Wednesday, April 30, 2008
That's the trouble with compilation lists. You feel bad that you left out a few which maybe deserve a place as your favourites. Here is a list of those albums that just missed out:
16 Lovers Lane by The Go-Betweens
A New World Record by ELO
Soul Deep by Jimmy Barnes
The Nightfly by Donald Fagen
Hotel California by The Eagles
Surfing With The Alien by Joe Satriani
Very Best Roll Over by Chage & Aska
A Decade of Steely Dan by Steely Dan
Btw, aren't those album covers wonderful art pieces, certainly stood the test of time.
Tuesday, April 29, 2008
All Time Fav Albums
Since I have nothing bullish or non-depressing to post, I shall post about my all time fav albums. When we were younger, the list would change every few months, but the list kinda stop when you turn 30. See if you
have similar taste in music, or else you can post your fav in the comments section and reasons why. A better headline would be the top albums that I would take with me if I was LOST on an island with a CD player. While redoing the list, I found that I could not keep it to ten, it had to be twelve, hence Countdown from number twelve:
12) Tanto Tempo by Bebel Gilberto - Daughter of the brilliant Joao Gilberto. This is Brazilian music jazzed up and highly seductive and hypnotic. Best album from Latin America for the last 10 years, if not longer.
11) Tapestry by Carole King - If I did not have balls, this would easily rated higher. So many songs from this album became timeless classics, such as You've Got A Friend and Will You Still Love Me Tomorrow. Its a great snapshot of a singer-songwriter right at the very peak of musical genius.
10) The Grand Illusion by The Styx - Loud, commercial but melodic band with loud hairstyles. Their best album by far. Every song has its own merit and weave into a proper album. Derided by many but this album can stand the test of time. Check out The 70s Show parody of The Styx.
9) December by George Winston - Takes a lot to listen to one fella playing one piano with no additional instrumentation. Feeling wistful, philosophical, or just a quiet night to reflect. His notes lift you up and touches your soul literally. The title track, though instrumental may make your tears well up. Really.
8) Winelight by Grover Washington Jr & Bill Withers - Best romantic jazz ever. Enough said.
7) Silk Degrees by Boz Scaggs - This man has a weakish voice but his songs were brilliant. Again, this album captures him at his musical genius peak. Songs like We Are All Alone, Harbour Lights and my favourite Love Look What You've Done To Me. Highly under-rated.
6) Bat Out of Hell by Meatloaf - Another album that needed to be heard in its entirety. May be too melodic and commercial to rock fans but its the anthem 70s album for good reasons. Songs like Heaven Can Wait, Two out of Three Ain't Bad and the title track - how not to be a top favourite.
5) Night At The Opera by Queen - Considered by many to be Queen's best album, but not to me, its the second best.
4) Rumours by Fleetwood Mac - Too much grass and alcohol can turn out really good music. This dysfunctional group at its best. Every song is a gem. This album is one of the reason why the 60s and 70s were considered to be the best periods for popular music.
3) How Dare You by 10cc - Not many would select this album but its pure genius. You have to listen more than a few times to love it and then you are hooked for life. Its whimsical, very melodic and adventurous.
2) Year of The Cat by Al Stewart - Absolutely fantastic folk rock album by an Englishman, very under-rated.
1) Sheer Heart Attack by Queen - This will always be my top album. Its their raw talent at their finest. If you have a relative 35 and above buy him this for Christmas, if its an over 35 lady, cannot go wrong with Winelight or December.
Things To Come From Food Crisis
More rushed conferences and summits among regional players. DOHA antagonistic buggers to meet again and again only with a more conciliatory attitude this time. Hoarding will not just be by private sector but some governments will be doing that as well. Countries importing food will reduce import tariffs substantially - hmmm, I wonder why! Countries exporting may be raising export tax. Partly oil in 3 figures is to be blamed as they contribute to more expensive transportation and fertilizer costs. Biofuels now viable with fuel at staggering levels caused diversion of edible products into biofuels - not such a good idea now. Higher food prices have caused feedling livestock to be a huge burden, thus forcing many farmers to sell much of the livestock younger and cheaper - but the flip side a few months down the road is the lack of livestock. Governments to increase subsidy to farmers to keep farming, and keep the lid on controlled necessities - just more money to chase after a fixed amount of goods. Aid agencies will be begging for free food supply to poor nations. Riots over lack of food supply or excessive price increases will be daily news. Is this food crisis a fad? Egypt and Cambodia already banned rice exports. Any sign of bad weather will only heighten the crisis. Social unrest is already reported in Burkina Faso, Cameroon, Egypt, Indonesia, Ivory Coast, Mozambique, Senegal and Pakistan - expect more to join the list.
A looming food crisis = spiraling inflation = restrictive market policies = higher interest rates to curb spending = not so good for equities.
A looming food crisis = Mounting government subsidy = Controlled prices break loose = Social unrest & riots = not good for equities.
Monday, April 28, 2008
Smells & Look Like ...
Bernama: The Remisiers Association of Malaysia (Persama) has urged Bursa Malaysia to consult investment banks before putting a company under Practice Note 17 (PN17) status, said president Sam Ng Soon Lee.
“We (Persama) would like to suggest that next time Bursa Malaysia wants to put any company under PN17 status, they need to consult an investment bank first. This will protect investors and it will be fair to the listed company,” he said after the association's AGM on Saturday.
PN17 refers to a company in financial trouble because successive losses have eroded its shareholders' funds or the company has ceased its business operations. A PN17 company is required to regularise its condition within a certain timeframe, failing which the stock would be suspended from trading and face delisting procedures.
According to Ng, more than 100 companies have been delisted. On the outlook for the local bourse, he said: “It is positive provided that the policy on PN17 is amended. PN17 policy has affected investor confidence.”
Countering The BS: Really hate it when people speak and they bypass their faculties. People think I say mean things, no, I just like to put idiots in their place or else idiots will be running riot. I can be an idiot too, just call me on it when I do stupid stuff. This is the Remisiers association, and their advice to Bursa is to appoint or talk to an investment bank first before putting a company to PN17 ???? I am sure the view is NOT shared by the majority of remisiers.
The Bursa has clear guidelines on when a company goes into PN17, it is not arbitrary or without warning. You need to fuck up a company's business model for a prolonged time to enter PN17. The Bursa consulting an investment bank before putting a company into PN17 is like the Police being asked to consult Bandaraya before putting them in jail. Where is the logic? The Bursa is the regulatory body, investment bankers do something entirely different. If anything, its the company themselves who need to consult investment bankers before they get flung into PN17 - now look for the idiot in the above setting.
Putting more companies into PN17 does NOT rob the market of its confidence, if anything it restores confidence to the maketplace as regulations are properly imposed and carried out, not just wishy-washy rules being skirted or never used in reality. In fact, I still feel companies are still not being delisted quickly enough even now. You want 600 decent companies rather than 1200 so-so companies. The longer these dying companies stay around, most will end up being syndicated plays on their last legs - only if you want that scenario to dominate the local markets, then by all means prolong the PN17s.
As remisiers, what the fuck are you doing recommending or allowing your clients to buy companies close to being thrown PN17 tickets? Read up, do more fucking research, make your clients feel that the 0.75% commission is worth something. Protecting PN17 or delaying or prolonging the PN17 will only create more bad companies or prolonging the life of useless dying companies. Companies don't get dumped into PN17 overnight, there are plenty of warnings signs - did you do the good thing and tell your clients that they are buying or holding shares in companies close to being dumped into PN17?
We always hear of the Bursa being too lenient with too many "so-so" companies being listed, staying listed. Now they are being more proactive, stay out of their path.
Saturday, April 26, 2008
Dangers of small cap stocks
Very few make the grade
INVESTING SCENTS:BY S.DALI
MANY investors would be indifferent to investing in large cap stocks and small cap stocks. The inherent dangers of investing in small caps need to be investigated so that investors have a better grasp of the risks involved.
There is a very popular local fund manager who has performed admirably, largely thanks to his picks in mid and large caps. However, his track record was compromised somewhat by his picks among small caps; in fact, it was pretty dismal.
The biggest attraction of small caps is the huge growth potential. Most successful large cap companies started at one time as small businesses. Small caps give the individual investor a chance to get in on the cheap. Everyone talks about finding the next Genting, YTL or IOI Corp. However, the reality is that very few small caps make the grade.
It is certainly easier to grow from a market cap of RM100mil to RM500mil but it's a totally different scale to grow from RM1bil to RM5bil. At some point you just can't keep growing at such a fast rate due to restrictions in the sector size.
While there are some funds that do invest in small caps, by and large the majority of funds are averse to them. That's because the fund would have to be small in size to invest in small caps. If you are managing a US$500mil fund, it's difficult to have sizable positions in small caps. No fund manager wants to look at 100 companies in their portfolio – the monitoring costs are too overwhelming. For mid size to large funds, to invest successfully in small caps would require hitting a lot of home runs every year – a debilitating task.
The coverage on small caps would also be scant at best. Lack of coverage means lack of exposure. Lack of exposure means the stock will not appear on their radar screen. What this means to the individual investor is that, because the small-cap universe is so under-reported or even undiscovered, there is a high probability that small-cap stocks are improperly priced, or usually under-priced.
The biggest drawback to investing in small caps is in the management. Typically, they comprise entrepreneurs who built the company from scratch to its listing capacity. We have to differentiate between people who had a great idea and those who have the ability to grow a company.
Statistics reveal that these entrepreneurs hold onto the company for far too long and do not have the expertise to take the business to the next level. It takes more professionalism and market savvy to turn a RM100mil company into a RM500mil company. Too many entrepreneurs are unwilling to appoint more professional managers, or are blinkered of the need to do so.
There are varying notions of what constitutes a small cap company. In the US, it is generally regarded as companies with market cap of less than US$500mil (which would be regarded as a mid cap in Malaysia and most of the smaller South East Asian countries).
Truth is, there are no hard and fast rules. I would categorise small caps in Malaysia as those with a market value of below RM500mil (because there are just so many of them) and then have another category for those under RM300mil as micro-caps. If we were to push the threshold higher, it would envelope the majority of stocks on the Bursa.
To better spot the better small caps is to examine the company's strategy and execution ability. First, the business needs to be scalable. Secondly, the company must know its market, competitors and its competitive edge. It also must have a clear plan to grow organically or via acquisitions. In addition, there must be increasing professionalism in the way business is run – be it at management or board level. There must exist a clear understanding of cost and capital requirements. Last but not least, is the execution ability. There should be goalposts or milestones marked and reached.
Small caps are able to ride a wave better because they are more agile given their size. The crunch comes when there is a recession or dramatic slowdown in their sector. Many small caps will perform well in a bullish environment but wither easily when the wind blows harder.
A lot of small companies arise from carving a niche in technology. However these companies also suffer swiftly from technology improvements and trend changes. Most do not have sufficient resources to commit at such an early stage into research & development in order to stay ahead of the development and technology curves.
Small caps usually do not pay much dividend as most of its profits will be reinvested to fund growth. This is an additional risk as no or little yield will mean investors would be buying for pure capital appreciation.
My final thought on the issue is that through my observation, I have noticed a certain danger of complacency among owners of small caps. Many entrepreneurs are satisfied once they get their companies listed on the stock exchange. In Malaysia, many of these owners stand to make RM10mil-RM50mil following a listing. Indeed, an attractive sum that can tempt many to “retire” and lose their drive to elevate the company.
p/s photo: Lin Chiling
Friday, April 25, 2008
Golf Balls, Pebbles, Sand & 2 Cups of Coffee
When things in your life seem almost too much to handle, when 24 hours in a day are not enough, remember the mayonnaise jar and the 2 cups of coffee.
A professor stood before his philosophy class and had some items in front of him. When the class began, he wordlessly picked up a very large and empty mayonnaise jar and proceeded to fill it with golf balls. He then asked the students if the jar was full. They agreed that it was.
The professor then picked up a box of pebbles and poured them into the jar He shook the jar lightly. The pebbles rolled into the open areas between the golf balls. He then asked the students again if the jar was full. They agreed it was.
The professor next picked up a box of sand and poured it into the jar. Of course, the sand filled up everything else. He asked once more if the jar was full. The students responded with an unanimous 'yes.'
The professor then produced two cups of coffee from under the table and poured the entire contents into the jar effectively filling the empty space between the sand. The students laughed.
'Now,' said the professor as the laughter subsided, 'I want you to recognize that this jar represents your life. The golf balls are the important things---your family, your children, your health, your friends and your favorite passions---and if everything else was lost and only they remained, your life would still be full.
The pebbles are th e other things that matter like your job, your house and your car.
The sand is everything else---the small stuff. 'If you put the sand into the jar first,' he continued, 'there is no room for the pebbles or the golf balls. The same goes for life. If you spend all your time and energy on the small stuff you will never have room for the things that are important to you.
'Pay attention to the things that are critical to your happiness. Spend time with your children. Spend time with your parents. Visit with grandparents. Take time to get medical checkups. Take your spouse out to dinner. There will always be time to clean the house. Set your priorities. The rest is just sand.'
One of the students raised her hand and inquired what the coffee represented The professor smiled and said, 'I'm glad you asked.'
The coffee just shows you that no matter how full your life may seem, there's always room for a couple of cups of coffee with a friend.'
p/s photo: Rene Liu Ruo Ying
Thursday, April 24, 2008
Who's Your Daddy?
As mentioned a couple of days back, the daddy wants the market to bottom out. One move may not be sufficient, now the next within days. China's Ministry of Finance said that it will immediately cut a tax on trading to 0.1% of the value each purchase or sale of stock from 0.3%. The tax will fall to where it was a little less than a year ago when Beijing raised the trading charge in an attempt to stem then-overt speculation by individual investors.
Wednesday, April 23, 2008
Taking Stock Of Risk-Reward
It looks like many are missing the bus, including myself. The equity markets seem to have stopped falling. While many, like me, are still waiting for the other shoe to drop, the chance of markets moving higher seems to be better. Are we in for a change of tide?
Apparently, we cannot fight the central banks no matter how strongly we are against their policies. This is the whole crux, buyers of shares now think that they have the world central banks on their side. The zero weighted investor think that the central banks have created a recipe for disaster down the track. Both can be right, unfortunately. I would not fault those who would buy now. As for me, I can think of better ways to do with my money. To me, the risk still overwhelms the anticipated returns. I cannot stop people playing 4D even though I know the odds are very shitty.
What we have:
a) Central banks pumping liquidity to save "unattractive assets"
b) Dubious financial instruments being whacked senseless, pricing in a lot of risk already, which is a positive in a rebound
c) USD policy will create havoc in UK, Euro and Australia - already similar bailout plans are afoot in UK and Australia. As for the E.U., its a bloody time bomb, they cannot operate with such an overvalued currency
d) If its not going down, it should be going up - that's the prevailing mentality currently, which can be a dangerous premise to base investment decisions on
My biggest contention is the mix of : weak USD; oil at US$120; food prices through the roof ... isn't that enough to derail the sustainability of growth in any markets? Mind you, I am not refering even to the subprime / credit implosion thingee - we have a new monster working itself into the "good growth markets now". Something's gotta give. There is only so much currency appreciation the Brazils, the Malaysias, the Thais can take to avert inflation. There is only so much subsidy to give to control prices. Something's gotta give soon. That is why I say to buy now would give me a disproportionate risk-reward ratio. I rather play the horses with my money.
Tuesday, April 22, 2008
Authority Says Buy
China markets is still run like a strict traditional family. After watching the markets fall on inflationary worries for a prolonged period, the authorities know that without "guidance" the markets will remain in a funk for the longest time.
The China Securities Regulatory Commission announced that all major shareholders could only sell large tranches of shares through a block trade or over the counter. And shareholders need to announce placement plans one month in advance if they want to sell more than 1 percent of a company's total stock. People expect there will be more measures to come. It is very obvious that if the first move is insufficient to restore confidence, there could very well be a stamp duties reduction in the coming future.
Market watchers said investors are still watching for blue-chip tradable shares worth 1.7 trillion yuan (HK$1.89 trillion) and 12 trillion yuan to come on to the market, this year and in 2009. During past days, it's only those small caps dumping shares that have caused panic, people will be more skeptical for larger caps' similar moves.
p/s photo: Donita Rose
WSJ: The Monetary Authority of Singapore is investigating why Jade Technologies Ltd., a takeover target, delayed disclosing that Merrill Lynch & Co. had seized a large block of its shares, causing investors to lose millions of dollars.
The circumstances of the takeover offer for Jade were already under investigation by Singapore's white-collar crime unit and the council that oversees mergers and acquisitions.
Jade is listed on Catalist, Singapore's secondary board. The takeover offer, if it had gone through, would have valued the company at S$218 million (US$160.8 million). Now the aborted offer, by Jade President Anthony Soh, is threatening to undermine investor confidence in the Singapore market, among the most developed in Asia. The controversy has become a test case for regulators, with institutional and individual investors complaining that the system has wronged them.
OCBC, Mr. Soh's adviser, had vouched for his ability to fund the deal. OCBC subsequently withdrew from its role and filed a complaint against Mr. Soh with the Commercial Affairs Department, which fights white-collar crimes, for allegedly misleading the bank.
The saga began in February, when Mr. Soh said he wanted to take over the company, which has interests in microchip engineering and mining. The sole requirement of the offer of 22.5 Singapore cents a share was an acceptance level of 50%, meaning Mr. Soh needed to secure just a small addition to his own 46% stake to succeed. On April 5, he withdrew the offer after getting permission from the local regulator. He said he no longer had enough funds to continue with the bid. The stock went into a freefall when the market opened on April 7, sinking to seven Singapore cents from 22 Singapore cents before trading was halted on April 1. The shares have remained near seven Singapore cents over the past two weeks.
What many investors didn't know was that Mr. Soh had pledged a 30.5% stake in Jade, or 295 million shares, as collateral for a loan from Australian broker Opes Prime Group Ltd. to fund the takeover. Opes collapsed and went into receivership in the last week of March.
On April 1, before shareholders got details about the deal's financing, Opes creditor Merrill liquidated 95 million of the shares Mr. Soh had pledged. Merrill had received 256 million Jade shares from Opes on March 27. While Merrill sold out at 22 Singapore cents a share, other investors held or even accumulated new positions under the assumption the takeover would proceed.
Angry investors, who watched helplessly as Jade lost S$145 million in market capitalization in the first minute of trade on April 7, want to know why they weren't told Merrill had seized Mr. Soh's shares. "If public notice had been made, there's absolutely no way we would have bought any stock at all," said an investor who increased his stake in Jade to almost 5% on April 1. "Until recently we had an extremely high degree of confidence in the integrity of the Singapore system in relation to takeovers. Things just didn't go wrong," he said.
An MAS representative declined to elaborate on its investigation.
Merrill spokesman Rob Stewart, based in Hong Kong, said the bank "made the required shareholder notification as required by the regulations." Merrill was required to notify both Jade and the Singapore Exchange of its holding in Jade by March 31, two business days after it took possession of the shares.
The Singapore Exchange doesn't announce changes in shareholdings until it is notified by a company. It declined to comment on the Jade issue. Jade Chief Financial Officer Vera Lim said Jade received some information from Merrill in the days leading up to April 8, before it announced the change in Merrill's holding, but declined to elaborate. "On April 8, we received all the information from Merrill Lynch," Ms. Lim said.
OCBC, which had vouched for Mr. Soh's ability to fund the deal, said it had begun to doubt "the integrity of the representations" given by Mr. Soh. Singapore law prohibits withdrawal of a takeover offer without approval from the Securities Industry Council, which has oversight for mergers and acquisitions. The SIC declined to explain why it allowed Mr. Soh to drop the offer or if OCBC was bound to back it. The SIC "has commenced investigation into the circumstances that led to the withdrawal of the offer," an SIC representative said. "However, it is premature and inappropriate to give further details at this point."
A second investor said he bought shares expecting OCBC to stand by the deal. "I placed confidence in the fact that OCBC was involved in the process, and it stated clearly that financing was in place," he said.
OCBC declined to comment when asked if it was under obligation to back the financing.
Comments: The Bursa and SC should take note on the Jade saga because it could very well happen anywhere. There are numerous companies offering "margin facilities" out of Singapore and Malaysia. As these companies are not under the jurisdiction of the companies where it is listed, when things go wrong, the domino effect is at the expense of minority shareholders and investors who relied on available information.
To prevent such incidents, there should be new disclosure rules when the controlling shareholder or even substantial shareholders pledges their shares to a third party.
OCBC should be quizzed further on whether their grounds for withdrawing their funding was legal and in the best interest of the market's integrity. Merrill Lynch, which seized the shares from Opes is in the clear and they absolutely have the right to sell the shares, and they played by the rules in terms of informing the exchange and company. Maybe new rules should be put in place in the "delay allowed" when reporting sales by significant shareholders - one week may be too long. All exchanges and regulators, please take note.
SIC should be in a lot of hot water for allowing Soh to drop his offer - heads will roll. It seems that the only people not being considered or catered for in this saga were the minority shareholders and investors - they were basically hung out to dry, left to make decisions based on available information which were "outdated", materially different from reality, and left holding the bag. Tsk tsk!
p/s: photo: Fiona Xie
Sunday, April 20, 2008
Fear Of Recession Overblown
MOST professionals, as well as the average investor, are likely to follow the release of economic data to get a grasp of the direction of global economies and markets. To get a sense of capital flows, they will look out for data such as trade surpluses and deficits, interest rate differentials, leading indicators and so forth. To analyse the strength of domestic consumption, data that is relevant data include housing starts, loans growth, interest rate trends, foreign direct investments, local currency outlook, employment rates and so forth.
Presently, there appears to be much concern over US recession fears – the killer of all stock market bulls. Understandably, one of the biggest fears of professional fund managers and investors is to be caught in a massive bear market. So, can we better predict bear markets by following economic indicators?
If we were to look at the massive bear periods in recent times, you will find that they were bubbles pricked by reality. The dot-com boom-bust was based on over-hype; the pouring in of excessive liquidity via private equity and venture capital funds to latch onto the next dot-com star.
The debilitating 1997 Asian financial crisis was caused by years of excessive foreign liquidity into the South East Asian economies and financial markets, driving up prices artificially and resulting in significant market inefficiencies and misallocation of capital in the process.
The current market phase is not a bear market, well yet at least, to most investors. To many, it is just a correction within a bull market, but the longer it stays in a funk, the quicker it will morph into a bear market. I would categorise the current market as a proper bear market because it is the implosion of a genuine and massive bubble, just like the previous bear markets.
Recent data and implications
The latest jobs data and housing data confirms that the contraction is still underway despite the genuine efforts by US Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson. The point here is this – Can we have a bear market in the US without it having to effect markets? The answer to that is very much up in the air.
As in most bubbles, these excesses are aided and funded by over-eager banks.
Back to the fear of recession; tracking and predicting recession are good, but they will not save you from bubbles imploding. Hence it is more important to look for bubbles forming in pockets of markets and economies. Bubbles will also take some time to come to a boil before becoming unsustainable. To pull back on the slightest hint of any bubbles forming would be way too early and will likely turn out to be a disappointing investing strategy.
Fears of recession are healthy but they should not blinker investors into a 0% or a 100% invested decision. In fact markets do continue to perform even during a recession as markets are forward discounting mechanisms (18-24 months forward would be a good gauge).
Fears of recession essentially stem from fears about a major collapse of consumption. As we can see from the recent market corrections, they are a result of bubbles imploding, rather than a consumption-contraction led collapse.
The main reason for that would be that most economies now have more depth and breadth. Pick any of the top 40 countries in terms of GDP and you will discover that their dependence on a single industry are now much less than 20 years ago. For example, in Australia manufacturing took up 29% of GDP back in 1960. Today, it stands at around 10%. Agriculture used to be 25% of GDP but now it is less than half of that. The lack of dominance in any one sector would surely reduce the risk of a collapse in consumption in an economy.
Even though Malaysia's trade in oil and gas, plus CPO, are high, they are not dominant. Manufacturing, business services and property also hold significant chunks of GDP.
The same argument can be made even for the US, which is why we may see a contraction in consumption but not a collapse. A contraction is usually short term and should recover relatively quickly.
With that, scrutinising economic trends and variables with the hope of catching signs of a potential recession may not be as useful or rewarding, as it seem. Keep a lookout for “bubbles” formation and study the variables and developments closely. Most will only look up terminologies such as SIVs (structured investment vehicles) and CDOs (collateralised debt obligation) after the bubbles have imploded.
Typically, bubbles imploding are the major cause of a sharp correction in stock markets as they are big enough to lop off a huge chunk of a certain sector. The fact that bubbles are formed in a sector that eventually morphs itself onto stock market valuations and earnings, further points to the all-encompassing and far-reaching effects of a bubble implosion.
Nassim Nicholas Taleb's books - Fooled By Randomness and The Black Swan -(Note: Black Swan is a surprise event; the black bird was discovered in Australia when all along only white swans were known to exist). attempt to capture randomness of risk and implosions that are hard to plan for. It is hard to capture potential systemic risks by just looking at run of the mill indicators. One must be attuned to possible catastrophe for selected industries as some are exposed to positive Black Swans and others to negative Black Swans.
Financial markets have a very high negative Black Swan. Sound business is often compromised by two factors in financial markets - excessive leverage and inter-connectedness of companies / products/ markets. In many ways, being aware of these two factors would go a long way to better understand potential negative Black Swans of the future.
The other variable for a major correction is a dramatic collapse in business profitability. That is even more unlikely in most economies as they are now broader and not so concentrated in certain sectors.
So, the question arises – Why then should one be possessed by such an overzealous fear of recession?
p/s photo: Kelly Lin
Thursday, April 17, 2008
Ringgit undervalued against what? (Err, Tony, my parity for the currencies cited means I think the ringgit IS UNDERVALUED against those I have cited)
Wai Kit said...
Just s few questions which I hope you are able to comment:
The valuation question ie. whether is overvalue or undervalue, is difficult to appreciate. Like Tony's sayings, it could be up with one set of currencies but depreciate with another.The key things is the peg against USD. Should we slowly get away before more problems? Not even the crystal ball can tell abt the depeg timing and effects. Nonetheless, without systematic or appropriate mky interference, the threat to our economy is more than we can think of. But if the USD keep on sliding, I think it will cause the global commodity price increase. Jim Roger predicted it too. Another word, import inflation will be more prominent. Then, the Central Banker will have to increase their interest rate to contain the situation. The boomerang effect will fasten the depreciating of USD.Well, Ben Bernake cannot afford to reduce the rate further. Paul Volker will tell you so. (well, Volcker will tell you that Bernanke will go even lower, see the rates go to 1% even if things get worse... and why do you say USD cannot fall anymore, of course it can...)
Knowing The Market
Clearing the air on what the stock exchange is all about
PEOPLE plough their hard earned money into the stock market. If you get a good bonus, you may put a large chunk of that into the stock market.
If you strike gold with 4-D, you may also end up doing the same (investing a large sum of that in equities). When you retire, your EPF savings may be poured into the stock market.
So, if we are doing all of the above, it should at least make sense to know why the stock market is there in the first place.
If you fail to understand why we have stock markets, then your expectations might not be met. It's like a bad marriage. If your expectations are airy-fairy, nothing good will come from it.
There are only two main reasons why stock markets are there:
a) To tap capital – it allows companies to tap capital to fund future growth.
b) It enables the public to participate in that growth – in exchange for the capital, investors become shareholders, and will be able to be part of the company's fortunes (good or bad).
Anything else would be incidental, indirect and not guaranteed.
However, we all know that investors regard the stock market as something much more than that. Let's look at the unrealistic expectations, myths and realities surrounding the stock market:
a) Can make you rich – The stock market does NOT owe anyone a living. It may make you rich, it will probably make you very poor as well. It has no loyalty.
b) Prices have no memory – Stocks do not care how much you have studied a stock, or whether you have an MBA or not.
It does not care what price you bought at and couldn't care less what price you sell at. The stock does not know that you love it.
Your undying perseverance will never be acknowledged or taken into account.
c) Zero sum game – For you to win at stock market investing, somebody else has to lose. It's never a case of everybody winning.
If the KLCI rises from 1200 to 1500 in two weeks, and you bought at 1200 – your gains were at the expense of the “opportunity cost” of the seller who sold to you at 1200. This is a casino, but it has no banker. All cannot win at the same time and break the bank.
d) Paper gains – The ones who stand the best chance to make supernormal profits are the company owners. Grow a company then list it and you get an immediate leveraged valuation of the on going earnings of your company. Hence for investors to better the odds of making money from the stock market – go start a company.
e) Knowledge – The more you know and learn from books and other people's experiences, the better the odds of being better than the next person to make money.
Since this is a zero-sum game, you have to be better than 50% of the investing population to make money.
f) Size matters – Fund managers can move prices by the sheer size of their orders. Thankfully, they are also not difficult to beat.
Short term, their size will move prices in favour of whether they are selling or buying, but that aberration will sort itself out eventually.
g) Forecasting models – Stock markets are forecasting models, they try to make sense not of the present but what things will be 16-20 months down the road. Hence to get an edge on the market, would be to try and anticipate better and anticipate earlier what's down the road.
h) Behavioural science – Since it's a zero-sum game, to be able to read investors' likely moves will also gain you an edge. The most raw form guiding investors behaviour are fear and greed. These two emotions will cause people to act irrationally. To be able to impute and estimate how much of the stock price is due to irrational behaviour will help us anticipate and read markets better.
i) Technicals – They are pattern readers and pattern seekers. The basis for the emergence of these patterns is that investors never learn and always behave in the same manner giving similar investing situations. Hence technicals are useful because of that.
j) Analysts – They are well paid people who usually have never run any business in their lives. Learn to sift out the better ones from the run of the mill. Most analysts have a hidden fear – the fear that people will discover that they are really pretty average at best.
At the end of the day, the stock market will always be there. We are the ones who might not.
p/s photo: Vicky Zhao Wei
Wednesday, April 16, 2008
MIER's Views On The Ringgit
I try not to post articles and make no comments on them, but I have posted on the ringgit and MIER's views are worth reading.
KUALA LUMPUR, April 16 — The Malaysian Institute of Economic Research, describing the ringgit as still undervalued, expects the local note to break the RM3 mark against the US dollar by year-end.
MIER executive director Prof Datuk Mohamed Ariff said today the expectation of a stronger ringgit is due to the strong fundamentals of the Malaysian economy.
"The Malaysian economy is one of the strongest in the region. It is growing increasingly resilient, mainly attributed to the strong financial sector, and that's why the confidence level is high," he told reporters after the MIER Corporate Economic Briefing here.
Mohamed Ariff felt there is no reason for the local currency to grow weaker, but rather appreciate to RM2.80 in the next two to three years.
"It is still undervalued and the ringgit should really get back to a level which is commensurate with the fundamentals. We believe the ringgit should continue to appreciate, and probably the central bank should let the ringgit rise even more by removing some of the remaining controls," he added.
According to him, the ringgit is not completely free to move in the sense that Bank Negara Malaysia "still keeps some controls on it," especially in maintaining the ban on offshore trading.
"If you unshackle the ringgit from those kinds of controls, the ringgit can fly higher," he contended.
Asked when MIER expects the central bank to make such a move, Mohamed Ariff replied: "Right now the confidence level is very high, and this is a question you should ask them, but my recommendation is the sooner we do it the better."
A stronger ringgit, he argued, is good for bringing investments into the local stock market and does not necessarily mean that exports will become uncompetitive.
"Exchanges for other currencies are also rising, and if you look at it in real effective terms, the ringgit is still stable as it was in 2000. It hasn't really appreciated, so we are not really losing out in terms of competitiveness." On the other hand, Mohamed Ariff said, the issue here is that many do not want to see the US dollar sink as most countries have vested interests in the greenback.
Many countries have dollar-denominated assets and if the US dollar is to melt, there will be huge capital losses and this is something no country wants to let happen, he explained.
"Secondly, there is no substitute for the dollar as an international currency. Hence a stable dollar is needed for stable transactions and to save the value of the external reserves. The dollar seems to be taking one step forward and two steps back, that's why the adjustment is slow.'
On when the greenback is expected to stabilise, Mohamed Ariff expected much of the adjustments to be done in the middle of 2009.
He said the US may be able to do this is it can bring its balance of payments deficit down to three per cent of Gross Domestic Product from over five per cent currently, and that if there is a change of government, this may
bring about major changes in US foreign policy. — Bernama
p/s photo: Kristy Yung
The Ringgit's Risk
Encik Wan said...
At what level, appreciation of Ringgit is too much to bear? USD/RM = 3.00?
Currency appreciation is always equated to reduction in competition. Since we had the peg at RM3.80 to the dollar, many investors have been fixated at that as an anchor. We have to remind ourselves that the ringgit was at 2.7 before the Asian financial implosion. Yes, most Asian currencies were overvalued lulled by excess liquidity then. However, the 3.8 peg was artificial and boosted our competitiveness no end. In fact, the ones laughing all the way to the bank are the plantation owners. Did you ever see Lee Shin Cheng ever not smiling for the past 10 years?!
Thankfully we had a new Bank governor who is prudent and conservative thus bringing about a currency ladened with sound fundamentals now. Can we compete at 3.0 to the USD? Well, I think we can compete at 2.8 even as we speak. Hence 3.0 is not an issue. We have to be aware that the ringgit is not the only one rising. If we had gained 15% over the last 12 months against other Asian currencies, then we can start to worry a bit. Hence the ringgit's gains for the past 2 years was certainly not excessive. Just compare the ringgit with the yen, euro, Sing dollar, Thai baht, OZ dollar and you know we have not gone out of whack at all. As a matter of fact Zeti has been keeping a very tight lid on the ringgit's appreciation, making sure it did not over-run most other currencies. 2008 will be the year where Asian central banks start to use their currencies more aggressively to contain inflation risk.
I certainly think that moving forward, the euro, pound, OZ dollar have a lot more at risk - their currencies are gaining at the same speed as most against the USD but the structure of their economy will be threatened by over-pricing themselves out of many industries over the next few years. The outsourcing (globalisation) effect will ensure that jobs will be lost and industries crushed by having an inflated currency. The Fed has basically successfully exported their problems to Europe, Australia and Japan. We are too blinkered on the US for the time being. We should be able to see a different set of problems affecting this new group over the next 24-36 months.
An example of why the ringgit is a lot stronger and undervalued still. Just look at the interest rates now. The differentials with the yuan and OZ dollar is significant. The differentials show that you need a "higher rate" to hold these currencies. The yuan could be a bad example because it is tightly controlled, and rates are kept high to kill off inflationary pressures. You get the drift.
Although Malaysia still does a significant amount of trading with the US, the slowdown in the US is largely banking based and property related, rather than trading goods and services. The present economic paradigm favours net exporters of commodities and soft commodities, which Malaysia is. If you ask me where the parity is for the ringgit: it should be at 2.6 against the USD; 4.0 against the Euro; 5.0 with the pound, 2.4 with the OZ dollar and 1.9 with the Singa dollar. Anything above those levels, we are competitive and continue to attract FDI.
p/s photo: Maggie Q
Tuesday, April 15, 2008
You're The Yuan That I Want
The Chinese central bank really wants to delay the appreciation of the yuan, and if they can, do it in small increments. However food prices and other similar inflationary pressures have been hitting home very hard across many countries, China is no exception.
The psychological 7 yuan to the dollar has been broken and the quantum for appreciation is now heightened. I have mentioned recently about the close ties between the Chinese central bank and Bank Negara. I guess both currencies are very similar in having the most foreign reserves backing per currency in circulation. Bank Negara could be afraid that the yuan has more things in similarity with the ringgit - however, traders would speculate in the ringgit as a proxy play as it is "easier" and has better convertability in global markets.
Hence I stick to my view that the ringgit will walk in lockstep with the yuan for the forseeable future.
p/s photo: Cheung Yuk San
Monday, April 14, 2008
Usually I would not even waste my time on a stock like Hai-O, but the exchange between Bullbear and Moolah in the Fusion chat box had been voluminous and heated at times - that had to stir my interest. Basically BB still has concerns on its business model but thinks that the current run up in revenue and profit will allow for a substantial gain via a mid term trade. Moolah does not like the MLM model and the quite silly RM50m property investment from excess funds.
BullBear posted on FusionInvestor chat: HaiO is selling at a low PE (based on ttm-eps). It earns >25% on equity and its net profit margin >10% of its revenue. The arguments centred on its management and its business franchise. IF HaiO continues to perform, those who invested into it would have a return of x% (?5%, 10%, 30%, 50%, 100%), if it underperforms, one might lose y% (?5%, 10%, 30%, 50%, 100%) . Works out the odds (x/y), and see if you like the odds.
1) Revenue Streams: They have three: Wholesale, Retail and MLM. Lets take a look at their last 5 quarters on revenue. Figures in RM million. Start 1Q2007, last 1Q2008.
Wholesale: 21.2 / 20.1 / 30.2 / 34.8 / 25.5
MLM: 17.3 / 21 / 28.6 / 32.8 / 40 /
Retail: 7.9 / 9.9 / 8.1 / 11.8 / 7.9 /
Very obvious that Hai-O's fortunes is solely MLM. If you take away the MLM, Hai-O should be a penny stock with a very very poor business model. They got lucky by recruiting a lot of Malay ladies to do MLM. The executive who mooted the idea should get a RM1m bonus.
2) Margins: Same revenue streams, now look at the margins in percentage: Wholesale: 16.5 / 8.4 / 19.9 / 29.8 / 12.7 MLM: 13.2 / 16.3 / 14.9 / 11.9 / 14.2 Retail: 3 / 9 / (2.1) / 5.9 / 2.0 The retail is shit, might as well dump them.
3) Hai-O struck gold with their revamped MLM strategy, now they have also expanded into Indonesia - leveraging on the bright idea that Malay and Indonesians have the same market tastes. If they stuck to the MLM, they could see a bit more interest in their stock. But they would have to come up with better ideas on what to do with the cash. Suddenly they went into property by plonking RM50m (even though they will be using a portion of the space to manufacture their products). The margins in MLM are good enough. Better if the company come up with say they will pay 75% of net profits back every year as dividends. Then investors can look forward to a proper dividend yield. If they did that, the company will be paying 12 sen in 2007 and probably 26 sen in 2008.
4) MLM is not a model that generates a lot of positives. Market is small, growth may be excellent in the initial stages but will flat out very soon. There is also the need to keep coming up with new exciting product every few months to keep sales charged up - till now, no one knows what their future best sellers will be and where they will come from. There is not coherent communication of strategy, approach, R&D, partners, etc. in this aspect.
5) Back in 2003, the top guy on why Hai-O was venturing into the IT sector, he said: “We are debt free and cash rich as we have RM8mil in fixed deposits, RM4mil in our current account, and RM20mil in overdraft facilities. Therefore, we will venture into any business if it can bring us some benefit.” OMG, this is the type of management vision we are looking at - no strategy, no vision, no plan, where are its core competencies - its a family business still run kamikaze style.
6) The most dangerous caveat why I do not like holding Hai-O is that controlling shareholders have a relatively small stake left in Hai-O. The Tan family has 25.6% and the next biggest shareholder is Maybank Smallcap with 3.9%. Its understandable if it was a large cap but it has only 82.5m shares.
It has been brought to my attention that a group of entrepreneurs started to pool their resources to get the company listed, hence explaining the smallish stakes by controlling owners. I did notice that most of the shares of the controlling shareholders are "pledged to the broking houses" - for a margin line. Usually I would not be suspicious but hey, stranger things have happened before. With 25.6% and company's coffers growing alarmingly, what do you do? If you still hold 45% or more of the shares I am sure they would declare bigger dividends and spend excess cash better. At 25.6%, to reap the good fortune, you would have to buy back a lot of shares - nah... that ain't gonna happen.
The MLM was unexpected, hence the more fragile an opinion I have of management. As with many dicey and dubious companies where controlling shareholders have smallish stakes, if there is a lot of cash in the company, they will think of ways to take the cash out.
I am not saying Hai-O will be doing that but there is a greater likelihood. If Hai-O had RM100m in the bank now, do you think they will declare a RM1.00 cash dividend? Not on your life, not with 25.6%... maybe with a 45% stake. I am playing the devil's advocate here. If I was devious, I will "own some assets" say land or other small businesses and inject into Hai-O in exchange for new shares and cash. That way, I can inflate the assets being injected and increase shareholding in Hai-O and also take some cash out. That could happen.
Or, since I am the controlling shareholder, for every ringgit taken out, I am only entitled to 25.6%. Why do that? If I am the devil again, I would declare a very generous bonus and/or options scheme every year for the "connected senior management".
I am not saying Hai-O will do that, but the risk is much much higher given the shareholdings level. Hence the reluctance of other institutions and savvy investors to jump in even on the low PER attraction. Thus, the RM50m spending on the property project should raise more alarm bells than being viewed as a smart move to expand upstream or downstream.
p/s photo: Athena Chu Yan
Sunday, April 13, 2008
Why is GE so important? Missing a quarter can bring the entire market down triple digits. Well, not counting the slide in Asian markets come Monday morning as well. GE is important because:
1) It is supposedly the best managed company globally
2) Its ability to beat quarterly estimates are legendary, which translates to having a great hold on business analytics, management execution and forecasting
3) It is a diversified global industrial giant, and as such should be able to weather the supposedly "localised banking correction in the US"
4) If the going gets tough for GE, can you imagine the situation for lesser companies
The company reported a 12 percent decline in first-quarter profit — its first in five years — and dim prospects for the rest of the year. GE is one of only five AAA-rated corporations worldwide, and its troubles accessing the credit markets underscore how seriously broken the credit system has become. If the weakness was solely concentrated in their financial subsidiary, it would not have reverberated as much. However, the weakness was caused not only by credit difficulties but the conglomerate's far-flung businesses on nearly every continent, spanning such industries as entertainment, health care, consumer goods and industrial manufacturing.
This lends weight to my feeling that there is another shoe to drop, one more whack down before genuine recovery can begin. Though prices are attractive, the upside is not sparkling and any attempt to rally from here will not be able to generate sufficient momentum or encourage the sidelined to jump in. The plunge saw GE losing US$55bn in market cap, what was interesting as well was UPS coming in below estimates for its quarterly results, particularly since UPS is such a good benchmark on "business velocity".
This week will be very volatile: Anwar's April 14 date with destiny; quarterly results from JPMorgan, Merrill Lynch and Citigroup. Good day!
p/s photo: Sammi Cheng
Saturday, April 12, 2008
HK Film Awards
- The Warlords
Produced by : Andre Morgan, Huang Jian Xin, Peter Chan Ho Sun
Produced by : Peter Chan Ho Sun
- The Postmodern Life Of My Aunt
Produced by : Yuan Mei, Yu Dong & Cui Yong
- Mad Detective
Produced by : Johnnie To Kei Fung & Wai Ka Fai
- Eye In The Sky
Produced by : Johnnie To Kei Fung & Tsui Siu Ming
- Peter Chan Ho Sun (The Warlords)
- Derek Yee Tung Sing (Protege)
- Ann Hui On Wah (The Postmodern Life Of My Aunt)
- Johnnie To Kei Fung & Wai Ka Fai (Mad Detective)
- Yau Nai Hoi (Eye In The Sky)
- Xu Lan, Chun Tin Nam, Aubrey Lam, Huang Jian Xin, Jojo Hui, Ho Kei Ping, Guo Jun Li, James Yuen Sai Sang (The Warlords)
- Derek Yee Tung Sing, Chun Tin Nam, Loong Man Hong, Go Sun (Protege)
- Li Qiang (The Postmodern Life Of My Aunt)
- Wai Ka Fai & Au Kin Yee (Mad Detective)
- Yau Nai Hoi & Au Kin Yee (Eye In The Sky)
- Aaron Kwok (The Detective)
- Jet Li (The Warlords)
- Andy Lau Tak Wah (The Warlords)
- Lau Ching Wan (Mad Detective)
- Simon Yam (Eye In The Sky)
- Teresa Mo Shun Kwan (Mr. Cinema)
- Zhang Jing Chu (Protege)
- Si Qin Gao Wa (The Postmodern Life Of My Aunt)
- Rene Liu (Kidnap)
- Charlene Choi (Simply Actors)
Best Supporting Actor
- Nick Cheung Ka Fai (Exodus)
- Ronald Cheng (Mr. Cinema)
- Louis Koo (Protege)
- Andy Lau Tak Wah (Protege)
- Chow Yun Fat (The Postmodern Life Of My Aunt)
Best Supporting Actress
- Karen Mok (Mr. Cinema)
- Anita Yuen (Protege)
- Zhao Wei (The Postmodern Life Of My Aunt)
- Susan Shaw (The Pye-Dog)
- Maggie Shiu (Eye In The Sky)
- Linda Chung (Love Is Not All Around)
- Tsei Tsz Tung (Protege)
- Wen Jun Hui (The Pye-Dog)
- Wong Hau Yun (Besieged City)
- Kate Tsui (Eye In The Sky)
p/s photo: Kate Tsui