Maxtral's Earnings and its possible ICP dilution effect

Unker Anon,

Sorry was in a rush this morning. :D

Firstly, its earnings.

I'm kinda confused cos i had a glance at OSK write-up.

So I decided to look back at Bursa website.

This is Maxtral's Q1 earnings.

Quarterly rpt on consolidated results for the financial period ended 31/3/2006

net profit reported: 3.707 million

This is Maxtral's Q2 earnings.

Quarterly rpt on consolidated results for the financial period ended 30/6/2006

net profit reported: 3.053 million.

This is Maxtral's Q3 earnings.

Quarterly rpt on consolidated results for the financial period ended 30/9/2006

net profit reported: 3.470.

If you add up the numbers, its net profits shows 10.230 million only. But if you look at what Maxtral is saying, its ytd 3 quarter net profit is at 14.559 million.

How?

I think the later is correct because the cash flow is much, much stronger than Maxtral's earnings of 10.230 million. So what i am saying is i believe Maxtral's Q3 net earnings is much more than stated. I believe it's a typo, perhaps.

I took a screen-shot of Maxtral's earnings (look at the circle). OSK is saying that according to Maxtral data, its Q3 net earings is 7.8 million. (which kinda tally with Maxtral's cash flow, cos this quarter, Maxtral's cash flow increased by some 14+ million!)

Now regarding them dilution effects again.

Remember i wrote the following....

>>>>

1. Them preference shares issue. See Maxtral posting.

• At the moment of writing, Maxtral has some 210.099 million shares and it has some 84.415 million shares of ICUL outstanding. (ICP can converted on 1-1 basis)

Which means that if one ass-u-me full conversion of these ICP shares, then Maxtral should have 294.514 million shares. That should the share base you probably should work upon to avoid any shocks from discovering that your earnings per share has been diluted by these ICP shares. Ass-u-me the worse case scenerio. That's what I would have done. Remember this is just a mere second opinion. Some would probably have a different approach depending on one's investing style. For example, some would dare just the current share base (210.099 mil shares) cos they do not reckon that they would be such a long term investor. Which is right or wrong, it depends on your own interpretation.

>>>

So if you have a look at Max's earnings, its Q3 earnings states that its net earnings came in at 14.979 million.

Now assuming this figure is correct.. then this company is churning out some 4.993 million per quarter or as they say, if u annualise on a yearly basis, that's close to 20 million in earnings.

Using the fully-diluted number of shares - ie assuming full conversion of ICP, then the earnings per share is 20 million divided by 294 which gives you roughly an earnings per share of 6.8 sen.

So if you use this diluted earnings per share number, i think you should be ok lah.

PS..

regarding the mp player. BUY the IPOD nano unker. Your kids been good and they deserve a grand christmas present!

:D

The US Dollar again

Well the Fortune has an article on it posted on the CNN website: The dollar's slide: How far, how hard

• The dollar has tumbled about 2.5 percent against the euro in the five sessions through Tuesday. Although the greenback came back a bit Wednesday, the dollar's near its weakest against the euro since March 2005. The dollar also fared badly against the British pound, though it's done slightly better against the lowly Japanese yen

And the most interesting comments were the last two paragraphs.

• "What we really should focus on is that fact that the Americans were on holiday and foreigners decided to sell," said Axel Merk, manager of the Merk Hard Currency Fund, which has $47 million under management, referring to the dollar's recent drop. "Given the extent to which we're dependent on foreigners to prop up the dollar because of our current account deficit, that's worrisome."
  "A dollar decline is in nobody's interest, but it's highly overdue and will happen at some point," Merk said.

And did you read Gary Dorsch editorial, Will China lead a stempede out of the US Dollar?

More on Maxtral

Anon posted these comments on the Update on Maxtral posting.

• 80 mil long term loan, no wonder so geng the cash flow... but debt financing can be good, provided managed properly... lets see what they will do with the financing... irredeemable preference shares not so substantial, need to pay interests only. so dilutions is not that material? am i right?

1. Them preference shares issue. See Maxtral posting.

• At the moment of writing, Maxtral has some 210.099 million shares and it has some 84.415 million shares of ICUL outstanding. (ICP can converted on 1-1 basis)

Which means that if one ass-u-me full conversion of these ICP shares, then Maxtral should have 294.514 million shares. That should the share base you probably should work upon to avoid any shocks from discovering that your earnings per share has been diluted by these ICP shares. Ass-u-me the worse case scenerio. That's what I would have done. Remember this is just a mere second opinion. Some would probably have a different approach depending on one's investing style. For example, some would dare just the current share base (210.099 mil shares) cos they do not reckon that they would be such a long term investor. Which is right or wrong, it depends on your own interpretation.

2. Regarding the term loan.

Have a look at the Q3 pdf attached again.

Have a look at page 4. I took 2 screen-shots of that page.

Maxtral had a 80 million Islamic loan (not sure which type). And if you look at the second screen-shot you would see that it used 33.332 million for repayment of term loans and another 23.995 for revolving credits.

It would appear to me that Maxtral is restructuring its term loans here. Am I correct?

Now here is an interesting issue.

Look at the cash and cash equivalents at end of the current financial period.

First compare it to last year same period. Look at the balance sheet. Cash balances was only 9.163 million and loans totalled 56.064 million.

Look at Upadate on Maxtral posting. Look at end of 2nd quarter. Look at the first sreen-shot i posted. Total cash totalled 47.936 million. Loans stood at 80 million.

Look at now. Total loans is still 80 million. Cash balances at end of period? 62.859 million.

How would you interpret such performance?

rgds

*** addum ***

btw.. it all depends so much on what was your main strategy for buying Max.

Did you buy because you wanted to ride the current bullish timber trend? If so, were you disappointed in not getting a blowout quarter from Max?

Or did you buy Max because you think that Maxtral has some qualities in itself?

remember all these are just second opinions. make your own rational decisions. ok?

:D

Oh Ford

Here's an update on Ford: More than half of Ford's workers opt to leave

• NEW YORK (CNNMoney.com) -- About 38,000 hourly workers - just over half of Ford Motor's U.S. factory work force - have accepted offers to leave the company, according to the automaker.
  
  The greater-than-expected take rate of various severance or retirement packages will allow Ford to speed up cost cuts and plant-closing plans as it tries to stem losses in its North American auto operations.
  
  Ford reportedly has had nearly half of its U.S. hourly workers accept offers to leave the company.
  
  Shares of Ford gained 1.6 percent in early trading in Frankfurt on Wednesday.
  
  The company had set a target of 30,000 voluntary job cuts in September when it announced it was offering its 75,000 workers represented by the United Auto Workers union payments of up to $140,000 to leave the company.

What was more interesting was that according to the article:

• Ford announced plans Monday to borrow $18 billion by pledging assets as collateral for loans, an unprecedented requirement that highlights its worsening financial condition.

In that article about Ford borrowing $18 billion ( link )

• "They're at the point where they have to pledge assets for loans," said Glenn Reynolds, chief executive officer of New York-based research firm CreditSights Inc., who said it was an indication investors view Ford as a "very high-risk" company.
  "This confirms they see nothing but trouble ahead because they're front-loading their debt now," Reynolds said.

WOW!

The wonderful motor business!

Update on Maxtral

Unker,

Quarterly rpt on consolidated results for the financial period ended 30/9/2006

As can be seen, the earnings wasn't a real blowout.

ABout the cash flow and bank balances.

This is Maxtral's Q2 report.

These are the screen-shots from the report.

Compare it with Maxtral's Q3 report reported today.

According to Sources

Let me ask what I have been asking all this while.

What purpose does our financial news serve when it publishes nothing but based on unconfirmed sources?

Think about it.

Or is our financial news merely a tool to push up shares in the share market?

How?

Have a look at this article: Taking Mycron private - Melewar considers taking company off Bursa Malaysia.

• MELEWAR Industrial Group Bhd may be looking to take its subsidiary Mycron Steel Bhd private, sources familiar with the matter tell BizWeek.
  
  It is understood that Melewar is likely to make an offer of between 70 sen and RM1 for the shares in Mycron Steel it does not already own.

According to what sources?

The tea-lady? Or the driver? Or the toilet cleaner?

What sources?

It is understood. Say, who is understanding what??? Based on what facts?

• “Many things might happen, they might even hive off Mycron Steel, as the price could be attractive, with the strong rates for cold rolled coil steel, which is Mycron Steel’s bread and butter,” an industry source says.

Huh?

Com on.

Financial news should be based on facts, right?

If our entire financial news reporter started writing based on 'Many things might happen', just imagine the consequences of such blatant reporting.

And of course, you would note the 'Industry source'.

And when so much sources is added, have a look at this announcement:

MYCRON STEEL BERHAD - ARTICLE ENTITLED : "Taking Mycron private"

• We refer to the query letter dated 27 November 2006 issued by Bursa Malaysia Securities Berhad in respect of the article appearing in The Star, Bizweek Section, Page BW3, Saturday, 27 November 2006.
  
  The Company wishes to inform that the Company is not aware of such intention to privatise the Company.

How?

For whom does the news article serve?

Or can our financial news reporter write as they fancy??

And sometimes, don't you think it is a waste of time that the plc mentioned has to divert their time from daily business schedule just to reply to the Bursa Malaysia.

Wouldn't it better if such reporters would refrain from writing such articles?

Perhaps, they might consider writing for a comic where all mystical sources live in their fantasy world? The best of sources, eh?

Now that would be an excellent idea, wouldn't it?

Or perhaps how about their news editorial posting a disclaimer such as this below:

• Disclaimer
  
  The following news article is based on sources which really could be anyone. It might be the tea lady, the driver or even the toilet cleaner. The reporter is allowed as creatively as possible for this creates the much needed excitement in the stock. Now think about it. Who wants a dead market right? Hence, the editorial feels that it is ok that our financial news is based on sources and more sources.
  
  And because of this, the editorial would like to remind all readers to take our financial news as seriously as possible.
  
  Thank you

Show Me the Money Dude!!!

Lion Diversified's quarterly earnings is interesting.

Did you see what I am seeing?

No?

Let me show you the money!!

Quarterly rpt on consolidated results for the financial period ended 30/9/2006

Have a look at their balance sheet.

See the Moola?

rm1,710,045.00!!!!

Filthy rich, if you ask me!

So if you are an investor, and considering that this is the SHARE market, is Lion D sharing its wealth with you?

Is it?

All I remember that there is a news report posted on the Edge stating the following:

• 6 Nov 2006: Corporate: Lion Div's DRI plant to cost RM1 bil By Siow Chen Ming
  Lion Diversified Holdings Bhd (Lion Div), the shining star of the Lion Group, is forking out as much as RM1 billion to put up a direct-reduced iron (DRI) plant in Banting. Sources say the plant, which is integrated with the existing flat steel or hot-rolled coil (HRC) plant of Megasteel Sdn Bhd, is expected to be ready by the second quarter of next year. The DRI plant will supply feedstock to Megasteel, which now uses scrap metal or hot briquetted iron (HBI) as feed stock.

US Dollar, Housing & Stock Market

Saw a report stating that one should not to sweat about the US Housing Market ( here ). Wow. No worries? Just be happy?

The US Market slumped to their biggest one-drop since July 2006. ( CNN report: here )

Most interesting note is:

• Having rallied since the summer, stocks were probably vulnerable for a bit of a pullback Monday, analysts said. That was exacerbated by some negative news Monday, including a slide in the U.S. dollar to a 20-month low versus the euro, a nearly 2 percent jump in the price of oil, and a big run up in gold prices.

Rob Kirby has an interesting editorial called It's All About the Dollar .

• IT'S ALL ABOUT THE DOLLAR
  

  While America celebrated Thanksgiving, foreign exchange markets behaved in an unruly fashion with the U.S. Dollar Index precipitously dropping to 83.60 – falling out of a range between 85.10 and 85.71 which had held for some four weeks between October 26 and November 21.

  
  

  The following is a synopsis of the Dollar’s predicament - derived largely from the Privateer's most recent weekly newsletter.

  
  

  This precipitous drop in the Dollar was conveniently attributed, by the mainstream financial press, as reaction to yet another Chinese monetary official making the case for diversification of sovereign Chinese forex reserves – which had ballooned to $U.S. 1 Trillion on November 6.

  
  

  "Firstly, long-term interest rates are falling (meaning lower returns on bond investments). Secondly, the exchange rate of the US dollar, which is the major reserve currency, is going lower, increasing the depreciation risk for east Asian reserve assets," Wu said.

  
  

  Sounds like a credible explanation, doesn’t it?

  
  

  Other media outlets tried to explain the Dollar’s drop to the “anticipated narrowing” of interest rates between the U.S. and Euroland – with the European Central Bank [ECB] widely expected to raise their benchmark lending rate 3.50% on December 7 when they meet with the Fed, whose FOMC meets one week later, is widely expected to leave rates unchanged.

  
  

  Still other reasons proffered run the gamut from the cessation of the Yen Carry Trade to thin markets resulting from North American traders being on vacation.

  
  

  Who’s to argue with any of these reasons – here’s what happened:

  
  

  

  
  

  Now For The Real Reason

  
  

  As the Privateer’s editor - Bill Bucker - so eruditely points out,

  
  

  “The [real] reason why the US Dollar is weak is that it is a fiat currency backed by nothing. True, so is every other currency in the world. But the US, along with having a fiat currency, also has a level of debt - “public” and private - unapproached by any other nation.”

  
  

  The chart of the 35 year history of the U.S. dollar since President Nixon closed the Gold Window in August of 1971 tells the story:

  
  

  

  
  

  And Here’s Why It’s Different This Time:

  
  

  Once again, I’ll defer to the words of Bill Bucker:

  
  

  The US has had a fiat currency for thirty-five years - since August 1971 when federal government debt was $US 400 Billion. It has been a net international debtor for more than twenty-one years - since March 1985 when federal government debt was just under $US 2 TRILLION. The present Bush Administration, now halfway through its second term, has already amassed nearly HALF of all Federal Government debt borrowed since 1787. But the Bush Administration (and the US Congress) have done more than that. They have also destroyed the reputation of the United States of America in the eyes of the world.

  
  

  And HERE lies the REAL danger to the US Dollar.

  
  

  As analysed in this issue and the previous issue of The Privateer (Numbers 565 and 566), US foreign policy is in tatters. The downward spiral of US global influence and clout in the less than three weeks since the mid-term elections on November 7 has been awesome to behold.

  
  

  It is inevitable that this loss of “clout” and this examination of the ever widening gulf between the words and DEEDS of the US federal government will spill over into the financial system in general and into US markets in particular. We have now seen the start - with the sudden dive of the USDX this week.

  
  

  In a nutshell folks, for all of the reasons above – this is why Jim Puplava and Financial Sense crew are such ardent advocates of proper asset diversification among ALL asset categories – including foreign currencies, precious metals and resources.

Advice Given For Magnum Shareholders

Yes, one should NEVER had invested in Magnum given all the questionable issues and perhaps one should really LEARN the lesson of never investing in a company whose management are questionable.

Anyway, let me NOT rub it in anymore for you Magnum shareholders.

Here is an investment advice given by RHB Reserach.

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

27 November 2006 - RHB RESEARCH INSTITUTE SDN. BHD.

Magnum Corporation

Offer Not Attractive For Minorities

Share Price : RM2.26 Fair Value : RM2.30 Recom : Market Perform (Upgraded).

Analyst : Low Yee Huap, CFA Tel : (603) 9280 2175 E-mail : low.yee.huap@rhb.com.my

. MPHB make offer for Magnum. Multi-Purpose Holdings Bhd (MPHB), the parent of Magnum, has served a notice of offer to acquire the remaining 60% stake in Magnum that MPHB does not own. The offer price is RM2.30 per Magnum share amounting to RM1.976bn. It is the intention of MPHB to increase its stake in Magnum from 40% to 60% and maintain the latter’s listing status. The offer is expected to complete in 1Q07.

. Magnum to take Magnum 4D private. In another separate announcement, Magnum said that it has served a notice of offer to acquire the remaining 23.89% in Magnum 4D (M4D) that Magnum does not own. The offer price is RM3.00 per M4D share amounting to RM119.5m. Magnum does not intend to maintain the listing status of M4D. The offer is expected to complete in 1Q07.

. A faster avenue for MPHB to reach its target. MPHB has stated previously that it is the group’s intention to make Magnum a subsidiary (from the current associate stake). However, to prevent a GO, it is limited to an incremental increase of 2% per annum. With the current stake of 40%, it will take MPHB another five years to achieve its goal. This offer would be a faster avenue to achieve its target.

. Don’t take the MPHB offer. Although the offer price is higher than our previous fair value of RM1.90, we are recommending that shareholders DO NOT take the offer for the following reasons:

1. Offer price is below our conservative SOP of RM2.53. Note that we have assigned zero value for its investments and properties as well as a 50% discount to its loan debtors. If we add back these assets at cost (as at Sep 06), it will boost our SOP by circa 70 sen.

2. Our conservative SOP and previous 25% discount to SOP were premised on concerns about its non-operating risks and higher luck factor risk as well as inability to unlock low yielding assets (properties). Although there is value in the stock, we believe that without a massive clean up (loan debtors and investments), clear cash management policy and return of excess cash, it will be hard to crystalise the values.

3. Despite that, investors should not opt out of the stock cheaply and reduce their rights to have a more effective "check and balance".

. Earnings enhancement to privatise M4D. With elimination of minority interests, Magnum’s earnings are expected to rise by about 4-5% per annum.

. M4D shareholders should take the offer, in our view. This is due to the following reasons:

1. The structure between the two companies, M4D’s earnings are very volatile as it has to fund the prize payout. Prize payout is eratic given that it has relatively higher luck factor risk (arising from bigger bet size).

2. The above has contributed to M4D’s lacklustre share price performance.

Average transacted price of M4D over the last one year was only RM2.48, way below the offer price of RM3.00. Moreover, over the last 20 months, M4D’s share price only briefly crossed the RM3.00 mark three times.

3. M4D lacks liquidity as Magnum already own 76.1% of the stock.

. Upgrade to Market Perform. We remain wary about its opaque cash management policy as well as other non-operational risks. However, in view of the offer, we believe share price is likely to be sticky at around the offer price level. Thus, we have raised our fair value for the stock to RM2.30 and upgrade our recommendation to Market Perform..

Update on the Whacking of the US Dollar.

Here is an update to previous day post topic US Dollar Getting Whalloped.

Update:

November 24 2006: 2:56 PM EST
NEW YORK (CNNMoney.com) -- The dollar took a plunge Friday as there were signs that the European Central Bank would likely continue to raise interest rates next year, sending American markets tumbling and giving a boost to Treasury bonds.

The euro rose to $1.3105 against the dollar, reaching a one-and-a-half-year high, up from $1.2940 Wednesday. The dollar bought ¥115.78, down from ¥116.74 in the previous session.

source:
http://money.cnn.com/2006/11/24/markets/bondcenter/bonds/index.htm?postversion=2006112414


other Links (AP): Dollar Falls Against Major Currencies

other link (CBS): http://www.marketwatch.com/news/story/dollar-slumps-19-month-euro-low/story.aspx?guid=%7BB1219ADF%2DA78D%2D47C8%2DB692%2D8DE0FB576697%7D&siteId=

Some charts posted by Gary Tanashian: http://www.financialsense.com/fsu/editorials/tanashian/2006/1124.html




USD is breaking down from a bearish flag and a test of the major lows around 80 looks likely.




Euro breaking out of bullish flag on the way to a possible test of major highs.




Swissy is even more bullish then the Euro. See our short-term chart from 2 days ago.




Aussie dollar sporting something of a rising wedge up to a double top?




Now here is a large and bearish rising wedge on the Canadian Dollar in the process of breaking down.




Finally we find our favorite basket case, the Yen, actually looking bullish in the bigger picture

And some comments posted by Ashraf Laidi of CMC Markets NA.

===========================

The US Dollar drops to:

- 19-month lows against the euro at 1.31, down 2.5% on the month and 10.6% on the year

- 3 month lows against the yen at 115.62, down 1.1% on the month and 2.0% on the year.

- 23-month lows against sterling at 1.9348, down 1.4% on the month and 12.4% on the - year.

- 5-month lows against the Swiss franc at 1.2072, down 2.6% on the month and 8% on the year.

The dollar damage deteriorates in thin trading activity on a combination of the following:

1. Escalating optimism in Europe and inflation vigilance by the European Central Bank officials, particularly following Thursday's unexpectedly strong German IFO business climate survey matched a 15-year high in November at 106.8 from 105.3, overshooting expectations of a 105.2 reading. The survey not only increased speculation of further ECB rate hikes, but also dispelled speculation that the region's largest economy will be unfazed by next year's 3-point increase in the VAT tax. 5-month highs in French consumer confidence have also helped boost the euro.
   

2. Heavy unwinding of yen carry trade positions against the higher yielding currencies of the USD and AUD. As we have repeatedly warned before, the unwinding of USD/JPY carry trade positions particularly ensues as the Japanese yen -- largest currency provider of global capital reduces USD positions in anticipation of slower growth in the US, reduced risk appetite and anticipated reduction in stock market complacency seen through sub-10 levels in the VIX.
   

3. Comments from People's Bank of China warning about the risk to Asian currency reserves from further dollar slide, suggests that shifts from USD is already underway. The rise in the yen is also boosted by increased expectations that China will make more concrete decisions in its currency on reports that Fed Chairman Bernanke will join Treasury Secretary Paulson in a trip to China next month.
   

4. Talk of sovereign Mideast accounts buying euros is also accelerating the EURUSD rise, after the central bank of the United Arab Emirates and Qatar have long stated their intentions to shift towards EUR and gold in their currency reserves.
   

5. Increased expectations that the ensuing slowdown in the US will produce earlier than expected interest rate cuts in the US, with market odds of a March easing as high as 42%. Next week's array of US data increases the probability of not only increased evidence of slowing housing market but also dissipating inflationary pressures signaled through the October core PCE price index (expected down to 2.2% from 2.4%).
   

6. Gold prices have hit a fresh 21/2 month highs at 638.80 per ounce, breaching the 50% retracement of the major move from the May 2006 high of $730 per ounce to the June 2006 low of $549 per ounce.

The pace of the dollar downfall is highlighted by current losses in US stock futures, reflecting worries about foreign financing of the US trade deficit instead of producing the usual optimism fed on US exports. Japanese officials are unlikely to intervene today as the momentum in dollar selling has not yet receded.

The current euro rally/dollar sell-off may stabilize before end of the day but is unlikely to end in the short term as the fundamentals and market flows are increasingly stacked up against the US currency as clarified by the aforementioned factors -- which are seen long term in nature. Unlike in the EURUSD rallies of January 2004 and January 2005 when the ECB was NOT in a tightening cycle, today's euro rally is vitalized by current rate increases as well expectations of 50-bps of tightening in the next 4 months.

=============================

And Peter Schiff is saying that The U.S. Dollar is the Week's Biggest Turkey

Maxtral

Maxtral was listed in Aug 2003 via a RTO of General Lumber and in the restructuring exercise it involved the exchange of 10 Lumber shares into1 maxtral share and also there were some ICULs involved. Back then some 149.9M ordinary shares and 144.6M ICPS were issued. At the moment of writing, Maxtral has some 210.099 million shares and it has some 84.415 million shares of ICUL outstanding. (ICP can converted on 1-1 basis)

And another worthwhile point is that Maxtral has a private placement exercise of 88.354 million shares. This exercise had been approved but for some reason or another, it has been delayed and in its latest announcement back in Aug 2006, this pp has been granted extension till March 2006.

Couple of things - PP always dilute earnings and this 88.354 pp represents a possible dilution of close to 30% - assuming full conversion of iculs. Secondly, why not laku? Perhaps a bad manager for this exercise? (PM Securities is handling Maxtral's PP woh). PP in a hot market, could sometimes do strange stuff to a stock woh - i guess Unker will know what i mean. But timber is now hot. Perhaps, Maxtral could find some buyers for this PP.

Anway, this is Maxtral background according to surff-fatt-fatt back in 2003.

Tawau-based manufacturer of plywood, veneer and moulding products. Tawau-based Maxtral commenced business in 1990. Its plywood and veneer capacity was last doubled to 8,000 cu m per month in 2002, while the monthly capacity for moulding products has remained at 1,500 cu m in the past five years. Based on the latest available information, Maxtral operates at about 70% of its plywood capacity, and less than 20% of veneer.

Multi-sourcing for log supply. Maxtral has a log supply agreement for 15,000 cu m per month from Aug 2002 to Jul 2005 (with option to extend to Jul 2008), which is sufficient for its current log requirements. In the past, Maxtral has sourced logs from Indonesia, Brazil and New Zealand to capitalize on supply and pricing opportunities, and expects to still do so in future. We understand that it also intends to acquire its own timber concession while developing alternative wood sources such as from oil palm tree trunks or forest plantations.

US the main export market. Maxtral derives about 70% of its revenue from the export market, of which about 30% goes to the US. This followed a switch from predominantly Japan previously. Maxtral has a fairly high customer concentration with its top five customers accounting for more than 50% of revenue.

Maxtral has a two-year contract (beginning Nov 2002) to supply between 2,000 cu m to 5,000 cu m of FSC certified (timber certification for quality and environment practices) products per month to a Hong Kong-based customer, and a one-year contract to sell up to 3,000 cu m of veneer per month to a Korean company. Taking the lower end of the first contract and assuming half the maximum commitment for the second, Maxtral would have secured about two-thirds of its actual output in 2002 through the two new contracts. As both only started in late-2002, Maxtral should look towards higher profitability in 2003.

Couple of things.. the log agreement thingy. the option to extend to 2008. If Maxtral exercised that option it should be recording some decent profits. However, on the other hand, one should realise that Maxtral, like a couple of other timber/plwood stocks, it does not own its own timber concession. Hence Maxtral needs to source for its timber.

That was then.

So what has Maxtral done since?

     Sales    Earnings
2003 36.918 3.830
2004 100.354 5.880
2005 158.247 11.502
ttm 194.724 14.810

ttm = trailing tweleve months or most recent 4 quarters.

The ttm is indicating that Maxral should have a really decent fy 2006. So far, Maxtral last reported earnings was on 30th Aug 2006 and it reported its first half (2 quarters) earnings for fy 2006 to be at 6.973 million (which is much more than what Maxtral did last year (3.551 million) (and histroically, Maxtral q3 and q4 earnings is much stronger). And with most timber stocks showing really decent earnings, Maxtral earnings should be strong.

Here is the snapshot of earnings.. (note how Q3 and Q4 earnings is always stronger)...

Here is Maxtral's Balance sheet and Cash Flow

Maxtral is covered by ... and this is a snippet of what they wrote back on 1st Sept 2006.

Friday, 1 September 2006

BUY Price RM0.280 Target RM0.330

Mervin Chow Yan Hoong

Growing Up Well On Fertile Soil

Above expectation. Maxtral’s 1H06 turnover and net profit grew a massive 55.5% and 95.6% y-o-y respectively. Quarterly comparison, we saw a 60.3% and 25.9% YoY improvement in turnover and net profit as compared to 2Q05. Annualised net profit came in at RM13.5m, 43.8% above our forecasted figure.

Benefiting from high demand for timber products and shortage of logs. Growing up in an environment of shortage of logs which has led to increased demand for logs and other timber products, Maxtral is poised to gain and grow favourably since the recent run-up of prices for these products (Figure 3). Maxtral also has an exclusive access to 10,000 hectares of natural forest which will provide the Group with a steady large supply of logs for about 7 years. In addition to the benefit that Maxtral’s logs in the market will be able to fetch a very good price, availability of these in-house logs will also have significant and favourable impacts on the logs and timber products division’s earnings as its log input costs will be lower. In addition, we believe that the Group’s veneer and plywood division still has an excess capacity of about 40%-30%, which will also enable it to continue to meet the high and growing demand for these timber products.

Going for further expansion. The Group is issuing a RM100m Islamic Securities Facilities in which part of the proceeds will be utilised to finance the purchase of raw materials, capital expenditures and working capital of Maxtral. As part of the Group’s strive to upgrade its expertise, plant and machinery and range of products to meet the needs of its customers, Maxtral is investing RM15m to purchase a wood chip fuelled plant to mitigate the hike in diesel and upgrading of the mill infrastructure and facilities.

Venturing into oil palm industry. As part of the Group’s diversification strategy, Maxtral is planning to venture into the oil palm industry, which will give it positive contribution to top and bottom lines in the near future. However, things are still are not firmed yet as discussions are at their preliminary stage.

Reiterating BUY at RM0.33 target price (Figure 5). At current share price, Maxtral could still offer a further potential upside of 19.5%. As the Group is still in need of large working capital to grow, Maxtral is yet to pay any dividends to-date. However, management has indicated that it could potentially establish a longer-term dividend policy soon.

Ok, so what we have?

The OSK report surprising reports that ..

Maxtral also has an exclusive access to 10,000 hectares of natural forest which will provide the Group with a steady large supply of logs for about 7 years. In addition to the benefit that Maxtral’s logs in the market will be able to fetch a very good price, availability of these in-house logs will also have significant and favourable impacts on the logs and timber products division’s earnings as its log input costs will be lower.

Interesting because surf-fatt-fatt said Maxtral has to source for its logs.

And another interesting issue is that MAxtral was at 28 sen when Osk wrote the report back on 1st Sept 2006.

Maxtral is now .. 0.40/0.405.

Maxtral share price has appreciated quite a bit and the next driver for the stock is how Maxtral perform in its q3, which would be released these few days.

Would it be a blow-out quarter as seen by most other timber stocks?

As it is, Maxtral's ttm profit is at 14.8 million, which equates to an eps of 7 sen (fully diluted eps - assuming full conversion of icul is at 5 sen).

yesterday, tekala, announced its earnings. For a rather lacking timber stock, tekala too had a blowout earnings. q-q earnings improved from 1.645 million to 4.035 million.

So perhaps.. i would have to agree with you that Maxtral earnings has a pretty decent chance to outperform as well.

rgds

The Billionaire Next Door

Missed Warren Buffett interview on CNBC?

Here is the video clip link on MSN. Enjoy!

http://video.msn.com/v/us/v.htm??g=3f17d298-3f27-415e-b9f5-45ae17ce41f4&f=rssmoney&fg=rss&f=15/64rssmoney

US Dollar Getting Whalloped!

In today's market wrap, Michael Hartman talks about Economic Reports and White House Say Economy Will Slow .

• Investors are jamming the exit doors for the U.S. dollar this morning as three economic reports came out with a negative bias, with the only positive report coming from the Energy Department. Stock prices are struggling to move higher from yesterday’s close and bond prices are catching a modest bid to push yields lower with the economic slowdown moving into the spotlight. Most investors, including myself, expected lower volatility today going into the holiday weekend, but this development in the foreign exchange market is quite significant. The dollar is really getting whacked! Yesterday the U.S. dollar index closed at 85.12, but this morning it gapped-down to open at 84.77 and is still getting pounded lower to 84.32, touching a six-month low versus the euro.
  
  The first surprise that seemed to have the biggest impact on the dollar was the increase in unemployment claims from 309,000 to 321,000. Analysts’ consensuses were looking for a number closer to 310,000. To add fuel to the fire, Alcoa announced they would be sending another 13,000 workers to the unemployment lines with a reduction of workforce. The unemployment numbers hit the dollar, but stock futures were not affected much.
  
  Thirty minutes before the bell rang on the floor of the NYSE the University of Michigan released their index of consumer sentiment. Last month the index had a reading of 93.6 and analysts were expecting 93.3 for November, but the number came in lower than expected at 92.1. The slumping consumer confidence numbers aided the dollar decline, but this time around stock futures also moved lower.
  
  The third report adding fuel to the dollar decline came from the Mortgage Bankers Association saying their application index was 3.7% lower last week even though the 30-year fixed rate dropped to 6.13%. This is the lowest rate since January and below the rate from a year ago at 6.26%, but mortgage applications are declining nonetheless.
  
  The only report that would have offered some support for the dollar came from the Energy Department with an unexpected build in crude oil and unleaded gasoline inventories. Analysts expected a build of approximately 500,000 barrels in crude, but the number came in much higher than expected at 5.1 million barrels. Prior to the report, some analysts were expecting energy prices to rise as traders cover their short positions to square-up prior to the long weekend. Just the opposite is actually occurring. As I write, crude is down $1.42 to $58.75. I expect these low prices to last for another month, and then we move higher into the first quarter around the $60 to $65 a barrel range, but no blow-out back to $80 until later next year.

So how weak is the USD.

Have a look...

About The Bear's Liar

Here is a must-read essay: The Bear’s Lair: The dangerous games managements play

• Then there was Enron. The sentences handed out to Enron’s top management made it appear that its collapse was due to thieving but in fact the thieving was minimal in the context of Enron’s overall size. The collapse resulted from sheer incompetence. Enron was running a huge energy trading operation from a company whose debt rating never exceeded BBB. Consequently, when the market turned against it, Enron’s counterparties quickly required additional collateral to be posted and the house of cards collapsed. Enron’s energy trading operation was perfectly viable, as has been demonstrated by its subsequent success within UBS, but was far too big for anyone but a major international bank.
  
  Unlike earlier derivatives catastrophes, Ford’s and Fannie Mae’s losses don’t relate to poor trading, but from the difficulty in valuing a large portfolio of derivatives in financial statements. Financial Accounting Standard 133, which deals with derivatives valuation, allows companies to divide derivatives positions between trading, in which positions are marked to market and profits and losses taken and hedging, in which they are held for the long term against the asset being hedged. Naturally, you’re supposed to decide immediately you buy the derivative which category it will go into. In the case of Fannie Mae, management had been holding new derivatives positions for several weeks to see which way the market went, and then recording them so as to book the profits and leave the losses as hedges, to accrue over the life of the instruments concerned.
  
  Needless to say, when this trick was discovered much later, after Fannie Mae management had collected several years of record bonuses, it was more or less impossible to determine what the correct position should have been – thus the accounting uncertainty and the two years of cleanup work.
  
  Derivatives are sold by investment banks to corporations seeking to hedge risks in interest rates, currencies, equities or commodities. To the banks selling them, who make trading profits through their knowledge of the deal flow, they’re a wonderful business. To corporate management, which can use them to create artificial profits in a quarter in which earnings are falling short of forecasts, they may also be attractive – any accounting restatements occur several years later, and pass almost unnoticed by the market. For example Sears, now owned by ex-trader Ed Lampert, announced Thursday that it made more money -- $101 million – from trading in credit derivatives in the third quarter of 2006 than it did from its core retailing business --$95 million.
  
  I’m sure Lampert feels very proud of himself, and will be given some suitably munificent reward. However Sears shareholders – and customers, and employees – will wonder what the hell is going on. Trading credit derivatives is a huge distraction from management’s primary purpose of running a retailing operation. Indeed, the market reflected this view, with Sears’ share price dropping 5.5% on the day

And for the shareholder or the investor, the following paragraph says it all.

• To corporate shareholders derivatives are all risk and no reward. In addition to the risk of a rogue trader, the risk of a hedging system that proves flawed and the risk of overtrading, shareholders also suffer the risk of corporate management dressing up earnings. Further, whereas before the derivatives era shareholders in a company selling products in Germany knew they would have an exposure to the deutschemark/euro, and could judge the investment merits of that position, these days a company doing business in Germany may turned out to have exchanged that cash flow for floating rate Thai baht. At the end of the year, shareholders who read annual report footnotes carefully will discover their new baht exposure, but not before. Options make the position even more opaque. Given the agency problems between shareholders and management, and between management and traders, allowing companies to play the derivatives markets is a mug’s game for shareholders.

Remember the most important issue...

If the bet works out great, the management like in Fannie Mae's case, the maangement will take all the credit and most important, the BIG-FAT-OUT-THE-WORLD-BONUSES!!!

And what does the shareholder get?

And oh... if it fails.... what does the shareholder get?

Magnum and Its Cash

Blogged on this stock a couple of times. Past blog postings: magnum fall out of favour! , magnum again. , reminiscences of a stock mumbler: iv and About Magnum Again.

Today I noted an interesting comment from RHB Research, which commented that Magnum's subsidiary, "Magnum 4D had acquired 13.4m shares or 0.88% of Sarawak Enterprise Corporation (SEC - from 2 Jun 06 to 20 Nov 06) for RM16.6m or at an average price of RM1.235 per share."

As rightly pointed out by RHB, this investment "is a small investment outlay in view of Magnum’s net cash position of RM710m and Magnum 4D’s cash reserve of RM440m (no debt) as at Sep 06."

But...

Consider this issue. If you were an investor purchasing Magnum because of its net cash position in hope that you benefit from this cash factor, surely you would have been disappointed.

And the following are the concerns mentioned by RHB in their writeup.

• . However, this move further raises concerns about its cash management policy and may undermine the recent positive developments (cancelling of treasury shares, higher dividend and sale of land in Sepang). Moreover, SEC is considered a related company given that Magnum’s parent, MPHB, has a 18% stake in the East Malaysia utility company.
  
  . Maintain Underperform. We remain wary about its opaque cash management policy as well as other non-operational risks and the higher luck factor risk. Fair value is pegged at RM1.90 or a 25% discount to SOP of RM2.53.

See the concerns raised?

Yes, the piggy bank cash is extremely healthy but one really does not know what the management will do with the cash.

OPAQUE CASH MANAGEMENT POLICY!!!!

Buying shares in another listed company is like dabling into the stock market. Do the management reckon that they are a Warren Buffett? Or a Bill Miller?

And worse of all... and in fact it really stinks that the fact Magnum’s parent, MPHB, has a 18% stake in SEC!!

Sigh!

More Disposal of Shares Seen in Crest Builder

Here's another update:

Director's Disclosure of Dealings in Securities pursuant to Chapter 14 of the Bursa Malaysia Securities Berhad ("Bursa Securities") Listing Requirements

Disposal of 2,687,700 shares.

Incredible!

If Crest Builder was half as good as what OSK tried to portray, why are these folks disposing their shares in Crest Builder like plague?

Why?

Housing, Upside Down Logic and Greatest Manager

Update on the housing: Home Sales Plummet in 38 States in 3Q.

• The once-booming real estate market's persistent weakness over the past year has reined in expectations for economic growth but hasn't been severe enough to offset a rising stock market, lower gas prices and improved consumer expectations.
  
  The National Association of Realtors reported Monday that sales of existing homes fell in 38 states during the summer. Sales retreated to a seasonally adjusted annual rate of 6.27 million units nationwide, down by 12.7 percent from the same period a year ago. Nevada, Arizona, Florida and California led the declines.
  
  Home prices also dropped: The realtors' survey showed that the midpoint price for an existing home sold during the summer dipped 1.2 percent year over year to $224,900. Some 45 metropolitan areas saw home prices decline.

WSJ has a survey: http://online.wsj.com/article/SB116370236302025327.html?mod=home_whats_news_us

And another worthwhile reading article: Is the Housing Bubble Collapsing? 10 Economic Indicators to Watch.

And did you read Bill Fleckenstein's The upside-down logic of Wall Street?

And finally, here's a nice article on Bill Miller on Fortune: The greatest money manager of our time

• As it stands now, Miller has compiled one of the most remarkable records in the history of investing: His fund has outperformed the stock market for 15 straight years. That's right, 15 years, starting in 1991 - during George Bush the elder's presidency - through the tech bull market, then the crash and now the recovery

Here's a tip.

Think!!!

• "What we are really trying to do is to think about thinking," Miller tells me. "Understanding how groups behave is central to understanding how complex adaptive systems - such as the stock market - work."

Cheers!

Crest Builder's Home Run?

Just as I updated my blog posting on Crest Builder ( Crest Builder - Fulfilling What Prophesies?? ), I realised that Crest Builder reported its earnings yesterday.

As mentioned in Crest Builder Again, Crest Builder had only made 9.322 million for its first 2 quarters of fy 2006. And for OSK to forecast its fy 2006 earnings to be at rm32.9 million, I find it totally astounding!

This was Crest Builder earnings: Quarterly rpt on consolidated results for the financial period ended 30/9/2006

Crest Builder announced its Q3 earnings was rm7.225 which was certainly much more than CB's Q2 net earnings of rm3.695 million.

But...

As good as its earnings was, it was never gonna be enough. Not when one projects such an astronomical set of earnings.

Hence, the OSK writer was forced to write in the following manner.

• Astounding! CB’s 9M06 turnover and net profit grew significantly by 25.4% and 71.2% respectively (Fig. 1). Even after adjusting for the cessation of goodwill amortisation in accordance with FRS 3, CB would still register YTD net profit growth of 38.4%. Despite the much stronger 3Q06, annualised net profit came in at RM22m, still a far cry from our initial projection of RM32.9m. It managed to however, beat the market consensus by at least 10%.

A far cry from their projection of rm32.9 million!! And that projection is looking might silly ain't it?

• Fine-tuning required. Despite the impressive set of results, CB is still lagging behind our initial projections. The Group only has 1Q left to register a further RM16.4m in net profit to hit our forecast! Much of this, as we foretold earlier, was the extremely slower work progress recognition during the 1H06. Hence, we are gladly fine-tuning our FY06 turnover and net profit projections from RM336m and RM32.9m to RM310.4m and RM26.8m respectively

LOL!!! So they forced themselves to 'fine-tune' their projections DOWN TO rm26.8 million.

Fine-tune.

What a nice set of words!!

And consider this. Current Crest Builder net profit is only rm16.547 million. So despite knowing that the group has only one reporting quarter left, OSK still CHOSE to SET A VERY OPTMISTIC projection of rm26.8 million!

Which means, they are saying Crest Builder will report at least rm10.253 million in earnings for its Q4 quarter.

Mighty optimistic again considering Crest Builder only earned rm7.225 for its Q3.

Now take a look at this.

• Reiterating BUY with a refined 12-month target price of RM1.70. Based on the Group’s current share price of RM1.03 and forward fully diluted FY06 of 18.7sen and FY07 EPS of 30.5sen, the CB is currently trading at a forward PER of 5.5x and 3.4x in FY06 and FY07 respectively, a significant discount of 21.3% and 51.8% to its average peers’ PE of 7.0x. This is unjustifiable given CB’s strong and solid earnings prospects.

Guess what, a refined 12-month target price of RM1.70.

LOL!!!!

Refined!

Another choice word!

What happened to their TARGET PRICE of rm1.84 (see Crest Builder Again) set just on the 14 Nov 2006?

This was a HOME RUN stock, isn't it?!!

A home run stock which had its TP reduced from rm1.84 to 1.70?!!

A home run stock which is seeing a lot of SELLING (see Crest Builder - Fulfilling What Prophesies?? ) ??!!

A home run stock was promoted at 1.18, a day after the stock gained 13.5% the previous day!?

A home run stock which opened the day at 1.03, down 15 sen, after it's rosy write-up on the 14th Nov!?

How can?

Crest Builder - Fulfilling What Prophesies??

Blogged on this stock recently: Crest Builder Again and updated it here, Regarding Crest Builder Again. In the update, I mentioned the following:

• Now I do understand that some times certain research reports tends to be overly optmistic but this incident regarding Crest Builder leaves a really bad taste, especially the manner in which the writer boasted that Crest Builder has risen some 24.2% to 1.18 in a space of just one month. Alas, how short his memory was for he too recommended the same exact stock back on 6th May when it was trading at 1.12. So if one purchased his recommendation back in May at 1.12, there is really nothing to shout about, is there?
  
  Anyway, isn't it strange that one of the shareholder had disposed some 2,507,000 shares in Crest Builder on the very same day that OSK released that same research report?
  
  Strange timing or what?

They say pictures say a thousand words.

The report from OSK was published on the 14th Nov.

See how Crest Builder gained 14 sen or 13.5% the day before OSK wrote that STRANGE write-up?

And the nice handy work is shown below!

And if that is not enough, how about these disposal of shares announced..

Changes in Sub. S-hldr's Int. (29B) - Yong Tiok Chin (disposed 20,000 at 1.16)

Changes in Director's Interest (S135) - Yong Soon Chow (disposed 460,000 at 1.168)

Changes in Sub. S-hldr's Int. (29B) - Yong Tiok Chin (disposed 2,273,000 at 1.163)

Changes in Sub. S-hldr's Int. (29B) - Yong Tiok Chin (disposed 2,507,000 at 1.194)

How Brown Cow?

Compelling Reasons to Privatise Scomi

The Star Bizweek has an article on Scomi Group, To privatise or not? , in which it states the compelling reasons why Scomi Group should be privatised. ( Refer recent blog posting: Privatisation of Scomi? and Update on Scomi )

I find it rather strange the need for this article.

Really.

After all, if you look at the blog posting, Privatisation of Scomi? , you would note that the whole 'story' is based on nothing but speculation and of course the in famous 'according to sources'.

This was what printed by the Business Times article on November 15.

• SPECULATION is rife that major shareholders of Scomi Group Bhd may take the integrated oil services firm private in a bid worth as much as RM1 billion.
  
  Sources said the main shareholders, who include the son of Prime Minister Datuk Seri Abdullah Ahmad Badawi, are considering this as an option as Scomi's market price does not reflect its true value.

SPECULATION is rife and SOURCES said.

Ever wonder why can't our financial report news based on facts and nothing but facts?

Do you want to read news based on SOURCES?

Let me repeat a thousand times again. Anyone can be a source. Anyone. You, me, the makcik or the Ah So cleaning the toilet. The driver. The office boy. They all can be a source.

So today we have an article posted in The Star Bizweek which ATTEMPTS to JUSTIFY this speculation. And they even have TA Securities head airing out his compelling reasons to privatise the stock.

• First off, the timing is right. TA Securities' head Kaladher Govindan is just one of those many who perceive Scomi as being undervalued.
  
  “Going by current prices, it's advisable to take it private,” he says, pointing out that the company is ripe with future growth potential, as evinced by such developments as its recent penetration of the US market. Indeed, Scomi has gone on record as stating that it expects to more than triple its sales to US$1bil by 2009.
  
  The upshot of this is that keeping Scomi listed would mean sharing those future profits with the public. Conversely, privatising the company would largely benefit its major shareholders.
  
  Such a move would also provide the company with a greater deal of flexibility by removing the need to keep up with the regulatory framework, in addition to obtaining shareholders' approval for certain decisions.
  
  Second, Scomi is now susceptible to what is known as holding company discount. Buying into a conglomerate that has a number of subsidiaries engaged in diverse activities under their umbrella is often a bit of a mixed bag, as investors may not want to be exposed to each of these individual companies.
  
  In this instance, especially when a holding company has successfully listed a number of its subsidiaries, buying directly into a subsidiary may represent a better way to get direct exposure. From the perspective of the company itself, analysts feel there is sufficient reason to de-list Scomi as funding for expansion can be raised at the subsidiary company level.
  
  To illustrate the former point, Scomi Engineering Bhd was trading almost 50% higher than its parent two weeks ago. Even after the recent uptrend in Scomi's price, following the recent spate of news, it is still trading 25% lower than its subsidiary.
  
  Financials and elephants
  
  Third, Scomi can afford it. The company's announcement some months ago that it would undertake a restructuring exercise to streamline its subsidiaries was viewed favourably by analysts, along with the proposed listing of KMC Oiltools Bermuda Ltd on the Singapore Stock Exchange under the name Scomi Oilfields Ltd (Oilfields).
  
  With the exercise expected to raise up to half a billion ringgit for Scomi, a privatisation exercise was among the many methods mooted to prevent the cash burning a hole in Scomi's deepened pockets.
  
  As major shareholders, Datuk Kamaludin Abdullah and CEO Shah Hakim Zain own about 34.7% of the company between them. TA Securities reckons they would have to cough out between RM787mil and RM984mil based on the speculated price range of between RM1.20 and RM1.50.
  
  “We believe the major shareholders could obtain part of the funding from the group’s possible capital repayment exercise with the listing of Oilfield Services on the Singapore exchange that could raise up to RM700mil (inclusive of the RM130mil from settlement of inter-company loans),” says the house.
  
  
  

How?

Let's take a look at Scomi Group again.

Here is the link to their last reported quarterly earnings:

Quarterly rpt on consolidated results for the financial period ended 30/6/2006

let's look at the balance sheet. It's current assets.

And the below is their group borrowings.

Well, group loans totals 1.053 BILLION. Groups piggy bank cash is only 149.236 million, which gives one a nett debt of ONLY 903. 946 million.

My simple question again.. once Scomi Group is privatised, who owns this debt?

Update on US Home Markets

Saw this article on MSN.

Hard landing for the housing market

• Housing starts tumbled in October, the government said Friday, falling to levels not seen since July 2000....
  
  Housing dive is a shocker
  The government said starts fell to a seasonally adjusted annual pace of 1.49 million new homes, down 14.6% from September and 27.4% from October 2005.
  
  Bloated inventories and weakening home sales contributed to the drop. Economists had been looking for a 5.6% fall to a 1.67 million annual rate.
  
  Home-building permits fell for the ninth month in a row, dropping more than 6% to the lowest pace since December 1997. The drop in permits, which are often a measure of builder confidence in the real estate market, is a signal that housing starts could continue to fall -- and a sign that the slump isn't over yet.
  
  "This is a shocking number," Phillip Neuhart, an economist at Wachovia, told Bloomberg News. "The market is going to remain weak well into next year."
  
  Other economists said the decline was not such terrible news. "The faster builders address their bloated inventories and bring the pace of home construction down, the quicker the housing correction will play out and the economy can return to a more normal footing," Stephen Stanley, the chief economist for RBS Greenwich Capital, told MarketWatch.com.
  
  The sharp slowdown in housing this year stands in stark contrast to the past five years, when the lowest mortgage rates in four decades powered a housing boom that pushed sales of both new and existing homes to five consecutive records.
  

And on the FSO write-up, Michael Hartman has the following remarks. ( Housing Numbers, Inflation & Interest Rates, Options Expiration and Gold )

• Though the rate of construction has declined, the big problem is a rising inventory of homes for sale as actual sales decline. New home sales are expected to fall to 1.06 million units this year from an all-time high of 1.28 million units in 2005. Notice the discrepancy in the number of homes being built on an annualized basis at 1.5 million units versus the expected sales of 1.1 million units.
  
  Supply and demand dictate that prices should continue to move lower. Eric Green, Chief Market Economist at Countrywide Financial made it clear by saying, “Inventories of unsold homes are off the charts.” Robert Toll, CEO of Toll Brothers said revenue for the current quarter is down 10%, but more alarming is the fact that their orders are down by more than 50% from the same period a year ago. According to a Bloomberg article today, Mr. Toll said in a conference call on November 7th that there are no signs that the U.S. housing market will recover soon. I have spoken with three mortgage bankers in the last week that I know personally. In candid conversations, they are saying it doesn’t look good, and all three expect foreclosures to increase next year. Increasing foreclosures will only add more inventories to unsold homes. In the minutes of the Federal Reserve meeting from October 24-25, the Fed-speak language uses the wording, “Further adjustment in the housing market appear likely.”
  
  Rather than continue beating a dead horse with more quotes and data on the weak housing numbers, if you care to look into more detail from a bigger-picture perspective, please see Chris Puplava’s Wrap-up posted two days ago. Chris went into great detail with economic charts covering the last 20-30 years, with some of the data going back to the Fifties. Looking at the longer-term picture, it does appear we have a long way to go to absorb the massive run-ups in residential real estate over the last few years.