Dr. Marc Faber On Why There Will Be A Slowdown In Asia

The following passage is from CNBC interview.

• He sees the same slowdown in Asia.
  
  “The U.S. produces very little," he said. "Asia is the producer for the United States and it is also the region that has very large capital spending. So when there is a slowdown in the U.S., it’s not good for the U.S., but it’s basically a disaster for Asia. Because of reduced demand in Asia it’s an even greater disaster for the resource producers of the world: the Middle East, Russia, Brazil. The whole world goes into a vicious down cycle economically, and the U.S. is relatively better off.”

Source: http://www.cnbc.com/id/27295113

David Webb's Time-Bomb Warning On Citic Pacific Should Not Be Dismissed

The following editorial from David Webb should be read in full!

• It turns out that little old ladies buying minibonds aren't the only ones to have been taken in by structured financial products. Hang Seng Index member (for now) CITIC Pacific Ltd (CP, 0267.HK) stunned the market this evening with the extremely late announcement that they are sitting on realised and unrealised losses of HK$15.5bn (US$1.99bn), due to foreign exchange exposures the Company was aware of six weeks ago (although the losses have grown) but had failed to tell investors until now.
  
  The losses involve exotic foreign exchange forward contracts such as "dual currency target redemption forward contracts", where they get a limited upside (due to a knock-out clause) and an unlimited downside, being required to take the weaker of the Australian dollar and Euro. Another series of "AUD target redemption forward contracts" involves receiving up to AUD9.05bn in monthly instalments up to October 2010. The counterparty bank(s) for these contracts have not been disclosed, and CP did not say when the contracts were entered into. They should tell investors how long this time-bomb was ticking. If the exposure pre-dates the interim report for 30-Jun-08 or even the audited annual report for 31-Dec-07 then it raises additional questions. On this, the two reports said (p120 of the annual report):

Read rest of article: http://webb-site.com/articles/citicbomb.htm

And of course the key issue was:

• Why did CITIC Pacific's board wait 6 weeks before telling investors that it had a huge exposure to exotic foreign exchange forward contracts? What does this say about the quality of its board, and the independent directors on its audit committee who, according to a separate statement by the Chairman, found time to complete an investigation of the incident even before the incident was announced?

Even Clare Barnes from Apollo Investment has something to say too!

• Mainstream press reports of CITIC Pacific's US$2bn losses on FX contracts are inadequate. The contract details are interesting (and the losses relative to upside should be salutary), but this is of wider importance for Hong Kong corporate governance: read David Webb on CITIC Pacific's time bomb. This news update mentions counterparties including HSBC, BNP, and Citigroup, and the interesting term "accumulator", which some would associate with the racetrack...
  

Warren Buffett's Three Market Buy Calls

The following passage is taken from CNBC article

• The first came in 1974 when Buffett said, "I feel like an oversexed man in a harem. This is the time to start investing." The Dow almost doubled over the next two years.
  
  The second came in 1979, when Buffett told Forbes that "stocks now sell at levels that should produce long-term returns far superior to bonds." That prediction also proved to be correct.
  
  The third positive call from Buffett came last Friday.
  
  
  ( See Warren Buffett Puts His Money Where His Mouth Is and Warren Buffett Buys Stocks, The Snowball Chapter 2 and J. Kyle Bass )

Source: http://www.cnbc.com/id/27286066

Would You Buy This Stock?

Let me try something different. Something new!

Here's a set of table showing the financial health of a company.

Would you buy this company XYZ stock at any price?

Interview On CNN: Alice Shroeder Talks About Warren Buffett

CNN today has published an interview with Alice Schroeder, author of The Snowball: Warren Buffett And The Business of Life.

Commentary: Buffett's career a battle of greed vs. principles

• (CNN) -- Since the start of the financial crisis, the world's wealthiest man, investor Warren Buffett, has been front and center
  
  He's advised Sen. Barack Obama on economic policy. He urged Congress to pass the $700 billion bailout bill. He bought stakes in Goldman Sachs and General Electric.
  
  He wrote an op-ed piece in the New York Times saying he's buying stock in American companies now because he believes they will do well in the long run, citing as his rule: "Be greedy when others are fearful."
  
  Buffett's name came up in the second presidential debate when the candidates agreed he'd be a good choice for treasury secretary. His fortune was estimated at $62 billion by Forbes in March.
  
  Alice Schroeder got Buffett's cooperation in writing her new book, "The Snowball: Warren Buffett and the Business of Life" (Bantam Books). Schroeder, who worked on Wall Street as an insurance industry analyst, met Buffett 10 years ago when his company, Berkshire Hathaway, bought a big insurance company.
  
  Schroeder says she suggested he write a book about his life, and the 78-year-old Buffett turned the tables, urging her to do it instead. Schroeder estimates she spent about 2,000 hours with Buffett and interviewed 250 people for the book. Now on a tour to promote her book, Schroeder is in a unique position to speak about Buffett at a time when many media outlets are seeking his views.
  
  "I have about 300 hours of recorded interviews and the rest of the time I observed him, I watched him make decisions and talk on the phone, went through files. I got to sit in his office for weeks, I ate steaks with him," says Schroeder, who's 51. "If it ever said moo, he'll pretty much eat it. He likes his steaks bloody rare and hanging off the plate, they're so big."
  
  CNN: Why are people so interested in Warren Buffett?
  
  Schroeder: I think he's transcended business to become a national figure because of people's trust in him as a symbol of stability and a symbol of someone who knows how to manage risk and avoid catastrophe and of how to run a business on principles.
  
  CNN: Is there any realistic possibility of him taking a government position?
  
  Schroeder: No, none. What he really likes to do is run Berkshire Hathaway, and he's not going to let anything take him away from that. He's also not going to let anyone spend his day filled up with meetings or schedule his time, he's too independent.
  
  CNN: You make clear that in the 1990s tech boom, Wall Street turned away from Buffett and there was some criticism of him. Do you think that now, because of the market downturn, people will look to him more to set a standard of how the market operates?
  
  Schroeder: I think it's fair to say that throughout his career, every time there's been a bubble and it's burst, his reputation has grown. That happened in the 1960s, when the bubble burst in the 1970s, it happened again after 1987. It happened again after the savings and loan crisis. ... It happened again after the Internet bubble and it's happening now.
  
  CNN: It doesn't seem to have had a lasting effect, since we keep going back into another boom period or bubble.
  
  Schroeder: He would say that human nature doesn't change, and that fear and greed are always the two drivers of the market. And there are people who listen when he gives learnings, but that the market will always be ruled by cycles driven by fear and greed.
  
  CNN: Have you talked to him about the current market turmoil?
  
  Schroeder: Last spring, when Bear Stearns was being taken over by J.P. Morgan ... he talked about the dominoes falling, and how, if that happened, the government could face some very unpleasant choices and have to take drastic measures. With hindsight it looks really prescient. In 2002, he talked about derivatives as financial weapons of mass destruction.
  
  More recently, his observation was that there was a lot of anger and denial at first about what was going on, and that people were not quite grasping the gravity of the situation and how quickly and dramatically they needed to move.
  
  He always says, don't sell into a panic, don't let the fear and the emotions of the market change how you feel. If you own good stocks in good companies or you own an index of the markets, and you see it getting cheaper, that's a reason to be happy, not to panic and sell. ... The idea is buy low, sell high -- not buy high, sell low.
  
  He understands the factors that are burdening the country, the federal deficit, the consumer debt, the infrastructure spending that we're going to have to do, but he has a belief in American ingenuity which over the long term has enabled our country to solve problems that seemed insurmountable in the past. For example, in the 1970s, it looked like the country could not ever dig its way out of the mess. So he does have a faith in the long-term prospects of the country.
  
  CNN: Is he a gambler?
  
  Schroeder: No, he's a handicapper -- big difference. A handicapper is somebody who understands odds-making. A gambler is somebody who bets but may not even understand the odds. Warren believes in a margin of safety, he doesn't bet unless the odds are overwhelmingly in his favor. When he goes to Vegas he does not gamble, he goes to see the shows.
  
  CNN: What are his flaws?
  
  Schroeder: He is somebody who can be very tough in business and very impersonal, including with people he likes. And in personal relationships, he negotiates as if it were a business relationship
  
  When he was putting Berkshire Hathaway together, as [his business partner] Charlie Munger puts it, he was an implacable acquirer. The book refers to him, in my words, as a great white shark, and the book describes the battle between his avarice and his higher principles. At times, his avarice won.
  
  And over his lifetime, it's been essentially a progress during which his higher principles have increasingly had the upper hand. But when he was in junior high, he was a shoplifter. He was a juvenile delinquent. He sold his sister's bicycle. It's been pretty much uphill from there, but it hasn't been a straight line.
  
  CNN: In his adult life, was there a time when his avarice won out over higher principles?
  
  Schroeder: Absolutely, he's made investments that he shouldn't have made, for example, when he invested in Salomon. He was criticizing Wall Street and saying if you want to make a lot of money, hold your nose and go to Wall Street, and at the same time he was already there. Berkshire owned $700 million of convertible preferred [stock] in a major Wall Street bank. And he was sort of mentally distancing himself from a business that he was invested in.
  
  That kind of separation is something that's very hard to maintain. And in the end, he had to become interim chairman of Salomon to rescue the firm. Psychologically, he was trying to distance himself from it because the two sides of him were at war.
  
  CNN: Is he still critical of Wall Street?
  
  Schroeder: You've got an economy in which financial intermediaries who don't add anything to the economy ... have in the past two decades stripped off huge amounts of fees, particularly buyout funds, and hedge funds and funds of funds, and he's very, very critical of the amount of fees that have been taken out.
  
  He has no problem with executive pay when it's related to performance. He thinks in most cases executives are being paid to sit in a chair whether they perform or not. And he's pointed out that these people are not like major league baseball players, who get recruited away by other teams. When CEOs get fired and they get these golden parachutes, you don't normally see them winding up somewhere else, right?
  
  So they're getting paid these huge amounts of money as an incentive to stay and then they get paid the consolation prize when they get fired. The pay is always getting ratcheted upward, they're getting paid to incent them to stay and they're getting paid to console them when they leave, no matter what the shareholders are getting. It's not aligned with anything the shareholders get, that really bothers him.
  
  CNN: What would he say about coping with an economic downturn?
  
  Schroeder: That people should think for the long run and make their personal decisions for the long run and build a margin of safety into their lives as best they can.
  
  Think about what could go wrong. Don't assume the best-case scenario. If you've got debts, your first thought should be how to pay them off, and negotiate with creditors if you're struggling, because they'll usually be flexible. And be realistic about what you can afford, because having a financial cushion means you can sleep at night, and that's worth more than a big-screen TV.
  

Andrew Lahde's Farewell Note

Ok, I am sure you be asking Andrew who?

Well Google and of course Wikipedia are our bestest friends!

Nov 2007, Andrew Lahde: The Hedge Fund Manager With a 1000% Return

And here is Wikipedia's entry on Andrew, http://en.wikipedia.org/wiki/Andrew_Lahde

• Andrew Lahde (b. 1970 or 1971) was a California-based hedge fund manager who in 2007 earned some fame for achieving return rates in the vincinity of 1000%[1] with his Lahde Capital, based in Santa Monica, California. The fund speculated on increases of U.S. subprime mortgage defaults[2]. Because of the subprime mortgage crisis, which caused several major banks to fail, Lahde's fund probably was the one that profited the most during its existence.
• Lahde earned a Bachelor's degree in Finance from Michigan State University and an MBA from the Andersen School of Business at the University of California Los Angeles.[3].
• In September 2008, Lahde closed his fund, telling investors that credit problems - the basis of his profits - were likely to continue, but that possibility of defaults by counterparties was too high.[4] On October 17, he released an open good-bye letter to his investors, in which he said that the "low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking." Lahde criticized the harried life of the rich, and said that "Capitalism worked for two hundred years, but times change, and systems become corrupt." He suggested that George Soros "start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest". He concluded his letter by proposing to legalize hemp, saying that it been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products, and thus should be part of making the U.S. "truly become self-sufficient".[5][6]

Anyway, the following is Andrew's farewell note. It's an incredible read.

• Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
  
  Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
  
  There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.
  
  I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.
  
  So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don't worry about my employees, they were always employed by Mr. Springer's company and only one (who has been well-rewarded) will lose his job.
  
  I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life -- where I had to compete for spaces in universities and graduate schools, jobs and assets under management -- with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
  
  On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man's interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft's near monopoly. I believe there is an answer, but for now the system is clearly broken.
  
  Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won't see it included in BP's, "Feel good. We are working on sustainable solutions," television commercials, nor is it mentioned in ADM's similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant -- marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let's stop the rhetoric and start thinking about how we can truly become self-sufficient.
  
  With that I say good-bye and good luck.
  
  All the best,
  
  Andrew Lahde
  

Source: http://www.portfolio.com/html/assets/AndrewLahdeFarewell.pdf

A Look At Coastal Contracts

Dear valuelife,

• Whats your view on Coastal?managemt and outlook?

Do understand that I am not a legal INVESTMENT advisor and all I can do is offer you some second opinions, ok?

Here's the data for Coastal Contracts that I have compiled from Bursa Malaysia website.

Do click on the picture itself for the larger view.

1. First thing, there was a massive five for one split back announced back in 2004. ( see announcement here ) ( The important note for me in such announcement is the total number of shares after assuming everything proceed as announced and for Coastal the number of enlarged shares after end of the exercise is 460.920 million shares)(Note also, at this moment of time, Coastal number of shares in the market is 352.786 million shares)

2. The big change in fortunes happened after its fy 2006. Hence it would be useful if one reads what was announced in its Q4 earnings notes.

• The Group registered profit before tax of RM12.3 million (from both continuing and discontinued operations), up 38% from RM8.9 million (excluding negative goodwill) achieved in the preceding quarter. When compared with the RM2.0 million recorded in the corresponding quarter a year earlier, current quarter's profit before tax has increased over six-fold. This was vastly due to higher number of vessels sold in the current quarter. On the whole, current quarter's profit margin before tax of 21% was on par with that in the previous quarter. Profit margin before tax in the same period last year was lower at 13% owing to relatively higher costs.

3. Coastal performance for its fy 2007 was just as impressive (2007 Q4 earnings was announced back in Feb 2008).

Here is a screenshot from its earnings notes.

4. As you can see clearly on the TTM line (trailing twelve months) line in the first table, despite the record earnings, Coastal Contracts balance sheet has actually gone weaker and weaker. Look at the cash vs total loans.

5. The Trade receivables really jumped in its last reported quarterly earnings. Why? I do not know but if you are interested in the stock, this is an issue, yes?

6. I would look at Coastal's Segmental Reporting made in its most recent quarterly earnings. Why? It's always good to understand where and how the money is made. That's my opinion.

The following is the screenshot from Coastal last reported quarterly earnings.

And as you can see shipbuilding and ship repairs is its bread and butter.

And this is a mega big business but the issue that comes straight to mind is the credit issue problems for global shipping companies mentioned in my Baltic Dry Index postings. And in the world where global credit is a problem, I cannot help but be sceptical and advise caution. For example, we have already seen that trade receivables soared in Coastal's last reported quarterly earnings and then we need to take into consideration that Coastal's cash flow is not one to be proud off and that despite the record earnings recorded by Coastal, Coastal cash balances had actually deteriorated over the years.

And what about the correlation between Coastal's recent earnings with the recent grandest bull run in commodity prices? Didn't Coastal benefited from it? And now that a clear and drastic reversal has been seen, surely one would be weary? And with global shipping charter rates plunging, surely this would have a bad impact on Coastal Contract's customers and if its customers are hit, then surely Coastal Contracts would be impacted too!

These are some of the issues regarding Coastal for me. I hope my second opinion helps and as always, do understand I am just another person like you and I could always be flawed in my thinking.

And oh yes, the earnings growth recorded by Coastal had been impressive over the years but there are some notable underline weakness.

Ps. I am well aware of the recent plunge in Coastal's share price too! Coastal last traded price is 1.38! Cavaet my friend.

Technicals On Commodity And Correlations Charts Between Eur/USD vs Oil and Oil vs Baltic Dry Index

Posted on CNBC.com

• The price of a barrel of crude could lose another $20 and the broader commodity market could slump by a third as the recent downtrend is set to intensify, Phil Roberts, technical analyst from Barclays Capital, told CNBC.
  
  The commodity market is still very much pricing in a further slow down and the signs we're seeing at the moment suggest that the process is intensifying rather than diminishing," Roberts said while taking a technical look at the Goldman Sachs Commodities Index.
  
  The GSCI, which tracks a broad basket of commodities including oil, wheat and lean hogs, could lose another 30 percent to 40 percent, according to Roberts.

Check out the source which also includes a video clip: http://www.cnbc.com/id/27235187

And ironically, dearest Kathy has loaded two simple charts indicating the correlation of oil prices and EUR/USD. see: http://www.kathylien.com/site/us-dollar/why-is-the-eurusd-not-rallying

There are two charts to note, the daily chart: http://www.kathylien.com/site/wp-content/uploads/2008/10/eurusdoil101608_daily.jpg and the hourly chart http://www.kathylien.com/site/wp-content/uploads/2008/10/eurusdoil101608.jpg

And lastly, I would also note the correlation chart drawn on the oil and BDI from Kathy also. See posting http://www.kathylien.com/site/us-dollar/chiming-in-on-the-baltic-dry-index for the correlation chart: http://www.kathylien.com/site/wp-content/uploads/2008/10/baltic101608.jpg