Is PriceWorth really Worth Investing? II

Since PriceWorth just released its earnings, here is an update to the previous posting, Is PriceWorth really Worth Investing?

Let me reproduce the first table posted.



Here is the link to PriceWorth's earnings: Quarterly rpt on consolidated results for the financial period ended 30/6/2007

Total sales revenue for FY 2007 = 546.818 million. ( Historical best)
Total net profit for FY 2007 = 25.223 million. ( Highest ever)

Let's look at the second table posted earlier.



Let's put today's earnings number into perspective.

Total sales revenue for FY 2007 = 546.818 million. ( Historical best)
Total net profit for FY 2007 = 25.223 million. ( Highest ever)

1. Net Profit Margins.

• So for fy 2007, Priceworth net profit margins will be around 4.6%.
  Slight improvement from fy 2006 which it recorded 4.34%.

2. Cash Balances.

• Total cash balances is at 9.062 million.

3. Total Borrowings.

• Total borrowings is now at 250.966 million

4. Nett debts

• Current nett debt of 241.934 million.

Let's refer back what was written earlier ( Is PriceWorth really Worth Investing? )

Here's the list of my concerns as seen from the data above.

• Declining net profit margins. Extremely clear margin erosion can be seen each fy since fy 2002. Is this not a concern?
• Incredible deterioration seen in PriceWorth's balance sheet. Company's nett debt is increasing each single year at an alarming rate.

Let's see.

Point 1.

• Declining net profit margins. Extremely clear margin erosion can be seen each fy since fy 2002. Is this not a concern?

Its net profit margins came in at 4.6%.

Would this not be a worry considering the fact that this is a GRAND YEAR for the timber sector? Reasoning is if during a GRAND YEAR margins do not improve, what happens next when the good times or economic conditions turn poor or bad for the sector?

Point 2.

• Incredible deterioration seen in PriceWorth's balance sheet. Company's nett debt is increasing each single year at an alarming rate

Nett debts is now at 241.934 million!!!

How?

Timber and Tekala

Here's an excerpt of a write-up from KN on Tekala, another company in the timber sector.

• 2. Sector Outlook
  
  Our previous Update Report dated 11 May 2007 had sounded caution about the prospect of plywood prices (in USD), which appears to have been adversely affected by the slow down of housing starts and built up of plywood inventories in Japan.
  
  The latest ITTO Tropical Timber Market Report and Japan Lumber Journal reported broadly lower prices from logs to plywood, citing higher inventories as the main reason for falling imports and prices.
  
  Japanese plywood traders have reportedly accumulated 5 months of inventories as a result of aggressive stockpiling earlier.
  
  Japan wooden housing starts were also slower than expected, registering declines of 1.8%, 7.8% and 5.8% y-y in April, May and June, respectively. Total housing starts in 1H07 dropped 4.0% y-y, dashing hopes that strong housing starts in Japan will keep plywood prices buoyant.
  
  3. Earnings Outlook and Recommendation
  
  We suspect that the timber sector’s down cycle may have just begun. Weakening prices could lead to sharp earnings contraction for most timber companies, and Teka la will not be spared. We are downgrading our FY08 revenue and net profit estimates to RM139.1m (-20.1%) and RM13.1m (- 41.8%), respectively.
  
  Following the earnings downgrade, we are downgrading Tekala from a HOLD to a SELL with a 12-month target price of RM0.70 (-33.3% from RM1.05), which is based on a FY08 P/E of 8x – a slight premium to the 5.0x – 7.5x P/E-range for its timber peers in view of its exposure to the “hot” oil and gas sector.

How's this for yet another second opinion?

IJM Plantations

IJM Plantation reported its earnings and I thought it was impressive.

Quarterly earnings grew some 40% on a q-q and it was up a whopping 137% on a y-y basis.

   IJM Plantations Bhd (2216.KU) - Malaysia
   1st quarter ended June 30:
   Figures are in Ringgit (MYR).

                                 2007               2006
Revenue                 MYR92,413,000      MYR56,085,000
Pretax Profit              17,227,000          7,593,000
Net Profit                 12,488,000          5,249,000
Earnings Per Share           2.21 Sen           1.02 Sen
Dividend                      Omitted            Omitted 


I was just reading OSK Research report on IJM Plantation. 

The first paragraph caught my attention.

• Below expectation. IJMP’s annualised 1QFY08 earnings of RM12.6m was 58.8% below our full year forecast of RM121.2m and 54.3% consensus estimate. We are nevertheless expecting strong numbers in the subsequent 3 quarters to make up the shortfall. We are happy with the strong improvement in IJMP’s 1Q earnings, which jumped by 40.3% q-o-q and up by 137.5% from the same quarter last year on sharply higher CPO prices coupled with production growth.

This very statement caught my attention. IJMP’s annualised 1QFY08 earnings of RM12.6m was 58.8% below our full year forecast of RM121.2m and 54.3% consensus estimate.

OSK earnings forecast for IJMP's this fiscal year is a whopping 121 million!

Last fiscal year IJMP only managed a net earnings of 43.9 million.

Don't you think that this earnings forecast is simply too optmistic? And more so, considering that IJMP only managed a very impressive earnings of 12 million for its first quarter of its fiscal year 2008.

Cymao III

I had a chance to look at NetResearch write-up on Cymao and I found the section under earnings outlook rather interesting.

This is what they had to say.

• Earnings Outlook
  
  · Management expects demand from major export markets to remain weak whilst competition is likely to increase in view of the shrinking market size, leading to greater pricing pressure.
  
  · As a result, management has indicated in the 2Q07 results announcement that it is highly probable that the company may not be profitable in 2007, contrary to earlier expectations.
  
  · Cymao’s immediate plans are to commence logging operations in Sabah once the government gives the go-ahead to commence logging activities. The logging venture in Papua New Guinea is facing some delay due to the local elections.
  
  · Although the immediate outlook for Cymao appears difficult, we believe longer-term fundamentals for the company remain intact due to the following:
  
  o The still-firm log prices will eventually push up plywood prices as plywood makers look to recover the higher costs. These plywood makers would include the big Chinese operators which are currently importing logs mostly from Russia;
  o The inventory build-up situation in the US will eventually wind down;
  o The company’s new logging operations in Sabah and Papua New Guinea will reduce Cymao’s reliance on third party log supplies and cushion the volatility in log supply and log costs for the company.

Well, I only have one issue on the US market. Yes, the inventory situation WILL correct itself and the issue of high inventory build up cannot last forever. However, on the other hand, some serious consideration is due on the US housing market. A lame US housing market should probably do no wonders to such plywood players (plywood exporters to US market).

Won't you agree?

IJM

The following news article was posted by Dow Jones news:

• IJM 1Q Loss MYR746.9M VS Net MYR54.3M
  
  KUALA LUMPUR (Dow Jones)--IJM Corp. Bhd (3336.KU) Wednesday posted a net loss in the first quarter ended June 30 due to a one-off impairment expense of MYR922.3 million.
  
  The diversified infrastructure and construction company had a net loss of MYR746.9 million, turning from a net profit of MYR54.3 million a year earlier.
  
  The expense represents a goodwill payment made for its Road Builder Holdings Bhd. purchase in the quarter.
  
  First-quarter revenue more than doubled to MYR1.11 billion from MYR518.0 million a year earlier, due to greater construction and infrastructure revenue from Road Builder as well as higher income from its plantations unit.
  
  For the current financial year ending March 31, 2008, IJM said it expects its prospects to be "further buoyed by additional revenue and profit sources" from Road Builder's tolling and port operations.
  
  It added that it expects to "record better operating performance for the current financial year" from construction project opportunities opened up by the implementation of the Ninth Malaysia Plan, a national blue print for development.

It explains that IJM posted the loss due to the one-off impairment expense.

Now take a look at this Business Times Article.

• IJM operational profit soars
  
  August 30 2007
  
  BUILDER IJM Corp Bhd's first-quarter operational profit jumped more than 2.5 times as it booked earnings from the Road Builder group, a smaller rival that it recently bought.Do
  
  In October 2006, IJM launched the biggest takeover bid in Malaysia's construction history by offering to buy all of Road Builder (M) Holdings Bhd's assets and liabilities for RM1.56 billion. By April 2, IJM completed the acquisition.
  
  However, IJM's bottom line shows a net loss of RM747 million for the quarter to June 30. This is because it had to account for goodwill, the excess amount paid over an asset's value, in the Road Builder deal.
  
  Managing director Datuk Krishnan Tan assured investors that its accounts won't be hit by further accounting treatments.
  
  "We have to be prudent. Investors can be assured that this merger goodwill is a one-off accounting issue, it is a book entry. It does not, in any way, affect the group's future earnings or operational strengths," he told Business Times in an interview yesterday.
  
  Buoyed by healthy number of projects booked in its orderbook and favourable palm oil prices, IJM's first-quarter operational profits jumped to RM228.34 million.
  
  The group's infrastructure division marked significant improvement when it received maiden profit contributions from Road Builder's New Pantai Expressway, Besraya and port concessions.

Firstly, it was nice to hear that IJM boss wants to be prudent, ""We have to be prudent. Investors can be assured that this merger goodwill is a one-off accounting issue, it is a book entry. It does not, in any way, affect the group's future earnings or operational strengths"

My issue, aren't you simply baffled by the rather misleading header "IJM operational profit soars"??

Oh, by the way, that goodwill thingy

• However, IJM's bottom line shows a net loss of RM747 million for the quarter to June 30. This is because it had to account for goodwill, the excess amount paid over an asset's value, in the Road Builder deal.

This goodwill or the excess amount paid over an asset's value of 922.3 million, isn't this amount staggering?

Pintaras Jaya II

Pintaras reported its earnings tonight. ( see Quarterly rpt on consolidated results for the financial period ended 30/6/2007 )

So here's an update to my earlier posting Pintaras Jaya.

Firstly, i will re-cycle the table again from the earlier posting for a quick and effective comparison.



Pintaras reported its fy 2007 Q4 earnings.

1. Sales revenue

• Sales revenue came for the quarter came in at 30.492 million. Total ytd fy 2007 earnings came in at 147.436 million. ( Last fy 2006, it did 94.462 million)

2. Earnings

• Total net earnings for fy 2007 Q4 came in at 5.287 million. Total ytd net earnings came in at 24.089 million. ( Last fy 2006, it did 10.518 million)

3. Margins

• Net earnings margins for fy 2007 came in at 16.3%.

Much improvements for all key indicators.

Key balance sheet issues. Let's use the previous table posted in the earlier posting again.

Current cash balances is now at 65.317 million (versus 60.820 million the previous quarter)

Here is the breakdown of its cash balances.

• Short term investments.. 24,372
  Short term deposits......... 39,162
  Cash and bank balances.. 1,783

Short term investment equates to total investments in marketable securities as at 30 June 2007. And as per it's earnings notes, this investment had carried a market value of 30.040 million. ( Company noted a gain of 2.1 million from disposal of securities)

Two things. One on hand, it's sitting on a nice gain. On the other hand, however, marketable securities can go down very fast! Would this be an issue?

Debts. No debts for Pintaras.

Dividends. Board has proposed at 10% less tax dividend. Improvement.

Company notes:

• For the twelve months ended 30 June 2007, the Group's revenue increased by 53% to RM147.44 million from RM96.46 million in the preceding year, while profit before taxation grew by 119% to RM31.15 million from RM14.20 million for the respective period. The significant improvement in these results is mainly due to higher contribution by the construction and manufacturing divisions as well as an improvement in the performance of quoted investments over the preceding comparative year.
  
  The Board is confident about the performance of the Group in the financial year 2008. This is in view of the existing strong order book, the numerous tenders submitted and the anticipated implementation of more construction projects under the Ninth Malaysia Plan. The Board expects that the Group's financial performance for the financial year 2008 to be good.

How?

S&P has a Strong Buy on Mieco Chipbaord!

Just noted that S&P has a STRONG BUY on Mieco Chipboard. Yes, a strong buy.

Here is an excerpt from what it wrote. My comments are in purple font.

• Results Review & Earnings Outlook
  
  • Mieco’s 1H07 reported earnings were considerably below our expectations.
  
  • The particleboard manufacturer reported 1H revenue and net loss of MYR173.0 mln (-9% YoY) and MYR6.1 mln (reversed from a net profit of MYR2.6 mln), respectively. While the top-line figure accounted for 39% of our full-year forecast, the loss was worse than expected. (company went from a net profit from 2.6 million to a net loss of 6.1 million!)
  
  • The fall in revenue was attributable to a plant shutdown for maintenance services (about two weeks), while higher raw material costs (resin and rubber log), and interest and depreciation expenses depressed the profit margin. The plant utilization rate averaged 65% in 2Q07, lower than the 70% in 1Q07 but in line with our projection. ( Plant shutdown. Why? Higher raw material cost. With the high crude oil prices, this same cost issue persist! And as long as cost stays high, the it's simply gonna be difficult to make money!)
  
  • Net gearing increased to 0.66x in 2Q07 from 0.57x in 2Q06. We expect net gearing to remain relatively high throughout 2007 given the limited cash flow from operations. ( Net gearing increased! Limited cash flow? Doesn't this indicate clear deterioration in the company balance sheet? )
  
  • From our channel checks, the average selling price (ASP) of particleboard has softened in 2Q07. We are cutting down our 2007 and 2008 ASP assumptions to US$130/meter cube and US$140/meter cube from US$145/meter cube, respectively. ( More problems! Average selling price soften! Look at it, higher cost and lower selling price! Hey, isn't this a recipe for tough times ahead! )
  
  • In addition, we have lowered our projected gross profit margin by 1%-5% in 2007 and 2008, which brought down our profit forecasts to MYR4.3 mln (from MYR19.1 mln) and MYR30.1 mln (from MYR32.5 mln), respectively. ( WOW! They have lowered their net profit forecast from 19.1 million to 4,3 million!!! )

How?

From those points raised, things simply aren't looking too bright for Mieco, yes?

Let's look at what's written next.

• Recommendation & Investment Risks
  
  • We are upgrading our recommendation to Strong Buy fron Buy with a lower 12-month target price of MYR1.17 (from MYR1.26). Our target price is derived from ascribing a PER of 8x (no change) to Mieco’s projected 2008 basic EPS. ( Huh??? How on earth did this Strong Buy recommendation is derived from? )
  
  • Our 8x target PER is at the lower end of Mieco’s four-year historical PER range of 7x-19x to account for its unfavorable near-term earnings outlook that will constrain valuation enhancement. However, Mieco is trading at 0.5x P/B, which we find undemanding from an historical and relative perspective.
  
  • It is clear now that 2007 will not be a turnaround year for Mieco but we remain positive on the longer-term prospect of the company. We believe the producers will have more room for price increases once the new supply capacity is absorbed, hopefully by 2008. The high operating leverage will magnify its bottom-line once the ASP recovers, in our view. The underlying demand for particleboard as a cheaper and more environmentally sustainable substitute remains favorable.
  
  • Risks to our recommendation and target price include unexpected aggressive capacity expansion by existing or new players that could prevent particleboard prices from moving upwards. Escalating crude oil prices could also adversely affect Mieco’s production costs, in our view.

How?

You see that the writer recognise that 2007 will NOT be a turnaround for Mieco. And as it is, they are only guessing that perhaps things could turnaround in 2008/

If that's the case, why the rush for a Strong Buy recommendation?

Isn't it simply baffling?

Crest Builder 2007

CrestBuilder announced its earnings last night. Quarterly rpt on consolidated results for the financial period ended 30/6/2007

Crest Builder Holdings Bhd (8591.KU) - Malaysia
   2nd quarter ended June 30:
   Figures are in Ringgit (MYR).

                                 2007               2006
Revenue                 MYR90,241,000      MYR54,119,000
Pretax Profit              11,517,000          6,590,000
Net Profit                  8,057,000          3,695,000
Earnings Per Share           6.50 Sen           4.80 Sen
Dividend                      Omitted            Omitted

   6 months ended June 30:

Revenue                   171,285,000        113,017,000
Pretax Profit              23,275,000         15,248,000
Net Profit                 15,797,000          9,322,000
Earnings Per Share          12.80 Sen           7.70 Sen
Dividend                      Omitted            Omitted

 

Current half year fy 2007 earnings totals some 15.797 million. Not bad.

Back in November 2005, I first blogged on Crest Builder, Ze Numbers Game!

My grouse was that the OSK writer was simply way too optmistic.

• 15.5 -> 16.2 -> 26.7 -> 41.3 -> 50.7million.

The purple fonts represented its incredible earnings projections. Point was, Crest Builder was touted and promoted to the investing community based on that 41.3 million earnings projections. (Here's an incredible footnote. Despite Crest Builder decent performance, Crest Builder earnings at this moment of time still could not reach that 41.3 million!)

And then my second posting was Ze Numbers Game: II, posted on Aug 21st 2006. Earnings looked decent but it's performance was simply no way close to what OSK had touted. (ps. did you see that OSK had a whopping TP of rm 2.59 then? LOL! Yes rm2.59! And the highest Crest Builder ever did was high of over 1.45 back in July 2007!)

Nov 2006. Crest Builder Again

The biggest thing besides the bragging from the writer was the bare facts.

net profit
fy 2003 17.5 million
fy 2004 16.3 million
fy 2005 12.2 million

Those were the numbers Crest Builder had recorded. And as can be seen. Crest Builder was doing rather poorly since fy 2003. Yes?And how much did OSK forecast CB's fy 2006 earnings? 32.9 million!

So how did Crest Builder do for its fy 2006? An earnings of 20.679 million. ( Quarterly rpt on consolidated results for the financial period ended 31/12/2006 )

( Other postings: Regarding Crest Builder Again , Crest Builder - Fulfilling What Prophesies??, Crest Builder's Home Run? , More Disposal of Shares Seen in Crest Builder )

Btw, here is the link to Crest Builders earnings in May 2007. Quarterly rpt on consolidated results for the financial period ended 31/3/2007

Now back to Crest Builder itself.

So how has Crest Builder been doing?

Firstly, earnings aside, as a business investor, I would like to see how Crest Builder has manage its balance sheet all these years. And here is a simple exercise one can do. Take the quarterly earnings posted yesterday ( See Quarterly rpt on consolidated results for the financial period ended 30/6/2007 ) and compare their balance sheet now versus its balance sheet say 2 years ago.

Point of argument for such exercise is simple.

If the company (Crest Builder) is doing well, then one should see some wealth generation in its balance sheet, right?

As of the earnings reported last night, Crest Builder had some 28.837 million in its piggy bank, trade receivables 100.788 million, total loans 153.567 million (a net debt of 124.680 million!). Half year net earnings is 15.797 million.

Two years ago, same period (Quarterly rpt on consolidated results for the financial period ended 30/6/2005 ) Crest Builder had some 24.788 million its piggy bank, trade receivables 52.242 million, total loans 105.146 million (a net debt of 80.358 million). Half year net earnings then was 8.048 million.

Compare both set of simple yardsticks.

Yes, earnings has doubled but does one see Crest Builder progressing and generating wealth as a company?

How?

Cymao III

Early this morning, I had blogged an update on Cymao II.

So when I received a copy of OSK research report on Cymao, I was rather interested to read what they said on Cymao.

The following is the excerpt from their notes.

• Earnings will be bad this year
  
  2Q07 results were disappointed. A loss of RM5.7m was incurred, mainly due to: (i) 35% lower y-o-y shipment volume; (ii) 7% drop y-o-y in plywood prices (iii) margin squeeze from 19% higher average log costs. In our sector report dated 17th Jul, we already highlighted the downside risk that smaller Sabah based timber manufacturers will face due to the housing market recession in the US and margin pressure because of heightening log costs. As Cymao has an exposure of 65% to the US market, we cut the company’s FY07 net profit by 86% and expect a recovery in FY08 when its logging activities in PNG and Sabah come on stream in 4Q this year. While we maintain a Neutral call, our fair value for Cymao is revised down to RM1.30 based on FY08 7x PE.
  
  Below. Cymao’s 2Q07 net profit came in below our expectation. Compared to the preceding quarter, although volume has increased by 17%, selling prices continued to fall by 13%. Despite flat log cost q-o-q, the net impact was neutral. Adding to the disappointment, no DPS was declared for the quarter vs a 5sen tax free DPS in the same period last year.
  
  Rising log costs squeezing margins. The continuous strengthening of log prices has negatively affected Cymao, which is not a timber concession holder. Margin for its plywood manufacturing this year is weakening when log cost is rising. Due to the delay in the issuance of log harvesting licence by the local authorities in PNG and Sandakan, Cymao is unable to capitalize on its own log resources to mitigate the negative impact.
  
  Expect a better FY08. We nevertheless expect an earnings recovery in FY08 when the high-yielding logs trading come on stream in Oct/Nov this year. A large % of raw logs are likely to be exported to China as the management sees strong demand and the company has established business relationship with the local buyers. The absence of logs export quota in Sabah will allow Cymao to maximise its logs felling capacity.
  
  Maintain Neutral with FY08 TP at RM1.30. We slash our FY07 earnings forecasts by 86% as the US housing market depression is likely to persist in the remaining of the year.
  
  We maintain our Neutral call with a fair value of RM1.30 based on a PE of 7x for small cap timber players.

Ses, I do not understand it. They understand that earnings will be bad and they acknowledge the fact that the US housing market depression will have an impact on Cymao.

And incredibly, they had slashed their FY 2007 earnings by a whopping 86%!

WOW!!

So, if they can slash their earnings by 87%, from 15.3 million to a mere 2.1 million, does Cymao deserves a HOLD recommendation with a TP of 1.30??

Oh.. Cymao is currently trading at 1.02, down 12 sen!

PCCS II

Here's an update to PCCS

Let me reproduce the table posted in that earlier PCCS posting.



PCCS reported its earnings on Friday. Quarterly rpt on consolidated results for the financial period ended 30/6/2007

   PCCS Group Bhd (6068.KU) - Malaysia
   1st quarter ended June 30:
   Figures are in Ringgit (MYR).

                                 2007               2006
Revenue                MYR114,234,000     MYR102,272,000
Pretax Profit                 861,000          2,647,000
Net Profit                    435,000          1,975,000
Earnings Per Share           0.72 Sen           3.29 Sen
Dividend                      Omitted            Omitted

As can be seen the earnings simply wasn't happening.

And not to be forgotten, the previous quarter PCCS reported a loss of over 6 million. Quarterly rpt on consolidated results for the financial period ended 31/3/2007

Time for a serious review?

Cymao II

If you are invested in a sector, it pays to read how other players are faring. Take the plywood sector. Cymao posted its earnings over the weekend. It wasn't a pretty sight.

Quarterly rpt on consolidated results for the financial period ended 30/6/2007

From the company earnings notes, some serious issues were mentioned.

1. Sales volume suffered as a result of demand from US has slown down significantly due to overstocking of plywood and drop in the construction activities.
2. The dumping of plywood products by China into Middle East and South Korea has affected the order book of the Group.
3. In addition, selling price has fallen by 7% compared to previous year corresponding quarter coupled with higher average log cost bu 19% has further damped the current quarter results registered with a negative gross margin.
4. Overall, a loss before taxation of rm6.7 million was recorded.

Lower selling prices, price dumping and most of all lack of demand.

Massive issues?

Blogged on Cymao before too, Cymao

Have a look at the same earnings table again.

Let's compare some simple figures.

1. Sales revenue

• Sales revenue was flat on a Q-Q basis: 48.982 vs 46.621 million.
• Sales revenue on Y-Y basis showed massive concern: 48.982 vs 72.867 million.

2. Net Earnings.

• Cymao loss 5.7 million for the quarter. On a q-q basis massive concern cos the last 3 quarters earnings went from a profit of 9.665 mil to 2.464 million to a net loss of 5.7 million.
• The same period a year ago, Cymao earned 6.15 million

3. Cash Balances.

• Cash balances dropped to 6.729 million.

4. Borrowings.

• Total debts increased to 47.341 million.

5. Nett Cash.

• Cymao is now in a nett debt of 40.621 million. Huge worry because if you look at the quarterly earnings table above, back in 2005 Q1, Cymao showed a nett cash position of 9.376 million. Company's balance sheet has certainly deteriorated for the worse!

How?

Mieco Chipboard: VIII

Here's an update to a series of old postings:

First posting: Mieco

• Does a tumbling share represent an investment opportunity?
  
  Take an investment grade share. The share price tumbles. Does this equate to an investment opportunity? Without a shadow of doubt that whenever a share displays some weakness in their fundamentals, which in returns causes its share price to fall, it does provides the investor with an opportunity... but in the case of investment, this (opportunity) should be examined in great detail because this investment is only deemed valid provided if the weakness or subdued financial performance is only a temporary situation. Well, if the subdued performance should drag on or continue for a longer time, this would then render the stock unattractive as the temporary weakness had caused a serious deterioration in the company’s fundamentals.

Remember, what used to be good might not be good in the future!

• Yes, Mieco used to be an investment grade stock.
  
  It was a stock which had a very impressive balance sheet, net cash and no debts (at it’s peak it had a net cash of 180+ million and no debts) and it had a pretty decent net profit margins.
  
  See Mieco
  
  The first chart of Mieco showed the 3 year chart of Mieco. It used to trade around the low 1.00 region. As the market rose during 2000 to 2004, Mieco’s investors were rewarded handsomely with the stock peaking around the 3.00 mark.... http://whereiszemoola.blogspot.com/2005/10/mieco.html

Dec 28th 2005, Mieco: Part II - Ze Buy Recommendation!

• The Issue of Ze Buy Recommendation made by iCapital.
  
  A lot has been said about iCapital buy recommendation on Mieco Chipboard.
  
  Why?
  
  The investment manager had a buy recommendation made on Mieco last Aug 2004. Mieco price then was 2.36.....

Feb 2006, Mieco: Part III, Mieco: Part IV, Mieco: Part V, More on learning from a Trader.

Aug 28th 2006, Mieco: Part VI

Nov 18th 2006, Mieco: Part VI

Meico announced its earnings last night. The supposed turnaround just did not materialise.

Quarterly rpt on consolidated results for the financial period ended 30/6/2007

This was what the company said:

• Group revenue decreased from RM86.1 million to RM78.0 million in the quarter under review due to lower selling prices and sales volume of particleboard and related products.
  
  The Group registered a loss before tax of RM7.7 million against profit before tax of RM4.5 million in the corresponding quarter under review due mainly to lower sales, increased raw material cost and production stoppage for plant preventive servicing and maintenance.

For me, Mieco is another great investing learning example.

1. What used to be good, might not be good in the future.
2. Overly ambitious capital expenditure is a reason for concern.
3. No matter who and no matter how good the person giving the recommendation, following buy recommendation(s) never guarantees one success!

Notion Vtec II

Notion announced its earnings, Quarterly rpt on consolidated results for the financial period ended 30/6/2007

Have a look at this table which shows its quarterly earnings since listing.



There is a drastic drop in earnings and there was drastic erosion in its earnings margins.

The company explained in its earnings notes.

• COMPARISON WITH PRECEDING QUARTER'S RESULTS
  
  The Group recorded lower revenue of RM22.23 million in the quarter under review (“Q3 2007”) as compared to RM28.28 million achieved in the previous quarter (“Q2 2007”). PBT decreased from RM10.01 million in Q2 2007 to RM2.23 million in Q3 2007. PBT margin also decreased from 35.4% in Q2 2007 to 10.0% in Q3 2007.
  
  The comparatively weaker performance in Q3 2007 was mainly attributed to the following:
  
  (a)Lower contribution from the camera components business segment due to significantly lower sales orders from the major SLR camera manufacturers. The poor performance of the camera segment was mainly attributed to high camera inventory levels experienced by the industry, which generally is the norm as seasonally the camera market tends to be soft during this time of the year.
  
  For Q3 2007, the Group achieved a product mix ratio (HDD: Camera: Industrial segments) of 53%: 22%: 26% compared to 54%: 29%: 17% ratio achieved in Q2 2007.
  
  (b)The HDD segment was also adversely affected by increased competition, resulting in its margins being squeezed coupled with lower volume orders from some of its major customers.
  
  (c)Impact of the strengthening Ringgit (RM) against the US Dollar (USD), particularly, for export orientated companies. Consequently, the Group suffered foreign exchange losses which arose from the difference in book RM/USD rate compared to the realized RM/USD rate.

How?

You have the lower earnings and then you have the Special Issues of Shares to consider.

Articles and Links: Aug 21st 2007

Dr.Marc Faber slams Fed moves! Fed's Cut Not Justified, Creates Problems, Faber Says

• Aug. 20 (Bloomberg) -- The U.S. Federal Reserve's cut of the interest rate it charges banks was ``not justified'' and will create more problems, investor Marc Faber said.
  
  In an effort to restore confidence in the wake of a credit crunch sparked by U.S. subprime mortgage losses, the Fed reduced the discount rate to 5.75 percent from 6.25 percent on Aug. 17. That was the first cut between scheduled meetings since 2001.
  
  ``I think it's an intervention into the marketplace that is not justified,'' said Faber, in an interview from Danang, Vietnam today. Injecting more money into the system will ``create an additional set of problems at a later date.''
  
  Faber, founder and managing director of Hong Kong-based investment advisory company Marc Faber Ltd., correctly predicted the U.S. stock market crash in 1987. He also advised investors to buy gold in 2001, which has since more than doubled.
  
  Global stock markets rallied as the Fed's move eased concern a rout in the U.S. mortgage market will spread and dry up access to capital. The global equities sell-off had erased more than $5.5 trillion of market value from a July 23 peak, according to data compiled by Bloomberg.
  
  Asian stocks jumped the most in a year today, while U.S. shares posted their biggest gain in four years on Aug. 17 and Europe's Dow Jones Stoxx 600 Index was up 2.4 percent within 15 minutes of the Fed's announcement that it was taking action.
  
  `Prepared to Act'
  
  ``The rate cut was pretty effective in curtailing panic in the markets which have no direct link to the subprime loan problem,'' said Masayuki Kubota, who helps oversee $2.1 billion in assets at Daiwa SB Investments Ltd. in Tokyo. ``Global growth won't be hampered by the subprime issue.''
  
  The Fed left its benchmark fund rate target for overnight loans between banks unchanged at 5.25 percent.
  
  In the statement, the Fed committee said it is ``prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.'' Policy makers, who last held a scheduled meeting on Aug. 7, convene on Sept. 18.
  
  Should the Standard and Poor's 500 Index drop below 1,400 the Fed is likely to reduce the overnight lending rate, Faber said. If the S&P rises above 1,500 it won't cut the rate, he said. The S&P 500 climbed 2.5 percent to 1,445.94 on Aug. 17. Still, it's down 6.9 percent from a record close set on July 19.
  
  S&P 500 futures expiring in September rose 4.6 to 1,454.5 as of 11:42 a.m. in London.
  
  No Dollar Collapse
  
  ``They're driven by asset markets, their policies, which is a mistake in the first place,'' said Faber, publisher of the monthly newsletter the Gloom, Boom & Doom Report. The housing problems arose in the first place ``because of easy monetary policies.''
  
  Faber said that the dollar isn't likely to ``collapse'' as money flows to U.S. currency and yen assets.
  
  ``I believe that U.S assets, while they will not make a new high, they will outperform assets in emerging markets for a while,'' he said. ``There's a capital outflow from emerging markets into the U.S. and into the yen.''
  
  

Here's a good news artice to read about an example of an impact of the global liquidity crisis. National Bank defends move to shelter clients

• “We've accounted today for $2-billion of the $35-billion. . . I think it would be fair to find out where the other $33-billion is being held.”
  
  The short-term paper, sold as a good place to park cash at a premium return, has run into a major liquidity crisis in the current global credit squeeze, especially a variety sold by so-called third-party, or non-bank issuers, which currently accounts for about $35-billion of the approximately $120-billion Canadian ABCP market.
  

Bill Gross: Lack of Proper Disclosure

Here is an excerpt of an article posted on CNN website: Tough love on Wall Street

• What Citigroup's Chuck Prince, the Fed's Ben Bernanke, Treasury Secretary Hank Paulson, and a host of other sophisticates should have known is that the bond and stock market problem is the same one puzzle players confront during a game of "Where's Waldo?" -- Waldo in this case being the bad loans and defaulting subprime paper of the U.S. mortgage market.
  
  While market analysts can estimate how many Waldos might actually show their faces over the next few years -- $100 billion to $200 billion worth is a reasonable estimate -- no one really knows where they are hidden.
  
  First believed to be confined to Bear Stearns's hedge funds and their proxies, Waldos have been popping up with regularity in seemingly staid institutions such as German and French banks, and that has necessitated state-sanctioned bailouts reminiscent of the Long-Term Capital Management crisis of 1998.
  
  IKB, a German bank, and BNP Paribas, its French counterpart, encountered subprime meltdowns on either their own balance sheets or investment funds sponsored by them. Their combined assets total billions, although their Waldos are yet to be computed or even found.

So how now Brown Cow? Just how bad is it?

If one does not know how bad is it, how does one manage the current market risk?

Bill Gross continues..

• Those looking for clues to the extent of the spreading fungus should understand that there really is no comprehensive data to allow anyone to know how many subprimes actually rest in individual institutional portfolios.
  
  Regulators have been absent from the game, and information release has been left in the hands of individual institutions, some of which have compounded the uncertainty with comments about volatile market conditions unequaled during the lifetime of their careers.
  
  Also many institutions, including pension funds and insurance companies, argue that accounting rules allow them to mark subprime derivatives at cost. Default exposure, therefore, can hibernate for many months before its true value is revealed to investors and, importantly, to other lenders.
  
  The significance of proper disclosure is, in effect, the key to the current crisis.

The Panic of 2007

The following article The Panic of 2007 was penned by Mr. John Mauldin, Frontlinethoughts.com,

• You cannot explain the problems with just one or two items. A perfect storm of this sort takes a number of factors all coming together to work its mischief. Bad mortgage underwriting practices, bad rating agency practices, a destruction of confidence, excessive leverage and then the withdrawal of that leverage, the need for yield, greed, and complacency which then in a Minsky moment (explained below) becomes paralyzing fear - all play their part....

Do give the rest of this highly interesting article a read: http://frontlinethoughts.com/article.asp?id=mwo081707

Another Interview with Dr.Marc Faber

Here are excerpts from CNBC_TV18 exclusive intereview with Dr. Marc Faber

• Q: How do you read the events as they have unfolded in the past fortnight? How do you think this might shape up?
  
  A: Basically as you know, the US market went up until July 16. The Dow peaked out on July 17 above 14,000 and then it started to slide, mainly driven by financial stocks and by what people call a crisis in the subprime lending sector and the CDO and the BS markets. The question obviously is where do we go from here? Is it like 1998, where we dropped first and then recovered strongly towards the end of the year or is it something more serious? I think it's something more serious.
  
  Q: What’s your prognosis? You think this subprime situation will become worse or do you think these are just indicative of deeper problems in the US economy, which are manifesting themselves?
  
  A: It’s a symptom of excessive credit growth that was obviously encouraged by the US Fed. They pursued extremely expansionary monitory policies before the year 2000, when they bailed out LTCM and then ahead of Y2K that boosted the NASDAQ between January and March 2000 another 30%. And then obviously by slashing the Fed fund rate from 6.5% to 1% and leaving it at 1% for an extended period of time and then as a Fed Chairman, also encouraging people to take out variable mortgages and applauding the subprime lending industry - that has to be said very clearly.
  
  I think the Fed now has obviously stepped in. They bought mortgage-backed securities on last Friday. The ECB has also stepped in, but you create another problem by doing that. You don’t let the market kind of clear and so I suppose what we will eventually get, is more inflation and higher interest rates.
  
  Q: You're saying that the Dow has reasonable chance of plunging below 13,000, or well below that?
  
  A: We went up on the Dow in October 2002, when the Dow was around 7,600, to 14,000. This February in the correction we were at 12,000 on the Dow. The S&P has risen to a high of 1,555 on July 16. We are now down a 100-points.
  
  I think it's not so much a question about how vulnerable the market is, but what is the upside potential. I think the upside potential is extremely limited and I would advise people to actually sell their shares on a rebound. We’re modestly oversold at the present times, some stocks are more oversold than others. Goldman Sachs is down 20% from its peak in a very brief period of time. So there will be bounces, but I would use the bounces as a selling opportunity and not think that this is just the correction in a rising market.
  
  Q: If you did sell out, where would you park your money as there is some opinion suggesting that maybe in this seesaw, Asia and emerging markets will stand at the upper end, while the rest of the developed universe will probably struggle for a bit?
  
  A: That I disagree with, because over the last 3-4 years, a lot of overseas foreign money has flowed into emerging economies and if you compare the performance of Dow Jones to that of the Indian market, then the Indian market is up five times since 2003. So lot of markets are very over extended. When you have a credit cycle of liquidity that turns down and this is a credit super cycle that now has run into some problems along with the process of de-leveraging. In such an environment you don’t what to be an emerging economy.
  
  The outlook for the economies may be favourable, but the outlook for liquidity in emerging stock markets is not very favourable. Starting summer 2005, the housing stocks in the US start to break down and the optimist said don’t worry. Then starting summer of 2006, the subprime lenders started to break down and the optimist said don’t worry, it wont have an impact on the economy. This year, we have a break down of brokerage companies and financial stocks and it's like a domino effect that goes from one sector of the economy to another.
  
  Q: So is it unlikely that equity markets from the emerging space will make new highs for themselves this year?
  
  A: There is always the possibility that some market makes a new high. If I had to make a bet about the market that will make a new high, I would think that the gold market has a chance to make a new high. Because if the Fed cuts interest rates aggressively, in an extreme case, they would go from 5.25% on the Fed fund rate down to 3%. Then people will really become concerned about future inflation and the value of paper money and that will boost gold prices.
  
  But right now my sense is that the best is to hold cash. Now the question is what kind of cash? People have been very negative about the dollar but I have noticed over the last two weeks, the dollar has actually began to perform better against the emerging market currencies - against the New Zealand dollar against the Australian dollar, it’s been weaker against the yen, but the US dollar is okay. Because if a foreign investor sells emerging stock markets, they convert the fund into US dollar and that should be supportive of the US dollar.
  
  Q: You advised many hedge funds. Do you sense that the whole universe is running into a bit of trouble and hedge fund managers are looking to pare down exposure to emerging markets?
  
  A: During the period 2002 to 2006, we had an increase in leverage. To perform you just built up your positions, financed with credits and now we have the process of de-leveraging. In other words, positions are being cut by the proprietary trading departments of banks, by hedge funds and by the insurance industry. And don’t forget a lot of family offices have behaved like hedge funds, they have also huge leverage positions and the funds are funds anyway.
  
  So in this environment there is a general contraction of outstanding debts, the credit contraction is not good for asset markets.
  
  Q: If you had to predict - since your view is bearish, what percentage fall would you expect in emerging market equities over the next foreseeable period?
  
  A: The S&P has a very good chance to decline by 20-30% and the emerging economy stock markets could drop by 40%. That may not mean that the bull market in emerging market is over for good, because in 1987 we had drops in Taiwan of 50% and then the market went up another four times, so you can have a big correction and still be in the bull market.
  
  But if some one came to me and said what is the upside on the S&P? We had 1,452 where the high was 1,555. I would say the upside and the big resistance in the market is between 1,520 and 1,530 so the upside is limited. But what about the risk?
  
  What I noticed is investors are far more concerned about missing the next leg in the bull market on the upside, than about the risk of losing a lot of money. And I think, gradually this will change and that would mean lower equity prices and also prices of other assets such as commodities can go down substantially and obviously home prices around the world.

Source of article: http://www.moneycontrol.com/india/news/fii-view/a-lotemsover-extended-marc-faber/12/49/297874

How Now Brown Cow?

In today's Financial Sense Market Wrap, market commentator address the issue of whether the long term interest rates are heading higher. Conclusion: Long Term Interest Rates are Heading Higher

• The recent market selloff was accompanied by a flight to the safety of Treasuries. Stocks down, bonds up – recently we’ve seen this seemingly day after day. However, it is important to note that in spite of this short term action, the long term trend in long interest rates has changed from down to up. Even though rallies in the bond market (interest rates lower) have been sharp and convincing, the long view supports the conclusion that long term interest rates are heading higher. One technical chart supporting this conclusion is illustrated below. Upward trending interest rates that occurred in the 1960’s finally topped in 1982. High rates of inflation accompanied the rising long term trend in interest rates. The secular bull market in stocks began in 1982, and this generally corresponded to the start of a long interest rate downtrend. Stocks bottomed when interest rates topped. From 1982 until recently, there was an active downtrend in long term interest rates; however, the trend of lower interest rates is likely over, and long term interest rates are likely in a young secular uptrend.

  
  

  

  
  

  Below is a weekly chart of the 10-year Treasury note yield from 1990 to the present. The bottoming of interest rates in mid-2003 was followed by a series of higher highs and higher lows shown on the right hand side of the chart. In spite of the current bond market rally caused by an apparent flight to safety, this was only sufficient to produce a settling back of interest rates to the 2-year (104 week) moving average (thus far). This “flight to safety” appears only as an insignificant tick in the far right side of the long term chart.

  
  

  

  
  

  Similarly, the 30-year Treasury note yield is illustrated below. The top annotated line simply connects the important interest rate highs, and the bottom line connects the important lows. It is apparent that the highs have leveled out, and the lows are now trending higher. Conclusion: The long term trend of long interest rates is higher. What would invalidate this conclusion? A decisive break of the trend of higher lows in the 10-year note yield (above chart), or a decisive break of the trendline defined as higher lows beginning in mid 2005 (below chart).

  
  

  

And the chart below says a thousand words!!!!!!!!!!!

Here's another article that's worth reading: Financial System in Jeopardy

Ornasteel IV

My Dearest Ngok Yee,

Ornasteel reported its earnings last night.

This is their updated earnings table.



I would like to compare the current earnings with the issues brought up in the last posting Review on OrnaSteel Again. (So what I will do is, I will repeat the old comments here and add in new comments in purple italic fonts again)

First the minus point.

1. As you know, OrnaSteel belongs in the highly cyclical steel industry. And as seen above, the past 2 years were rather disappointing in terms of earnings performance. ( There is a clear turnaround in earnings! ) (Again yes the turnaround the earnings is there. On average, this is a fantastic set of earnings, however I am sure the disappointment is there. Let's be honest, I for one, was expecting much more.)

2. The company dabbles in the share market!....

• Is this a concern?
• Is this getting out of hand?
• Why so poor results in such a hot market?
• Does the fund manger know what he/she is doing?
• Does this bug you??

As reported in last night earnings:

The status of the Group’s investment in marketable securities as at the end of the reporting quarter is as follows:-

(i) at cost: RM46.240 million;
(ii) at carrying value: RM46.563 million; and
(iii) at market value: RM46.563 million .

The company purchased more shares!

How?

Is this a worry?

The better points.

1. Although Ornasteel earnings performance was disappointing for fy 2005 and fy 2006, it held up strongly during times when demand and prices were poor. So the assumption is when the good times come, surely Ornasteel would perform much better. ( Performance is decent!) (Yes, performance is indeed decent!)

2. How the company transformed itself from a net debt to a net cash company is most impressive. (this now not a better point as OrnaSteel turned into a net debt company of 5.999 million! (Company is now in a nett cash of 79.903 million)

3. Dividends. Last year, Ornasteel paid a 5% less tax ( First and Final Dividend ). This year, a 10% less tax had already being proposed. ( RECOMMENDATION OF A FIRST AND FINAL DIVIDEND OF 10% OR 10 SEN PER SHARE LESS 27% ) ( Still waiting! ) (Dividend has been paid)

4. The market. Market till today is around 1350 points. Surely AmIncome Fund would have performed some little bitsy bit of wonder for Ornasteel's investment, right? ( Do they know what they are doing! ) ( Where is the results?)

~ ~ ~ ~ ~ ~ ~ ~ ~
Overall, the earnings is decent. However as mentioned, perhaps I had expected a much better set of earnings from Ornasteel, hence I am disappointed because if compared to previous quarter, earnings is really flat. And the issue that bugs me is the company's dabbling in the market. I have always preferred companies to return their excess cash back to its shareholders.

The following are some notes from the company earnings notes:

Review of performance

The Group achieved revenue of RM373.0 million and pretax profit of RM29.5 million for the quarter under review. This represents an increase of RM124.0 million or 49.8% higher in revenue than that of its corresponding quarter. Profit before tax improves by RM3.8 million or 15.0% to RM29.5 million from RM25.6 million in the corresponding quarter.

The improved performance is primarily attributable to higher selling prices and higher sale volume of our steel products in the quarter under review compare with the corresponding quarter as a result of higher demand for our products. However, pre-tax profit does not increase proportionately due to higher increase in the cost of raw materials for the quarter under review.

Current year prospects

The result for the first half of 2007 has been quite satisfactory. The demand for our products for the second half of 2007 is expected to be slightly weak in Malaysia although the demand for steel worldwide is still increasing. Domestically, the release of infrastructure projects from the Ninth Malaysia Plan may help to mitigate the expected drop in steel demand. However due to the oversupply of steel from China and some cheap imports from neighbouring countries, the price of steel is under pressure. Barring any unforeseen circumstances, we expect this price pressure to be temporary and would not significantly affect the profitability of the Group for the rest of the year


Old postings: Review on OrnaSteel Again and Review on OrnaSteel and Ornasteel

How Now Brown Cow?

Here is a fantastic posting from Dr. Brett.

• Suppose you're contemplating a sailing trip. The weather forecast suggests only 10% chance of a thunderstorm, so you decide to set sail.
  
  As you get out onto the ocean, you notice a few raindrops. Then you notice the sky darkening. The air pressure begins to fall rapidly.
  
  What do you do: continue your voyage or pull into port?
  
  When traders examine the historical record for what markets have done under particular conditions, they come up with their own weather forecasts for the market. When conditions have been bullish, the forecasts after market declines are apt to be bullish.
  
  But suppose you begin to venture into the market and notice fewer stocks making new highs. Then you observe more selling pressure than buying with respect to the NYSE TICK. You see the advance-decline line making new lows. You see continued signs of risk aversion among institutional traders.
  
  What do you do: continue buying the market or pull back?

Click here for the rest of the article: http://traderfeed.blogspot.com/2007/08/bit-of-perspective.html

And over at FSO, market commentator asks if Reality Setting In?

BCT III

My Dearest Doc,

Here is an update to posting: BCT Part II

BCT announced its earnings yesterday. I have updated the earnings table.



Extremely early days but I am more than likely to be sceptical cause the first 2 quarters of fy 07 earnings (3.546 + 2.720) is less than the last 2 quarters of its fy 06 (2.335 + 4.015). However, it's still very much early days for now.

I would compare what this earnings with what I had written in the previus posting ( BCT Part II ). (Added new comments in italics)

>>>>>

Total earnings for the 3 quarters is some 9.896 million. ( Total net earnings for these 4 quarters is now 12.616 million)

Regarding the last two paragpraphs. The comments from HDBS and KN.

Jun 8th, 2007, from HDBS

• Cheap stock. With 3-year CAGR of 40%, BCTT shares are trading at only 5.0x FY08F EPS. We believe it should be worth 8x FY08 EPS or RM1.70/share, which implies a very conservative 0.2x PEG.

Key note for me is 3-year CAGR of 40%. (CAGR of 40%???!!!)

This means that HDBS is really assuming and expecting an amazing growth for BCT. Have a look at HDBS earnings table posted below.

So, BCT which earned 10.5 million for its last fiscal year ( its current earnings for 3 quarters is 9.896 million) is expected to earn 25.8 million by FY 2008. (We now have 4 quarters of earnings and they only total 12.616 million. Based on these earnings indications, yes BCT would probably perform much better than its last fiscal year earnings of 10.5 million... )

And because it is expected to do so good, and based on this expected achievement, BCT is then reasoned cheap by HDBS.

For it's rather optimistic.

Let's compare with KN.

Jun 11th, 2007, from KN

• Maintain BUY with a revised 12-month target price of RM1.56 (+30.0%) based on a FY08 P/E of 10.0x (2-year (FY06-FY08) PEG ratio of just 0.52x). BCTT’s FY07 and FY08 net profit growth of 45.9% and 38.6% y-y remain respectable despite our slight exchange rate driven earnings downgrades. At RM1.03, BCTT shares are trading at highly attractive FY07 and FY08 P/E of 8.8x and 6.6x, respectively.

My opinion? Strange. Cos how could "BCTT’s FY07 and FY08 net profit growth of 45.9% and 38.6% y-y remain respectable" when this is but just a projection. Doesn't BCT has to achieve these targets before being getting its respects? (At this rate, the earnings growth is simply not going to be as terror as projected!)

Anyway, here is KN's earnings table projection for BCT.

KN's net earnings projection for BCT's FY 2008 is 20.9 million. Which is much lower than HDBS projection of 28.9 million!

So for me, it appears to me, that the high target prices are assigned to BCT because both HDBS and KN expects fantastic growth for BCT.

Is this achievable?

For me, this is one of the issue I would address. However, as it is, there isn't much data available but 3 quarterly earnings data from BCT.

How? As mentioned earlier, we now have 4 quarters of earnings and they only total 12.616 million. Based on these earnings indications, yes BCT would probably perform much better than its last fiscal year earnings of 10.5 million... which is decent by all means BUT the performance shown by BCT simply pales in comparison to what HDBS and KN had projected.

Rgds

Here comes Mr. Bear?

Posted on Bloomberg news: U.S. Stocks Are at Start of Bear Market, Faber Says

• Aug. 10 (Bloomberg) -- U.S. stocks are at the beginning of a bear market in which benchmark indexes may fall more than 30 percent, investor Marc Faber said.
  
  Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report, said losses in mortgage-backed bonds are not ``contained or easily solvable'' with interest rate cuts by the Federal Reserve. He predicted in an interview today that the Dow Jones Industrial Average will drop below 12,000.
  
  Faber said investors conditioned to buy stocks on dips helped push the indexes to records after sell-offs in February and June. Emerging markets are particularly vulnerable to a so- called correction, or decline of more than 10 percent, because investors have bought into them heavily, he said. The MSCI Emerging Markets Index has dropped 9.9 percent since climbing to a record on July 23, cutting its gain for the year to 15 percent.
  
  The Federal Reserve yesterday added $24 billion in temporary funds to the banking system, the most since April, amid an increase in demand for cash from banks roiled by U.S. subprime loan losses. Traders are speculating that the Federal Reserve will cut interest rates at an emergency meeting as soon as next week, according to Merrill Lynch & Co.
  
  ``I'm very critical of central banks,'' Faber said. ``They may bail out the system, but there will be a cost, and the cost will be inflation.''
  
  Market Calls
  
  Faber told investors to bail out of U.S. stocks a week before the 1987 Black Monday crash, according to his Web site. He correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He also told investors to buy gold in 2001, before it more than doubled.
  
  On March 29, Faber said the emergence of home loan concerns meant the stock market was unlikely to benefit from the conditions that supported its rally since June 2006. The S&P 500 climbed 10 percent between then and July 19, when it reached a record, and has fallen 6.4 percent since then.

Stocks Are Cheap!

Here's link to legendary investor, Bill Miller, commentary for Q2 2007. http://www.leggmason.com/funds/knowledge/management/2007MillerCommentaryQ2.pdf

Ah, given the extent of the woes around the global markets, I'm ass-u-ming that most would like to know what's Bill Miller's opinions on the market outlook. (see page 3)

• I am constantly asked for my market outlook, so I will give one, not because I know but because I am asked.
  
  The market last week had its worst week since the fall of 2002, which was a pretty good time to buy stocks. Other things equal, lower stock prices mean values are better and future rates of return higher. This latest sell off to 1458 on the S&P 500 — from a high of 1553 reached only a few weeks ago — puts us still above the 1449 level of February 26, which preceded the sell-off in early March that occasioned much angst but, of course, should have been bought. We are now trading just about the same level after this sell-off that marked the high before that sell-off.
  
  The proximate cause of this sell-off is a reappraisal of risk in the credit markets, starting first at subprime but now having spread to the riskier parts of corporate credit, namely high-yield bonds and loans to finance buy-outs. Many high-profile deals are being delayed, and banks have been unable or unwilling to sell bridge loans into the secondary market, raising fears about future credit problems. While all this is understandably unnerving, there was a lot of sloppy underwriting in subprime, and risk premiums in deals were too low, in my opinion. The current problems in the credit markets are a prelude to sounder lending in the future.
  
  Stocks are lower in the claim chain on corporate assets than bonds, so when bondholders demand better returns, stocks suffer in the short run. In the intermediate or long run, stock returns depend on valuation relative to fundamentals such as growth rates and return on capital.
  
  According to data compiled by Bloomberg, stocks are now the cheapest they have been in 16 years. The S&P 500 is valued at 15.4x estimated earnings, the lowest since January 1991. Again, a pretty good time to be a buyer of stocks!
  
  Even after this decline in the stock market, over the past 12 months the market is up 17% with dividends reinvested, which is well above the long-term average.
  
  I began the year quite bullish and remain so.

Where's My Munchies Dude?

Read a fantastic news article posted on Business Times: http://www.btimes.com.my/Current_News/BT/Friday/Nation/makan.xml/Article/

• Shareholder watchdog: Forget the food, protect your rights
  By Chong Pooi Koon
  pooikoon@nstp.com.my
  
  August 10 2007
  
  SMALL shareholders need to be united so that their voice can be loud enough to be heard, a watchdog group said.
  
  Minority Shareholders Watchdog Group (MSWG) chief executive officer Abdul Wahab Jaafar Sidek and head of client services Lee Leok Soon - who have both attended over 200 shareholder meetings - observed that retail shareholders often come to meetings without a clear objective.
  
  Citing the example of FCW Holdings Bhd, Lee said the company's annual general meeting recently should have been adjourned after the chairman was absent from the meeting for two years in a row.
  
  "But some shareholders disagreed with MSWG's call for the meeting to be adjourned, simply because they were attracted to the food provided outside," Lee said, "That's ridiculous!"
  
  He said some unscrupulous directors may take advantage of such situations if shareholders are not united.
  
  In some cases, he said, directors who are not running the company in the right way need to be removed, but minority shareholders have to come together to get sufficient numbers to pass or block resolutions.
  
  "Don't be attracted by the food, that's not important - dividends from a well-managed company are," Lee said, reminding small investors to attend shareholder meetings with a clear investment agenda.
  
  MSWG yesterday held a retail shareholders' dialogue in Kuala Lumpur to discuss the way forward for the group.

A well-managed company!!!! That's so rather crucial from an investor point of a view yes?

Remember as an investor, you are a part owner of the company. As a part owner, it's simply imperative that you want to be invested in a company that's well managed.

Well here's the thing for me, if the company isn't well managed, why stick around for the agm? Shouldn't one have VOTED WITH THEIR FEET long ago?

Just mumbling out loud ya.

Hey, where's my munchie dude?