?”
  
  While Mr Buffett’s mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.
  
  “That worked fine in the period after the 1930s,” Mr Munger says. “I don’t think it works nearly as well now. Too many people are doing it.”
  
  Many of Berkshire’s holdings, from longtime investments such as Coca-Cola and Wells Fargo to last year’s purchase of General Electric’s preferred shares, are blue-chip companies considered the best at what they do.
  
  The strategy sounds simple enough, but Mr Munger says few investors practise it. “You can’t believe the way that conventional wisdom invests money,” he explains. “They tend to rush into whatever fad has worked lately. In my opinion, a lot of them are going to get creamed.”
  
  There are no regular meetings at Berkshire, no corporate-speak or standard management memorandums that help define the cultures of so many companies.
  
  “The legally required meetings for corporate governance, we do those,” Mr Munger says. “Everything else is ad hoc.”
  
  Mr Munger has been known to seize hold of a conversation and not let go until his views on a given subject – and possibly the interviewer – are exhausted. But on this afternoon, he is practically beaming.
  
  “When Warren talks about tap dancing to work, he’s not kidding,” he says. “His spirits lift as he goes through the office door. And I’m the same way.”
  
  In keeping a stake in the hands of public shareholders and a portfolio of its own investments, Wesco maintains an unusual place within the Berkshire empire. Mr Buffett initially agreed to keep the company as a standalone entity to honour the request by the Casper family, the previous owners who had sided with Berkshire in a takeover battle for the former savings and loan company.
  
  “Wesco is a historical accident,” Mr Munger says of the holding company whose assets include an insurer, a steel manufacturer and a furniture-rental business. “It should’ve been folded into Berkshire long ago.”
  
  It is unlikely Berkshire, which owns 80 per cent of Wesco, will acquire the remaining stake unless the stock price falls relative to Berkshire’s. “Warren’s never going to issue stock that isn’t fair to Berkshire shareholders, so we’re hooked by reason of our popularity,” Mr Munger explains. “But it is a ridiculous outcome and it costs $2m (€1.4m, £1.2m) a year in extra administration costs. We hate it, but we can’t fix it.”
  
  Like Berkshire, Wesco’s annual meetings, held each spring in Pasadena, have inspired a devoted following among its investors. But while the carnival atmosphere of Berkshire’s event in Omaha has earned it the moniker “a Woodstock for capitalists”, Wesco’s gathering is an intimate performance in a small club. And Mr Munger’s terse soundbites, his trademark at the Omaha meetings, give way in Pasadena to extended monologues on the economy, government policy and his favourite target this year, the financial services industry.
  
  “The public is furious with Wall Street,” he says. “Everyone who is in a position to observe this says they’ve never seen this much fury to one particular industry.”
  
  Is it justified?
  
  “Absolutely.”
  
  A voracious reader, Mr Munger’s conversations and writings are peppered with references to philosophers, psychologists and inventors whose works and life stories he has studied. He speaks directly, in a tone that can, at times, both alienate and educate.
  
  Like Mr Buffett, Mr Munger was raised in Omaha. He attended the University of Michigan, enlisted in the Army Air Corps and, after the second world war, earned a degree from his father’s alma mater, Harvard Law School. He considered joining his father’s practice in Omaha before setting his sights on southern California, where he had studied meteorology during the war.
  
  Mr Munger was back in Omaha in 1959 when a family friend arranged a lunch with Mr Buffett, then a young local investment manager. The pair hit it off immediately and thus began a lifelong friendship.
  
  By the early 1960s, Mr Munger had opened a law practice with four others and found success as a part-time investor in both businesses and commercial real estate. As his relationship with Mr Buffett flourished, he eventually stopped practising law to focus on deals.
  
  While they no longer speak daily, rarely will more than a week pass between conversations. They still frequently send one another documents and books to read. And while they often disagree, Mr Buffett once told the Financial Times that they had “never had an argument”.
  
  “We are having a huge amount of fun understanding how the world works,” Mr Munger says.
  
  Mr Munger has amassed a great fortune in part because of his association with Mr Buffett, but as his annual meetings attest, he has also built a loyal following of his own.
  
  “He’s got a real fan club, but for good reason,” Mr Buffett has said. “I’m a member, too.”
  
  Mr Munger is in turn quick to praise Mr Buffett, who is looking to rebound from Berkshire’s worst year. As an investor, Mr Munger insists, his partner has continued to improve.
  
  “He never would have bought into BYD [the Chinese electric car battery maker],” Mr Munger said. “He’s changed. He learns.”
  
  Longtime Berkshire disciples and friends alike might say Mr Munger has had something to do with that.
  
  “There’s no successor to Charlie,” Mr Buffett says. “You’re not going to find anyone like him.”
  

Knowing What Needs To Be Done

Another day, another Saturday and another week.

Dow is down again for week. Surprised anyone? And for those keeping score, that's stocks down for 4th straight week!

That's how the SPX is faring so far. Note the declining volume. Note where the new trend line could be developing.

The Warning Signs From The Dry Bulk Sector Again? Baltic Dry Index closed down another 1% yesterday at 2985. Yes the BDI is below 3k again. How fast it had broken back down, yes?

Remember the issue of the potential shipping glut mentioned in the above posting?

• 1000 new ships are hitting the market this year and again next year, compared to 300 in normal years. There is obviously a horrendous shipping glut!

ps. wouldn't this distort future bdi readings? And wouldn't this distort one's reliance on the bdi as a leading indicator? ( See The Fool's Game In The Baltic Dry Index )

Everyone is now well aware of China recent stimulus program or rather how China had chosen to allow a loan bubble to be created.

Yes, this is The China Accident Waiting To Happen To Every One Of Us!

And if you need to know the size of the new loan package China had announced, do see RMB 1.5 trillion in new Chinese lending — can we turn this thing off?.

Solving a bubble with a bubble?

Need one to be a genius to figure out where this is heading? Jesse had a piece on this also. The China Bubble and the Convergence of Oligarchies

• Conclusion: It is difficult to see what Chinese leaders expect to happen once the bubble busts. Maybe they are gambling that they can control the unrest that will come in its wake. Maybe they assume the bubble will not bust for many years. (And this is different from the US now in what way? - Jesse)
  
  But articles like the one excerpted above show us that sooner or later China's overheated and pseudo-Western economy will implode, and likely even more violently than Western economies ever have. And here's a thought: The Chinese in the meantime are said to be big buyers of gold on a government level and also personally. Perhaps what is going to eventually happen is better known in China than the West.

Oh yeah, so the Chinese banks are lending out money like crazy to the Chinese people.

What are the stuff we are seeing? We see the incredible run in commodity inventory. We have seen exploding vehicle sales. Money for nothing, what!

And my, look at how China's stock market has been doing the past 6 months.

LOL! What? A bear market? They have been on a tear! Yes sir me! It's the market that could fly up, up and away!

And what about crude oil?



See where it is at. Wanna guess where it most likely to head in the near future?

And what about Malaysia's FCPO. How are they doing?



Looking good? Wanna guess where it most likely to head in the near future?

And the Malaysian Ringgit. See how the USD is gaining strength against our ringgit? Yeah, our ringgit has been doing rather poor lately.


Some comments from Business Times's on Ringgit's performance.

• MALAYSIA'S ringgit fell yesterday, capping its biggest weekly loss since February, as reports suggesting the nation slipped into a recession in the second quarter deterred investment in local stocks.
  
  The currency weakened after reports this week showed exports and factory production extended a slump into May.
  
  The Kuala Lumpur Composite Index of local stocks slipped for a second week as Bank Negara Malaysia said the second-quarter economic performance was “the same as what we saw in the first quarter,” when gross domestic product contracted 6.2 per cent. The GDP report isn’t due until late August.
  
  “The summer is typically a volatile season and the ringgit is going to be affected by thinning fund flows,” said Suresh Kumar Ramanathan, a strategist at CIMB Investment Bank Bhd. in Kuala Lumpur.
  
  “There’s bound to be risk aversion as data aren’t pointing to an imminent recovery yet.”
  
  The ringgit dropped 1.5 per cent to 3.5785 per dollar as of 4.35 pm in Kuala Lumpur from a week ago, according to data compiled by Bloomberg. It fell 0.4 per cent yesterday, after touching 3.5855 Thursday, the lowest level since April 29.
  
  Factory output fell for a ninth month in May, shrinking 11 per cent from a year earlier, the statistics department reported Thursaay. Exports tumbled 30 per cent as electronics shipments slowed, the trade ministry said on July 3.
  
  Global investors withdrew US$365 million from Asia ex-Japan equity funds in the week ended July 8 amid “doubts about US appetite for exports,” said Cambridge, Massachusetts-based EPFR, which tracks US$10 trillion globally.

How?

Know which flow to go with?

:D

The Fudged US Unemployment Claim Numbers!

Here's an article not to be missed, it's written by Mike 'Mish' Shedlock and published on Financialsense.com: Unemployment Claims: How Bad are the "Real" Numbers?

• Inquiring minds may wish to consider the Emergency Unemployment Compensation (EUC) PDF.EUC is a federal emergency extension that can provide up to 33 additional weeks of unemployment benefits.
  
  The first payable week was the week of July 6-12, 2008.The original extension passed in July 2008 paid up to 13 weeks of additional benefits.
  
  Effective November 23, 2008, we can pay up to 7 additional weeks of benefits.Effective December 7, 2008, we can pay up to another 13 weeks of benefits. Adding 2.519 million from the above chart to 6.883 million from the second chart the current real total (assuming nothing else is missing) number receiving unemployment benefits is 9.4 million.
  
  I am unsure how Federal Employees, Newly discharged Veterans, the Railroad Retirement Board, and especially the 346,559 Extended Benefit numbers fit into the EUC 2008 program, but I suspect all those numbers need to be added in as well, making the true count still higher.......
• On a percentage of population basis the 2001 recession was not quite as bad as the 1982 recession, whereas the current recession is 50% worse than the 1980 recession.
  
  Furthermore, the jobs picture is even worse than it looks. The US consumer was nowhere near as leveraged to real estate in 1980 as now. Also note that boomers are heading into retirement now, undercapitalized and looking for jobs, in effect competing against their kids and grandkids for jobs.
  
  Look at the average age of baggers in grocery stores or greeters at Wal-Mart. These people are not working because they want to; they are working because they have to. Demand for jobs is at an all time high while the number of available jobs and the pay scales of those jobs have both collapsed. The employment situation is not only an unmitigated disaster, things are about to get even worse with pending state cutbacks.

Worst May Be Over For Malaysia...

On the Edge Financial Daily. Worst may be over for Malaysia, May's IPI slowest decline since November

• Worst may be over for Malaysia, May's IPI slowest decline since November
  Written by Joy Lee
  Thursday, 09 July 2009 23:43
  
  KUALA LUMPUR: Another sign has emerged that the worst may be over for the Malaysian economy with May's industrial output declining at the slowest pace since November last year and was gaining month-on-month (m-o-m) for three consecutive months to May.
  
  Although the industrial production index (IPI) in May had fallen 11.1% year-on-year (y-o-y), it had gained 1.6% from April.
  
  "We are quite optimistic about the IPI figures. It is in-line with our expectations and has been gaining for the third consecutive month now. The gain month-on-month shows that recovery is on-track and it has strengthened our assumptions that the worst is over," senior economist at AmResearch Manokaran Mottain told The Edge Financial Daily.
  
  According to the Statistics Department, the cumulative IPI for the period of January-May 2009 had declined 13.2% against the same period in 2008.
  
  The y-o-y drop in May's IPI was due to decreases in broad sectors such as manufacturing (15.2%), mining (3%) and electricity (2.1%).
  
  The Statistics Department said the 15.2% y-o-y decline in manufacturing output contracted due to decreases in the electrical and electronics products segment (down 31.9%); non-me