Some Interesting Comments

Bob Pisani had some interesting stuff to say regarding yesterday's markets.

• The despair of Wall Street, redux. Volatility with no volume. That's what we got today. The Dow swung in a 400 POINT RANGE, but volume was about half what it was at the end of last week.
  
  Why? Some said too much uncertainty over the Treasury bill, some said with no short sellers adding liquidity, what do you expect? Others said the reflation trade has added another level of confusion.
  
  The markets may have acted negatively over concern about all the strings Democrats are attaching to the Treasury Department rescue plan, but don't kid yourself: a deal will get done.
  
  Still, don't underestimate what this bill is doing to the psychology on the Street. Most stock traders would be willing to accept more help for homeowners facing foreclosure as part of the bill.
  
  What's left? Some Dems want a stake (warrants) in any company that sells assets to the program. That's a problem. We're selling you the assets, below market price probably, and you still want warrants?
  
  Also an issue: drastically limiting pay for executives. We are probably not just talking about CEOs. We're probably talking about anyone in management. And--as we all know--commercial bank management makes A LOT less than investment bank management. ( my comments: yes about time, yes? Those buggers were paid insanely. It's totally obscene that anyone could be paid so much! )
  
  Bottom line: less business, less pay, less reward. That's what Wall Street management is facing today.
  
  Little wonder some guys are thinking of getting out altogether.
  

Source: http://www.cnbc.com/id/26841732

Did JP Morgan Got 'Bailed Out'??

On today's FinancialSense market wrap commentary, market commentator Rob Kirby wrote a highly interesting piece called, And the Band Played On

The following passages were most interesting.

• Late last week, I wrote about a very strange occurrence – the reporting of J.P. Morgan “transferring” 138 billion dollars to Lehman, after Lehman had already filed for Chapter 11 bankruptcy early last Monday morning.
  
  This bears repeating.
  
  The advance was reportedly “to allow” Lehman to settle securities trades with clients. J.P. Morgan was then immediately reimbursed by the Federal Reserve for the same 138 billion.
  
  What was not originally reported, or likely not understood at the time due to the types of securities that Lehman did most of their business in [Credit Derivatives], it is a virtual certainty that J.P. Morgan [the largest derivatives player in the world with 8.1 Trillion in Credit Derivatives alone] was the “client” [the other side of the Lehman trades that needed to be settled].
  
  The critical piece of information that completes the daisy-chain: The world only learned about J.P. Morgan’s 138 billion advance from a bankruptcy court document, where Lehman was asking the court for the authority to give the settlement of claims of J.P. Morgan “special status.”
  
  Here’s how this flow-of-funds looks visually:
  
  
  It is highly likely [or a certainty on my planet] that J.P. Morgan was INSOLVENT and was “BAILED OUT” last Monday, September 15, to the tune of 138 billion dollars. This would explain why the Fed and Treasury dictated that Lehman fail – to disguise or otherwise obfuscate the recapitalization of or illicit transfer of 138 billion to A MUCH SICKER, TEETERING ENTITY, J.P. Morgan Chase.
  
  This makes sense. Investment banks are dropping like flies, owing to their involvement in credit derivatives – this is a fact.
  
  J. P. Morgan is – HANDS DOWN – the largest derivatives player in the world with a book of 90 Trillion in notional value on March 31, 2008 – with 9% of the book composed of Credit Derivatives. That amounts to a cool 8.1 Trillion worth of Credit Derivatives. We know this from the Office of the Comptroller of the Currency’s Quarterly Derivatives Report – pg. 24.

read rest of his article here ...

More on Privatisation of VADS

More on Privatisation of VADS

OSK wrote the following the following in their report.

• Farewell To A Gem
  
  TM has proposed to privatise VADS at RM7.60 per share, matching our target price for the stock, which values the company at 12x FY09 EPS. We view the takeover as a beneficial exit option for minority shareholders as it addresses the stock’s illiquidity. We believe TM had taken cognisance of this in arriving at the offer price, with due consideration for VADS’ solid balance sheet. Hence, we are of the opinion that the minorities should acquiesce to the offer. Fully valued at RM7.60.
  
  Offer price at our target of RM7.60. TM has proposed to undertake the privatisation of VADS at RM7.60 per share implemented via selective capital repayment. The deal values VADS at 12x FY09 EPS, or a market capitalisation of RM1bn, matching our target price for the stock. The offer, which carries a 12% and 18.4% premium over the stock’s last traded and the 5-day volume weighted average price respectively, has adequately factored in the company’s enviable cash flow/balance sheet and dividend prospects.
  
  Solid fundamentals. VADS has not disappointed given its successive y-o-y growth in revenue and earnings, charting CAGRs of 28.6% and 39.3% respectively since listing in 2002. Its earnings are highly visible, thanks to strong recurring revenue from the managed network services (MNS) segment. The focus on the business process outsourcing (BPO) space unlocks a strong revenue stream and is expected to spearhead earnings growth going forward. We project EPS growth at a healthy 25% on average p.a. going into FY10.
  
  One more bites the dust. We were one of the first to commence coverage on VADS in 2005 and had consistently picked the stock as our top pick in the small cap ICT sector for 3 consecutive years. Its privatisation will undoubtedly remove a jewel whose track record is difficult to emulate. The scarcity value attached to the stock is reflected in the takeover price, which we deem fair. We advise minorities to accept the offer as it is a good exit strategy to unlock the value of a stock that has been plagued by liquidity constraints and is trading at an unwarranted discount to its global BPO peers.

This is where it is sooooooooooooooo wrong.

Acquiesce to the offer?

According to my pal Wikiseng, to acquiesce is to knowingly standing by without raising any objection to infringement of his rights...

So if I am not flawed again, is OSK telling VADS minority shareholders just to accept the offer, in regardless?

Forget about the fact that company has solid fundamentals?

Forget about the fact the stock had managed to register stellar CAGR growth of 28.6% and 39.3% since listing?

Forget about the fact the offer price is priced only at 12x FY09 EPS?

Forget about asking if the offer price is justifiable or not?

Just acquiesce to the offer.

Sad isn't it?

Don't you think you are not fully compensated?

So how?

Better consider what happens here before you invest in any listed subsidiary.

So long farewell, it's time to say goodbye....

The Day The World Almost Ended.

Here's an interesting write on how the events unfolded last week, Almost Armageddon

• The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.
  
  Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.
  
  According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.
  
  The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.
  
  The Fed's dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.
  
  While many depositors treat money market accounts as fancy savings accounts, they are different. Banks buy a variety of short-term debt, including commercial paper, with the assets. It is an important distinction because banks use the $1.7 trillion commercial-paper market to fund their credit card operations and car finance companies use it to move autos.
  Without commercial paper, "factories would have to shut down, people would lose their jobs and there would be an effect on the real economy," Paul Schott Stevens, of the Investment Company Institute, told the Wall Street Journal.
  
  Cracks started to show in money market accounts late Tuesday when shares in one fund, the Reserve Primary Fund - which touted itself as super safe - fell below the golden $1 a share level. It had purchased what it thought was safe Lehman bonds, never dreaming they could default - which they did 24 hours earlier when the 158-year-old investment bank filed Chapter 11.
  
  By Wednesday, banks sensed a run on their accounts. They started stockpiling cash in anticipation of withdrawals.
  
  Banks, which usually keep an average of $2 billion in excess reserves earmarked for withdrawals, pumped that up to an astounding $90 billion by Wednesday, Lou Crandall, chief economist at Wrighton ICAP, told The Journal.
  
  And for good reason. By the close of business on Wednesday, $144.5 billion - a record - had been withdrawn. How much money was taken out of money market funds the prior week? Roughly $7.1 billion, according to AMG Data Services.
  
  By Thursday, that level, fed by the incredible volume of sell orders pouring in from institutional investors like pension funds and sovereign funds, had grown to $100 billion. It was still not enough to stem the tidal wave.
  
  The banks knew something drastic had to be done. So did Paulson.
  
  The injection of capital into the market was followed up by calls from Treasury Secretary Hank Paulson to major money market players like Bank of New York Mellon and State Street in Boston informing them that federal money was in the market and they should tell their clients the Feds would be back with a plan to stem the constriction in the credit market.
  
  Paulson knew the $105 billion injection was not a real solution. A broader, more radical answer was needed.
  
  Hours after Paulson made his round of calls to calm the industry, word leaked out that an added $1 trillion bailout of banks was being readied. Investors cheered. At about 3 p.m., news of the plans was filtering up and down Wall Street, fueling a 700-point advance in the Dow Jones industrial average through 4 p.m. Friday.
  
  By that time, Paulson had announced the plan. It included insurance on money market accounts, a move that started in quiet Thursday morning, when the former Goldman Sachs executive saved the country from a paralyzing meltdown.
  
  

Privatisation of VADS

Life is never fair and when nothing is done history will repeat itself.

Blogged on Dec 16th 2005, Privatisation Issues

• The issue of privatisation and the subsequent delisting of a listed subsidiary.
  
  Generally there are two ways companies can be delisted from a stock exchange in.
  
  The first case is the enforced, compulsory delisting of a company, in which the stock exchange forces the delisting of the stock because the listed company has failed to comply with the stock exchange listed requirements. And these are usually based on commercial reasons in which the listed companies simply cannot operate in a profitable manner.
  
  The second manner a company can be delisted from a stock is where the company voluntary informs the exchange that they no longer want to be listed. And a variation of this case, is the delisting of a listed subsidiary is made by its holding company, in which the minority shareholder of the listed company is forced to choose between the offered compensation price or risk being involved in a private company, which would ultimately offers no transparency rights.
  
  I have no problem at all with the first case. These are them bankrupt cases. Them 'koyak' companies. 'Chap-lap' companies which are losing money like crazy.
  
  The second one, the privatisation and the subsequent delisting of the listed subsidiary, this one I really don't like at all.
  
  It's just totally unfair to the minority shareholder and it makes a total mockery of the whole stock exchange.
  
  Listed Companies should not be given the approval so easily to privatise their listed subsidiary company in which the general investing public is forced or threatened with the issue of delisting. And as mentioned earlier once the company is delisted this offers the investor no transparency rights at all. So when a listed company is able to list and delist their subsidiary companies as per their wimps and fancy this would make a total mockery of the stock exchange.
  
  And what about the general offer price for the minority shareholders stake in that listed company? Would the minority shareholders get an offer that is fair or would the minority shareholder be placed in a disadvantage position? Would the premium offered over the existing share price to adequately compensate the minority investors?
  
  If no, this ultimately means that the minority investors would never be given a chance to being adequately compensated for the permanent withdrawal of a good investment opportunity.
  
  And if this is the case, then this would contradict the government's plan to woo more investors into Bursa Malaysia cause investing would have indeed turned very unattractive, a game which is very biased against the investing public.

Where did it start?

My first encounter was on Bumi Armada and its detalied in full here.

1. http://whereiszemoola.blogspot.com/2006/09/pirates-which-siezed-armada.html
2. http://whereiszemoola.blogspot.com/2006/09/more-on-privatisation-issue.html

We then have MetroJaya.

1. http://whereiszemoola.blogspot.com/2006/11/muis-purchase-of-metrojaya_02.html
2. http://whereiszemoola.blogspot.com/2006/11/muis-purchase-of-metrojaya-ii.html

The unbelievable privatisation of Johor Port.

1. http://whereiszemoola.blogspot.com/2005/12/privatisation-issues_16.html

Oh how about a stock like Powertek?

Let me ask yet again.

How could I safely know that I would ever be fully compensated for taking the investment risk in investing in a company listed subsidiary when the holding company can list and delist as per wimps and fancy?

Recently, IJM wants to privatise their listed subsidiary. Receipt of Notice of Voluntary General Offer from IJM Corporation Berhad

Today we see another privatisation case where Telekom Malaysia wants to delist its listed subsdiary VADS via privatisation exercise.

• KUALA LUMPUR (Dow Jones)--Telekom Malaysia Bhd. (4863.KU) is proposing to buy the remaining shares in Vads Bhd. (7150.KU) that it doesn't currently own for MYR7.60 per share in a move to take the company private, Vads said Monday.
  
  In a filing with the stock exchange, Vads said the proposed buyout will involve a selective capital reduction and repayment exercise.
  
  Telekom currently owns 83.4 million shares or 63.3% of Vads.
  
  Vads shares, which were suspended Monday pending the announcement, closed Friday at MYR6.80.
  

It just does not end.

For sure the minority shareholders are not happy with the less than generous offer by these holding company.

Yup another sad day where the minority shareholders do not get a fair compensation for taking the investment risk in investing in these listed subsidiaries.

What can an investor do next time?

How about being a tiny bit wiser and AVOID investing in these subsidiaries? What's the point of it all when the investor has not chance of getting a fair investing compensation?

Short Note On Hai-O Earnings

Blogged last April Review Of Hai-O and More On HaiO

HaiO reported its earnings last Friday.

Quarterly rpt on consolidated results for the financial period ended 31/7/2008

Quarterly earnings was at 13.602 million, which is a huge worry, for its previous quarter in June 2008, HaiO reported reported earnings of 18.942 million. (see Quarterly rpt on consolidated results for the financial period ended 30/4/2008 )

And despite the tremendous weakness on a quarter-to-quarter comparison, folks at OSK has discounted it by suggesting that it's mere seasonal weakness. Here's what OSK said in their earnings review of HaiO's earnings.

• Hai-O registered another set of strong results with 1Q earnings of RM13.6m, 70% higher than our estimates, while revenue and earnings expanded 90.5% and 94.3% respectively. All divisions recorded positive revenue growth, especially the MLM division, which grew 126.6%. Q-o-q earnings were, however, 28.3% lower due to seasonal factors as 1Q is the weakest quarter for the entire year. We are reducing our earnings forecast and target price despite the strong 1Q earnings in view of the weaker consumer sentiment due to higher fuel price, CPI and bearish market. Nevertheless, Hai-O is still a BUY with target price of RM4.50.

All In The Name Of Making Extra Profits?

This is EXTREMELY sickening and disgustibating!!!

I would like to highlight the following article from Reuters published on CNBC.

• The number of Chinese infants sick in hospital after drinking tainted milk formula has leapt to nearly 13,000, and Premier Wen Jiabao told alarmed parents that companies responsible will face harsh punishment.
  
  The Health Ministry said the number of children ill from milk powder contaminated with the industrial chemical melamine had risen from a previously announced total of 6,244 -- which included many who had left hospital -- to 12,892.
  
  Over 80 percent of the sick were aged under two.
  
  The big jump was announced late on Sunday, another escalation in China's spreading milk scandal that has tarnished the "made in China" brand after last year's scandals over everything from the safety of toothpaste and drugs to petfood and toys.
  
  Wen visited hospitals in the national capital in a bid to reassure an anxious public.
  
  "We must make the physical health of the public a priority," he told parents and staff, according to Xinhua news agency.
  
  "The most crucial point is that after a clean-up there can be no problems at all with newly produced milk products. If there are fresh problems, they must be even more sternly punished under the law."
  
  China's food quality watchdog has said it found melamine in nearly 10 percent of milk and drinking yoghurt samples from three major dairy companies: Mengniu Dairy, the Inner Mongolia Yili Industrial Group, and the Bright Group.
  
  But the Health Ministry said no cases of illness have been founded related to liquid milk.
  
  Nitrogen-rich melamine can be added to watered-down milk to get past quality inspections, which check for nitrogen to measure protein levels.
  
  Parents Panic
  
  Panicked parents have crowded China's hospitals and demanded redress since officials and the Sanlu Group, the country's biggest maker of infant milk powder, said two weeks ago that babies developed kidney stones and other complications after drinking the tainted milk.
  
  Sanlu failed to publicly disclose the problem for at least a month, throughout August when Beijing hosted the Olympic Games, officials have said.
  
  The government has promised free treatment for stricken children, but some parents said they worried about long-term complications and costs.
  
  "The recovery period could be long," said Li Lingna, waiting in a Beijing hospital to determine whether her two-year old boy's kidney problems were related to his milk powder.
  
  "We're worried about what this will do to his resistance, with winter and colds coming on. So many problems lie ahead."
  
  In the wake of the scandal, other countries and regions have clamped down on China's milk products. Markets that that have banned or recalled these products include Brunei, Singapore, Malaysia, Japan, Hong Kong and Taiwan.
  
  Even White Rabbit Creamy Candy, a popular Chinese brand of milk sweet, has been contaminated with melamine, Singapore's Agri-Food and Veterinary Authority warned on Sunday.
  
  Over the weekend a three-year-old Hong Kong girl was found to have a kidney stone after drinking a milk product tainted by melamine, making her the territory's first suspected victim of the scandal.
  
  Premier Wen said that dairy products that passed safety tests would be labelled so that consumers can "be at ease."
  
  But the complications from the country's lastest food safety crisis are likely to endure.
  
  The Chinese Ministry of Agriculture said despairing farmers were dumping milk and killing cattle after companies stopped buying their supplies, according to Xinhua. The ministry promised subsidies to help struggling milk farmers.

Source: http://www.cnbc.com/id/26827853

Details Of The Bailout..

Just for the record, the following article from Reuters, published on CNBC website, highlights where the bailout money is going. It's really mind boggling to say the least but what else can we expect when these investment bankers are doing 40-1 leverages!

• Following are details of actions, proposals and amounts:
  
  —Up to $700 billion to buy assets from struggling institutions. The plan is aimed at sopping up residential and commercial mortgages from financial institutions but gives Treasury broad latitude.
  
  —Up to $50 billion from the Great Depression-era Exchange Stabilization Fund to guarantee principal in money market mutual funds to provide the same confidence that consumers have in federally insured bank deposits.
  
  —The Fed committed to make unspecified discount window loans to financial institutions to finance the purchase of assets from money market funds to aid redemptions.
  
  —At least $10 billion in Treasury direct purchases of mortgage-backed securities in September. In doubling the program on Friday, the Treasury said it may purchase even more in the months ahead.
  
  —Up to $144 billion in additional MBS purchases by Fannie Mae and Freddie Mac.The Treasury announced they would increase purchases up to the newly expanded investment portfolio limits of $850 billion each. On July 30, the Fannie portfolio stood at $758.1 billion with Freddie's at $798.2 billion.
  
  —$85 billion loan for AIG, which would give the Federal government a 79.9 percent stake and avoid a bankruptcy filing for the embattled insurer. AIG management will be dismissed.
  
  —At least $87 billion in repayments to JPMorgan Chase [JPM 47.05 6.75 (+16.75%) ] for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers. Paulson said over the weekend he was adamant that public funds not be used to rescue the firm.
  
  —$200 billion for Fannie Mae and Freddie Mac. The Treasury will inject up to $100 billion into each institution by purchasing preferred stock to shore up their capital as needed. The deal puts the two housing finance firms under government control.
  
  —$300 billion for the Federal Housing Administration to refinance failing mortgage into new, reduced-principal loans with a federal guarantee, passed as part of a broad housing rescue bill.
  
  —$4 billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures.
  
  —$29 billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns in March. The Fed agreed to take $30 billion in questionable Bear assets as collateral, making JPMorgan liable for the first $1 billion in losses, while agreeing to shoulder any further losses.
  
  —At least $200 billion of currently outstanding loans to banks issued through the Fed's Term Auction Facility, which was recently expanded to allow for longer loans of 84 days alongside the previous 28-day credits.

Yeah, the potential tab is only $1.8 TRILLION!!!!!!!!!

Holy cow!

Source: http://www.cnbc.com/id/26808715