Every once in a while we find ourselves at a standstill with our trading- stuck in a rut. You're not doing anything wrong, but you're not improving, either. You're results aren't bad, but they're not as profitable as you would like. If you want to see winning results, you need to learn from those who win. Consistently!
I make big losses when I violated one of these rules.
Rule 1 – Never, ever, ever add to a losing position. Remember how the Long Term Capital Management and its legion of Nobel laureates who broke this rule repeatedly and went into forced liquidation. And in my case, I was badly bitten once by Proton and Transmile.
Rule 2 – The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is ‘low’.
Rule 3 - Markets can remain illogical longer than you or I can remain solvent – is a brilliant statement from our good friend Gary Shilling.
Rule 4 – Try to trade the first day of any gap on the chart. I have full respect for ‘gap’. When it happens, it is almost always materially important.
Rule 5 – Trading runs in cycles – some good most bad – in good times, even errors are profitable, in bad times, even the most well researched trades go awry. This is the nature of trading – accept it and move on.
Rule 6 – Think like a fundamentalist, trade like a technician – it is imperative that we understand the fundamentals driving a trade. When we do then, and only then, should we trade.
Rule 7 – Respect the Box. Markets often retraced 50-62% of a previous move, with prices falling into the Box. Know that and use it.
Rule 8 – Be patient with winning trades, be enormously impatient with losing trades. Remember it is quite possible to make large sums trading, if we are right only 30% of the time.
Rule 9 – The market is the sum of total wisdom. I dare not to argue with the market’s wisdom.
Rule 10 – All rules are meant to be broken! The trick is knowing when you can..and how often.
Tuesday, March 31, 2009
Monday, March 30, 2009
Lessons from Warren Buffett
‘By year-end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game’ – that is how Warren Buffett describes the recent market carnage in his latest 2008 Annual Letter to Berkshire Hathaway shareholders.
Buffett just recorded his worst annual performance in 44 years at the helm of Berkshire. Muni bonds, real estate, stocks, commodities …all have gotten hammered relentlessly and there have been relatively few places to hide throughout this downturn.
No matter what you think of Buffett, I think he is still worth listening to. Once the money floodgates have already been opened, so the only logical question left is, ‘What is the long-term consequences?’ Among the target size of US$1 trillion appears outsized relative to the underlying issuance capacity of the targeted market. Of the US$75bn directed towards the Homeownership Stability Initiative, under the best case scenario, US$44bn would go towards incentives leaving US$31bn left to fund interest rate reductions.
Deflation is in the driver’s seat for now and cash has been king. And there is no telling how long the trend will last. But when things do turn, I believe that central banks will remain behind the curve as they have all along. That means renewed inflation, possibly substantial inflation.
Now, it is the time to consider inflation protection. It is because as Buffett remind us …`Our country has faced far worse travails in the past…without fail, however, we’ve overcome them’. I doubt that any amount of economic damage will dampen the collective entrepreneurial spirit. Regardless, I don’t think this is the end of our great economic machine, nor do I think all stocks should be trading at doomsday-scenario prices.
In Buffett’s letter points out that two of Berkshire’s largest operations – utilities and insurance – remain economically insensitive, and delivered strong results in 2008. Right now, investors don’t seem to care. They are selling everything and asking questions later.
In Buffett’s words ….`When investing, pessimism is your friend, euphoria the enermy..whether we are talking about stocks, I like buying quality merchandise when it is marked down’.
If you believe in this philosophy, then this is the time to consider dipping a toe in the water. Heck, I have never seen such widespread pessimism in my last 15 years of investing. Some of it is well founded, but if you are not comfortable, you should do what allows you to sleep at night.
Buffett just recorded his worst annual performance in 44 years at the helm of Berkshire. Muni bonds, real estate, stocks, commodities …all have gotten hammered relentlessly and there have been relatively few places to hide throughout this downturn.
No matter what you think of Buffett, I think he is still worth listening to. Once the money floodgates have already been opened, so the only logical question left is, ‘What is the long-term consequences?’ Among the target size of US$1 trillion appears outsized relative to the underlying issuance capacity of the targeted market. Of the US$75bn directed towards the Homeownership Stability Initiative, under the best case scenario, US$44bn would go towards incentives leaving US$31bn left to fund interest rate reductions.
Deflation is in the driver’s seat for now and cash has been king. And there is no telling how long the trend will last. But when things do turn, I believe that central banks will remain behind the curve as they have all along. That means renewed inflation, possibly substantial inflation.
Now, it is the time to consider inflation protection. It is because as Buffett remind us …`Our country has faced far worse travails in the past…without fail, however, we’ve overcome them’. I doubt that any amount of economic damage will dampen the collective entrepreneurial spirit. Regardless, I don’t think this is the end of our great economic machine, nor do I think all stocks should be trading at doomsday-scenario prices.
In Buffett’s letter points out that two of Berkshire’s largest operations – utilities and insurance – remain economically insensitive, and delivered strong results in 2008. Right now, investors don’t seem to care. They are selling everything and asking questions later.
In Buffett’s words ….`When investing, pessimism is your friend, euphoria the enermy..whether we are talking about stocks, I like buying quality merchandise when it is marked down’.
If you believe in this philosophy, then this is the time to consider dipping a toe in the water. Heck, I have never seen such widespread pessimism in my last 15 years of investing. Some of it is well founded, but if you are not comfortable, you should do what allows you to sleep at night.
Sunday, March 29, 2009
Malaysia’s Niche in China’s Shadow
I argued that strong China is good for our economy.
China is already a significant net importer of Malaysia’s goods. China’s trade deficit has widened considerably from US$3bn in 2001 to recent more than US$10bn.
China is now the third largest export market for Malaysia and is showing strong potential to be the second largest export market to overtake Singapore.
As China’s economy growing, further development of Malaysia’s upstream and downstream oil & gas industry has already found its way into China. Likewise, China is the largest importer of Malaysian palm oil with about a quarter of total Malaysian CPO exports year to date and our export market may expand further following the government-to-government barter trade over the KTM railway project between Malaysia, India and China. China accounts for 13% of global oil and fats production, but is not self-sufficient and is therefore, a major importer.
Meanwhile, China is the third largest market, after Japan and India for Sarawakian logs and plywood. Hence, a strong China’s construction sector should be positive for the Malaysian timber industry. China is also an important market for Malaysia’s tourist industry, which has seen huge growth since 1999. It is the fastest growing major tourist market for Malaysia, recording a five year CAGR of 30%. Malaysia Airlines and AirAsia are increasing the frequency of flights to China, as well as the number of destinations. Malaysia is a relatively inexpensive holiday destination, has a common language and gaming – all within a relatively short flight time.
With the relaxation of visa issuance, this has resulted in a flood of mainland Chinese tourist and educational tourism from China is another key attraction that this country is offering, given the English medium available and the relatively low cost of studying in Malaysia.
If we can improve the level of general service, reduce corruption and increase the confidence in the legal system, we stand a good chance of continued growth as the regional service centre.
China is already a significant net importer of Malaysia’s goods. China’s trade deficit has widened considerably from US$3bn in 2001 to recent more than US$10bn.
China is now the third largest export market for Malaysia and is showing strong potential to be the second largest export market to overtake Singapore.
As China’s economy growing, further development of Malaysia’s upstream and downstream oil & gas industry has already found its way into China. Likewise, China is the largest importer of Malaysian palm oil with about a quarter of total Malaysian CPO exports year to date and our export market may expand further following the government-to-government barter trade over the KTM railway project between Malaysia, India and China. China accounts for 13% of global oil and fats production, but is not self-sufficient and is therefore, a major importer.
Meanwhile, China is the third largest market, after Japan and India for Sarawakian logs and plywood. Hence, a strong China’s construction sector should be positive for the Malaysian timber industry. China is also an important market for Malaysia’s tourist industry, which has seen huge growth since 1999. It is the fastest growing major tourist market for Malaysia, recording a five year CAGR of 30%. Malaysia Airlines and AirAsia are increasing the frequency of flights to China, as well as the number of destinations. Malaysia is a relatively inexpensive holiday destination, has a common language and gaming – all within a relatively short flight time.
With the relaxation of visa issuance, this has resulted in a flood of mainland Chinese tourist and educational tourism from China is another key attraction that this country is offering, given the English medium available and the relatively low cost of studying in Malaysia.
If we can improve the level of general service, reduce corruption and increase the confidence in the legal system, we stand a good chance of continued growth as the regional service centre.
Thursday, March 26, 2009
China Means Business
At the end of 2008, China owned US$727.4 billion worth of U.S. Treasury bonds. And Japan was second, at US$626 billion. Japan has drastically curtailed buying U.S. bonds now that its economy is in shambles. But China has been — and continues to be — the most important lender to the U.S., and that essentially funding a big chunk of President Obama's US$787-billion economic stimulus plan.
In the closing press conference of China’s National People’s Congress – China’s annual legislative session - Chinese Premier Wen Jiabao dropped this verbal bomb on the Obama administration.
"To be honest, I am definitely a little worried. We have loaned huge amounts of money to the United States, so of course, we have to be concerned. We hope the United States honors its word and ensures the safety of Chinese assets."
They are a clear message to the Obama administration that it needs to stop spending like a drunken sailor if it expects the rest of the world to buy U.S. government bonds. The line of Chinese policymakers, economists, and scholars voicing concerns about investing too much of their country's $2 trillion surplus in U.S. debt is growing longer and longer. Many are urging diversifying out of U.S. bonds and into more tangible assets such as natural resources and gold.
Last summer, China's big state-owned banks — such as the Bank of China and the Bank of Communications — began dramatically reducing their holdings in Fannie Mae and Freddie Mac debt. It turns out the Chinese made a pretty savvy move ... Fannie Mae and Freddie Mac bonds have gotten annihilated since then. Now, the Chinese are concerned that U.S. Treasury debt could suffer as well.
If you're a fixed-income investor, you could shorten the maturities of your bond portfolio. The Obama administration can't spend, spend, spend without creating a big inflationary problem down the road. That means long-term bonds are the very last thing you want to be holding when inflation takes off.
Another high-profit strategy is to bet that the U.S. dollar is headed for trouble. The Merck Hard Currency (MERKX) fund invests in the currencies of countries with the strongest economies and budget surpluses and could do very well if the U.S. dollar falls. A lot lower!
In the closing press conference of China’s National People’s Congress – China’s annual legislative session - Chinese Premier Wen Jiabao dropped this verbal bomb on the Obama administration.
"To be honest, I am definitely a little worried. We have loaned huge amounts of money to the United States, so of course, we have to be concerned. We hope the United States honors its word and ensures the safety of Chinese assets."
They are a clear message to the Obama administration that it needs to stop spending like a drunken sailor if it expects the rest of the world to buy U.S. government bonds. The line of Chinese policymakers, economists, and scholars voicing concerns about investing too much of their country's $2 trillion surplus in U.S. debt is growing longer and longer. Many are urging diversifying out of U.S. bonds and into more tangible assets such as natural resources and gold.
Last summer, China's big state-owned banks — such as the Bank of China and the Bank of Communications — began dramatically reducing their holdings in Fannie Mae and Freddie Mac debt. It turns out the Chinese made a pretty savvy move ... Fannie Mae and Freddie Mac bonds have gotten annihilated since then. Now, the Chinese are concerned that U.S. Treasury debt could suffer as well.
If you're a fixed-income investor, you could shorten the maturities of your bond portfolio. The Obama administration can't spend, spend, spend without creating a big inflationary problem down the road. That means long-term bonds are the very last thing you want to be holding when inflation takes off.
Another high-profit strategy is to bet that the U.S. dollar is headed for trouble. The Merck Hard Currency (MERKX) fund invests in the currencies of countries with the strongest economies and budget surpluses and could do very well if the U.S. dollar falls. A lot lower!
Wednesday, March 25, 2009
My Random Walk
Taiwan’s february export orders continued to contract in year-on-year terms, but the extent of contraction has eased compared to -41.7% in Jan09. Aside from the base effects resulting from Chinese New Year, there has been news that electronics industry received rush orders since last month, due to the restocking needs of downstream clients, and reviving demand from China due to Chinese government’s promotion of a home appliance subsidy program in rural regions. Manufacturers are under less pressure to cut industrial capacity, as they have cleared out some of the inventory overhang through drastic production reduction in the past several months, although inventories remain high if compared to the current shipment levels.
With effect from yesterday, the official trading band for USD/VND is wider at ±5% compared to ±3% previously. The decision to widen the band was announced by the Vietnamese government yesterday, one day after its economic growth estimate for 1Q09 to 3.1% from 4.0-4.5% previously. The last band widening occurred last
November - one month before the government devalued by 3% in December. The above developments affirm my view for the VND to depreciate against USD by another 4% this year to 18200 because of slower economic growth. Historically, there is a strong correlation between the annual depreciation pace of the VND and real GDP growth in Vietnam.
Changes in the local currency government bond auction calendar released by Bank Negara Malaysia on March 20 have been positive for the MGS market. The government is scrapping 10Y and 20Y auctions and moving supply to the front end of the yield curve in response to sharply higher yields at the long-end and in anticipation that funding its stimulus package will be easier with shorter-dated bonds than longer-dated bonds. At this point demand remains a big question mark and long-end yields could rise again. I continue to prefer long positions at the front end of the MGS curve. The 3Y MGS yield, because of supply concerns, is trading way above what I would consider a fair-value range.
Last but not least, house prices in Dubai dropped 19.1% in 4Q2008 as investors pulled out of an over-supplied market, according to a new survey published on Monday, but overall values climbed 10.8 percent last year. Just under 50 percent of the 55 locations surveyed across the world recorded positive price growth on an annual basis in 2008, according to the 2009 UK property adviser’s Knight Frank/Citi Private Bank Wealth Report.
With effect from yesterday, the official trading band for USD/VND is wider at ±5% compared to ±3% previously. The decision to widen the band was announced by the Vietnamese government yesterday, one day after its economic growth estimate for 1Q09 to 3.1% from 4.0-4.5% previously. The last band widening occurred last
November - one month before the government devalued by 3% in December. The above developments affirm my view for the VND to depreciate against USD by another 4% this year to 18200 because of slower economic growth. Historically, there is a strong correlation between the annual depreciation pace of the VND and real GDP growth in Vietnam.
Changes in the local currency government bond auction calendar released by Bank Negara Malaysia on March 20 have been positive for the MGS market. The government is scrapping 10Y and 20Y auctions and moving supply to the front end of the yield curve in response to sharply higher yields at the long-end and in anticipation that funding its stimulus package will be easier with shorter-dated bonds than longer-dated bonds. At this point demand remains a big question mark and long-end yields could rise again. I continue to prefer long positions at the front end of the MGS curve. The 3Y MGS yield, because of supply concerns, is trading way above what I would consider a fair-value range.
Last but not least, house prices in Dubai dropped 19.1% in 4Q2008 as investors pulled out of an over-supplied market, according to a new survey published on Monday, but overall values climbed 10.8 percent last year. Just under 50 percent of the 55 locations surveyed across the world recorded positive price growth on an annual basis in 2008, according to the 2009 UK property adviser’s Knight Frank/Citi Private Bank Wealth Report.
Tuesday, March 24, 2009
Oil Reboot
I am seeing oil prices at US$50-55 this year, then US$60-65 in 2010 and US$70-80 in 2011, guided by stability in demand, working off the inventory pile and fear of depletion whittled away at OPEC’s spare crude capacity.
There are signs that the worst is over in some markets, but the data is inconclusive as the global stockpile needs to be worked down to flatten NYMEX contango. Now, US gasoline prices relative are back in-line with the 18 year period of cheap gasoline from 1986-2004 – conditions are in place for positive price elasticity. Its role in dragging down the global oil demand will now likely fade. Gasoline is the dominant oil product in North America but 55% of oil consumption is made up of diesel, heating oil, jet fuel, residual fuel oil, plus propane and various chemical feedstocks.
China’s oil demand has generated its fair share of headlines over the years. If China can successfully stimulate its economy, the period of sharp year-on-year declines could be relatively short. Coastal provinces like Guangdong have lead the declines in oil demand just as they have lead declines in general industrial activity. I think China demand could be in the process of bottoming. The recent China PMI survey recovered to 49 from 34 at its lowest point, suggesting that China’s oil demand should improve from the Jan and Feb low point.
I argued that China’s strategic reserve building could provide support to demand. The first phase of the strategic reserve tanks – about 13.6mn tons or 100mn barrels – have already been built. Recent data suggests that China added about 7.3mn barrels (1mn tons) of inventory in late 2008 and recent comments by officials suggest that the Phase 1 of strategic reserves may in fact already be full and I believe China is now planning for Phase 2 of its strategic reserve with a target completion in 2011, with an indication of 8 sites with a total capacity of 23mn tones or 169mn barrels.
And the Middle East, which is generally analyzed as a key player for oil supply, in the past few years has been an important source of demand growth. Middle East oil consumption is dominated by Iran and Saudi Arabia, which together make up over half of the region’s demand. Saudi Arabia has accumulated a good amount of surplus capital and is expected to direct this towards large scale public works in this challenging time.
The good news is that OPEC is taking fairly aggressive measures to prevent inventories from building further past the normal 2Q rise. From a peak of over 32MBD in August 2008, OPEC’s February output looks to have fallen to somewhere around 28.5MBD – the sharpest reduction in recent years. I expect global oil inventories to peak at some point in 2Q09 before drawing down gradually in 3Q09 and more meaningful throughout 2010.
There are signs that the worst is over in some markets, but the data is inconclusive as the global stockpile needs to be worked down to flatten NYMEX contango. Now, US gasoline prices relative are back in-line with the 18 year period of cheap gasoline from 1986-2004 – conditions are in place for positive price elasticity. Its role in dragging down the global oil demand will now likely fade. Gasoline is the dominant oil product in North America but 55% of oil consumption is made up of diesel, heating oil, jet fuel, residual fuel oil, plus propane and various chemical feedstocks.
China’s oil demand has generated its fair share of headlines over the years. If China can successfully stimulate its economy, the period of sharp year-on-year declines could be relatively short. Coastal provinces like Guangdong have lead the declines in oil demand just as they have lead declines in general industrial activity. I think China demand could be in the process of bottoming. The recent China PMI survey recovered to 49 from 34 at its lowest point, suggesting that China’s oil demand should improve from the Jan and Feb low point.
I argued that China’s strategic reserve building could provide support to demand. The first phase of the strategic reserve tanks – about 13.6mn tons or 100mn barrels – have already been built. Recent data suggests that China added about 7.3mn barrels (1mn tons) of inventory in late 2008 and recent comments by officials suggest that the Phase 1 of strategic reserves may in fact already be full and I believe China is now planning for Phase 2 of its strategic reserve with a target completion in 2011, with an indication of 8 sites with a total capacity of 23mn tones or 169mn barrels.
And the Middle East, which is generally analyzed as a key player for oil supply, in the past few years has been an important source of demand growth. Middle East oil consumption is dominated by Iran and Saudi Arabia, which together make up over half of the region’s demand. Saudi Arabia has accumulated a good amount of surplus capital and is expected to direct this towards large scale public works in this challenging time.
The good news is that OPEC is taking fairly aggressive measures to prevent inventories from building further past the normal 2Q rise. From a peak of over 32MBD in August 2008, OPEC’s February output looks to have fallen to somewhere around 28.5MBD – the sharpest reduction in recent years. I expect global oil inventories to peak at some point in 2Q09 before drawing down gradually in 3Q09 and more meaningful throughout 2010.
Monday, March 23, 2009
Lessons from GE
No central banker wants to be caught dead talking about deflation or depression, and Fed head Ben Bernanke is no different. Although he knows more about what happened during the Great Depression than most people, because it was his field of economic study, he would rather not talk about d-words like depression and deflation but the Federal Reserve has embarked on the great experiment of our time, quantitative easing; also known as monetization of the debt; also known as creating money out of thin air - to buy U.S. Treasuries in a desperate effort to stop deflation.
During depressions, many businesses make a fatal mistake: They lay off employees. Some businesses have no choice; if the product or service is related more to quantity than quality, then perhaps there is no alternative. But many businesses are far better served by keeping their employees and simply reducing compensation. That way, they can continue to serve customers with full quality and stand ready to lead the competition when the next economic expansion arrives. Surely most employees would rather endure an across-the-board salary cut than risk being laid off.
In the 1930s, General Electric polled its workers on this very question, and the majority agreed that they would rather endure salary reductions. A few years later, when the economy recovered, GE had all of its employees in place and did not have to spend years recruiting new people. It shot out of the gate in full operating mode. Moreover, the company had made progress improving designs and making plans during the lull. When business picked up, so did salaries. In the end, it was win-win for everyone.
Take, for example, a news service that needs to reduce costs. Instead of cutting staff by 50 percent, thereby forcing a radical reduction in the scope of the news coverage, it would make more sense to cut salaries by 50 percent and retain full service. If lowering the price of the service would keep the subscriber, viewer or listener base steady, or if reducing the cost of advertising would keep the support base steady, it would be better to make one of those moves rather than cutting staff. Either program would maintain quality and serve to keep the service in the forefront among news providers. Inflexible competitors would go out of business, thereby helping the survivors.
If an airline is in trouble, it should not cut routes and service while holding prices and salaries up. It should cut salaries and prices and continue serving the highest possible number of customers. That way, it will be the carrier of choice for many fliers when the economy returns to expansion mode. Again, everyone wins, including the employees.
This idea would work well for any business that does not have long term contracts—such as with labor unions or high-level employees—guaranteeing salaries. Even in such a case, negotiating reductions would be smarter than going bankrupt. This approach could work for many kinds of businesses: airlines, manufacturers, newspapers, shippers and sports teams, to name a few. If you work for a business for which this plan would serve, mention it to those in management. Even they would probably prefer a reduction in income to none at all.
During depressions, many businesses make a fatal mistake: They lay off employees. Some businesses have no choice; if the product or service is related more to quantity than quality, then perhaps there is no alternative. But many businesses are far better served by keeping their employees and simply reducing compensation. That way, they can continue to serve customers with full quality and stand ready to lead the competition when the next economic expansion arrives. Surely most employees would rather endure an across-the-board salary cut than risk being laid off.
In the 1930s, General Electric polled its workers on this very question, and the majority agreed that they would rather endure salary reductions. A few years later, when the economy recovered, GE had all of its employees in place and did not have to spend years recruiting new people. It shot out of the gate in full operating mode. Moreover, the company had made progress improving designs and making plans during the lull. When business picked up, so did salaries. In the end, it was win-win for everyone.
Take, for example, a news service that needs to reduce costs. Instead of cutting staff by 50 percent, thereby forcing a radical reduction in the scope of the news coverage, it would make more sense to cut salaries by 50 percent and retain full service. If lowering the price of the service would keep the subscriber, viewer or listener base steady, or if reducing the cost of advertising would keep the support base steady, it would be better to make one of those moves rather than cutting staff. Either program would maintain quality and serve to keep the service in the forefront among news providers. Inflexible competitors would go out of business, thereby helping the survivors.
If an airline is in trouble, it should not cut routes and service while holding prices and salaries up. It should cut salaries and prices and continue serving the highest possible number of customers. That way, it will be the carrier of choice for many fliers when the economy returns to expansion mode. Again, everyone wins, including the employees.
This idea would work well for any business that does not have long term contracts—such as with labor unions or high-level employees—guaranteeing salaries. Even in such a case, negotiating reductions would be smarter than going bankrupt. This approach could work for many kinds of businesses: airlines, manufacturers, newspapers, shippers and sports teams, to name a few. If you work for a business for which this plan would serve, mention it to those in management. Even they would probably prefer a reduction in income to none at all.
Thursday, March 19, 2009
Grandfather’s Recession
Financial sector credit spreads led credit markets wider as plunging equities reflect growing uncertainty over government intervention in financial market. The risks shifted to government, a transfer highlighted by the quintupling of sovereign CDS spreads. Prices on defaulted corporate bonds and loans continued to trend lower over the course of last year and fell of a cliff in the past few months. As we move forward, these rates are likely to be pushed even lower and the primary reason for this is the inverse relationship between recoveries and defaults – as defaults rise, recoveries are invariably pushed lower and vice versa.
With delayed balance sheet repair in the financial sector, in a dramatic change since mid-January investors now expect no further improvement in the short-term markets this year judging from forward starting LIBOR spreads over expected Fed Funds.
US real GDP is now forecasted at -3% - the worst since 1946. Capacity utilization rates break below 70% - bad news for capex. Cup half full – near-way point of the recession.
Housing recession continues unabated with unsold housing inventories still near record highs. Home sales hit new cycle lows with vivid signs of mortgage market contraction. Based on the University of Michigan Consumer Sentiment Survey that less than 3% of respondents saying housing are a good investment and prices are going higher.
Gold is in secular bull market with bullish call on gold supply that reflects relative supply and demand.
Although Chairman Bernanke argued that the economy could see stabilization this year, he also noted that an unemployment rate above 10% was possible. Additionally, he also noted that the fiscal stimulus will make a ‘significant dent’ in the economic downturn and went on to say that he was not worried about inflation or deflation, but growth. After all, this crisis was not a housing crisis, it was the long-discussed current account imbalance story come due.
Many experts are now calling for the Obama administration to focus on the fundamentals. They want him to drop some of its ancillary pet projects such as healthcare reform and are telling President Obama to focus all his time and resources on arresting the economy’s slide and hastening its subsequent rebound. Economists and other experts are already calling for the recession to last longer than had been expected; some are even calling for four more years of pain; a longer recession, followed by slow recovery that could have the malaise afflicting global economy until 2013.
With delayed balance sheet repair in the financial sector, in a dramatic change since mid-January investors now expect no further improvement in the short-term markets this year judging from forward starting LIBOR spreads over expected Fed Funds.
US real GDP is now forecasted at -3% - the worst since 1946. Capacity utilization rates break below 70% - bad news for capex. Cup half full – near-way point of the recession.
Housing recession continues unabated with unsold housing inventories still near record highs. Home sales hit new cycle lows with vivid signs of mortgage market contraction. Based on the University of Michigan Consumer Sentiment Survey that less than 3% of respondents saying housing are a good investment and prices are going higher.
Gold is in secular bull market with bullish call on gold supply that reflects relative supply and demand.
Although Chairman Bernanke argued that the economy could see stabilization this year, he also noted that an unemployment rate above 10% was possible. Additionally, he also noted that the fiscal stimulus will make a ‘significant dent’ in the economic downturn and went on to say that he was not worried about inflation or deflation, but growth. After all, this crisis was not a housing crisis, it was the long-discussed current account imbalance story come due.
Many experts are now calling for the Obama administration to focus on the fundamentals. They want him to drop some of its ancillary pet projects such as healthcare reform and are telling President Obama to focus all his time and resources on arresting the economy’s slide and hastening its subsequent rebound. Economists and other experts are already calling for the recession to last longer than had been expected; some are even calling for four more years of pain; a longer recession, followed by slow recovery that could have the malaise afflicting global economy until 2013.
Wednesday, March 18, 2009
Beware of Scams
This issue, in my opinion, couldn’t be timelier. Here are some that I think you should be aware of and some that are just getting started. This was something that I shared with some of my close friends last Monday at our usual fishing trips.
• Foreclosure scams – the so-called ‘counselor’ tells the homeowner that he can negotiate a deal with their lender to save their home. In exchange for an exorbitant fee, the scam artist claims he will handle al the details. But once the fee is paid… That is not the worst nightmare ..imagine if you are duped into signing documents for what you might think as a new loan to bring the mortgage current. You may just signed forged documents ceding the title of the house to the scammer.. usually you would not know you have been scammed until you get an eviction notice. Foreclosure scams are rampant in today’s depressed housing market.
• Debt elimination/ reduction scams. There are all over the place now and if you are not careful, you are not only saddled with excessively high fees, but fails to pay creditors as promised, or do other shady things that put you in a worse financial position. If you need help with debt problems, take time to seek out government-sponsored credit counseling organization.
• High-return investment and savings pitches. Preying on investors’ desire to earn back losses or get higher returns on savings. The pitches can run the gamut from ‘risk-free’ investment in the stock market to certificates of deposit yielding 6%,7% or even more. If you are offered, say a savings interest rate that is more than 3% or 4% above market rates, it’s probably a scam… your best defense – use common sense – if an investment sounds too good to be true, it probably is.
• Job, unemployment and income-related scams. Running the gamut now to include everything from offering ‘job insurance’ which allegedly covers you if you are laid off .. to guaranteeing they will find you a job … to promises of riches from part time home biz opportunities. Many are not.
• Mystery shopping scams. Classified ads or unsolicited emails, where the scammer claims they are sending you a check but instructing you to make purchases and then, after deducting a ‘commission’ to wire the remaining funds back. Fake checks are now showing up in lottery scams, internet auction scams and rental scams. They look real, but they are just a way to steal your money.
My survival trick is that never respond to any calls, emails, advertisement I received and now is the time to be more vigilantly protecting your money than ever before!
• Foreclosure scams – the so-called ‘counselor’ tells the homeowner that he can negotiate a deal with their lender to save their home. In exchange for an exorbitant fee, the scam artist claims he will handle al the details. But once the fee is paid… That is not the worst nightmare ..imagine if you are duped into signing documents for what you might think as a new loan to bring the mortgage current. You may just signed forged documents ceding the title of the house to the scammer.. usually you would not know you have been scammed until you get an eviction notice. Foreclosure scams are rampant in today’s depressed housing market.
• Debt elimination/ reduction scams. There are all over the place now and if you are not careful, you are not only saddled with excessively high fees, but fails to pay creditors as promised, or do other shady things that put you in a worse financial position. If you need help with debt problems, take time to seek out government-sponsored credit counseling organization.
• High-return investment and savings pitches. Preying on investors’ desire to earn back losses or get higher returns on savings. The pitches can run the gamut from ‘risk-free’ investment in the stock market to certificates of deposit yielding 6%,7% or even more. If you are offered, say a savings interest rate that is more than 3% or 4% above market rates, it’s probably a scam… your best defense – use common sense – if an investment sounds too good to be true, it probably is.
• Job, unemployment and income-related scams. Running the gamut now to include everything from offering ‘job insurance’ which allegedly covers you if you are laid off .. to guaranteeing they will find you a job … to promises of riches from part time home biz opportunities. Many are not.
• Mystery shopping scams. Classified ads or unsolicited emails, where the scammer claims they are sending you a check but instructing you to make purchases and then, after deducting a ‘commission’ to wire the remaining funds back. Fake checks are now showing up in lottery scams, internet auction scams and rental scams. They look real, but they are just a way to steal your money.
My survival trick is that never respond to any calls, emails, advertisement I received and now is the time to be more vigilantly protecting your money than ever before!
Tuesday, March 17, 2009
Economics Nightmare Far From Over, But Market Bottom Nearing
The broad stock markets are now within an important timing window for a major low. Next month – April could possibly mark the low for stocks for the year. I can’t tell you exactly where the low will come in, but I do know that it will bottom next month, then a stage for a multi-month powerful rally.
Oil has bottomed. It will likely hit US$50 net, then US$75-80 level. Keep in mind, oil likes gold, tends to lead the economy, not lag it. The fundamental explanations from the media will come after the fact. As long as gold can bold at $891, it has the potential to move to as high as $1,250 an ounce on its next leg up. While one could argue that the US dollar is firm, I see this more of short-term and very soon we will see a protracted decline in the greenback as the Fed’s flooding of the economy and monetization of debt begins to inflate asset prices and deflate the dollar.
The long term bond markets are a disaster in the making, especially long-term US treasury bonds with at least US$2 trillion in debt auctions this year from the Treasury.
After all these years in market, I know that beneath the surface of every bear market lies new scams being hatched …All told, I count at least 130 new scams lurking out there right now – along with many old scams with new twists.
On the other side of coin, more graduates have joined the jobless ranks as companies hit by the economic downturn shed workers. In Singapore, the number of degree holders who lost their jobs rose sharply to 14,800, or 21 per cent in December, up from 6,200, or 14 per cent a year ago, according to the Ministry of Manpower labour market report released on Monday. The BBC reported that there is now an average of 10 jobseekers for every vacancy advertised in the UK. The situation is worst in the south east of England, where the trade union body said its research found 60 people chasing each job. Meanwhile, Australia has said it will cut the number of skilled foreign workers it accepts by 14% to safeguard local jobs. Immigration Minister Chris Evans announced the cut, the first by the country in 10 years.
The unemployed desperate to find new jobs. Even those gainfully employed, but worried about their jobs and those seeking second incomes from part-time jobs and even home-biz opportunities. Small and medium-sized businesses looking for short-term credit lines and financing needs. Senior citizens are especially vulnerable to scams today because they largely rely on fixed incomes – where interest rates are now effectively zero.
Oil has bottomed. It will likely hit US$50 net, then US$75-80 level. Keep in mind, oil likes gold, tends to lead the economy, not lag it. The fundamental explanations from the media will come after the fact. As long as gold can bold at $891, it has the potential to move to as high as $1,250 an ounce on its next leg up. While one could argue that the US dollar is firm, I see this more of short-term and very soon we will see a protracted decline in the greenback as the Fed’s flooding of the economy and monetization of debt begins to inflate asset prices and deflate the dollar.
The long term bond markets are a disaster in the making, especially long-term US treasury bonds with at least US$2 trillion in debt auctions this year from the Treasury.
After all these years in market, I know that beneath the surface of every bear market lies new scams being hatched …All told, I count at least 130 new scams lurking out there right now – along with many old scams with new twists.
On the other side of coin, more graduates have joined the jobless ranks as companies hit by the economic downturn shed workers. In Singapore, the number of degree holders who lost their jobs rose sharply to 14,800, or 21 per cent in December, up from 6,200, or 14 per cent a year ago, according to the Ministry of Manpower labour market report released on Monday. The BBC reported that there is now an average of 10 jobseekers for every vacancy advertised in the UK. The situation is worst in the south east of England, where the trade union body said its research found 60 people chasing each job. Meanwhile, Australia has said it will cut the number of skilled foreign workers it accepts by 14% to safeguard local jobs. Immigration Minister Chris Evans announced the cut, the first by the country in 10 years.
The unemployed desperate to find new jobs. Even those gainfully employed, but worried about their jobs and those seeking second incomes from part-time jobs and even home-biz opportunities. Small and medium-sized businesses looking for short-term credit lines and financing needs. Senior citizens are especially vulnerable to scams today because they largely rely on fixed incomes – where interest rates are now effectively zero.
Monday, March 16, 2009
Moves To Make Now
The last 12 months have felt like a cross between Dante’s Ninth Circle of Hell and Mr. Toad’s Wild Ride.
So far, the almost euphoric run-up in stock prices seems less like a testament to savvy bailout strategies than it is a revelation of how desperate investors are right now for any glimmer of hope. Bear market rallies are actually common than most people realize and the one we experienced late last year is a great case in point. It started in late November and advanced a total of 20% in the subsequent seven weeks before it headed south again.
I fully agree with that arguments especially major institutions are functionally insolvent and in a market as unpredictable as this one, however, I am less concerned with short-term rallies than I am with long-term investing success.
We are experiencing some good news with Pandit’s Citi memo that provided the first real glimpse of hope in months. One should be aware that investors have trillions of dollars in cash on the sidelines and it is widely assumed that this money will come roaring in and will somehow help the markets recover faster than they would otherwise.
We are now sitting just above the market’s 12 year lows. History shows we’ve been here twice – once following the Great Crash of 1929 and once in the early 1970s. Both cases turned out to be the kind of phenomenal long-term buying opportunities that I said this financial crisis will turn into once the carnage stops. From a psychological standpoint, the depth of this market decline begs the question ‘How much further can it go?”
I am advocating of having a disciplined and well-thought investment plan right now – firstly by make a wish list of stocks you want to own, secondly, don’t bet the farm on all-or-nothing assumption that ‘the’ bottom has been reached, thirdly, don’t confuse the desire to make up losses with an actual long-term investing perspective. If you are anxious to jump the gun and get in, make sure you are doing so because you are going after your ‘A’ list of companies and are not merely trying to recoup losses that require you to take on more risk than you would otherwise be comfortable with.
Remember, the reason why most people have gotten hurt so badly is that they came into this mess by having too much stock and subsequently to much risk – a lesson best not repeated the next time around.
So far, the almost euphoric run-up in stock prices seems less like a testament to savvy bailout strategies than it is a revelation of how desperate investors are right now for any glimmer of hope. Bear market rallies are actually common than most people realize and the one we experienced late last year is a great case in point. It started in late November and advanced a total of 20% in the subsequent seven weeks before it headed south again.
I fully agree with that arguments especially major institutions are functionally insolvent and in a market as unpredictable as this one, however, I am less concerned with short-term rallies than I am with long-term investing success.
We are experiencing some good news with Pandit’s Citi memo that provided the first real glimpse of hope in months. One should be aware that investors have trillions of dollars in cash on the sidelines and it is widely assumed that this money will come roaring in and will somehow help the markets recover faster than they would otherwise.
We are now sitting just above the market’s 12 year lows. History shows we’ve been here twice – once following the Great Crash of 1929 and once in the early 1970s. Both cases turned out to be the kind of phenomenal long-term buying opportunities that I said this financial crisis will turn into once the carnage stops. From a psychological standpoint, the depth of this market decline begs the question ‘How much further can it go?”
I am advocating of having a disciplined and well-thought investment plan right now – firstly by make a wish list of stocks you want to own, secondly, don’t bet the farm on all-or-nothing assumption that ‘the’ bottom has been reached, thirdly, don’t confuse the desire to make up losses with an actual long-term investing perspective. If you are anxious to jump the gun and get in, make sure you are doing so because you are going after your ‘A’ list of companies and are not merely trying to recoup losses that require you to take on more risk than you would otherwise be comfortable with.
Remember, the reason why most people have gotten hurt so badly is that they came into this mess by having too much stock and subsequently to much risk – a lesson best not repeated the next time around.
Wednesday, March 11, 2009
The End of America?
Throughout this crisis, I have been approached repeatedly by people from all walks of life asking the question – Is this the end of America as we know it? Are we finally at the point, where the country and its economy have begun the downward spiral that will end the hegemony of the United States since World War II?
I am 41 years old and this is at least the third bout of self confidence I have seen the US economy struggle with. Those earlier struggles in 1973-75 and 1981-82 coincided with relatively long and deep recessions. And experience in 1990/91 and 2001 were relatively lighter and less brutal. I notice that the current recession shares a great many similarities with those earlier downturns and I may go as far as to say that the current recession incorporates the worst qualities of the two deepest prior post-war recessions. The hit to consumer confidence and the nation’s psyche are understandable.
Low energy prices helped sow the seeds of the housing boom and bust of the early 1970s, which also allowed monetary and fiscal policies to be far looser than they otherwise would have been. Then problematic inflation since late 1960s drove up demand for hard assets – real estates – especially gold could not be purchased privately back then and interest on savings accounts were limited by law.
And in the eighties, it took another couple of recessions to finally cleanse the system of inflationary pressures built up in the 1970s. The 1980s recession was primarily by President Carter’s attempt to rein in inflation by imposing credit controls. The prime rate shot up to 20%. The only thing reined in, however, was growth.
And in the 1990s and early 2001, the US economy was greeted by short and shallow recessions and that many of the excesses build up during the boom times did not have enough time to completely unwind. The hangover of these periods has made a rerun in everything in life.
As we saw a generation earlier with the first oil shock, this recession will become a major transformational event as it marks the end of the era of easy and abundant credits, just as the 1973/75 which marked the end of the era of cheap and abundant energy. Monetary policy ultimately ended virtually every recession during the postwar era and it will likely to again play a prominent role in ending this downturn. There is no quick fix, however, which means that once the economy does recover, the pace of economic growth will have trouble sustaining the pace of growth seen in the 1980s and 1990s.
I am 41 years old and this is at least the third bout of self confidence I have seen the US economy struggle with. Those earlier struggles in 1973-75 and 1981-82 coincided with relatively long and deep recessions. And experience in 1990/91 and 2001 were relatively lighter and less brutal. I notice that the current recession shares a great many similarities with those earlier downturns and I may go as far as to say that the current recession incorporates the worst qualities of the two deepest prior post-war recessions. The hit to consumer confidence and the nation’s psyche are understandable.
Low energy prices helped sow the seeds of the housing boom and bust of the early 1970s, which also allowed monetary and fiscal policies to be far looser than they otherwise would have been. Then problematic inflation since late 1960s drove up demand for hard assets – real estates – especially gold could not be purchased privately back then and interest on savings accounts were limited by law.
And in the eighties, it took another couple of recessions to finally cleanse the system of inflationary pressures built up in the 1970s. The 1980s recession was primarily by President Carter’s attempt to rein in inflation by imposing credit controls. The prime rate shot up to 20%. The only thing reined in, however, was growth.
And in the 1990s and early 2001, the US economy was greeted by short and shallow recessions and that many of the excesses build up during the boom times did not have enough time to completely unwind. The hangover of these periods has made a rerun in everything in life.
As we saw a generation earlier with the first oil shock, this recession will become a major transformational event as it marks the end of the era of easy and abundant credits, just as the 1973/75 which marked the end of the era of cheap and abundant energy. Monetary policy ultimately ended virtually every recession during the postwar era and it will likely to again play a prominent role in ending this downturn. There is no quick fix, however, which means that once the economy does recover, the pace of economic growth will have trouble sustaining the pace of growth seen in the 1980s and 1990s.
Sunday, March 8, 2009
Quantitative Easing – Our Way of Life?
This may sound too far fetched, but if you have been reading and monitoring global news, it is not something alien enough to investing community. I was told once by my mentor that ability to foresee the future is one of the key distinguishing factors in making an excellent and a mediocre fund manager.
I put it to you that Malaysia is not too far from quantitative easing – a simple term of debt monetization that a technique that is well accepted in the West, though its long term consequential effects remain debatable.
The US is already in advanced stage of debt monetization after its Fed fund rate is already hitting the floor. Further cut in official interest rate will only worsen market confidence, and instead of narrowing the credit spread, it could potentially lead to widening of credit spread in the long end of the curve. At the February meeting, the Monetary Policy Committee of United Kingdom, voted unanimously to seek the Chancellor’s permission to engage in quantitative easing. The Bank of England is already purchasing certain private sector assets (commercial paper) through the 50bn pound T-bill funded Asset Purchase Facility (APF) and plans to acquire selected corporate and bank bonds in the near future.
What is the chance that we are the next candidate for quantitative easing? I would say more than 50% chance for couple of reasons.
Reason 1 – BNM is close to exhausting its traditional option. It has lowered the OPR 150bps since November 2008 to 2%. Another 50bps possibility cannot be denied, even the Governor Zeti claimed that Bank Negara has mostly front-loaded the rate, and too low the rate is not the right strategy for the country.
Reason 2 – Inflation outlook – since the drop of oil prices, central projections are showing inflation may markedly below target over the medium term.
Reason 3 – Money velocity has been easing quite drastically and it raises the risk of liquidity trap, if this risk is not addressed promptly.
Reason 4 – Fiscal impulse can be far lesser than initial projection, if financial disintermediation is not as strong as we thought, if market confidence deteriorated further.
Reason 5 – Erosion of market confidence as today’s economic troubles do not occur in isolation. Optimistic says our nation has faced similar challenges before and overcome then. My take – this downturn is transformational that will dramatically change the way our as well as global economy has operated since.
Next question to ask – is how this quantitative easing take place in Malaysia and what would be implication for everyone of us?
I put it to you that Malaysia is not too far from quantitative easing – a simple term of debt monetization that a technique that is well accepted in the West, though its long term consequential effects remain debatable.
The US is already in advanced stage of debt monetization after its Fed fund rate is already hitting the floor. Further cut in official interest rate will only worsen market confidence, and instead of narrowing the credit spread, it could potentially lead to widening of credit spread in the long end of the curve. At the February meeting, the Monetary Policy Committee of United Kingdom, voted unanimously to seek the Chancellor’s permission to engage in quantitative easing. The Bank of England is already purchasing certain private sector assets (commercial paper) through the 50bn pound T-bill funded Asset Purchase Facility (APF) and plans to acquire selected corporate and bank bonds in the near future.
What is the chance that we are the next candidate for quantitative easing? I would say more than 50% chance for couple of reasons.
Reason 1 – BNM is close to exhausting its traditional option. It has lowered the OPR 150bps since November 2008 to 2%. Another 50bps possibility cannot be denied, even the Governor Zeti claimed that Bank Negara has mostly front-loaded the rate, and too low the rate is not the right strategy for the country.
Reason 2 – Inflation outlook – since the drop of oil prices, central projections are showing inflation may markedly below target over the medium term.
Reason 3 – Money velocity has been easing quite drastically and it raises the risk of liquidity trap, if this risk is not addressed promptly.
Reason 4 – Fiscal impulse can be far lesser than initial projection, if financial disintermediation is not as strong as we thought, if market confidence deteriorated further.
Reason 5 – Erosion of market confidence as today’s economic troubles do not occur in isolation. Optimistic says our nation has faced similar challenges before and overcome then. My take – this downturn is transformational that will dramatically change the way our as well as global economy has operated since.
Next question to ask – is how this quantitative easing take place in Malaysia and what would be implication for everyone of us?
Thursday, March 5, 2009
Don’t Think, We are Sinking
For God’s sake, I am an action-oriented guy. Talking is just not my strength, but I am living in a country that talking is seen as virtue. If the NBER sees that December 2007 is the dating-start of US recession, then we are already in the 14th month of dark-ages, and I have seen enough of downward revision of Malaysia’s GDP in recent weeks, from once of what I believe as super-bullish at the very first place to a super-bearish now.
Malaysia’s 4Q GDP numbers, indeed are right enough to lead us to believe that there are material risks that we will soon show a negative number and if we continue to do GATT (general agreement to talk and talk), the deeply negative 1Q and 2Q of 2009 soon to be a foregone conclusion.
I have seen some tentative signs in some countries in Asia are showing signs of improvement for a simple fact that they are reacting fast enough, even though a smooth transition from export-led to domestic-led growth is far from guaranteed.
March 10 will be the day that will decide how well we can navigate through this storm. The best and the fastest way is to give money direct to everyone, including me. Going via another intermediary like construction sector will have a delay impact on the recovery and we know jolly-well kind of leakages are real possibility, if one to judge by the severity of our government in driving the newly minted anti-corruption agency.
Cutting interest rates is an option, but the onus of supporting the economy have shifted from monetary to fiscal policy more in reaction to events. My biggest concern is that further cut in interest rate without a right fiscal engine is that it will bring to a partial collapse of market confidence on strength of our financial system. Banking institutions could face real challenge in maintaining public confidence, if they continue to see rising pressure on NPLs, provisioning and ultimately the bottom-line. I think Bank Negara has done far more than fair on their part and if we are not careful, the next question to ask, even if March 10 event is taking place, is whether fiscal policy is sufficiently equipped to get us out of the current predicament.
Sound like an economist, of which, I would not refuse the credit, the fiscal stimulus, at the current scale, is extremely weak and it is not more than a drop in the ocean…
I can see that this country is having better fiscal lever to a great extent than the advanced economies, but I am still cautious with the way we administer this fiscal medicine, perhaps in bigger doses and more promptly. Otherwise, I cannot rule out the possibility of growing socio-political pressure in this country, as we are going through an important psychological aspects that are hard to predict in the aftermath of March 2008 elections.
Let me forewarn everyone here that I do not discount the need of another fiscal medication in the later part of the year, if labour market conditions deteriorate further, depending on the speed of implementation versus their medium to long-term effects on economic growth.
Malaysia’s 4Q GDP numbers, indeed are right enough to lead us to believe that there are material risks that we will soon show a negative number and if we continue to do GATT (general agreement to talk and talk), the deeply negative 1Q and 2Q of 2009 soon to be a foregone conclusion.
I have seen some tentative signs in some countries in Asia are showing signs of improvement for a simple fact that they are reacting fast enough, even though a smooth transition from export-led to domestic-led growth is far from guaranteed.
March 10 will be the day that will decide how well we can navigate through this storm. The best and the fastest way is to give money direct to everyone, including me. Going via another intermediary like construction sector will have a delay impact on the recovery and we know jolly-well kind of leakages are real possibility, if one to judge by the severity of our government in driving the newly minted anti-corruption agency.
Cutting interest rates is an option, but the onus of supporting the economy have shifted from monetary to fiscal policy more in reaction to events. My biggest concern is that further cut in interest rate without a right fiscal engine is that it will bring to a partial collapse of market confidence on strength of our financial system. Banking institutions could face real challenge in maintaining public confidence, if they continue to see rising pressure on NPLs, provisioning and ultimately the bottom-line. I think Bank Negara has done far more than fair on their part and if we are not careful, the next question to ask, even if March 10 event is taking place, is whether fiscal policy is sufficiently equipped to get us out of the current predicament.
Sound like an economist, of which, I would not refuse the credit, the fiscal stimulus, at the current scale, is extremely weak and it is not more than a drop in the ocean…
I can see that this country is having better fiscal lever to a great extent than the advanced economies, but I am still cautious with the way we administer this fiscal medicine, perhaps in bigger doses and more promptly. Otherwise, I cannot rule out the possibility of growing socio-political pressure in this country, as we are going through an important psychological aspects that are hard to predict in the aftermath of March 2008 elections.
Let me forewarn everyone here that I do not discount the need of another fiscal medication in the later part of the year, if labour market conditions deteriorate further, depending on the speed of implementation versus their medium to long-term effects on economic growth.
Wednesday, March 4, 2009
Proton – Do They Deserve A Second Change?
I was badly bitten by them once, when hopes were put on the merger or the sale of Proton to a foreign partner. It was rumored then that the decision had been firmed up, but till last minute change of mind by this country’s highest authority. I, other then crying out PAIN! PAIN! and PAIN!, nothing else that I can do, but continue to grumble about it.
Since then, Proton has been far outside my radar as its earnings pressure rising from failing unit sales and a weak local currency. Expectations are unusually low and I was told my brokers that Proton is now trading at 20% below cash and 83% below book. It is always my investing principle to look for some ‘dead chicken’ (in Cantonese ‘sei-kai’, especially as I review this stock over the week-end, I notice the news-flow has been increasingly positive, from the recent MOU with Mitsubishi to possible benefits under proposed mini-budget that likely to be announced on March 10.
I think losses will continue next few quarters, but chances of challenging record loss of RM633mn in FY07 are quite low. Valuation is looks desperate and supported by net cash of RM2.18 per share. Perhaps, what is lacking is the series of believable news-flow to convince me, as I already had paid quite heavy tuition fees to understand this animal.
The thing that really shag me is that this animal under normal circumstance is worth at least RM6, representing more than 100% return from current price. Let me qualify – that is the valuation given by my brokers, all right. I take it with a pinch of salt. Do you own valuation.
If I have to buy it, it would be on my pure bet on its tie-up with Mitsubishi, but I never ignore the fact that this animal will also look into a more than one strategic collaboration. The trust is no longer there, ok after you had been badly burnt by it.
I met former MD of Proton in fishing trip last week and was told the much-hype MPV called Proton Ezora, which is slated for launch in April, is a month delay from the initial target. The competitive price at under RM80,000 will be the last frontier to more than offset any loss in volumes from the economic downturn.
I like the fact that Proton following the change in Chairman and several changes in senior management post, including the employment of foreign directors for Marketing and Export divisions, is moving towards a more collaborative-centric business model instead of spending on R&D. Outside, Malaysia, the asset-light strategy by forming agreements with local partners is something I like to hear.
The JPY strengthening will significantly affect Proton’s earnings. But I see temporary respite as the currency losses its ‘safe-haven’ status as Japan’s economy deteriorates. Now, I will spend more time, instead, to monitor inventory levels for my possible re-entry, however, I note the inventory levels have increased in 3Q-4QFY09, and I checking if the one-shift from two of production since the start of 2009 is enough to normalize inventories.
Since then, Proton has been far outside my radar as its earnings pressure rising from failing unit sales and a weak local currency. Expectations are unusually low and I was told my brokers that Proton is now trading at 20% below cash and 83% below book. It is always my investing principle to look for some ‘dead chicken’ (in Cantonese ‘sei-kai’, especially as I review this stock over the week-end, I notice the news-flow has been increasingly positive, from the recent MOU with Mitsubishi to possible benefits under proposed mini-budget that likely to be announced on March 10.
I think losses will continue next few quarters, but chances of challenging record loss of RM633mn in FY07 are quite low. Valuation is looks desperate and supported by net cash of RM2.18 per share. Perhaps, what is lacking is the series of believable news-flow to convince me, as I already had paid quite heavy tuition fees to understand this animal.
The thing that really shag me is that this animal under normal circumstance is worth at least RM6, representing more than 100% return from current price. Let me qualify – that is the valuation given by my brokers, all right. I take it with a pinch of salt. Do you own valuation.
If I have to buy it, it would be on my pure bet on its tie-up with Mitsubishi, but I never ignore the fact that this animal will also look into a more than one strategic collaboration. The trust is no longer there, ok after you had been badly burnt by it.
I met former MD of Proton in fishing trip last week and was told the much-hype MPV called Proton Ezora, which is slated for launch in April, is a month delay from the initial target. The competitive price at under RM80,000 will be the last frontier to more than offset any loss in volumes from the economic downturn.
I like the fact that Proton following the change in Chairman and several changes in senior management post, including the employment of foreign directors for Marketing and Export divisions, is moving towards a more collaborative-centric business model instead of spending on R&D. Outside, Malaysia, the asset-light strategy by forming agreements with local partners is something I like to hear.
The JPY strengthening will significantly affect Proton’s earnings. But I see temporary respite as the currency losses its ‘safe-haven’ status as Japan’s economy deteriorates. Now, I will spend more time, instead, to monitor inventory levels for my possible re-entry, however, I note the inventory levels have increased in 3Q-4QFY09, and I checking if the one-shift from two of production since the start of 2009 is enough to normalize inventories.
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