Monday, March 31, 2008

Nextnation Again

Blogged last year: Update on NextNation

I wrote the following:

First blogged on Nextnation on 31st May 2007. here

Two points mentioned then..

  • Net margins show some weakness but the growth is impressive!
  • The biggest concern for me is that NextNation has an issue with its receivables and because of this, one do not really see wealth being generated in the company's cash flows despite its very impressive earnings.
Nextnation announced its next earnings on June 29th. Quarterly rpt on consolidated results for the financial period ended 30/4/2007

Sales dropped on a q-q to 21.533 million.
Earnings dropped to a mere 480k.
Receivables is at 67.092 million
There goes the GROWTH stock status!

I wrote a simple posting.

Well, from an investing perspective, it's pretty ugly.

Nextnation announced its next earnings on Sept 2007. Quarterly rpt on consolidated results for the financial period ended 31/7/2007

Sales dropped on a q-q to 17.797 million
Earnings improved slightly to 611k.
Receivables is at 61.702 million

Nextnation announced its earnings last night. Quarterly rpt on consolidated results for the financial period ended 31/10/2007

Sales were flat at 17.868 million.
Earnings dropped to a mere 145k!!!
Receivables is at 56.702 million.


I just saw that Nextnation reported its earnings on Friday. It was not pretty.

Sales were lower 15.636 million
Earnings - Nextnation reported losses of 1.913 million!
Receivables is at 49.290 million!

Nextnation is last traded at 0.085!!!

Saturday, March 29, 2008

Know Our Rights!

Published on today's Bizweek: Capital market needs worthy directors. The article is written by Abdul Wahab, who is CEO of Minority Shareholder Watchdog Group.

  • INVESTORS do not like seeing their money vanish into thin air. But this is likely to happen if and when they are inactive or fail to watch over their investments in listed companies. Through their activism, investors and shareholders are allowed to have dialogues with management over some aspects of the companies' operations.

    Under the law, shareholders are not trustees for one another. They hold no fiduciary position, and have no fiduciary duties like directors. They are responsible for their rights as owners of the company. Their focus should be on the protection of their own money.

Fully agree! Minority shareholders should be fully responsible for their own money.

Our money! So for heaven sake, learn to protect our own money!

  • In essence, investor activism centres on the companies' performance and shareholder value. As more and more shareholders attend general meetings, the boards of directors face mounting pressure, not only from shareholders and investors, but also other stakeholders.

    For most boards, general meetings can be a chore under the best of circumstances. Nevertheless, today’s directors must take great care in all of their areas of responsibility and in all aspects of their stewardship.

Ever been into a meeting where the director is falling asleep? And just what about them empty seats? Buta Gaji is it?

  • They are not only accountable to investors and regulators but also to stakeholder groups. If they do not know well the nature and consequences of their decisions taken in their names, the results and the bad publicity can be painful.

I strongly believe that some don't deserve to be a director!

  • Regulators can act only when there has been a transgression of a rule, regulations or statute. At the heart of accountability are the board’s integrity, compliance and performance.

    When a company finds itself in trouble, it is often clear that the board did not fully discharge its responsibilities. What is obviously done wrong in hindsight, can be avoided through foresight. After all, the board knows the strengths and weaknesses of the business, and thus should be among the first to spot the red flags.

    Directors only have to recognise the interests of shareholders as their touchstone. Rising investor sophistication and activism would have elevated the boards' conscience.

  • The following cases illustrate what minority shareholders can do:

    1. The minority shareholders refused to stay quiet at a listed issuer’s EGM. In particular, they questioned the wisdom of the board over the proposed acquisition of a piece of property. The vendors are the company's major shareholders. Even though they were outvoted at the EGM, the minority shareholders were not reasonably satisfied. Their concerns raised numerous questions about the rationale for the property purchase.

    2. A listed issuer called an EGM to seek the shareholders’ ratification of acquisitions and disposal of shares in another listed company. Even though a company can ratify a particular action of the board, the minority shareholders’ rights to seek clarification and inquire into any possible breach of directors’ duty under the regulatory rules must be respected.

    3. Minority shareholders were grossly unhappy with the board of a listed company over the absence of the chairman and his spouse (an executive director) in two consecutive AGMs. The shareholders also queried the directors' excessive remuneration and succeeded in adjourning the meeting.

    4. Minority shareholders were disappointed with a company’s performance. The accounts carried an auditors’ qualification with regards to fixed deposits placed in a foreign fund by the managing director. The MD did not attend the AGM and as a result, was not elected to the board. A police report was also lodged against him.

    5. The incumbent board of directors proposed to de-list a company. However, they faced strong objections from the minority shareholders, who called an EGM and brought an action against them, rejecting the proposed delisting.

    It is often assumed that wise and experienced directors will quickly reach consensus on what is best for all concerned. However, this is not always so. Although the Code on Corporate Governance emphasises the role and responsibility of non-executive directors, there are often conflicts in the boardroom when directors are reluctant to conform to the code's principles and best practices.

    Factors such as ambition, greed, egotism and plain obstinacy are assumed to play a major part in shareholders’ grievances. Of course, to naïve investors, some directors are highly impressive because of their sheer elegance and suavity.

    As directors pursue their private agenda, the companies could start to drift, with important decisions being shelved. In dramatic cases, directors or companies are not even bothered about being placed under public scrutiny and on the regulators’ watchlists.

    On irregularities in accounts, an investigator in Britain once commented that “the most statutory restrictions on directors’ conduct were more evident on their breaches of laws and regulations than their observance”. He added that “the amount of profit in question did not affect the principle; a small profit did not render permissible what would otherwise be improper; a large profit did not make improper what was basically proper”.

    Faced with tougher regulations and onerous duties, today’s directors know the trickiest decision between the right and the wrong compromises, and they have learned to tell one from the other.

    To restore investor confidence, the capital market needs to have principled directors, market players and participants who are fully aware of what is right and wrong, and not surrender to moral confusion and relativism.

    Of greater importance is the need for vigilant and professional boards of directors, and competent and efficient management. These two factors should ensure both the major and minority shareholders get fair and equitable deals from the companies' proposals.

    Lastly, underpinning nearly all shareholder activism is the drive to increase shareholder value. Directors must not pay lip service to acting in the best interests of shareholders.

    They must understand and recognise their true sentiments, and gain the trust and confidence of investors and stakeholders in seeking their support for the companies' decisions.

    The directors have to believe that the shareholders could at times be their customers and staff, who happen to partly own the company.

    If the would-be directors do not subscribe to the right priorities or if they think they cannot offer adequate commitment to the shareholders, they should seriously rethink their decision to join the board of a listed company. If they are already on the board, they should help to change it or resign.

Just want to add this. Sometimes, it makes no sense to be a shareholder when the company attempts all kinds of methods possible to screw us and our money. And sometimes, the company simply isn't the wonderful business that we want to own. Perhaps it's much better for our money if we just walk away. Vote with our feet!

Friday, March 28, 2008

Ingress Again!

Posted last July, Regarding Ingress Corporation Again, on that Business Times article posted year, it mentioned the following.

  • Ingress expects strong revenue growth for the year ending January 2008 on continued sterling showing by its Thai operations in particular.

    "We have done well in terms of revenue growth last year and are confident that this will be sustained in the next few years, despite the global downward trend especially in Southeast Asia.

    "There's a drop in the Thai domestic market but this is compensated by its exports," Rameli said.

    Ingress' revenue soared to RM358.77 million in the year ended January 2007 from RM289.71 million revenue previously. Net profit stood at RM2.3 million in the last financial year.

    Ingress gets slightly over 80 per cent of revenue from automotive parts manufacturing, while the balance comes from the PER division. The Malaysian operations contributed 46.5 per cent to Ingress' ACM turnover last year, Thailand's accounted for 51.3 per cent, while Indonesia made up the balance of 2.2 per cent.

    This year, company executives still expect a large part of the revenue pie to come from the Thailand operations, given the consistently strong orders from the likes of Honda, Mazda, Ford and Mitsubishi.

This got me thinking.

Why is the article focusing on revenue growth? Revenue soared it shouted.

If revenue has been soaring, why is the net profit only 2.3 million?

It's like despite all the optimism mentioned in the news article, a net profit of only 2.3 million sounds rather dismal.

So I decided to do some checking. Time to check out Ingress earnings report on Bursa website.

Let's look for year ended Jan 2007. Quarterly rpt on consolidated results for the financial period ended 31/1/2007

Ok. Rvenue was at 358 million BUT did you note the whopping loss of 11 million for the financial quarter?

And if you open up the pdf file attached to the earnings, page 16, the company said the following:

  • The Group recorded a 32% decrease in revenue in comparison to the immediate preceding quarter. Loss before tax for the quarter amounted to RM11.34 million in comparison to the profit before tax of RM8.59 million in the immediate preceding quarter.

    Overall ACM recorded a flat growth in revenue. ACM Malaysia ecorded a 3% decrease in revenue where most models recorded decreases in volume except for Perodua Myvi model.

    ACM Thailand registered a 6% increase in revenue where new models recorded increases in volume.

    For PER, revenue decreased by 80% due to a major project which was completed in the immediate preceding quarter.

    For units under Others, revenue decreased by 89%.

Err... how come? Why did the earnings notes defer so much than what's published in the media?

That was then. Now, on 21st March 2008, Ingress was focused on Business Times again.

  • Ingress zooms in on RM1b mark

    By Zurinna Raja Adam Published: 2008/03/21

    The auto parts maker may boost its overseas revenue to about 60 per cent in three years if talks with Indian and South Korean firms are successful

    AUTO parts maker Ingress Corp Bhd aims to triple its revenue to pass RM1 billion mark in as early as two years, backed by rising orders locally and in new markets such as India, its chief said.

    The company, which makes parts such as bonnets and door frames for carmakers like Honda, Perodua and Nissan, wants to make more money from markets abroad.

    Ingress made a revenue of some RM360 million for the fiscal year ended January 31 2007. About a third of that came from Thailand and Indonesia.

    Executive vice-chairman and group chief executive officer Datuk Rameli Musa said Ingress is in talks with Indian and South Korean firms for possible tie-ups.

    "We are in talks with them to extend beyond the technical assistance support that we are now providing.

    "Currently, Ingress is there on contract basis. We are in talks to partner them in the manufacturing and other divisions," he told Business Times in an interview recently.

    If the talks are successful, Ingress may boost its overseas revenue to about 60 per cent in three years, he said.

    Ingress, whose single largest shareholder is Rameli, has been in the industry for almost two decades servicing international and local carmakers.

    It already has orders worth RM2 billion for the next five years or an average of RM400 million a year.

    "Although China and India are providing the cost competitive edge, we will continue to improve ourselves in terms of expanding our product line and emphasis on quality," he added.

    Apart from manufacturing, Ingress also has other businesses such as building power sub-stations, putting up transmission lines and the electrification of railway lines.

    However, this makes up less than 20 per cent of the group's total revenue and is likely to stay the next few years, Rameli said.

    "We want to stay focused in the automotive sector," stressed Rameli.

    Ingress has ventured into the retail side recently by opening up a BMW showroom and service centre in Mutiara Damansara, Petaling Jaya, with an investment of about RM100 million.

    The group is among three BMW dealers in the country besides Sime Darby Bhd and Sapura Holdings Bhd.

    "Depending on how well we do as their dealers, we are interested to expand our partnership with BMW further in the future," Rameli said.

    The group made a net loss of RM2.8 million in 2007 and may also make another loss in 2008. It made a bigger loss of RM5.8 million in the nine months to October 31 2007.

    The group is due to release its fourth-quarter results this month.

    Nevertheless, Rameli expects Ingress to return to profit in 2009 as it expands its product line

Yet again, the header was rather perhaps misleading.

Focus was the same, on Ingres zooms in on RM 1 Billion mark! WOW!

And yes, towards the end of the article, the article did state that Ingress was losing money and that it expects to return to profit in 2009.

Well, Ingress reported its earnings last night. It reported losses of over 5.1 million for the current quarter, which accumulated losses to over 10 million for the current fiscal year!

Wednesday, March 26, 2008

Merger of Main And Second Board?

Said on the Edge: Year-end merger for main and second boards, says Zarinah

  • “Today under Mesdaq, we permit high-tech and high-growth companies. But when the new rules come into play, we will allow more emerging companies to come into the market, all types of emerging companies.

    “What is important is that it will be sponsor-driven. That means that the gatekeeping role that is currently undertaken by the SC will now be played by the sponsors.

    “They will be responsible for assessing the suitability of the company.
    If they feel they want to sponsor the company for a listing we will leave it to them, the company,” Zarinah told reporters on the sidelines of the Invest Malaysia 2008 conference here yesterday.

Do you like what you are reading at this moment of time?

  • we will allow more emerging companies to come into the market, all types of emerging companies

Allow more?

Don't you get the feeling that Bursa Malaysia, as a listed entity, a business oriented company, by allowing more companies, wants more profits?

Seriously is more better?

Or would you prefer better quality?

  • “What is important is that it will be sponsor-driven. That means that the gatekeeping role that is currently undertaken by the SC will now be played by the sponsors. “They will be responsible for assessing the suitability of the company.

Sponsors will be responsible for assessing the suitability of the company???


Correct me if I am wrong but sponsors main objectivity is to make money. And if this is the case, what if the assessment of the quality of the company is sacrificed to achieve the objectivity?

How my dearest MooMooCow?

Tuesday, March 25, 2008

End Of Commidities Bull? BDI and Bear.

Blogged last Thursday: Buying Opportunity for Planters?

What was asked is this correction in the commodities market a healthy correction or is this the the end of this massive bull run.

Today, CNBC delivered more clues and it published the following,
Commodities Bubble Burst? Big Clue Comes Next Week

  • Investors wondering whether the agricultural commodities bubble has burst will get some important clues in next week's annual crop plantings report, considered a bellwether for the direction of farming activity for the year.

    Analysts are looking for the Department of Agriculture's March 31 survey to show a decrease in corn acreage over last year's record planting, as well as a pronounced increase in soybeans and more wheat in the ground.

    But what those projections will mean for investors remains to be seen. Commodity analysts are expecting volatile planting numbers this year, with the weather and direction from traders to play a major role.

    Wet conditions in the heartland, for instance, could depress the amount of corn acreage, raising its price in turn. Soybeans, meanwhile, likely will get more attention this year after losing acreage to corn in 2007 due to a sharp increase in demand for ethanol. Wheat also will be in flux, its price subject to possibly lower demand due to resumption of planting worldwide after a year of a supply-constricting global drought.

    How the three major agricultural products fare is of major concern as investors wonder whether the commodity's bullish run of record-setting prices will continue or has run its course.

The article continues by saying.

  • "Planting intentions are very important to how our supply and demand balances will look this coming year," said Melvin Brees, an agricultural economist at the University of Missouri's Food and Agricultural Policy Research Institute. "One of a number of factors is the unpredictability of the weather."

    Corn takes the biggest hit from bad weather, as it needs to be planted the earliest of the other major crops. It also does not plant well in saturated soil and requires the most fertilizer, which has become more expensive as the United States has lost its place as the world's primary manufacturer.

    Continued rainy conditions, or an excessively wet spring, could alter the agricultural commodities market dramatically, sending corn prices well higher on less supply.

    "That would create a huge amount of volatility in the markets," Brees said. "With supplies as they are, you would probably see a sharp market reaction."

    Despite a record corn planting last year, there was only a slight increase in carryover — the amount that's left over from the previous harvest — to the spring. Should corn production drop this year, that could make supplies very tight and become a bullish indicator for prices. The same thing goes for wheat and soybeans, both of which also saw low carryover rates, attributable to surging demand from emerging markets across the world.

But what was most worth noting was the following two statements..

  • Other commodities, such as gold, platinum and oil also have seen record runs, but there is sentiment that the end may be near. The commodities run has been fueled by speculators and those cashing in on the weak dollar, the currency in which most commodities are traded.
  • "I would not call the long-term trend over by any means. This very recent weakness that we've seen was more a function of speculators getting washed out," Kub said. "The entire market is not a bubble. There was just a part of it that needed to get washed out. The fundamental trends ... they're still in place."

Fundamental trends still intact?

Fundamentals are part of everything but surely what we have seen are bubbles of epic proportions. Or am I delusional?

In another article from CNBC. Oil Extends Slide on Dollar, Demand Worries

  • Oil prices fell more than a dollar Monday, extending a slide from last week's record to nearly 10 percent amid a recovery in the U.S. dollar and lingering worries over slowing energy demand.
  • "We suspect that the correction in commodities still has some ways to go, and we could push somewhat lower from here," Edward Meir with MF Global said in a research note

Gold last traded at 918.00. On March 17th it traded for 1,032.70 an ounce!

The BDI is now at 7684. Down another 117 points. Down 8 days in a row! Which would means that the BDI has retraced swiftly a massive 1000 pts since it recovered back to a high of 8600 almost 2 weeks ago.

What gives?

In an intersting editorial Pressure on Baltic Dry Index by Manas Chakravarty and Mobis Philipose.

  • Strange things have been happening to the Baltic Dry Index, the index covering dry bulk shipping rates and widely seen as a leading indicator of global economic growth. After rising to an all-time high of 11,039 last November, the index nearly halved to 5,615 in January, but has since recovered some lost ground, moving up to more than 8,600 last week. But it has started falling again since then and on 19 March, it was at 7,801

I hold my reservations against the BDI being used as a leading indicator of global economic growth. Yes, there are justifications for it but there are other variables that can have a massive impact this index. Shipping rates depends on the availability of ships. And sometimes ships might not be available or shipping could be halted by severe weather. As seen last month, severe snowstorms caused havoc on this index (see Baltic Dry Index And China Snowstorms? ). And last but not least, epic bubble prices on commodities had a massive impact on the rise of the impact.

Anyway the above editorial made several strong points.

  • The answer lies in commodity prices. Industrial commodity prices, too, have started moving up after falling for much of last year. And as commodity prices have risen, so have the freight rates for carrying those commodities.

    The demand for commodities depends a lot on Chinese demand and that has so far held up pretty well. For instance, China’s imports of iron ore were up 33% year-on-year in February. But growth may cool off if the Chinese government tries to curb inflation.

    More significant is the fact that bulk shipping rates are falling. That, says a Citigroup research report, is “a red flag for the Baltic Dry Index rally and raise questions about the industry’s confidence in its sustainability”. Citi analysts point out that the supply of ships is going to rise substantially in 2009 and 2010. Demand growth, on the other hand, is not likely to keep pace with the supply of ships, although the supply-demand balance this year is, according to the analysts, “debatable, but precarious”.

    The upshot: “The bullish argument for bulk shipping is that we’ll see massive ship delays out of China, while the bear arguments are that ship supply growth will still be at all-time highs in 2009–11 and/or commodities will lose their steam as we learn not to underestimate the impact of a slowing US on emerging markets and their seemingly decoupled commodity demand trends.”

    The sudden fall in commodity prices over the last couple of days will add to the pressure on the index.

Bear Stearns and JP Morgan?


Totally ludicrous!

Do read Rob Kirby's piece on it, Dubious Deliberations

  • Do these grotesque proceedings, from start to finish, not reek of a snake-oil-swindling carnie act?

Last but not least, posted on CNN: Don't trust the Wall Street rally

How now Brown Cow?

Friday, March 21, 2008

Incurring Debts to Return to Shareholders

Blogged previously: Litrak may return RM1 per share!

The Great Game said...

  • Well, no offence, but at least in overseas market, this is actually very common for mature infrastructure assets which have demonstrated track record to gear up to repatriate the surplus to shareholders. There are some new products like accredited swaps which proliferates this type of transaction. It simply makes no sense for a asset with a says 30 years concession life to have a 15 years debt tenure -- ideally, it should match it with a 30 years tail debt tenure, if there is enough depth in the debt market. After all, this is an asset-based company, not much upside for shareholders can be gained from operational improvement, if not from financial engineering.

Here are some of my thoughts again on this issue.

Firstly, the issue of what's practiced in the overseas market. In my opinion, just because it is practiced in the overseas market does not mean that companies here should follow. For me, companies here should emulate all the good examples set and should discard all the bad practices made!

In this example, one needs to look at the justifications of raising debts just to return to the shareholders.

I am not saying that all debts are negative. Some debts are indeed productive if the company manages to use the debt as a means to finance capital expenditure exercises that creates the opportunity for the company to generate more returns in the future.

However, not all debts are good. And the more debts issued by a firm, the higher the risk premium for the company.

And in this case where debts is incurred to repay shareholders, these debts incurred does not generate any returns for the company for it is GIVEN back to the shareholders. And sooner rather later, these debts would have to be repaid, which means future profits generated by the company would have to be used to repay these debts and not forgetting the interest cost.

Clearly this is but one sure insane and ludicrous manner to manage a company.

  • It simply makes no sense for a asset with a says 30 years concession life to have a 15 years debt tenure -- ideally, it should match it with a 30 years tail debt tenure, if there is enough depth in the debt market. After all, this is an asset-based company, not much upside for shareholders can be gained from operational improvement, if not from financial engineering.

Last but not least, I do understand the above rational and if you do read again, I am not against Litrak's sukuk exercise at all. What I am against is returning the excess cash. Surely the company can think of a better way to generate more returns for the company and its shareholders.

Thursday, March 20, 2008

Buying Opportunity for Planters?

Highlighted on the Business Times: Commodity Roundup: CPO futures sharply lower


    CRUDE palm oil (CPO) futures prices on Bursa Malaysia Derivatives ended sharply lower on weak demand yesterday, dealers said.

    Market sentiment was also subdued ahead of the public holiday today, one of the dealers said.

    The fall in soyoil futures on the Chicago Board of Trade also weighed down market sentiment for CPO, he said.

    At close, April 2008 declined RM89 to RM3,344 per tonne, May 2008 eased RM105 to RM3,345 per tonne, June 2008 went down RM120 to RM3,330 per tonne and July 2008 dropped RM119 to RM3,320 per tonne.

    Turnover was lower at 17,935 lots from 21,356 lots on Tuesday while open interest declined to 41,228 contracts from 43,406 contracts.

    On the physical market, March South was lower at RM3,400 per tonne from RM3,450 per tonne previously.

However, highlighted on the Star Business: 2nd-tier planters in for a rebound

  • Second-tier plantation stocks on Bursa Malaysia are expected to rebound soon on short-term speculative buying, analysts said.
  • The major beneficiaries of the recovery include Sarawak Plantations Bhd, Sarawak Oil Palms Bhd (SOP), Rimbunan Sawit Bhd, TH Plantations Bhd, IJM Plantations Bhd, Tradewinds Plantation Bhd and TSH Resources Bhd.
  • The price of crude palm oil (CPO) has retraced by about 30% to RM3,390 per tonne to date from a record RM4,486 per tonne. However, Aseambankers, in a recent report, said it is “not ruling out the possibility of another round of speculative buying stemming from the US Fed interest rate cut.”

Two issues.

1. Does the current sell down creates a buying opportunity, given the fact that despite the current plunge in the CPO futures, based on the current ASP (Average Selling Price) sold by our planters , represents insane profits?

2. If so, why 2nd-tier planters? If this indeed is a buying opportunity, why don't one focus on market leaders? Market leaders lead. 2nd-tier will be 2nd-tier.


Which brings me to this article posted on Singapore Business Times, Can plantation stocks hold out?, which I feel is an excellent second opinion on this issue!

  • FIRST came the spillover effect from market fears that the assets of Indonesian oil palm producer First Resources would be auctioned off. Now, plantation stocks - and these include First Resources - have been dealt another blow as the price of crude palm oil (CPO) plunged on Tuesday.

    It seems that the earlier optimism surrounding these stocks has quickly dissipated upon a loss of support from CPO prices. But is the selldown really justified, or are short-term fears clouding the good growth stories that these stocks offer?

    Though most of these counters have recovered some ground from Tuesday's plunge, it now seems that the earlier knee-jerk reaction has thrown ice on previous propositions that this sector could weather a market downturn well.

    Some analysts, however, believe that the valuation of Singapore-listed CPO players has gone down to levels where investors can start to do bargain-hunting. There are good reasons for their optimism. After all, should investors peek through the smoke of market volatility and fear and look at the fundamentals, this sector has some compelling stories.

    Before the CPO price shock, some good news appeared to be surfacing at Wilmar, which has submitted a request to the Chinese government to raise its branded cooking oil price. The Chinese government wants to increase supplies after price controls imposed in January cut the retail stockpile and has asked Wilmar, among other companies to increase consumer sales.

    For Indofood Agri, the integration with Lonsum, a listed company in Indonesia in which it bought a majority interest, is expected to provide a significant near-term catalyst for the company, given the possibilities for cost savings and the pooling of expertise, according to Macquarie Research.

    Things are also looking brighter for First Resources now, after fears of an output cut this year were allayed when it clarified that its founder and former shareholder Martias had fully paid off damages of US$38.3 million and that Indonesia's Corruption Eradication Commission has withdrawn its intention to auction off three of First Resources' plantation and milling assets that were deemed to be related to Martias.

    In addition, the earnings growth outlook for these CPO players remains robust. For instance, analysts' mean earnings estimate for First Resources stands at 1.19 trillion rupiah (S$177.7 million) for FY08, up from 431 billion rupiah for FY07. For Wilmar, the estimate is US$870.9 million, up from US$580.4 million for FY07. And for Indofood Agri, it's 1.66 trillion rupiah for FY08 compared to 889.1 billion rupiah a year ago.

    But in the face of fears and a loss of market confidence, these prospects can end up being overlooked.

    That is the disconnect happening in the plantation sector - even if CPO prices and earnings are still on the rise, fears of heightened risks can continue to choke share prices.

    This is reflected in UOB KayHian's view on the sector. Despite higher CPO price assumptions and earnings forecasts, it is keeping an 'underweight' rating on Malaysia's plantation sector, citing political uncertainties, higher sector risks from high CPO prices, huge inventories and government intervention, as well as demand risks from biodiesel losing its shine.

    Rising risks in this sector would naturally point to lower PE valuations and hence, further downside. But it remains to be seen if such a lacklustre view of the Malaysian plantation sector will trigger a reassessment of Singapore-listed plantation plays as well.

    While earnings visibility remains clear and balance sheets remain fundamentally sound, these factors could pale in the face of further knee-jerk reactions to volatile CPO prices and fears of heightened risks.

    And it is unclear if good news from this sector is now enough to make jittery investors take another look. But if analysts' buy calls can still be counted on, it may pay to take a closer look at stocks that are trading below or close to 10 times forward PE - stocks such as First Resources, Indofood and Golden Agri.

More worrying is the immediate weakness in several commodities. Gold Leads Commodities Plunge on Outlook for Dollar, Economy

  • March 20 (Bloomberg) -- Gold headed for its biggest weekly drop in 25 years, leading a drop in commodity prices, after the dollar rallied and concern mounted a U.S.-led slowdown in the global economy will reduce consumption of raw materials.

    Oil fell below $100 a barrel for the first time since March 5, soybeans dropped for a second day and copper had its biggest two-day decline in seven months. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials is having its worst week since at least 1997, led by declines in soybeans, cocoa and cotton.

    There is ``a glaring divergence between escalating commodity prices and waning world economic growth,'' James Steel, an analyst with HSBC Securities in New York, wrote in a report e- mailed today. It is ``no longer assured that commodity price appreciation is a safe one-way bet.''

    Gold in London has plunged 12 percent from its record $1,032.70 an ounce on March 17 after the Federal Reserve cut its overnight-lending rate less than expected by 75 basis points to 2.25 percent. The dollar has recovered 2.8 percent from an all- time low against the euro and rallied 4.6 percent from a 12-year low against the yen.

    Commodities have advanced in each of the past six years, driven by demand from China seeking to feed its population and power its expanding economy. The dollar's slide has boosted demand for raw materials, which become cheaper for buyers holding other currencies, while some investors are seeking higher returns following a slump in equities


If commodities all over are correcting or plunging in a drastic manner, then perhaps isn't it much better to adopt the side lines approach?

As mentioned in the Bloomberg article.

  • `Absolutely Enormous'

    The money flowing into commodities is ``absolutely enormous,'' James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference yesterday in Geneva.

    There are 361 commodity funds that had $98 billion in assets as of Feb. 28, compared with 345 funds with $80 billion at the end of 2007, he said.

    The rally, according to Paul Touradji of the $3.5 billion hedge fund Touradji Capital Management LP, was a ``buying orgy'' that had inflated prices and increased the risks of a collapse.

    Commodities ``have all gone parabolically higher on frenzied money flow,'' New York-based Touradji wrote to clients March 10. ``Unless that money flow continues ad infinitum, in which case prices would go to infinity, then the fundamentals had better be improving as quickly as prices have been, otherwise there is nothing else to keep the markets at these levels.''

Which is rather confusing for most. A Falling Dollar Should Contribute More Strength to Commodities

  • A falling dollar should also contribute more strength to commodities. But yesterday gold and oil fell quite a bit. What gives?

    The dollar had a rare moment of inspiration. It was delusional inspiration, won't last. Besides, commodities have other reasons to go up than dollar weakness. Our French technical and currency guru, Gabriel Andre, explains:

    "Commodities are negatively correlated with the US dollar, and in the short-term the US dollar is oversold. Many traders feel the Fed has played its hand fully, and see this as a reason to buy back into the dollar…in the short term, that is.

    "But with cheaper commodities, there are likely to be bargain-hunting investors looking for a good entry point into the market. Further down the track, strong demand from Asia for real goods is likely to continue. Tangible assets still have the wood over financial assets…so cheaper commodities will generate more buyers, particularly in gold.

    "A fall in gold gives it buying strength, technically…and it will enjoy fundamental demand from those wishing to hedge against an inflation and the long-term dollar weakness."

Posted on, Commodity Market's Roiling Riptides Of Prices

Posted on Reuters. COMMODITIES-Crumble on Global Flight from Risk

And the following posting is worth reading: DELEVERAGING- Gold and Commodities Teetering on the Brink of a Bear Market?

The author, Nadeem Walayat, asks the following.

  • Gold and other commodities plunged below key short-term support levels following Tuesdays US Interest rate cut to 2.25%. The consensus seems to see this as a healthy correction or is this a signal for a potential end of the commodities bull market?

He continues.

  • Gold and Commodities are NOT immune to the impact of deleveraging, as evident by the sharp drop in Gold yesterday

Are we seeing deleveraging?

What say you?

Regarding RHB's report on Parkson

Was reading the report on Parkson Holdings dated 17th March from RHB Research.

The following are some key issues pointed out in the report.

  • Same-store sales (SSS) growth to remain strong. In 2007, Parkson recorded same-store sales growth of 18.4% for its China operations, 8% for Parkson Malaysia and 37% for Parkson Vietnam. Parkson China remained the main income driver, contributing more than 90% to the groupfs operating income in FY07. Its stellar performance was in tandem with the burgeoning retail sales in China, which grew 16.8% in 2007 underpinned by improved consumer confidence and rising rural income. Going forward, we expect China retail sales to remain robust in the advent of the Beijing Olympics. However, we reduce our SSS growth projections for China to 17% (from our earlier projections of 20%) for FY08-10, to be in line with management guidance of 15-18% p.a.. As for Parkson Vietnam, we raise our SSS growth projections to 25-27% (from our earlier projections of 20%) for FY08-10. The compelling SSS growth in Vietnam is mainly attributable to the low-base effect. We maintain our SSS growth projections of 6% for Parkson Malaysia for FY08-10.

    Average 10-13 new stores per year to be opened in FY08-10. Over the next three years, Parkson plans to open an average 5-7 new stores per year in China, 2-3 in Malaysia and 4 in Vietnam. This is higher than our original assumptions of 4-5 new stores per year for China and 0-1 for Malaysia for the FY08-10 period. Specifically for 2008, Parkson plans to open 7 new stores in China, 5 in Malaysia and 4 in Vietnam. In China, Parkson and its 53.1%-owned Hong Kong-listed Parkson Retail Group (PRG) could expand its presence via: 1) acquisition of Parkson's managed stores; 2) purchase of minority stake in stores which are not wholly-owned by the group; or 3) acquisition of competitors' stores. Currently, Parkson has 12 managed stores, which could be part of its acquisition targets going forward. According to management, it would consider paying an average of 10x earnings for the managed stores. Alternatively, Parkson could also acquire the minority stakes of the 9 Parkson stores which are not fully owned, to fuel growth. PRG is already in the midst of acquiring the minority 49% stake in Xi'an Chang'an Parkson, pending the procurement of the requisite confirmation letters from all minority shareholders. We expect PRG to conclude this deal in 1H2008. On the domestic front, Parkson plans to open one new store each in Kuching, Kuantan, Melaka, Kuala Terengganu and Kota Baru this year. Given the more aggressive store expansion plans, we now increase our new store assumptions to 5-7 stores per year (from 4-5) for China, and 1-5 stores (from 0-1) for Malaysia for FY08-10. We maintain our assumption of 3-4 new stores per year to be opened in Vietnam in FY08-10.

    Margin improvement on the way. Parkson has been adopting an asset-light approach when setting up new stores in China, i.e. leasing the property instead of acquiring. This would allow the company to expand expeditiously without locking up too much capital. Capex for FY08-10 is projected at RM106-182m p.a., which is mainly for new stores and refurbishment. New stores are estimated to break even after 2 years of operation. Parkson has a high operating leverage in which fixed costs (rental and staff costs) account for a significant 29% of the group's total operating expenses. As such, according to management, SSS growth of 18% for its China operations would translate into a higher EBIT growth of more than 30%. Our forecasts have already factored this in, as we have projected higher EBIT growth of 30-50% p.a. over the next three years, compared to revenue growth of 20-40%.


    Risks to our view. A sharp slow down in consumer spending in China, Malaysia and Vietnam.

    Mitigating factors. China's retail sales grew by 20.2% per month in January and February 2008, which indicates that consumer spending in China remains robust at the moment. As such, we believe a sharp drop in consumer spending in China is unlikely to occur in the near term. Post-2008, we expect retail sales to moderate slightly and have projected a lower SSS growth for China of 16% for 2009-10 from the estimated 17% in 2008. As for Malaysia, consumer spending in 2008 should remain relatively stable, given that the expectation of a petrolprice hike after the general election could now be delayed. Post-2008, we expect consumer spending to remain resilient, underpinned by increasing consumerism of the relatively young population. As for Vietnam, we expect to see an influx of foreign investments in Vietnam over the next few years, which would create job opportunities,thus boosting consumer spending power.

Their investment justification is reasoned as follows.

  • Investment case. We continue to like Parkson for its exposure to fast growing economies, i.e. China and Vietnam. Given its size and extensive network in China, Parkson should appeal to world class brand merchandisers who intend to start retail businesses in China. This is particularly important to Parkson as having the right portfolio of brands is one of the core competencies in setting up a department store in China. Specifically, we believe 2008 will be an exciting year for Chinese retailers like Parkson due to the potential growth in GDP and consumer spending brought about by the Beijing Olympics. According to's research, "Prior to the Olympics and during the Olympic year, the host countries would experience higher than average GDP growth, maxing out at nearly 1.5% above average GDP in the 3rd year before the Olympics. However, the growth rates are lower in the years after the Olympics". According to the Beijing Municipal Statistics Bureau, the Olympics is expected to add no less than 2 percentage points a year to the nationfs GDP growth for the seven years to 2008 and to create as many as 2.1m new job opportunities. As such, we continue to be positive on the retail industry prospects in China over the next 3 years.

    Over in Vietnam, Parkson is one of two foreign retail operators who have been granted a licence to set up department stores in Vietnam before it is opened up to other foreign operators in 2009. This will provide the group the first mover advantage to position itself to enlarge its size and market share to be more competitive against other foreign department store operators in future years. As such, with the first mover advantage and using an identical business model as the one adopted in China, we believe Parkson would be able to reap similar successes in Vietnam within the next few years. Parkson Malaysia, meanwhile, should continue to record stable consistent growth over the three years, underpinned by the increasing consumerism of the relatively young population.

Caught the early morning news on Nike. Nike Profit Tops Forecasts on Strong Overseas Sales

  • The company has seen rapid growth in emerging markets for its Nike footwear as it ramps up for the Beijing Olympics and robust demand for its smaller, non-Nike brands. It claims sports items are relatively immune to economic downturns, but has been controlling inventory in a challenging U.S. marketplace as athletic shoe retailers struggling.

Sales in Asia were simply astounding.

Which reflected what's said in the's research mentioned in the RHB report. "Prior to the Olympics and during the Olympic year, the host countries would experience higher than average GDP growth, maxing out at nearly 1.5% above average GDP in the 3rd year before the Olympics. However, the growth rates are lower in the years after the Olympics".

I believe that one should not discount this issue if one wants to be a long term investor in Parkson. At this moment of time, sales are simply booming in China but would there be a possibility that it could slow down after the Olympics? However, I reckon that most that have actually shopped and witnessed what's happening in Parkson stores in China would very much argue that sales should still continue to boom.

Parkson's potential in Vietnam as first mover as pointed out by RHB is most interesting.

And of course the statement by the management on same store sales is most interesting.

  • According to management, SSS is expected to grow at 15-18% in China, 6% in Malaysia and 25-30% in Vietnam in 2008.

As projections tend to be rather optimistic by most management, a same store sales projection of 6% reflects my pessimistic view on Parkson Malaysia.

Anyway, here is a screen shot of how RHB is valuing Parkson Holdings.

Would you be a buyer of Parkson Holdings?

Tuesday, March 18, 2008

Litrak may return RM1 per share!

Published on The Edge. 18-03-2008: Litrak may return RM1 per share with debt refinancing plan

I find it so amusing!

  • KUALA LUMPUR: Lingkaran Trans Kota Holdings Bhd (Litrak) may return RM1 per share through a capital repayment exercise after it refinances existing debts to free up more cash flow for shareholders, analysts said.

    Analysts expect Litrak to undertake a capital repayment exercise after it proposed last Friday the issuance of up to RM1.55 billion in Islamic debt papers under a sukuk programme. The new debt issue is meant to refinance the highway concessionaire’s existing borrowings and redeemable unsecured loan stocks of RM1.2 billion and to fund working capital and other operational purposes.

    Analysts said the proceeds from the sukuk bond issue would fully retire Litrak’s existing debts that were taken to fund the construction of the Damansara-Puchong Expressway (LDP). Given the strong traffic flow at the LDP, the sukuk bond issue would allow Litrak to extend the repayment tenure of its debts, while freeing up more immediate cash flow for shareholders.

    According to a research note by Aseambankers, Litrak has a total debt of RM819 million as at December 2007. Assuming the entire sukuk programme was drawn up, analysts estimated that Litrak would have a cash surplus of RM726 million, which could potentially be returned to shareholders.

    “However, we believe that the maximum surplus amount of RM726 million may not be returned to shareholders in full, with some to be kept for future investments. Ultimately, a capital repayment of at least RM1 per share (or RM492 million in total) is more likely,” it said.

Let's see if I can understand this correctly. What this analyst is suggesting that ultimately Litrak would undergo this Sukuk program and borrow 1.55 billion ringgit, so that it could repay shareholders of at least rm1 per share.




What a wonderful suggestion! Isn't life simply grand?

However, some would simply find it ludicrous! What's the analyst insinuating?

Which sane company would borrow large lump sump of money to return back to shareholders?

Are we really having a super duper early Christmas?

And if what is speculated here is true, my gosh, this simply is the most pathetic way to run a company!

Some Musings on KNM Reports

Mentioned in RHB research report this morning.

Management is giving guidance that FY08-09 net earnings to be around rm450million and rm700 million respectively.

And here is the financial statistics posted by RHB.

This is incredible really.

For its fy 2007, KNM earned a very impressive 188 million. However the management is guiding net earnings of a whopping 450 million.

This as stated in the table above, equates to a growth of a whopping 135.3%!

Yes, KNM has made several acquisitions and was awarded several new projects but for the management to guide that the company net earnings would grow by some 260 million or 135.3% is really amazing!

As it is, based on current or trailing earning, as stated by RHB, KNM trades at 27 times multiples.

Risk is rather obvious if KNM fails to deliver such loft projections!

If you ask me, I better be mighty aware of the lofty guidance made by the company!

Anyway RHB has stated the following risk involved.

OSK carried the following comments:

  • No cannibalisation from Belgium’s Ellimetal. Early this year, KNM announced an acquisition of a Belgian process equipment manufacturer for €20m (RM96m). Management yesterday clarified that there will be no direct competition against KNM’s current business due to overlapping in product offerings, as 70% of Ellimetal’s sales are directed to European customers for projects in the EU countries. To note, Ellimetal adopts high level of automation in its manufacturing of process columns and reactors, and hence management expect some synergies to improve production method in Malaysia.

    Focus on future high demand sector. KNM has also recently entered into an operating agreement with David K Stevens (DKS) to undertake sulphur technology business, which we think is crucial for KNM to enter the environment industry especially when there are very limited players equipped with this technology. To elaborate, sulphur technology is a unique method used for recovering sulphur and energy from acid gases captured during the processing of high sulphur oil and natural gas. DKS, who is a patent holder for sulphur removal and recovery technology for the oil and gas applications, has extensive experience in this field. We foresee additional growth to come from here driven by rising global warming issues going forward.

    Potential 2nd biodiesel project. Management yesterday has also announced that it is likely to secure a 2nd biodiesel project from Midwest BD (MBD) Biodiesel Ltd of Australia to do design and EPCC works for a biodiesel plant in Townsville, Queensland. It is estimated to have a capacity of 250,000 tonne p.a., using Algae as feedstock and Axen’s technology. Although the value of the contract was not disclosed, mirroring the previous contract that KNM secured from Mission Biofuels with similar capacity, we believe the 2nd contract could worth about RM120m. We have correspondingly factored this into our projections. Note that, our forecasts already included our earlier expectations of another 3 biodiesel plants from Mission Biofuel. Lower earnings estimates. We are delaying our profit contribution from Borsig by one month and hence lower overall GP margin for the process equipment segment. We also raise our estimates for depreciation slightly while keep our forecast for effective tax rate at 13%. As guided by the management, tax rate could be lower due to reinvestment allowances for its acquisitions of Borsig as well as Ellimetal.

    Downgrade to Neutral. The net impact of our earnings adjustment is an 8% drop from our previous forecast. We are taking a prudent stance on KNM’s ability to integrate Borsig, given that it is the biggest ever acquisition thus far. Besides that, considering the current weak market sentiment, we lower our rating to Neutral from Trading Buy. Our revised fundamental fair value is at RM5.25, derived backwards from our fully diluted exrights & bonus based on 16x valuation multiple for the whole O&G sector. For a better comparison with our previous Trading Buy target of RM7.90, lower earnings forecasts reduce the fair value to RM7.20.

Ah, there's a bonus + rights issue being planned.

Here is how OSK made their calculations.

The Market, The Bear and Jim Cramer!

Said on MSNBC news, Stunning collapse of Bear Stearns hasn’t calmed fears of more bad news

  • “What we're in here is the closest thing we've seen to a bank panic since the Depression,” said Senate Banking Committee Chairman Charles Schumer, D-N.Y
Market commentator from Finacialsense, Tony Allison, calls it clearly an Election Year Bailout, in his market wrap, The Year of Living Dangerously: Printing Our Economy Back to Prosperity?

  • Election Year Bailouts

    As this is a presidential election year, the level of questionable decision-making is sure to escalate. The legislature is currently preparing numerous bills to “help out the little guy.” The reality will likely be a bailout of the financial system on the backs of the taxpayer. The problem is finding the hundreds of billions of dollars, if not trillions, necessary for these and other proposed programs. The taxpayer is pretty well tapped out. The US is already borrowing over two billion dollars every day from foreign creditors. The $400 billion federal deficit will likely expand rapidly. Foreign holdings of Federal debt reached 45% in 2007. Will foreigners continue to purchase a depreciating asset at these levels in future years?

    As the economy continues to slow, so will income tax receipts. This will only lead to more Fed money creation out of thin air, leading to a still weaker dollar and more commodity inflation.

    The theme here is that the more intervention by the Federal Reserve and the government, the worse the situation becomes. Without the checks and balances of a sound money system, the Fed has no limitations on its actions. Watch for the bailouts. They are on the way, and your wallet is the target. And following bailouts, looming on the horizon are new regulations, tax increases and capital controls.

    Bailouts in an election year are an entirely predictable response of political self-preservation. The aftermath in 2009 and beyond is not of current concern. Continued dollar destruction and growing inflation are problems for future years. Unfortunately, the Federal Reserve and Congress will make these problems much worse through their “heroic” rescue efforts.

John Mauldin's has a different take in his editorial, Let's Get Real About Bear.

Firstly, it's not a bailout, it's a wipeout!

  • But that is not what has happened. This is not a bailout. The shareholders at Bear have been essentially wiped out. Note that a third of the shares of Bear were owned by Bear employees. Many of them have seen a lifetime of work and savings wiped out, and their jobs may be at risk, even if they had no connection with the actual events which caused the crisis at Bear. Don't tell them there was no moral hazard.

    For all intents and purposes, Bear would have been bankrupt this morning. The $2 a share offer is simply to keep Bear from having to declare bankruptcy which would mean a long, drawn out process and would have precipitated a crisis of unimaginable proportions. Cue the lawyers.

And John reckons that the markets would have crashed!

Well, a run on the fifth largest bank in the United States would have indeed dire consequences!

  • If it was 2005, Bear would have been allowed to collapse, as the system back then could deal with it, as it did with REFCO. But it is not 2005. We are in a credit crisis, a perfect storm, which is of unprecedented proportions. If Bear had not been put into sounds hands and provided solvency and liquidity, the credit markets would simply have frozen this morning. As in ground to a halt. Hit the wall. The end of the world, impossible to fathom how to get out of it type of event.

    The stock market would have crashed by 20% or more, maybe a lot more. It would have made Black Monday in 1987 look like a picnic. We would have seen tens of trillions of dollars wiped out in equity holdings all over the world.

And because of the Fed actions, John is actually modestly optimistic!

  • As I have been writing, the Fed gets it. Their action today is actually re-assuring. I have been writing for a long time that they would do whatever it takes to keep the system intact. As one of the notes below points out, this was the NY Fed stepping in, not the FOMC. The NY Fed is responsible for market integrity, not monetary policy, and they did their job. And you can count on other actions. They are going to change the rules on how assets can be kept on the books of banks. Mortgage bail-outs? Possibly. The list will grow.

    Yes, tax-payers may eventually have to cover a few billion here or there on the Bear action. But the time to worry about moral hazard was two years ago when the various authorities allowed institutions to make subprime loans to people with no jobs and no income and no means to repay and then sold them to institutions all over the world as AAA assets. And we can worry in the near future when we will need to do a complete re-write of the rules to prevent this from happening again.

    But for now, we need to bail the water out the boat and see if we can plug the leaks. Allowing the boat to sink is not an option. And get this. You are in the boat, whether you realize it or not. You and your friends and neighbors and families. Whether you are in Europe or in Asia, you would have been hurt by a failure to act by the Fed. Everything is connected in a globalized world. Without the actions taken by the Fed, the soft depression that many have thought would be the eventual outcome of the huge build-up of debt would in fact become a reality. And more quickly than you could imagine.

    As I have repeatedly said, recessions are part of the business cycle. There is nothing we can do to prevent them. But depressions are caused by massive policy mistakes on the part of central banks and governments. And it would have been a massive failure indeed to let Bear collapse. I should note that this was not just a Fed action. Both President Bush and Secretary Paulson signed off on this.

    The Fed risking a few billion here and there to keep the boat afloat is the best trade possible today. Their action saved trillions in losses for investors all over the world. It is a relatively small price. If you want to be outraged, think about the multiple billions in subsidies for ethanol and the hundreds of billions of so-called earmarks over the past few years to build bridges to nowhere. And think of the billions in lost tax revenue that would result from the ensuing crisis. I repeat, this was a good trade from almost any perspective, unless you are from the hair-shirt, cut-your-nose-off-to-spite-your-face camp of economics.

    The Fed is to be applauded for taking the actions they did. And they may have to do it again, as there are rumors that another major investment bank is on the ropes. I hope that is not the case, and will not add to the rumors in print, but I am glad the Fed is there if we need them.

    It is precisely because the Fed is willing to take such actions that I am modestly optimistic that we will "only" go through a rather longish recession and slow recovery and not the soft depression that would happen otherwise.

So could what happen to Bear happen to say Citigroup? Here's an interesting editorial featured on FinancialSense. Will Citibank Survive?

  • So is Citi solvent? We just don’t know. But there are reasons to be concerned. We are in one of those recurring periods when the solvency of banks is doubted, like the late 1980s when the S&L crisis was brewing. Or perhaps it is more like 1974 when the failure of Herstatt Bank in West Germany set off banking crises throughout the world, culminating with the collapse of Franklin National Bank in New York City. The problem is leverage. Too much debt has been extended on too little capital, so even a small decline in the value of a bank’s assets can significantly erode its capital and make it insolvent.

    In any case, it looks like the financial crisis already upon us will get worse before it gets better, and I am not alone in that thinking. David Rubenstein, co-founder of the Carlyle Group told The Wall Street Journal last week: “This is the tip of the iceberg. People are looking at our situation and saying, ‘There but for the grace of God go I.’ There are others out there hanging on by their fingernails.”

    He should know. His group managed Carlyle Capital, which recently defaulted on its loans to Citi and other banks, and whose stock price is shown in the above chart.

And the markets incredibley ended the trading day mixed! Stocks Widely Mixed on Bear Stearns News

  • The Dow Jones industrials recovered from an initial drop of nearly 200 points to finish up about 21 points. The broader Standard & Poor's 500 and Nasdaq composite indexes ended lower as investors bailed out of investment banks and small-cap stocks and fled instead to large companies apt to be reliable during a weak economy.

  • Bear Stearns shares fell 86 percent to $4.10 -- still above the buyout price, implying that some shareholders believe the deal terms might change.

  • Some investors worry Lehman Brothers Holdings Inc. might be next to fall. Lehman -- the investment bank considered most similar to Bear Stearns -- and other major investment banks are slated this week to report quarterly results.

  • DBS Group Holdings Ltd., Southeast Asia's largest bank, reportedly instructed traders in an e-mail early Monday not to do business with the bank. According to Dow Jones Newswires, DBS Group later told traders to disregard the earlier e-mail. Lehman denied there were any problems with DBS.

    Lehman fell $7.51, or 19 percent, to $31.75.

Bear Stearns closed at $4.10!

Now do you know that Jim Cramer actually talked about Bear Stearns last Tuesday, 11th March 2008?

"Bear Stearns is not in trouble!" "Don't move your money from Bear! That's just being silly." "Don't be silly" shouted Jim Cramer. Bear Stearns was trading around $60.00 then.

There are 3 clips you can watch.

The below video clip was posted on youtube from (He feels strongly that Jim Cramer should be held responsible!)

Same video minus the commentaries.

And watch how Jim Cramer tries to back-pedals from his earlier comments on Bear!!!!!!!!!!!!

Seriously any fans of Jim Cramer out here?????!!!!

And what's even more incredible, Cramer is still out there!

I kid you NOT. This time, he's singing Bear Is Only the Beginning !
  • The implosion of Bear Stearns over the past week wasn’t just a run on one bank, Cramer said during Monday’s Mad Money, it could be the beginning of a run on all the banks, including the brokerages.

Monday, March 17, 2008

Why some are against this great Bear Bailout!

Here's a great article opposing the Bear bailout! Rescue Me: A Fed Bailout Crosses a Line

  • But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.

    And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt). It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there.

    Bear’s default rates on so-called Alt-A mortgages that it underwrote also indicates that its lending practices were especially lax during the real estate boom. As of February, according to Bloomberg data, 15 percent of these loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4 percent.

    Let’s not forget that Bear Stearns lost billions for its clients last summer, when two hedge funds investing heavily in mortgage securities collapsed. And the firm tried to dump toxic mortgage securities it held in its own vaults onto the public last summer in an initial public offering of a financial company called Everquest Financial. Thankfully, that deal never got done.

    Recall, too, that back in 1998, when the Long Term Capital Management hedge fund required a Fed-arranged bailout, Bear Stearns refused to join the rescue effort. Jimmy Cayne, then chief executive at the firm, told the Fed to take a hike.

    And so, Bear Stearns, a firm that some say is this decade’s version of Drexel Burnham Lambert, the anything-goes, 1980s junk-bond shop dominated by Michael Milken, is rescued. Almost two decades ago, Drexel was left to die.

    Bear Stearns and Drexel have a lot in common. And yet their differing outcomes offer proof that we are in a very different and scarier place than in the late 1980s.

    “Why not set an example of Bear Stearns, the guys who have this record of dog-eat-dog, we’re brass knuckles, we’re tough?” asked William A. Fleckenstein, president of Fleckenstein Capital in Issaquah, Wash., and co-author with Fred Sheehan of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.” “This is the perfect time to set an example, but they are not interested in setting an example. We are Bailout Nation.

And what's most interesting was the integrity issue on how the events unfolded. As mentioned in the same article.

  • Only last Monday, for example, Bear put out a press release saying, “there is absolutely no truth to the rumors of liquidity problems that circulated today in the market.” The next day, Christopher Cox, the chairman of the Securities and Exchange Commission, said he was comfortable that the major Wall Street firms were resting on satisfactory “capital cushions.”

    Three days later, it was bailout time for Bear.
No problems! No truth to the rumours!

Now? On a Sunday evening, Bear Stearns was sold for $2 per share!
( see Some Bear Issues )

Sunday Evening Exercise From The Fed

From CNN: Fed cuts discount rate - Sunday surprise

From Yahoo:

  • The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.

    The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.

And Asian markets plunge on Bear news

  • SEOUL, South Korea (AP) -- Asian stocks plunged Monday after JPMorgan Chase said it would acquire troubled U.S. investment bank Bear Stearns. The U.S. dollar fell sharply against the Japanese yen.

    Japan's benchmark Nikkei stock index and Hong Kong' Hang Seng index both fell more than 4%. The Korea Composite Stock Price Index in Seoul declined more than 3%. Markets in Australia and New Zealand also fell.

    JPMorgan Chase said Sunday that it would acquire its rival in a deal valued at $236.2 million - or $2 a share and that the Federal Reserve would provide special financing for the deal.

    News of the acquisition of Bear Stearns, one of the world's largest and most venerable investment banks, came just before the opening of markets in Tokyo and Seoul.

    The buyout was aimed at averting a bankruptcy and a spreading crisis of confidence in the global financial system. The Fed and the U.S. government swiftly approved the all-stock deal.

    "We are worried about the next step," Shim Jae-youb, a strategist at Meritz Securities in Seoul, said of nagging concerns in Asia that the trouble in big U.S. banks was unlikely to be contained just to Bear Stearns.

On CNBC Markets Tumble on Shock Fed Rate Cut, Bear Stearns

  • The plethora of financial news, coupled by a sinking dollar revived fears that a long-lasting global credit market crunch would claim more financial companies. Banks across the region were battered. Citigroup's Japan listing was down over 7 percent. Japan's Mitsubishi UFJ Financial, Hong Kong's HSBC Holdings, South Korea's Hana Financial, and Australia's Macquarie Group were all plunging.

Golfing? From article posted on Yahoo here

  • A bankruptcy protection filing of Bear Stearns could have heightened anxiety in world financial markets amid a deepening credit crunch. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis -- more write-downs could come. Last week, a bond fund controlled by private equity firm Carlyle Group faltered near collapse because of investments linked to mortgage-backed securities.

    JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago. It marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29.

    "The past week has been an incredibly difficult time for Bear Stearns," Schwartz said in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."

    Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of the world's largest investments banks -- it was a prop for the U.S. economy and the global financial system. An outright failure would cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.

    After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.

    This is not the first time Bear Stearns has earned a place in Wall Street history. A decade ago, Bear Stearns refused to help bail out a hedge fund that was deemed "too big to fail." On Friday, the tables had turned, with the now-struggling investment bank in need of the same kind of aid.

    Bear Stearns was founded in 1923 and in recent years was best known for its aggressive investing in mortgage-backed securities -- and what was once a cash cow turned into the investment bank's undoing.

    In June, two Bear-managed hedge funds worth billions of dollars collapsed. The funds were heavily invested in securities backed by subprime mortgages. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.

    The funds' demise and subsequent problems in the credit markets called into question Bear Stearns' ability to manage its own risk and the leadership ability of then-Chief Executive James Cayne. Critics of the company said Cayne spent too much time away from the office last year playing golf and bridge as the problems unfolded.

    Cayne is the same executive who refused to let Bear Stearns provide support as part of a Federal Reserve-led plan to rescue Long-Term Capital Management in 1998. His reticence was said to deeply anger some of his fellow Wall Street CEOs, and the episode came up every time Bear was reported to be in trouble in recent months.

    Cayne took over from the legendary Alan "Ace" Greenberg in 1993. Greenberg joined Bear Stearns as a clerk, working his way up through the ranks to eventually take over as CEO in 1978. Greenberg was known for his irreverent style, and his regular memos to employees were turned into a book called "Memos from the Chairman."

Some Bear Issues

Posted on CNBC JP Morgan Agrees to Buy Bear Stearns for $2 a Share

  • JPMorgan Chase said Sunday it will acquire rival Bear Stearns in a deal valued at $236.2 million--or $2 a share--a stunning collapse for one of the world's largest and most venerable investment banks. The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system

$2 a share?

Here's an interesting point from Bloomberg news. JPMorgan Chase Buys Bear Stearns for $270 Million

  • Joseph Lewis, the second-largest shareholder in Bear Stearns Cos., wasn't planning to reduce his stake, a person close to him said March 11. Lewis, a 71-year-old billionaire, has put in more than $1 billion into the firm since September, paying as much as $150 for a share.

Mr. Lewis isn't going to be happy camper!

And one of the big issue is on the current bailout of Bear Stearns. One of the interesting comments was from John Mauldin's piece, Muddle Through and Your Long Term Returns , posted on the weekend.

  • The next crisis? I read a very chilling piece from Michael Lewitt this morning. He speculates on what if the rumors were true that Bear Stearns is basically bankrupt. Bear is in the too big to fail category. They are at the heart of the chain of Credit Default Swaps which run like fault lines throughout the world's financial system. If Bear were allowed to collapse, it would simply cascade throughout the world so fast it would truly make the current level of the credit crisis seem small potatoes.

    So, why can I be so sanguine? Because the regulators (the Fed and the SEC) would step in and whatever large bank was failing would be merged or bought very fast. Liquidity and assets would be provided. The Fed and the rest of the world's central banks get that we are in a crisis. They will do what is necessary. Those of us sitting in the cheap seats in the back of the plane may not like it, as it will look like a bailout of the big guys who caused the problem, but you have to maintain the integrity of the system. A hedge fund here or there can go, but not one of the world's premier banks.

And of course the most interesting piece was Who Traded 55,000 Bear $30 Puts Tuesday?

  • This past Tuesday, when Bear Stearns(BSC - Cramer's Take - Stockpickr) was trading around $65 a share, there was huge put volume in the March $30 strike. Over 55,000 contracts traded that day at an average price of 15 cents a contract. This is an extremely unusual trade in terms of the number of contracts and how far out-of-the money those options were at the time. This begs the question of why someone would execute such a transaction.


  • First, it's important to understand that buying a put gives you the right to sell the stock at the strike price. So to buy a put that requires the stock to decline over 50% is essentially a bet that the company is possibly on the brink of going out of business or about to deliver some terrible news.

    Remember, these options expire on March 20, so that left only 10 days for some event to occur that would cause these puts to go into the money and have some value. So it appears that as rumors began swirling early in the week that Bear was having liquidity problems and might possibly be bordering on insolvent, someone took that to heart and bought the puts as disaster insurance. And today came news that several banks, including Goldman Sachs (GS - Cramer's Take - Stockpickr), would no longer act as a counterparty to any transactions with Bear. The inability to execute trades would essentially put Bear Stearns out of business.


Yes, some trader just made insane money (easily over 20 million!)... but comeon... surely they 'knew'!!!!!

Btw where is Auntie Martha?