Why France, UK And Germany Are In Deep Mess!

Posted earlier: The Pain In Spain and Could Greek Financial Crisis Hit UK Hard?






On Zero Hedge, Tyler writes one important warning! The CDS Traders' Verdict Is In - UK In Deep Shit... As Are France And Deutschland

• Portugal... Spain...Greece...these are all last week's news based on CDS trading patterns. Indeed, this week saw the biggest trade unwinds of all top 1000 CDS entities (including all corporates) precisely in these three names. As the PIIGS implosion is finally being appreciated by everyone and their grandmother, the "speculators" are booking massive profits: the net cover/rerisking in Portugal and Spain was a massive $500 million net notional unwinds in each in the week ended April 30. Also known as taking profits. Greece and Ireland were also in the top 5, so as we have repeatedly claimed, the market will no longer make the news in Club Med. So where will it? No surprise there - the UK, France and Germany. The smartest money in the world is now actively betting the core of the eurozone is where the next CDS blow up will take place. With a stunning $630 million, $558 million and $370 million in net notional derisking, France, UK and Germany are the top three most active recipients in negative bets in the prior week, not just in sovereigns but in all names. The greatest non-sovereign derisker in the last week? Goldman Sachs, with $175 million. Nuff said. Yet a tangent on the UK: last week the UK saw $443 million in net notional derisking. This week the number is even higher: $558 million. There is now over $1 billion in net risky bets made that the UK may not last. And Zero Hedge's outside bet to be the first core country to blow up, thanks to its massive PIIGS exposure, France, finally made the top spot in net derisking, with $629 million in net notional, or 189 contracts. The smart money is now massively betting that Europe's core is done for; as the PIIGS have demonstrated, the blow out in spreads for the core trifecta can not be far behind. .....

Do see the tables posted in the posting The CDS Traders' Verdict Is In - UK In Deep Shit... As Are France And Deutschland

Freddie Mac Asks For More Bailout Money!

Hallelujah!

On CNN Money: Freddie Mac needs another $10.6 billion

• NEW YORK (CNNMoney.com) -- Freddie Mac on Wednesday requested another $10.6 billion handout from the federal government....

I puked!

Holy cow!

• ... Freddie has already received $50.7 billion from the Treasury Department. Fannie Mae has so far gotten $76.2 billion...

Bloody hell!

This just says how bad it is, yes?

From Freddie website..

• McLean, VA – Freddie Mac (NYSE:FRE) today reported a net loss of $6.7 billion for the quarter ended March 31, 2010, compared to a net loss of $6.5 billion for the quarter ended December 31, 2009. After dividend payments of $1.3 billion on its senior preferred stock to Treasury, Freddie Mac reported a net loss attributable to common stockholders of $8.0 billion, or $2.45 per diluted common share, for the first quarter of 2010, compared to a net loss attributable to common stockholders of $7.8 billion, or $2.39 per diluted common share, for the fourth quarter of 2009.
  
  On January 1, 2010, Freddie Mac adopted new accounting standards related to transfers of financial assets and consolidation of variable interest entities (VIEs) (consolidation of VIEs). As these changes in accounting principles were applied prospectively, the results of operations for the quarter ended March 31, 2010 are not directly comparable with the results of operations for prior periods, which reflect the accounting standards in effect during those periods.
  
  The company had a net worth deficit of $10.5 billion at March 31, 2010, compared to positive net worth of $4.4 billion at December 31, 2009. This net worth deficit was primarily driven by a significant net decrease in total equity (deficit) of $11.7 billion due to the adverse impact of the consolidation of VIEs. The decline in net worth also resulted from the first quarter 2010 net loss of $6.7 billion and the dividend payment of $1.3 billion to Treasury on the senior preferred stock, partially offset by a $4.8 billion decrease in unrealized losses recorded in AOCI, primarily due to improved values on the company’s available-for-sale securities.
  
  “Throughout the first quarter of 2010, Freddie Mac continued to focus on strengthening underwriting and improving credit quality,” said Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr. “At the same time, we helped more than 440,000 families own or rent a home, and more than 71,000 avoid foreclosure. In this difficult economic environment, the stability that Freddie Mac brings to the mortgage market is especially vital.... ( source: http://www.freddiemac.com/news/archives/investors/2010/2010er-1q10.html )

Duh!

This is exactly how vital Freddie is. It simply cannot survive without handouts!

Praise the capital markets for Freddie, ya!

Bill Gross Blasts Them Rating Agencies

From Pimco's Bill Gross:

• There’s a surfeit of instructionals on the secret to investing, ranging from Investing for Dummies to The Intelligent Investor. My bookshelves at home are full of them, and I’ve learned or at least absorbed something from many. Experience is a great teacher, but the foundation of civilization, and too investing, is also dependent upon the capsulization of the experiences of others and that is where books have played a formative part in my own career. Still, there’s never been a book called “Common Sense for Dummies,” which would be required reading in my investment class if either existed. That’s an oxymoron to begin with, though, which points to the obvious – that common sense cannot be taught. It’s like sex appeal – you either have it or you don’t, although both are subject to relative judgments of the observer. What is commonsensical to one investor may seem ludicrous to someone else. And even in cases where history has validated the irrationality of one investment idea or another – the subprime frenzy being perhaps the most recent – there are questions of timing. Michael Lewis’s book The Big Short is not only a tale of the validation of common sense, but of its delicate shelf life. Most of Lewis’s heroes were almost all closed out by their own clients before their logic blossomed and their profits multiplied.
  I’ve written on this topic before – an Investment Outlook in November of 2008 spoke to the necessity for a CQ – Common Sense Quotient – in addition to an IQ in order to succeed in investing. Actually, if a chef were to concoct a gourmet investment recipe, he would likely blend a teaspoon of intelligence with a tablespoon of common sense, but the same proportions would probably not apply in other professions. I can visualize the mad scientist irrationally pursuing an obvious dead-end only to – poof – incredibly discover penicillin or a cure for the common cold. Not so with investing, because prices are a delicate combination of mathematical value and human nature – something that quantitative scholars and practitioners rejected to their eventual ruin in their pursuit of “efficient” markets. And human nature, it seems, cannot be so easily modeled nor intelligently divined. It feeds on itself quite frequently, leading to accentuated periods of “greed” and “fear” that tend to be labeled “bubbles” or “black swans,” respectively. It is during those periods that a tablespoon of common sense is just the recipe for investment success.
  
  Hanging on the wall above my office credenza is a portrait of Bernard Baruch, who authored the quotation, “Two plus two equals four and no one has ever invented a way of getting something for nothing.” Well, we’ve been there recently, with Dot Coms and subprimes and the financed-based prosperity of the past several decades. He also said, “Two plus two equals four, and you can’t keep mankind down for long.” Been there too, it seems, and the last 12 months are an apt example. Whatever the future holds, remember that a tablespoon is larger than a teaspoon, and that CQ beats IQ most of the time in the investment world. “Two plus two equals four” needs a lot of CQ, but requires only a second grader’s IQ.
  
  In all of the hullabaloo over Goldman Sachs, a CQ analysis of the rating services – Moody’s, Standard and Poor’s and Fitch – has escaped front-page headlines. Not that a number of observers haven’t been on to them for a few years now, including yours truly. Back in July of 2007 some of you will remember my description of their role in the subprime crisis. “Many of these good-looking girls are not high-class assets worth 100 cents on the dollar. You were wooed, Mr. Moody’s and Mr. Poor’s, by the makeup, those six-inch hooker heels and a ‘tramp stamp.’” Now, it seems, I was a little long on humor and a little short on the reality. Tramp stamp and hooker heels do not begin to describe the sordid, nonsensical role that the rating services performed in perpetrating and perpetuating the subprime craze, as well as reflecting the general deterioration of investment common sense during the past several decades. Their warnings were more than tardy when it came to the Enrons and the Worldcoms of ten years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbors. The result has been the foisting of AAA ratings on an unsuspecting (and ignorant) investment public who bought the rating service Kool-Aid that housing prices could never really go down or that countries don’t go bankrupt. Their quantitative models appeared to have a Mensa-like IQ of at least 160, but their common sense rating was closer to 60, resembling an idiot savant with a full command of the mathematics, but no idea of how to apply them.
  
  But I come not to bury the rating services, but to dismiss them. To tell the truth, they can’t really die – they serve a necessary and even productive purpose when properly managed and more tightly regulated. A certain portion of the investment world will always need them to “justify” the quality of their portfolios. Governments and regulatory bodies say so – it’s the law. In 1975 the SEC officially designated the aforementioned three rating agencies as “Nationally Recognized Statistical Ratings Organizations.” For all intents and purposes, that meant that regulated financial intermediaries such as banks, insurance companies and importantly pension funds would be guided by the sanctity of their ratings.
  
  Such services, however, while necessary in the ongoing scheme of financial regulation, are overpriced as well as subject to the influence of the issuer, which in turn muddles their minds and clouds their judgment to say the least. E-mails from S&P employees have been cited discussing massaging subprime statistics in order to preserve S&P’s market share relative to their two competitors. PIMCO’s Paul McCulley said it as only he can – “[The breakdown of our financial system] was about the invisible hand having a party, a non-regulated drinking party, with rating agencies handing out the fake IDs!”
  
  Still, as future bond issuers belly up to the bar with their rating agency seals of approval, it is incumbent on the buying public to treat those IDs with a healthy skepticism. Firms such as PIMCO with large credit staffs of their own can bypass, anticipate and front run all three, benefiting from their timidity and lack of common sense. Take these recent examples for instance: S&P just this past week downgraded Spain “one notch” to AA from AA+, cautioning that they could face another downgrade if they weren’t careful. Oooh – so tough! And believe it or not, Moody’s and Fitch still have them as AAAs. Here’s a country with 20% unemployment, a recent current account deficit of 10%, that has defaulted 13 times in the past two centuries, whose bonds are already trading at Baa levels, and whose fate is increasingly dependent on the kindness of the EU and IMF to bail them out. Some AAA!
  
  Now let’s go the other way. GMAC, that only too recently near-bankrupt finance company, carries recently upgraded B ratings from the rating services. Profiles in courage for all three, I say! I mean the U.S. government has injected $20 billion of capital and owns 65% of the company. It’s the auto industry’s equivalent of FNMA and FHLMC, except those are AAA and GMAC is B with a “positive outlook!” For that, you can buy a GMAC two-year bond at 6½% (8% with what are called “smart notes” that Investment Outlook readers can buy through their broker), while you receive only 1.2% at Fannie and Freddie. Vive la différence!
  
  No one or no one company has a monopoly on investment or ratings expertise. Second grade intelligence and a high CQ are a rare combination for an individual rating agency or an investment management firm as well. Still, the rating agencies in recent years have displayed little of either. In addition, they have brazenly sold their reputations for unbiased judgment to the very companies they were standing in judgment upon. Don’t bury them however; like vampires in the dead of the night they will outlast us all. Those looking to profit at their expense, however, will dismiss them. They no longer serve a valid purpose for investment companies free of regulatory mandates that can think with a teaspoon of IQ and a tablespoon of CQ.
  
  
  William H. Gross
  Managing Director

Source: here

Regarding Poly Tower Delisting

Caught this news: Poly Tower Ventures to be delisted on May 12

• Poly Tower Ventures to be delisted on May 12
  Written by Darlene Liew
  Tuesday, 04 May 2010 19:53
  
  KUALA LUMPUR: POLY TOWER VENTURES BHD will be delisted from the official list of Bursa Malaysia Securities Bhd next Wednesday, May 12, following its failure in the appeal made on March 15, 2010 against the exchange's decision to delist securities of the company.
  
  According to a statement on Tuesday, shareholders of the company who intend to hold their securities in the form of physical certificates can withdraw these securities from their Central Depository System accounts maintained with Bursa Depository at any time after the securities of the Company have been delisted from the Official List of Bursa Securities by submitting the application form for withdrawal in accordance with the procedures prescribed by Bursa Depository.

Ok.

I actually have mixed feelings about Poly Towers delisting!

Here's why...

Poly Tower's last reported earnings was in Dec 2009. Quarterly rpt on consolidated results for the financial period ended 31/5/2009

It said it lost some 83 million for the quarter!

Incredible given the sales is only about some 53 million but most disturbing issue about the losses was...

• Poly Tower posts RM84m loss on RM83m stock loss
  Written by The Edge Financial Daily
  Wednesday, 30 December 2009 23:35
  
  KUALA LUMPUR: POLY TOWER VENTURES BHD [], whose trading was suspended last month for its delay in submitting its financial results, reported a net loss of RM83.89 million in the third quarter (3QFY09) ended May 31, 2009 due to a stock loss of RM82.66 million.
  
  In a statement today, the company said following a stock investigation by Ferrier Hodgson MH Sdn Bhd (FH) conducted on June 19, it had adopted FH's stocks as at June 19 and rolled back to finalise the stock as at May 31.
  
  "As a result of this approach, a stock loss of approximately RM82.66 million has been reflected in the interim financial statements," it said.
  
  The stock investigation was carried out after the company saw stock valuation losses of RM38.73 million due to a sharp drop in its raw material prices and exchange losses of RM10.87 million in its first half ended Feb 28. The company's board was then informed of a possible stock loss, resulting in the stock take by FH.
  
  Meanwhile, for 3QFY09, the firm said revenue fell 25% on-year to RM57.18 million, while it made a loss per share of 52.55 sen against earnings per share of 1.51 sen a year earlier.
  
  For the nine months to May 31, it reported a net loss of RM133.15 million due to its stock valuation loss of RM38.73 million recorded in 1QFY09 and a foreign currency exchange loss of RM11.19 million for the nine-month period.
  
  Revenue dipped to RM202.65 million from RM220.64 million. Its loss per share for the nine months was 83.4 sen against 4.12 sen a year earlier.

On 29th April 2010: POLY TOWER VENTURES BERHAD - Annual Audited Financial Statements for the year ended 31 August 2009

• .... Company is still unable to issue and submit its outstanding Annual Audited Financial Statements for the year ended 31 August 2009 by 30 April 2010. Baring unforseen circumstances, the Company is targeting to issue its Annual Audited Financial Statements on or before 31 May 2010.

And then.. this one... POLY TOWER VENTURES BERHAD ("PTV" and/or "Company") - Findings of the investigative audit undertaken by Ferrier Hodgson MH Sdn. Bhd. (“FH”)

• The Company wishes to announce the findings of the investigative audit undertaken by Ferrier Hodgson MH Sdn. Bhd. (“FH”)
  
  1) Sometime in April 2009, the management of the Company discovered possible stock loss. As the result, both the Audit Committee and the Board of the Director of the Company resolved to appoint an investigative auditor to investigate the matter.
  
  2) in this respect on 1 June 2009, FH was appointed by the Board of the Company to conduct an investigation into inventory losses in respect of the Company and two of its subsidiaries, namely, Poly Carriers Industries (M) Sdn. Bhd. (“PCI”) and Poly Asia Plastics Industries Sdn. Bhd. (“PAPI”)
  
  3) 17 Aug 2009, FH issued its report to the Company and 6 October 2009, FH updated its report (collectively known as “FH Report”), Summary of the its findings is as follows
  
  (a) in respect of PCI, there was a variance of PCI’s raw materials in quantity and value of 22,725,794 kg and RM86,706,069 respectively as at 19 June 2009 by comparing the stock information as per the stock card with the information as per the stock take conducted, as at 19 June 2009
  
  (b) in respect of PAPI, there was a variance of PAPI’s raw materials in quantity and value of 2,659,050 kg and RM10,150,987 respectively as at 19 June 2009 by comparing the stock information as per the stock card with the information as per the stock take conducted, as at 19 June 2009
  
  (c) as a result of the FH’s investigations and in accordance with FH’s findings, the conclusions are as follows:
  
  i) PCI and PAPI do not maintain appropriate recording for raw materials after arrival at the port. Although PCI has a stock card system, however, this system does not appear to provide adequate recording of inventory movements.
  
  ii) it appears that PCI and PAPI have poor management of its inventory, which includes the following:
  
  - there is no apparent upgrade to the internal controls since the incorporation of PCI and PAPI although the businesses have been expanding;
  
  - there is no standardized inventory movement documentation, e.g. material requisition forms and stock movement records;
  
  - there is no stock reconciliation between the physical stock take variances with the stock records;
  
  - there is no computerized integrated stock accounting system;
  
  - there is no proper control over the procedures carried out by the appointed security guards in the recording of incoming and/ or outgoing of stock from/to PCI and PAPI; and
  
  - a majority of PCI’s and PAPI’s logistics to transport stock is being outsourced to third parties, estimated to be more than 28 logistic/transport/freight companies, which may contribute to a higher risk of dissipation or theft of stock
  
  in view of the above poor stock management and lack of internal controls as well as security controls, the movement of stocks may be prone to errors and/or may result in the risk of dissipation or theft. It also appears that the current stock system may be obsolete, antiquated and unsuitable to the present business operations of PCI and PAPI, Accordingly, FH is of the view that they are unable to critically identify the causes of the inventory loss.
  
  4) by the virtue of the findings by FH, the Board had on 1 October 2009 appointed RSM Robert Teo, Kuan & Co (“RSM”) to as an independent advisor in respect of the accounting treatments arising from the issues raised in FH’s reports.
  
  5) on 23 march 2010, RSM’s report was issued.
  
  6) as the date of this announcement, the accounts of the Company and its Group are still being finalized taking into consideration, the content of inter-alia FH’s report, advice by RSM and the Company’s external auditors, Moore Stephens AC.
  
  7) The Company has also taken other actions in relation to the above.
  
  (a) the Company has appointed Clever Edge Sdn. Bhd. (“Clever Edge”), a consultant to identify suitable corrective measures as highlighted by FH in relation to the management of the inventory of the Group. Clever Edge issued its report on 24 February 2010 making various recommendations to improve the inventory process and physical security of the group. In particular, Clever Edge also provided a special physical security review undertaken by an external expert on physical security from Australia who indentified numerous weaknesses in relation to the physical security of raw materials belonging to the Group.
  
  (b) 17 March 2010, the Company lodged a police report. The content of the police report covers the stock loss issues highlighted by FH and the fact that one of the reasons FH suggested for the stock loss was because of the poor stock management and security control which could have resulted in the risk of dissipation or theft of the stock belonging to the group. The police report was therefore lodged for the police to undertake a full investigation into stock loss.
  
  8. the Board is still reviewing the various recommendations highlighted and it is working to ensure the publication of the accounts as soon as possible and also looking into another recommendations in relation to inventory management and physical security of the Group.

In my opinion, delisting does no justice at all. Not to the minority shareholders of the company!

Full investigation needs to be done into what has happened and the explanation by FH and the company is not enough. It simply is not justifiable given the size of the losses.

And most important, if Poly Tower is delisted, would the investing market know what has happened?

Comeon... let the truth be told first... then only delist.

Sometimes after delisting... everything that had happened.. is all but forgotten!

That's my humbled flawed opinion.

Possible Sign Of China's Manufacturing Slowing?

Since the posting Dr. Marc Faber Warns That China 'May' Crash was made, I believe it's appropriate that I highlight the following two postings.

On WSJ: China Manufacturing Gauge Slows

• China Manufacturing Gauge Slows
  
  By AARON BACK
  BEIJING—One gauge of manufacturing activity in China showed continued expansion in April, though at a slower pace.
  
  The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 55.4 in April from 57.0 in March, HSBC Holdings PLC said Tuesday.
  
  The decline in April's PMI reading followed a rise in March, though it was still the 13th consecutive month in which the PMI reading has been above 50, indicating expansion. A reading below 50 indicates a contraction.
  
  On Saturday, the China Federation of Logistics and Purchasing said China's official Purchasing Managers Index, which the government issues with the National Bureau of Statistics, rose to 55.7 last month from 55.1 in March, though a high reading on input prices indicated inflationary pressure could be building.
  
  "April's PMI points to a moderate slowdown in the expansion of manufacturing activity," HSBC's chief economist for China, Hongbin Qu, said in a statement. "We see this as good news because it means that Beijing's policy tightening is starting to cool the overheated economy, which will help to contain inflationary risk in the coming quarters."
  
  But other economists felt it would be premature to declare a policy-induced slowdown. "There's no clear evidence yet that things are slowing down," said Royal Bank of Canada economist Brian Jackson.
  
  "The PMIs for April showed that the risk of economic overheating exists in China. However, it is still too early to tell how serious the risk is," said Xing Ziqiang, an economist at Chinese investment bank CICC.
  
  In Beijing's latest action to curb inflation and surging property prices, China's central bank on Sunday announced it was ordering banks to set aside more of their deposits on reserve for the third time this year.

China slowdown?

Of course a randomly favourite article Will China crash economically? ( I really need to paste this here else I be said to be biased. :P )

ps... they are all wrong. they simply love to bash China.

• CHINA bashing by now must surely be the most popular sport among Western investors, mass media and institutions. China crashing now, China crashing a few years later, China crashing anytime and crashing forever is the mantra.
  
  A mantra is like a hymn. If you chant it endlessly and repeatedly, it gets stuck in one’s head. However, the fact that it may get stuck in one’s head does not mean that it will happen or that it represents the reality.
  
  In fact, a mantra based on superfluous analysis or worse, an inherent bias, would block the real realities from surfacing. An objective analysis of the global economic conditions would show that this is what is actually happening.
  
  With all the high profile, high publicity given to China bashing, all eyes are centred on China in general and its property sector in particular. Will China crash? When will China crash? i Capital’s managing director gets these questions all the time.
  
  In contrast to all the dire predictions about China, i Capital expects China’s economy to nicely soft land this year. When the Lehman Panic broke out in September 2008, and almost collapsed the world economy, China was ahead of every other economy in implementing economic expansion measures.
  
  China very quickly bottomed out and pulled the global economy out of its worst conditions (which, of course, no Western country has given China any credit). While the US led the world economy into possibly the worst recession in a long time, China and the rest of Asia quickly pulled the world economy out of a US-created catastrophe (see charts).
  
  As China’s economy recovered quickly and strongly, the Chinese government has subsequently acted very quickly and effectively again. Measures to cool the hot property sector down have already been announced months ago.
  
  China’s government is ahead of the property “bubblet” curve. However, it takes time for the impact to be felt, which is expected to take place in the coming months.
  
  Selected segments of the property sector will cool down but the rest of the economy will still be performing well. China’s economy is huge and a cooling of the property sector will not crash the continental economy.
  
  The decision by The People’s Bank of China not to raise interest rates so far is correct. Why kill the rest of the economy when there is no need to? There are many other effective ways to tackle the property “bubblet”, especially when the cause of the rise in property prices is not low interest rates.
  
  Another unnoticed development that favours China soft-landing this year is that the current global economic recovery is not synchronised. The recovery in the United States is behind that of China and the rest of Asia but it is gathering momentum.
  
  The growth in US exports and the recovery in the industrial sector have led the US recovery. Consumer spending is also recovering and will gather momentum as the US job market improves further. The US housing sector is also expected to contribute positively this year.
  
  As 2010 progresses, the US economic recovery will play a greater role in global economic growth. This is ideal, as it will allow China to turn to other economic sectors for growth while it tackles its property bubblet.
  
  In short, as the US economic recovery gathers momentum in 2010, China’s GDP growth would slow to a healthy, high single-digit rate.
  
  Based on the economic outlook of the United States and China, i Capital sees a benign global economy. Unlike 2006 or 2007, 2010 will see a healthy unsynchronised global recovery. This upbeat view can, of course, be turned topsy-turvy by unexpected events. There seems to be plenty nowadays.
  
  One, while the currency pressure on China seems to have reduced somewhat, the United States is now cleverly turning to other countries and US-dominated global institutions to crack China’s position. Apparently, even India and Brazil are now joining in the bandwagon as prominently headlined on the front page of the Financial Times.
  
  So, although the currency pressure cooker is not boiling over for now, the threat of a trade war needs close watching.
  
  Is China crashing the real worry? Or is the eurozone breaking up the real worry? Actually, an economy that has crashed but that has not been described in this way is the eurozone a.k.a a continent of discontent.
  
  First, it was the PIGS (Portugal, Ireland, Greece and Spain). The budget deficit for Iceland is 14.3%, Greece 13.6%, Spain 11.2%, Portugal 9.4% and China 2.2%. The China bashers say that China’s budget deficit is actually higher because it does not include the local governments. We wonder why the clever Greeks did not think of this simple trickery.
  
  Anyway, the Greek civil servants are on strikes and the budget deficit is running at unsustainable levels. No wonder the Greek economy is not in a sustainable mode. This continent of 35-hour working week but with wages paid equivalent to 350-400 hours of work in China or India is declining fast, faster than what is generally realised or acknowledged.
  
  Greece, supposedly the birthplace of democracy, has transformed itself into a “debtmocracy”. Will China crash, as we all are led to believe, or will Greece be the Sword of Damocles for the eurozone and thus the global economy?
  
  Then, as if Greece et al is not enough, as if an evil spell has been cast on Europe, we all discovered that cash-starved Iceland is actually rich with ashes. Imagine Iceland, more than 1,800km away from London and more than 2,100km away from Germany, taking revenge on the eurozone. Who would imagine that?
  
  The hiatus caused by the volcanic eruption is not small. That a volcano from Iceland is causing so much havoc in the eurozone is symbolic of the very difficult period that this fledgling economic bloc is undergoing.
  
  Almost every economy in the eurozone, including that of the United Kingdom, is in trouble. As i Capital wrote above, this is the reality, this is what is actually happening.
  
  China and the rest of Asia are not crashing. The United States crashed and the eurozone has crashed. Should the East follow the West?
  
  i Capital does not think so although there are many out there who would want to see this happening.
  
  Once again, we have to say, In China We Trust. As i Capital advised previously, “This decoupling is here to stay.

Some Charts

S&P





SSE.





GS



GLD

Update On Notion VTec.

Simple quesion.

Is Notion capex via share placement justifiable?

I will not use my reasoning but I would explore and attempt to interpret the comments made by our local pros after their analyst meeting with Notion's management.

Here are some comments from RHB.

• Forecasts. While we are positive on Notion’s long-term earnings outlook, we are maintaining our forecasts for now. Management warned that there is some risk that capacity ramp-up and product testing costs for its 2.5” base plate and spindle motor lines could dampen earnings in the next two quarters. Nevertheless, longer term, we believe there is potential upside to our FY11-12 forecasts arising from: 1) stronger-than-expected sales of spindle motor hubs and 2.5’’ base plates; 2) stronger contribution from its Thailand and Klang operations, capitalising on the rapid expansion of key customers, Alphana Tech and Samsung; and 3) Higher contribution from the auto segment.
  
  ♦ Investment case. We maintain our indicative fair value of RM4.64 based on a target FY09/11 PER for now although we note that after adjusting for the potential dilution arising from the proposed 10% private placement and 1-for-5 rights issue of free warrants, our fair value would fall to RM3.87.
  
  Nevertheless this would still imply 22.1% upside. Maintain Outperform.

RHB are positive on the long term outlook, yeah they understand that ther managment had warned on future profits BUT nevertheless they are maintaining their earnings forecasts on Notion.

And when one adds in the potential dilutions, RHB's fair value for Notion would fall by 16.6% to rm 3.87.

RHB's 2011 net earnings forecast for Notion is 56 million.

From Kenanga Research:

• Tweaking our FY10 numbers with net 6.6% lower factoring higher depreciation and interest charges on the back of higher than guided capital expenditure. FY11 revenue is revised up 19% on assumed 1.9m monthly run rate for base plates but net is only up 2.4% due to skew towards lower margin HDD components. Taking into account possible 15.5m new shares from the coming placement exercise, new EPS of 36.4sen is derived. Applying a 10x multiple to FY11F will yield a new target price of RM3.64 (RM3.84 previously). Our numbers carry upside risk should management ramp up guidance of 5m pieces / m onth is achieved for FY11. We continue to like the group for its strong execution track record and opportunistic move to capture a larger HDD market share. Current weakness on possible arbitraging from the coming placement exercise represent good buying opportunity. BUY maintained.

So Kenanga is optimistic but as optimistic as they are, the net earnings expectations for FY10 is lowered by 6.6% and fy11 is only revised up by 2.4%.

End result? Target price is lowered to rm 3.64.

Kenanga's 2011 net earnings forecast for Notion is 62 million.

CIMB Research:

• The key takeaways from Notion’s 2QFY9/10 results briefing were i) its robust FY11 guidance, ii) confirmation of the Alphana contract, iii) more clarity on its proposed corporate exercises, iv) the clearing up of the quality issue and) the increase in its capex and debt guidance. The positive surprise was the significantly higher FY11 guidance and new camera revenue while the negative surprise was the higher capex and borrowings associated with it. The net effect of higher earnings for the Alphana contract and the increase in the share base from the placement and warrants issue is a 1% increase to a 13% decline in our EPS forecasts for FY10-FY12. Our target price falls from RM4.46 to RM4.05, still based on a 20% P/E discount to its peers or 9.3x CY11 P/E but now pegged to the fully enlarged share base. We retain our OUTPERFORM recommendation in view of the catalysts of i) new customers, ii) production of higher value-added parts, iii) strong earnings contribution from Factory 3, and iv) supply of more components to a wider audience.

A 13% decline in EPS forecast. Target price is adjusted to rm4.05.

CIMB's 2011 net earnings forecast for Notion is 80.8 million.

And here comes the champion.... OSK. :P

• Tweaking up FY11 earnings. Based on management’s FY11 revenue guidance for 2.5” HDD base plates of RM228m and assuming a 12% net profit margin from this particular program as well as 25% organic FY11 earnings growth from its existing business, we are increasing our FY11 earnings forecast by 12%. For the 2.5” HDD business, we have assumed a low 12% net profit margin in case Notion experiences high yield loss in the course of manufacturing these new components and to factor in the initial start-up losses for the third factory. Having said that, the start-up losses could be potentially mitigated by lower plating costs in FY11.
  
  32% dilution from corporate exercises. Based on our estimates, Notion’s FY11 net profit is expected to soar by 71% in FY11 on an expected 54.3% earnings growth in FY10. However, its FY11 EPS growth is estimated at 18% on factoring in a maximum 49.4m shares to be issued from the proposed private placement exercise and free warrants issue.

Huhuhu... Notion’s FY11 net profit is expected to soar by 71% in FY11 on an expected 54.3% earnings growth in FY10.

So target price is increased from 3.55 to 3.88!

ps: in the posting Honey, My Notion's Earnings Per Share Has Shrunk! one would have noted that I said OSK Target price for Notion was 3.38. Yes that is correct. On April 30th, after Notion released its earnings, OSK increased its target price from rm 3.38 to rm 3.55. (maybe they saw it looked strange and maybe they saw my remarks "( err... target price is 3.38, Notion was trading at 3.26. - seriously wonder how on earth they can call it a buy with the target price a mere 12 sen or a mere 4% upside. But then.. what can I expect.. it's OSK! LOL!)

See this is not about me picking on OSK. LOL! But only they can make such upgrades. On 30th April 2010, they upgraded Notion from 3.38 to rm 3.55. On 3rd May, or the next trading day, OSK upgrade Notion again to rm 3.88!!! Upgrades are so easy, huh? :P

OSK's 2011 net earnings forecast for Notion is 95.0 million.

So how?

Let's chuck OSK's report to the other side and look at the comments made by RHB, CIMB and Kenanga. All their target prices are revised lower, no thanks to the dilutions in earnings per share.

How?

Did the share placements helped?

And if the share placements are good, why are the target prices lowered?

On the other hand, what if a rights issue was made instead of the placements?

Would that not be a better option?

Matt Tiabbi: The Feds Vs Goldman

Back in July 2009, the following posting was posted Goldman Sachs: The Engineer Of Every Market Manipulation

In the light of Goldman's latest scandal, Matt Tiabbi has another brilliant piece out on the Rolling Stones: The Feds vs. Goldman

The government's case against Goldman Sachs barely begins to target the depths of Wall Street's criminal sleaze

• On the day the Securities and Exchange Commission filed suit against Goldman Sachs for securities fraud, shares in the company plunged 12.8 percent, closing at $160.70. The market, it seemed, was finally passing judgment on a decade of high-stakes Wall Street scammery that left America threatening Nigeria, Indonesia and Belarus on the list of the world's most corrupt economies.
  
  A few days later, Goldman announced its first-quarter numbers. Profits were up 91 percent, to a staggering $3.4 billion.
  
  Compensation and bonuses soared to $5.5 billion, up from $4.7 billion in the first quarter of 2009. Battered in the press, Goldman was raking up on the bottom line. So investors once again leapt into Goldman's arms, pushing the stock as high as $166.50, not far from where it was even before news of the SEC suit broke.
  
  Goldman isn't dead – far from it. But this new SEC suit officially places it at the center of a raging national discussion about the hopelessly fucked state of American business ethics. As a halting, first-step attempt at financial regulatory reform makes its way toward a vote in the Senate, the government has finally thrown open the door and let a few of the rottener skeletons tumble out.
  
  On the surface, the failure-to-disclose rap being leveled at Goldman feels like a niggling technicality, the Wall Street equivalent of a tax-evasion charge against Al Capone. The bank will try and – who knows – might even succeed in defending itself in a court of law against these charges. But in the court of public opinion it was doomed the instant the SEC decided to put this ghastly black comedy of a fraud case on the street for everyone to see. Just as Pittsburgh Steeler Ben Roethlisberger will never recover from the image of him (allegedly) waving his dick at a scared 20-year-old coed in the darkened hallway of a Georgia nightclub, Goldman may never bounce back from the SEC's brutal blow-by-blow account of how the bank conspired with a hedge-fund magnate to bend one gullible business partner after another over the edge of the subprime housing market.
  
  Here's the CliffsNotes version of the scandal: Back in 2007, Harvard-educated hedge-fund whiz John Paulson (no relation to then-Treasury secretary and former Goldman chief Hank Paulson) smartly decided the housing boom was a mirage. So he asked Goldman to put together a multibillion-dollar basket of crappy subprime investments that he could bet against. The bank gladly complied, taking a $15 million fee to do the deal and letting Paulson choose some of the toxic mortgages in the portfolio, which would come to be called Abacus.
  
  What Paulson jammed into Abacus was mortgages lent to borrowers with low credit ratings, and mortgages from states like Florida, Arizona, Nevada and California that had recently seen wild home-price spikes. In metaphorical terms, Paulson was choosing, as sexual partners for future visitors to the Goldman bordello, a gang of IV drug users, Haitians and hemophiliacs, then buying life-insurance policies on the whole orgy. Goldman then turned around and sold this poisonous stuff to its customers as good, healthy investments.
  
  Where Goldman broke the rules, according to the SEC, was in failing to disclose to its customers – in particular a German bank called IKB and a Dutch bank called ABN-AMRO – the full nature of Paulson's involvement with the deal. Neither investor knew that the portfolio they were buying into had essentially been put together by a financial arsonist who was rooting for it all to blow up.
  
  Goldman even kept its own collateral manager – a well-known and respectable company called ACA – in the dark. The bank hired the firm to approve the bad mortgages being selected by Paulson, but never bothered to tell ACA that Paulson was actually betting against the deal. ACA thought Paulson was long, when actually he was short. That led to the awful comedy of ACA staffers holding meeting after meeting with Goldman and Paulson, and continually coming away confused as to why their supposedly canny financial partners kept kicking any decent mortgage out of the deal. In one ACA internal e-mail, the company wonders aloud why Paulson excluded mortgages issued by Wells Fargo – a bank that traditionally created high-quality mortgages. "Did [they] give a reason why they kicked out all the Wells deals?" the quizzical e-mail reads.
  
  The climactic scene of this absurd vaudeville came on February 2nd, 2007, when Goldman vice president Fabrice Tourre – a French-born slimeball who would be the only Goldman individual named in the suit – showed up with Paulson & Co. at ACA's New York offices. At this meeting, both Paulson's people and Tourre presumably pretended, for the benefit of their sucker partner ACA, that they were putting together a deal they actually believed in. One has to imagine Tourre and the Paulson contingent overacting with Shatnerian intensity to convince the numbskull ACA guys that they really, really thought subprime mortgages lent out to exurban Floridians with shit credit scores were awesome investments. During the meeting, Tourre sent a damning e-mail to another Goldman staffer: "I am at this aca paulson meeting, this is surreal."
  
  Tourre would brag in other e-mails that while the housing market was about to blow up, his fabulous French self would be left standing in a pile of money when it was all over. "More and more leverage in the system," he wrote. "The whole building is about to collapse anytime now. . . . Only potential survivor, the fabulous Fab . . . standing in the middle of all these complex, highly leveraged, exotic trades he created!"
  
  These flighty Tourre e-mails boasting of cashing in on a disaster and chuckling over the "surreal" experience of power-lying right in the face of a business partner are Goldman's very own Ben Roethlisberger drunken dick-waving moment. It is hard to imagine any company from now on doing business with Goldman and not picturing its fruitcake executives text-boasting to each other about the pleasures of screwing over their own clients.
  
  Goldman has issued three denials with regard to the SEC charges. The first was a very curt "this is all bullshit" press release, issued on the day the complaint came out, in which it called the charges "completely unfounded in law."
  
  Then, after their PR people had a few minutes to think about things, Goldman issued a second release claiming that it lost $90 million on the deal, and therefore couldn't have been doing anything wrong. While this may be true – and we only have their word for it that it is – who the hell cares? What Goldman is being accused of is lying to its clients. How much money they did or didn't make is totally irrelevant. In fact, if Goldman really did lose money knowing what they knew about this deal, all that proves is that they're morons as well as sleazebags.
  
  The third press release paved the way for the inevitable deployment of the Dr. Richard Kimble/one-armed-man defense – i.e., that Fabrice Tourre did it all, acting alone. "Goldman Sachs would never condone one of its employees misleading anyone," the release insisted. "Were there ever to emerge credible evidence that such behavior indeed occurred here, we would be the first to condemn it and to take all appropriate actions."
  
  So within the space of a few days, Goldman issued three different explanations, which progressed from (a) we absolutely, positively didn't do it, to (b) if we did do it, we didn't make any money doing it, and finally on to (c) if somebody did it, it was only that French cat Tourre, and here's his head if you want it. These guys couldn't find the truth if it was sitting in their lap playing the ukulele, and that's the basic problem that the entire financial-services sector – an industry that requires trust and confidence to thrive – is struggling to overcome.
  
  Just under a year ago, when we published "The Great American Bubble Machine" [RS 1082/1083], accusing Goldman of betting against its clients at the end of the housing boom, virtually the entire smugtocracy of sneering Wall Street cognoscenti scoffed at the notion that the Street's leading investment bank could be guilty of such a thing. Attracting particular derision were the comments of one of my sources, a prominent hedge-fund chief, who said that when Goldman shorted the subprime-mortgage market at the same time it was selling subprime-backed products to its customers, the bait-and-switch maneuver constituted "the heart of securities fraud."
  
  CNBC's house blowhard, Charlie Gasparino, laughed at the "securities fraud" line, saying, "Try proving that one." The Atlantic's online Randian cyber-shill, Megan McArdle, said Rolling Stone had "absurdly" accused Goldman of committing a crime, arguing that "Goldman's customers for CDOs are not little grannies who think a bond coupon is what you use to buy denture glue." Former Wall Street Journal reporter Heidi Moore hilariously pointed out that Goldman wasn't the only one betting against the housing market, citing the short-selling success of – you guessed it – John Paulson as evidence that Goldman shouldn't be singled out.
  
  The truth is that what Goldman is alleged to have done in this SEC case is even worse than what all these assholes laughed at us for talking about last year.
  
  Prior to the "Bubble Machine" piece, I had heard rumors that Goldman had gone out and intentionally scared up toxic mortgages and swaps in order to get short of them with sucker bookies like AIG. But – and this seems funny in retrospect – I foolishly dismissed those tales as being too conspiratorial. I thought it was bad enough that Goldman was shorting the subprime market even as it was selling toxic subprime-backed securities to chumps on the open market. The notion that the bank would actually go out and create big balls of crap that would be designed to fail seemed too nuts even for my tastes.
  
  In the year since – and this, to me, is the main lesson from the SEC case against Goldman – the public has quickly come to accept that when it comes to the once-great institutions of modern Wall Street, literally no deal that makes money is too low to be contemplated.
  
  The nearly identical case involving a Merrill Lynch mortgage deal called Norma now making its way through the courts is just one example. There is more fraud out there, and everyone knows it: front-running, manipulation of the commodities markets, trading ahead of interest-rate moves, hidden losses, Enron-esque accounting, Ponzi schemes in the precious-metals markets, you name it. We gave these people nearly a trillion bailout dollars, and no one knows what service they actually provide beyond fraud, gross self-indulgence and the occasional transparently insincere public apology.
  
  The Goldman case emerges as a symbol of all this brokenness, of a climate in which all financial actors are now supposed to expect to be burned and cheated, even by their own bankers, as a matter of course. (As part of its defense, Goldman pointed out that IKB is a "sophisticated CDO market participant" – translation: too fucking bad for them if they trusted us.) It would be nice to think that the SEC suit is aimed at this twisted worldview as much as at the actual offense. Some observers believe the case against Goldman was timed to pressure Wall Street into acquiescing to Sen. Chris Dodd's loophole-ridden financial-reform bill, which probably won't do much to prevent cases like the Abacus fiasco. Or maybe it's just pure politics – Democrats dropping the proverbial horse's head in Goldman's bed to get their fig-leaf financial-reform effort passed in time for the midterm elections.
  
  Whatever the long-range motives, the immediate effect of the lawsuit is to put Wall Street's crazy fraud ethos on trial in the court of public opinion. For now, at the end of the first quarter, Goldman and most of the other big banks are still winning that case. But the second quarter might be a different story.

This article is also highlighted by Jesse: A Summary of the Goldman Sachs Fraud Case, and the Downfall of Icons

His views:

• This is fraud, pure and simple. Goldman did not stand by and allow ACA to make its picks. Goldman and Paulson aggressively influenced the selection process, vetoing the good mortgages, and manipulating ACA, setting them up to be the fall guy in what is clearly a premeditated fraud.
  
  The final defense being offered, after the smokescreens and misstatements of what happened have been pulled away, is that there can be no fraud when you are selling to a 'qualified investor' and making a market.
  
  Goldman was not making a market. They were actively creating inherently dangerous products, and then recommending and selling them to their customers, qualified investors or not. It was fraud, and Goldman is a disreputable firm, that has been shown to engage in fraud across many markets and countries and venues. This particular scam with ACA is small change compared to the setting up of AIG, and the foul bailout ripped from the public with the collusion of the NY Fed.
  
  Anyone who looked at their trading results, many standard deviations out of the norm, would have to know that there was some sort of fraud and market manipulation involved. It is the Bernie Madoff syndrome; the professionals all knew he was cheating somehow, but were more than willing to go along with it and turn a blind eye while it was to their advantage. And Goldman had the politicians in their pocket, and so they were powerful, not to be crossed. Almost as powerfully connected as the Fed's house bank, J. P. Morgan.
  
  Warren Buffet and Charlie Munger have come out recently in defense of Goldman, attempting to paint this fraud as the work of a single rogue trader. That of course is a part of the spin, the carefully thought out and premeditated fraud which had ACA and then Fabrice Tourree as the designated scapegoats.
  
  Warren holds quite a bit of Goldman Sachs stock. And all he and Charlie have shown is that once you strip away the trappings and the masks, the ornamentation and the legend, what you are left with is someone who is willing to lie down with pigs when the money is right. So the question is not what kind of man Warren Buffet is, but rather, what is his price.
  
  When the tide goes out, we indeed see who is naked, and who is not. And it is not a pretty picture.

I actually do agree with what Jesse is saying here about Warren and Charlie. And I did not think highly how Warren boasted that Berkshire makes an incredible US15.00 per second from their Goldman investment.

What Goldman Sachs did here is not right and it stinks to high hell.