Comments On Public Bank's Bright Star Savings Account

Got a call from this Auntie.

She asked me to comment about Public Bank's PB Bright Star savings account. She told me that she saw an ad on the Star newspaper.

Well I checked the website instead. :D

http://www.pbebank.com/en/en_content/personal/deposits/bright.html

Looks interesting till the very last line. Click here for latest interest rates.

Yeah, what kind of interest rates are we talking about here?

Well if you click that link, http://www.pbebank.com/en/en_content/personal/rates/srates.html#bright

Ooo... 1% for the first rm50,000.00 and 1.3% for above 50,000.00

Bright savings rewards from Public Bank! So generous!

LOL!

Money for nothing again!

OSK's Recommendation On Perwaja Holdings

Was reading the following passage from OSK's Steel sector update today.

• Certainly more clarity for steel industry. Other than the positive financial impact for iron makers, we think the settlement of new benchmark prices represents an important milestone for the steel industry as it offers a clearer direction for steel prices a year ahead. The market has been volatile of late as there have been many rumours on the quantum of drop in iron ore and coking coal prices. The settlement will provide some degree of comfort to the industry players in committing their future orders. Although we prefer to take a prudent stance in our earnings estimates for Lion Industries’ HBI plant at Labuan and Perwaja’s DRI plant in Kemaman despite the latest development, our quick back-ofenvelop calculation reveals that every 10% additional reduction in iron ore pellet price may improve a company’s bottom-line for FY10 by approximately RM42m and RM63m respectively, with other key assumptions remaining constant. Considering that Perwaja is currently trading above our original target price, we have decided to factor in the potential earnings enhancement to our new fair value of RM1.67 and upgrade our recommendation to TRADING BUY...

Now on the 15th May 2009, OSK released a long report on the steel sector. On page 31, it had a SELL recommendation on it. It wrote the following.

Now on the 18th May, Perwaja announced it lost some 56.1 million.

OSK wrote the following.

• While Perwaja’s 1Q net loss of RM56.4m exceeded our full year net loss estimate of RM41.7m and consensus’ net profit of RM16.5m, this did not surprise us as we had already cautioned of potential losses for a quarter or two in our last sector update.

So.... the loss exceeded their full year loss estimate. ie. Perwaja did worse than expected! Some call it under performed. :p

But since Perwaja had already fallen to 1.11, OSK decided to upgrade it from SELL to Neutral and gave it a target price of 1.11.

So what do you reckon I was thinking when I read that passage from OSK today? Let me repeat again...

• Considering that Perwaja is currently trading above our original target price, we have decided to factor in the potential earnings enhancement to our new fair value of RM1.67 and upgrade our recommendation to TRADING BUY...

LOL!

And just like this... Perwaja's fair value has been upgraded to rm1.67!

Yeah.. it's a TRADING BUY!

ROFLMAO!

ps. here is a snapshot of Perwaja's latest balance sheet.

And here is a screenshot of Perwaja's stock chart.

How now my dearest Brown Cow?

Money for nothing and steel stocks for free?

LOL! :p2

-----------

ps.. do not forget I know nothing. :D

Maybank's Warning That KL Market May Start To Falter And Some Comments On Kinsteel

On Business Times: KL market may start to falter: Maybank Investment

• KL market may start to falter: Maybank Investment
  Published: 2009/05/27
  
  A 'recession in corporate profits' may have just begun as 63 per cent of companies under Maybank's coverage had reported lower sequential quarterly net profits.
  
  THE Malaysian stock market rally has reached a point where it may start to falter, says Maybank Investment Bank.
  
  "We believe this market rally has pushed valuations to the point where growth expectations have reached implausible levels. In fact, (corporate) profits have just begun to turn down," its analyst Andrew Lee said in a report yesterday.
  
  A "recession in corporate profits" may have just begun, he said, pointing out that 63 per cent of companies under Maybank's coverage that had released their first quarter financial results had reported lower sequential quarterly net profits.
  
  "History tells us the bear market isn't over," Lee remarked.
  
  Still, Maybank isn't overly bearish on the market. It has more "buy" recommendations on companies than "sells".
  
  "We are not overly bearish but we caution that optimism over growth can disappear as quickly as it appeared," he said.
  
  The Kuala Lumpur Composite Index (KLCI), which rose at an eighth-month high of 1053.14 on Monday, may fall to 990 by the year-end, he said. Yesterday, it eased 1.51 points to 1051.63.
  
  The market had risen in recent weeks, fuelled by liquidity and optimism that the worst of the global recession is over.
  
  It currently trades at 15.2 times this year's estimated earnings, up from 12 times earlier in the year, which Lee considers too expensive seeing as corporate profits may contract by 7.7 per cent this year.
  
  "While we recognise this rally may well have room to run, we believe it is beginning to look expensive relative to growth," he said.
  
  He noted that two previous bear cycles, from 1981-1985 and 1993-1998, lasted 57 and 58 months, respectively.
  
  It has now been 17 months since the present bear market began in January last year.
  
  "Those bear markets had 22 to 38 trend reversals of 5 per cent or more; we have now seen 12 since January 2008. These comparisons suggest we are, at best, half way through this bear market," Lee said.
  
  Maybank's strategy is to go for stocks in the construction and building materials sector, as well as selected consumer and high-yield stocks.
  
  Its top picks include Resorts World, Telekom Malaysia, Berjaya Sports Toto, WCT, Kinsteel and Hock Seng Lee.

I am confused.

Let's see...

• "We believe this market rally has pushed valuations to the point where growth expectations have reached implausible levels. In fact, (corporate) profits have just begun to turn down,"

Would you agree?

Don't you think a lot of stocks had rallied far too much? And what was the basis of the rally? Wasn't it the 'there are signs that the worst is over'?

And some of these companies, there are STILL recording losses for the current reported quarterly earnings.

So earnings should improve.... but when? by how much?

Let's take a random stock, Kinsteel.

Aug 2008. Quarterly rpt on consolidated results for the financial period ended 30/6/2008

Kinsteel made some 103 million. ( Good times! :D )

Nov 2008. Quarterly rpt on consolidated results for the financial period ended 30/9/2008

Kinsteel made only 57.9 million. (Bad times... coming! )

Feb 2009. Quarterly rpt on consolidated results for the financial period ended 31/12/2008

Kinsteel lost some 185 million! ( Due to falling steel prices, Kinsteel said it wrote down their inventory to reflect the plunging steel prices)

May 2009. Kinsteel announced it lost some 34.8 million. Note that there is no inventory writedown mentioned.

How?

Here we have a company that is still losing money.

Signs are there 'that the worst could be over'.

Here are some comments from a research report.

• Offer prices of inputs such as scrap and iron ore have crept up by 7-8% in the past month, alongside a slight 5% increase billet prices to USD430/t, arising from expectations of demand trickling in. While pockets of development exist in the region, particularly Vietnam, a definite road to recovery remains to be seen, given that most regional steel mills are still underutilized and saddled with high inventory levels. Price elasticity remains high and resistance from steel buyers makes the steel market intensely competitive for now.

Sounds reasonable that the worst could be over, yes?

So how is Kinsteel the stock doing?

From that screen shot, I see that back in March 20th 2009, Kinsteel traded as low as 36 sen.

Yesterday, the stock closed at 89 sen!!!!!!!!!

oO

So would you agree now with what was stated?

• "We believe this market rally has pushed valuations to the point where growth expectations have reached implausible levels. In fact, (corporate) profits have just begun to turn down,"

And would you agree..

• "While we recognise this rally may well have room to run, we believe it is beginning to look expensive relative to growth," he said.

And this is where I am confused.

Must be my flawed mindset.

Kinsteel looked like a stock that reflected what the research analyst, Andrew Lee is saying here.

And if that is so, why is Kinsteel one of its TOP PICKS?

Incredible yeah?

And the comments earlier on Kinsteel were taken from Maybank's reports. Here's the rest.

• Buy, with TP of RM1.30. There are no changes to our forecasts, which incorporate strong earnings recovery in 2010. The group’s diversified range of products will benefit from the spectrum of steel demand, starting with the construction sector recovery post-2009. Our TP of RM1.30 is based on 8x 2010 PER. Valuations continue to look attractive. Currently trading at 4.9x 2010 PER, the stock is at a discount to its domestic sector average of 5.4x and regional average of 6x.

For a stock that FLEW from 0.36 sen to 89 sen in just two months, Maybank's target price for Kinsteel is 1.30????

Ok.. all the valuations is based on 2010 earnings.

It's Maybank's research projected earnings for Kinsteel. Their estimated earnings.

And what's Maybank's estimate?

Only some 152 million!

So from my flawed understanding, Kinsteel valuation looks cheap because based on 2010 earnings (that's a 2 year estimate), Kinsteel is trading at 4.9x 2010 PER.

Of course, I guess I have to determine if the 2010 earnings is achievable or not. Let's look at Maybank's estimate.

2008, Kinsteel made some 32 million.

2009, Kinsteel is ESTIMATED to be able to make 55 million.

2010, Kinsteel earnings should FLY to 152.6 million!!!

How now my dearest beloved Brown Cow?

You reckon it is possible under current business economics? ( see Would You Have A Punt On The Steel Stocks? for reference too )

Can mah?

If possible, then Kinsteel surely has to be the TOP buy!

*whistle*

Oh... remember this is my flawed view.

Money From Nothing And Are The Banks For Free?

On Bloomberg: JPMorgan $29 Billion WaMu Windfall Turned Bad Loans Into Income

• May 26 (Bloomberg) -- JPMorgan Chase & Co. stands to reap a $29 billion windfall thanks to an accounting rule that lets the second-biggest U.S. bank transform bad loans it purchased from Washington Mutual Inc. into income.
  
  Wells Fargo & Co., Bank of America Corp. and PNC Financial Services Group Inc. are also poised to benefit from taking over home lenders Wachovia Corp., Countrywide Financial Corp. and National City Corp., regulatory filings show. The deals provide a combined $56 billion in so-called accretable yield, the difference between the value of the loans on the banks’ balance sheets and the cash flow they’re expected to produce.
  
  Faced with the highest U.S. unemployment in 25 years and a surging foreclosure rate, the lenders are seizing on a four- year-old rule aimed at standardizing how they book acquired loans that have deteriorated in credit quality. By applying the measure to mortgages and commercial loans that lost value during the worst financial crisis since the Great Depression, the banks will wring revenue from the wreckage, said Robert Willens, a former Lehman Brothers Holdings Inc. executive who runs a tax and accounting consulting firm in New York.
  
  “It will benefit these guys dramatically,” Willens said. “There’s a great chance they’ll be able to record very substantial gains going forward.”
  
  When JPMorgan bought WaMu out of receivership last September for $1.9 billion, the New York-based bank used purchase accounting, which allows it to record impaired loans at fair value, marking down $118.2 billion of assets by 25 percent. Now, as borrowers pay their debts, the bank says it may gain $29.1 billion over the life of the loans in pretax income before taxes and expenses.
  
  Purchase Accounting
  
  The purchase-accounting rule, known as Statement of Position 03-3, provides banks with an incentive to mark down loans they acquire as aggressively as possible, said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine.
  
  “One of the beauties of purchase accounting is after you mark down your assets, you accrete them back in,” Cassidy said. “Those transactions should be favorable over the long run.”
  
  JPMorgan bought WaMu’s deposits and loans after regulators seized the Seattle-based thrift in the biggest bank failure in U.S. history. JPMorgan took a $29.4 billion writedown on WaMu’s holdings, mostly for option adjustable-rate mortgages and home- equity loans.
  
  “We marked the portfolio based on a number of factors, including housing-price judgment at the time,” said JPMorgan spokesman Thomas Kelly. “The accretion is driven by prevailing interest rates.”
  
  Wachovia ARMS
  
  JPMorgan said first-quarter gains from the WaMu loans resulted in $1.26 billion in interest income and left the bank with an accretable-yield balance that could result in additional income of $29.1 billion.
  
  Wells Fargo arranged the $12.7 billion purchase of Wachovia in October, as the Charlotte, North Carolina-based bank was sinking from $122 billion in option ARMs. As of March 31, San Francisco-based Wells Fargo had marked down $93 billion of impaired Wachovia loans by 37 percent. The expected cash flow was $70.3 billion.
  
  The Wachovia loans added $561 million to the bank’s first- quarter interest income, leaving Wells Fargo with a remaining accretable yield of almost $10 billion.
  
  Government efforts to reduce mortgage rates and stabilize the housing market may make it easier for borrowers to repay loans and for banks to realize the accretable yield on their books. With mortgage rates below 5 percent, originations surged 71 percent in the first quarter from the fourth, a pace that may accelerate during 2009, said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Maryland.
  
  Recapturing Writedowns
  
  Wells Fargo, the biggest U.S. mortgage originator, doubled home loans in the first quarter from the previous three months, in part through refinancing Wachovia loans.
  
  “To the extent that the customers’ experience is better or we can modify the loans, and the loans become more current, that could help recapture some of the writedown,” Wells Fargo Chief Financial Officer Howard Atkins said in an April 22 interview.
  
  Banks still face the risk that defaults may exceed expectations and lead to further writedowns on their purchased loans. Foreclosure filings in the U.S. rose to a record for the second straight month in April, climbing 32 percent from a year earlier to more than 342,000, data compiled by Irvine, California-based RealtyTrac Inc. show.
  
  Accretable Yield
  
  The companies bought by Wells Fargo, JPMorgan, PNC and Bank of America were among the biggest lenders in states with the highest foreclosure rates, including California, Florida and Ohio. Housing prices tumbled the most on record in the first quarter, leaving an increasing number of borrowers owing more in mortgage payments than their homes are worth, according to Zillow.com, an online property data company.
  
  “We’ve still got a lot of downside to work through this year and probably through at least part of next,” said William Schwartz, a credit analyst at DBRS Inc. in New York. “If I were them, I wouldn’t be claiming any victory yet.”
  
  The difference in accretable yield from bank to bank is due to the amount of impaired loans, the credit quality of the acquired assets and the state of the economy when the deals were completed. Rising and falling interest rates also affect accretable yield for portfolios with adjustable-rate loans.
  
  PNC closed its $3.9 billion acquisition of National City on Dec. 31, after the Cleveland-based bank racked up more than $4 billion in losses tied to subprime loans. PNC, based in Pittsburgh, marked down $19.3 billion of impaired loans by 38 percent, or $7.4 billion, and said it expected to recoup half of the writedown. After gaining $213 million in interest income in the first quarter and making some adjustments, the company has an accretable-yield balance of $2.9 billion.
  
  ‘Being Prudent’
  
  “We’re just being prudent,” PNC Chief Financial Officer Richard Johnson said in a May 19 interview.
  
  Johnson said he expects the entire accretable yield to result in earnings. The company has taken into “consideration everything that can go wrong with the economy,” he said.
  
  Bank of America, the biggest U.S. bank by assets, has potential purchase-accounting income of $14.1 billion, including $627 million of gains from Merrill Lynch & Co. and the rest from Countrywide. Bank of America bought subprime lender Countrywide in July, two months before the financial crisis forced Lehman Brothers into bankruptcy and WaMu into receivership.
  
  As market losses deepened, Bank of America had to reduce the returns it expected the impaired loans to produce from an original estimate of $19.6 billion.
  
  Countrywide Marks
  
  “The Countrywide marks in hindsight weren’t nearly as aggressive,” said Jason Goldberg, an analyst at Barclays Capital in New York, who has “equal weight” investment ratings on Bank of America and PNC and “overweight” recommendations for Wells Fargo and JPMorgan.
  
  Bank of America spokesman Jerry Dubrowski declined to comment.
  
  The discounted assets purchased by JPMorgan and Wells Fargo make the stocks more attractive because they will spur an acceleration in profit growth, said Chris Armbruster, an analyst at Al Frank Asset Management Inc. in Laguna Beach, California.
  
  “There’s definitely going to be some marks that were taken that were too extreme,” said Armbruster, whose firm oversees about $375 million. “It gives them a huge cushion or buffer to smooth out earnings.”
  
  

What's Driving The Oil Prices Higher?

Kathy is featured on the Financial Edge Daily. Is the US dollar driving oil prices or vice versa?

• In case you haven’t noticed, oil prices have been on a tear. Since the beginning of the year, the price of “liquid gold” has increased by more than 30% from US$43 (RM150) a barrel in January to an intraday high of US$60 in mid-May. Many factors are driving oil prices higher, including improved growth prospects, speculation and the weakness of the US dollar. In addition, the outlook for economic giants the US and China has improved materially over the past month, leading many people to believe that the worst of the global recession is almost over.
  
  US and Chinese economic data, along with comments from central bankers confirm this rosy outlook. Early this month, US Federal Reserve chairman Ben Bernanke told the US Congress that the recession is easing and that growth should take place by year-end. Most other central bankers expect their countries to return to positive growth in 2010. Given that oil prices plummeted in the second half of 2008 because of deleveraging and the fear of a deep recession, the promise of a brighter tomorrow is driving oil prices higher.
  
  However, a slower pace of contraction and the prospect of increased demand are not the only reasons oil prices are higher.
  
  Recent US dollar weakness is contributing to the recovery. Of course, many people will argue that the US dollar is weaker because the US economy is doing better, which is true, but the relationship between oil prices and the US dollar’s value is too significant to ignore.
  
  Since the beginning of 2008, the correlation between oil prices and the US-dollar index has been roughly -0.90. In other words, 90% of the time, when the US-dollar index falls, oil prices rise.
  
  The chart shows the tight correlation between the two instruments. The index is inverted to show the correlation more clearly. Although the correlation broke down from the beginning of January 2009 to end February, it picked up again in March and has remained strong throughout this month.
  
  Is it also possible that the rise in oil prices is driving the US dollar lower and not vice versa? Before exploring this question, we should talk about why a move in the US dollar leads to a move in oil.
  
  Why the US dollar drives oil
  Oil is priced in US dollars. According to the Organisation of the Petroleum Exporting Countries (Opec), the relationship between oil prices and the US dollar is almost mechanical. When the US dollar falls in value, oil prices have to go up in US dollar terms to stay constant in euro terms. Oil producers receive their oil revenues in US dollars and need to be compensated for the fluctuations of the greenback. This does not always hold true of course, otherwise the correlation would not have been broken in the beginning of the year.
  
  Why oil drives the US dollar
  Yet, we can also argue that rising crude prices are driving the US dollar lower. A study by the International Monetary Fund in 1996 found that a 10% rise in the real price of oil induces a 2% real depreciation in a typical Organisation for Economic Cooperation and Development country’s real exchange rate.
  
  This should not be completely surprising because higher oil prices do result in higher cost of oil imports for the US, leading to a higher current account and trade deficit, which is US-dollar bearish. It also affects growth. When oil prices were nearing US$150 a barrel, gasoline prices in the US went as high as US$4 a gallon or more. It served as a tax on consumers and significantly affected companies.
  
  Remember how airlines had to add fuel surcharges just to stay profitable? These fuel surcharges have since been reversed, but remain fresh in the minds of consumers. Higher oil prices hurt growth, which hurts the outlook of the US economy. Although this is more of a “longer-term” impact, it is one that is worth considering.
  
  Adding to the confusion, central banks’ monetary policies, Opec production levels and speculation all contributed to the previous moves in oil prices. Current and future monetary policies impact both exchange rates and commodity prices because, according to a study done by Professor Jeffrey Frankel of Harvard University in 2006, the rise in oil prices is equal to the long-run real oil price and the real interest rate adjusted by convenience yield (which is the option of having oil).
  
  The relationship between oil prices and the US dollar is both schizophrenic and symbiotic. When oil prices were hitting record highs in July 2008, there is evidence that the price of oil is driving the value of the US dollar because of concerns over the strain it would have on the US economy.
  
  Currently, though, the US dollar appears to be driving the price of oil. The outlook for global demand is not clear and investors are less focused on the impact that higher oil prices can have on trade than its signal of stronger growth.

The Drunkard Trading Master

On theAustralian Drunk commodities trader David Redmond banned in Britain

• A BOOZY lunch lasting three-and-a-half hours has led to career disaster for a London commodities trader who found his way back to his office to conduct a multi-million-dollar frenzy of alcohol-inspired trades.
  
  David Redmond, a 27-year-old commodities trader with Morgan Stanley, had the long liquid lunch on February 6 last year, the Financial Services Authority said yesterday.
  
  Redmond left his office at 1.14pm and did not return until 4.41pm, apparently brimming with false confidence.
  
  "It appears (his drinking session) affected his behaviour on his return to the office, although he was not visibly drunk," the FSA found.
  
  Redmond, who traded oil and freight in Morgan Stanley's commodities division, began placing large bets with the bank's money on the future cost of freight. He seems to have "panicked when he realised at some point after 5.04pm" that he was trading under the influence of alcohol and had risked $US10 million ($12.9 million).
  
  Redmond tried to dig himself out of trouble with a barrage of new trades, spending 1 1/2 hours making an average of one trade every 7.5 seconds.
  
  He went home with this tangle of new positions still outstanding, woke up the next morning with a hangover, and realised he might have ended his career by drastically exceeding the trading and credit limits permitted by the bank.
  
  He went to work and secretly traded out of the positions without informing his superiors.
  
  An electronic trail brought his trades to the attention of his bosses, and Redmond was confronted and eventually sacked.
  
  The FSA yesterday banned him from trading for two years -- the first time the regulator has suggested alcohol might have led to serious misjudgment on a trading floor.
  
  But the ex-Morgan Stanley man, now 28, has at least one consolation. Instead of losing the $US10 million, he actually made a profit for the bank when he unwound his alcohol-based positions the following morning.

oO

Ok, he was drunk but he did made money for the bank and yet he was sacked! So sacked for making a profit?

Where is Jackie?

Recommendation From Warren Buffett!

Lazy Saturday once more.

LOL! And a thousand apologies for the cheesy and misleading title.

To understand what had cause the current financial crisis, here is the letter that Warren Buffett recommended during Berkshire Annual meeting.

JP Morgan Chase 2008 Shareholder Letter

• III. FUNDAMENTAL CAUSES AND CONTRIBUTIONS TO THE FINANCIAL CRISIS
  
  After Lehman’s collapse, the global financial system went into cardiac arrest. There is much debate over whether Lehman’s crash caused it – but looking back, I believe the cumulative trauma of all the aforementioned events and some large flaws in the financial system are what caused the meltdown. If it hadn’t been Lehman, something else would have been the straw that broke the camel’s back.
  
  The causes of the financial crisis will be written about, analyzed and subject to historical revisions for decades. Any view that I express at this moment will likely be proved incomplete or possibly incorrect over time. However, I still feel compelled to attempt to do so because regulation will be written soon, in the next year or so, that will have an enormous impact on our country and our company. If we are to deal properly with this crisis moving forward, we must be brutally honest and have a full understanding of what caused it in the first place. The strength of the United States lies not in its ability to avoid problems but in our ability to face problems, to reform and to change. So it is in that spirit that I share my views.
  
  Albert Einstein once said, “Make everything as simple as possible, but not simpler.” Simplistic answers or blanket accusations will lead us astray. Any plan for the future must be based on a clear and comprehensive understanding of the key underlying causes of – and multiple contributors to – the crisis, which include the following:
  
  • The burst of a major housing bubble
  • Excessive leverage pervaded the system
  • The dramatic growth of structural risks and the unanticipated damage they caused
  • Regulatory lapses and mistakes
  • The pro-cyclical nature of virtually all policies, actions and events
  • The impact of huge trade and financing imbalances on interest rates, consumption and speculation
  
  Each main cause had multiple contributing factors. As I wrote about these causes, it became clear to me that each main cause and the related contributors could easily be rearranged and still be fairly accurate.
  
  It was also surprising to realize that many of the main causes, in fact, were known and discussed abundantly before the crisis. However, no one predicted that all of these issues would come together in the way that they did and create the largest financial and economic crisis of our lifetime.
  
  Even the more conservative of us, and I consider myself to be among them, looked at the past major crises (the 1974, 1982 and 1990 recessions; the 1987 and 2001 market crashes) or some mix of them as the worstcase events for which we needed to be prepared. We even knew that the next one would be different – but we missed the ferocity and magnitude that was lurking beneath. It also is possible that had this crisis played out differently, the massive and multiple vicious cycles of asset price reductions, a declining economy and a housing price collapse all might have played out differently – either more benignly or more violently.
  
  It is critical to understand that the capital markets today are fundamentally different than they were after World War II. This is not your grandfather’s economy. The role of banks in the capital markets has changed considerably. And this change is not well-understood – in fact, it is fraught with misconceptions. Traditional banks now provide only 20% of total lending in the economy (approximately $14 trillion of the total credit provided by all financial intermediaries). Right after World War II, that number was almost 60%. The other lending has been provided by what many call the “shadow banking” system. “Shadow” implies nefarious and in the dark, but only part of this shadow banking system was in the dark (i.e., SIVs and conduits) – the rest was right in front of us. Money market funds, which had grown to $4 trillion of assets, directly lend to corporations by buying commercial paper (they owned $700 billion of commercial paper).
  
  Bond funds, which had grown to approximately $2 trillion, also were direct buyers of corporate credit and securitizations. Securitizations, which came in many forms (including CDOs, collateralized loan obligations and commercial mortgage-backed securities), either directly or indirectly bought consumer and commercial loans. Asset securitizations simply were a conduit by which investment and commercial banks passed the loans onto the ultimate buyers.
  
  In the two weeks after the Lehman bankruptcy, money market and bond funds withdrew approximately $700 billion from the credit markets. They did this because investors (i.e., individuals and institutions) withdrew money from these funds. At the same time, bank lending actually went up as corporations needed to increasingly rely on their banks for lending. With this as a backdrop, let’s revisit the main causes of this crisis in more detail.

You need to read the rest of the letter in detail to understand the main causes Jamie is talking about here. It's a real good read.

For example Jamie talks on how and why JP Morgan fared better. See page 10.

• We didn’t write option ARMs (adjustable rate mortgages) because we did not think they were a consumer-friendly product. Although we made plenty of mistakes in the mortgage business, this was not one of them.

And on CDOs.

• We never built up the structured finance business. While we are a large player in the asset-backed securities market, we deliberately avoided the structured collateralized debt obligation (CDO) business because we believed the associated risks were too high. Structured finance in its most complicated forms, such as “CDO-squared,” has largely disappeared after unleashing a myriad of problems on the financial system. They will not be missed.

And lastly, the financial commandment!

• We avoided short-term funding of illiquid assets, and we essentially do not rely on wholesale funding. (Of our $1 trillion of deposits, approximately $300 billion is referred to as “wholesale,” but it essentially is comprised of deposits that corporate clients leave with us in the normal course of business – i.e., they are “sticky” and not like brokered certificates of deposit or “hot money” that move on a whim for one basis point.) Simply put, we still follow the financial commandment: Do not borrow short to invest long.

Update On Mieco Chipboard

Mieco Chipboard announced its earnings last night.

And yet again the numbers were a horror show.

Revenue plunged and net losses were massive!

Past related postings on Mieco.

• Mieco
• Mieco: Part II - Ze Buy Recommendation!
• Sun Tzu: Fight Only When It Is Easy to Win
• Mieco: Part III
• Mieco: Part IV
• Mieco: Part V
• Mieco: Part VI
• Mieco: Part VII
• Mieco Chipboard: VIII
• S&P has a Strong Buy on Mieco Chipbaord!
• When Setback occurs in a Business
• Philip Fisher's Management Integrity II
• iCaptal Addresses the Transparent Issue!
• A Quick Look At iCapital's Annual Report 2008

Ooops. Such a long list.

Well.. there is absolutely no logical reasoning why one cannot see that Mieco cannot be considered as an investment grade stock.

But yet...

And oh, Mieco last traded at 0.32.

A rather generous price considering the fact it was trading as low as 0.20 recently.