Monday, June 30, 2008

An Investment Idea: YTL Corp -- Part II

I'm taking a closer look at YTL Corp when I saw them venturing into growing water industry in China.

From a big picture perspective, water infrastructure has been way under-invested since 1950.

I read in citing big water problem in China.

One official recently said China's problem is "more serious and urgent than [in] any other country in the world." China's rapid industrialization has outpaced its water infrastructure, which is on the verge of collapse. As Minister of Water Resources Wang Shucheng noted, "The price of China's economic boom is being paid in water." Two-thirds of China's 600 largest cities don't have enough water; half of these cities have polluted groundwater. Less than 15% of China's population has safe drinking water from tap. The recent spill in the Songhua River, widely covered in the media, only worsens the problem.

For further perspective, consider this: China has about as much water as Canada, but a population 40 times as large. On a per capita basis, China's water reserves are only about one-quarter of the global average. Worse, the distribution of people and water creates its own logistical obstacles. Nearly half of China's population resides in the northeastern provinces, where only 14% of the water resources are located.

These facts provide endless challenges for the Chinese. Water shortages are a serious threat to China's booming economy. It costs billions each year in lost output. Plus, water efficiency in China is way behind that of developed countries. As Dickerson says, for an equivalent amount of work, "China uses approximately 7-15 times more water than do developed countries, and with usable water supplies steadily diminishing, will not their competitive position also begin to erode?"

As a result of the urgency, China government allocated around RM 470 billion from 2006 - 2010 for water infrastructure projects.

Can YTL Corp translates this big picture into bottom line? If you asked me to define who is YTL Corp, it's a long term concessions and cement company though they put up impressive branding of Star Hill, Ritz Carton, software and etc.

Can recent tied up with AEH delivering meaningful earnings in short and medium term? Unlikely. Who is AEH? It has a revenue of RM 220 million(2006:130 million) in 2007, it's a relatively small company though has been growing very fast. Green field start up will take several years before it can contribute meaningfully.

Is there any other earning driver? Cement? They acquired Zhejiang Lin’an Jin Yuan Cement Co. Ltd. which is one of the top 5 in Hang Zhou. Again, my believe is if you cannot acquire no 1 or 2 market leader, it will take a long time to see results.

It will be a better idea to investigate the top leaders listed in Hong Kong Exchange to exploit the big picture of China. I'll revisit YTL Corp again if I can see new growth catalysts especially acquisitions. With that, I'm not going into valuation.

Sunday, June 29, 2008

Should I cut loss on Parkson? Part III

In my part II, I expressed the need to let subconscious minds to surface to understand our irrationality. I'm prepared to lose money if the company fundamental deteriorates, so eat the humble pie and move on. I'll continue to hold on to a stock unless I can confirm my investment thesis is wrong. Hold? Yes. Scoop up with two hands? wait for the right timing.

I'm still very bullish about Parkson group because they are targeting middle to upper middle end of consumers. They are carrying a lot of branded quality products. This should provide pretty strong earning growth, however, one thing we as passive investors must be aware, there are things beyond our control -- management can screw up things no matter how careful we are with our stock selection.

A company fundamentals deteriorates at the wrong time can be expensive. If a company fundamental deteriorates in a falling market, the stock price can fall pretty hard. Growth stock will typically do better in a bull market but it will also fall pretty hard during bear market due to losing price momentum. This is an excellence investment opportunity but catching the right timing is extremely important.

One of the things worrying me is high crude oil price. There is no doubt that China is still pretty resilient in their consumer spending, however with the continuous petrol price hike, it may hit consumers' pocket at some point of time.

My last worry: meltdown of China stock market. Parkson seems to fall in tandem with Shanghai Composite Index. Ports which is another high end market operator seems to find its footing and moving in tandem with Hang Seng Index. If Shanghai Composite Index were to correct to 2,000 points, it's a potential of 25% drop. I'm not implying Parkson Retail Group will fall that much but the risk of falling further is there. We may be rational, others may not!

Should I cut loss on Parkson? Part II

Surrealism art is one of my favorites. The master of this art movement is Salvador Dali. Sigmund Freud and Salvador Dali are mutual admirer of each other works. Dali's arts had successfully exposing our unconscious or subconscious minds, our hidden desires though our conscious mind is trying to suppress it. Suppressing unconscious minds will drive us into the nutty land, ended up in Tanjong Rambutan(mental health hospital) or doing stupid things.

I'm trying to create a bit of surrealism in my blog, you will somehow feel I'm like a person full of self-doubts, self-critique and kicking myself pretty hard. I know I can be wrong -- reading on my commodities chronology posts will give you that feelings. New discovery of facts will change my world view just like seeing a new piece of object giving a new meaning in Dali's art works. I've called plantation an earning bubble when it has a parabolic rise, does it mean it is not a bubble anymore when it does not look like a parabolic?

How do we reconcile reality and theoretical world? Theoretical questions will be a beginning of searching for a reality(realities), thinking and talking vs. doing are two different things. Doing has emotions element.

I'm trying to expose our greatest enemy: ourselves. How would you react when the whole world disagree with you by sending your well researched stock going down - 10%, 25%, 50%, 65? Parkson was my perfect setup to illustrate this point. Will your confidence be shaken? Your response will vary with your stakes - it is different if you have $ 3,000 vs $ 3,000,000,000 bet. It's a different feeling when you practise on your Excel spreadsheet(theoretical) vs. call up your broker to buy or sell some stocks(doing). It's a different feeling when you write stuffs in your private diary(theoretical) vs. airing your dirty laundry in public(doing)--blogging.

We need to allow our unconscious minds to surface -- for some people may not be even actual monetary loss. What is there to lose $ 300 ? How about fear of being ridicule? How about your self-esteem and ego get hurt , how can I'm wrong when I am a successful businessman, doctor, manager, stock broker, etc. I know some people are stubbornly sticking to their guns just because they are afraid their wife or husband will laugh at them. Some will continue to draw to stock market just to prove their mother is wrong, stock market is not a casino, it is son.

After reconcile our conscious and unconscious minds, I'm pretty sure you will make a lot more rational decision. For example, the whole world is reading my well documented reasons of buying Parkson, will I continue to stubbornly sticking to my call if next quarter results drop by 20% due to fundamental reasons? I've defeated this monster inside me(leaving possibilities it could happen), therefore to admit it's a wrong call publicly will not bother me later - I'll more likely to make a rational decision.

Intelligence and being successful in stock markets are not exactly positive correlated. In a research, doctors are one of the worse group of investors in stock market. Don't shoot me, I sometimes read so much that I can't recall where I read it, I will give you the source when I find it in case some of my readers are offended. Accountant will have the highest probability of getting into value trap.

Understand your real reason of irrationality -- if you know the truth, the truth will set you free.

One of the readers asked me whether I'm putting real money in my Turtle portfolio, this is a double edged sword question. A yes answer will make my stock selection more credible or even more convincing. This will lead to complacency on my reader side. Negative answer will cast doubt to my convictions however it will make you stronger. It will strengthen your convictions to buy or to sell. So my answer is no answer. Let me leave this as a mystery, curiosity will not kill you.

If you are feeling more confused and having more questions after reading my blog, I've achieved some of my objectives to set the wheel in motion to stimulate your minds to explore further -- you know why you make money and why you've loss money.

The gap between sanity and insanity is so thin, so is valuation rationality and emotions. Only those can differentiate the gap can make money out of the market.

Saturday, June 28, 2008

A Humbling Experience

If I am walking with two other men, each of them will serve as my teacher. I will pick out the good points of the one and imitate them, and the bad points of the other and correct them in myself.
-- Confucius
Not my actual car.

This morning was a humbling experience for me. The indicator on my car dashboard flashed red, warning me-- engine was overheated. I was getting nervous because I'm right in the middle of Penang bridge. A bright clear sky, a beautiful morning about to turn into something else -- nightmare, hell, or whatever. The traffic was kind of heavy, so stopping was not an option, keep going would probably damaged my engine. I don't think I've many choices, so I turned off the air-conditioner and dragging my old faithful till I crossed the bridge. My old faithfull was groaning -- must be painful.

When I pulled over my car in Caltex petrol station, opened up my bonnet, it was not like the picture you saw, it was something worse than that, I smelled something burning. Engine oil was leaking from the engine. A man greeted me, Hi brother, what is the problem? He pulled out his tool box and started to dismantled my aircond fan, he said the motor burned. He went back to his car, pulled out a Denso motor and replaced it. I was like hypnotized, why am I allowing him to do that without even asking the price. What if he is a con man? Well what if he is the angel God sent him to save your day? Well do I have a choice?

We have to wait for the engine to cool down for an hour, if you poured liquid, thermo-shocked will damage your engine and radiator. Buffett is going be happy because I bought two cans of chilled Coca-Cola. We sat on the floor, popped our Coke and started chatting. He told me crude oil was crossing US $ 142 yesterday. Wow, I'm impressed, I have not even tracking that closely. He said we should be thankful for our petrol to be the cheapest in South East Asia with exception of Singapore with a dollar earned to a dollar spent. I'm even more impressed because some our undergraduates are not able to produce that kind of analysis. People no longer question whether US 140 is expensive, going higher will not surprise them anymore. Only politicians are trying to capitalize the issue by sending people protesting. People understand international price influences domestic petrol price.

Back to my car, after the car cooled down, we poured water into the radiator. Oops, things were not looking too good. Water was dripping, "koyak". He asked me whether he allowed me to let him fixed it? I've a choice, I can either take the risk or filled up the whole tank and drove to my regular workshop. Since he is pretty candid and straight forward, telling me the problem and suggest a solution, I think I can trust him. He never tell me everything is OK, he scolded me that I should stop my car on bridge. It could cost me thousands to fix the problem caused by bulldozing driving. He dismantled the radiator and brought me to a shop specialized in radiator in Sungai Pinang.

A small workshop with only two men working. They are pretty friendly people. This chap in his mid forties impressed me even more. He begin to talk about inflation – wow we now have main street economist but a very street smart one. He said our government should start to raise interest rate, in more technical term -- why are we living with negative real interest rate?. We must cast doubt so that speculators will be frightened. He predicted if oil were continue to remain at US $ 140 till Chinese New Year, the real economy will be damaged. He prefers to stay at home and watch TV (Astro an investment candidate?). He also told me he stocked up two year worth of lubricants and metals. He is running out of space in his small shop lot. Don't draw a conclusion of hoarding based one sample size but the inflation expectations drive behavior change is something worth noting.

In a way, I'm really humbled by the gentlemen, don't under estimate their insights, they are as good as Wall Street guys – buy low sell high, riding on commodities upward trend. This is what I call Common Sense, learn from them though they never go to university. The only thought I have is this: if a shoe shine boy give you stock tip, you can consider cashing out, what about commodities?

Back to my car, things seem to work well. The guy charging me a very reasonable price. I guess there are a few good men on this planet. My regular mechanic is checking my old faithful while I'm writing this. Have a nice weekend.

Friday, June 27, 2008

Buffett vs. Bernanke: The inflation showdown

Even a shorter entry today. Money CNN reports -- Buffett vs Bernanke on inflation issue.Those running a business will agree with Buffett. Those looking at statistics may side Bernanke. Leading indicator vs lagging indicator -- which one do you trust? If Buffet is right, bond guys priced it wrong -- commodities will fly even higher! Pimco estimated worldwide median inflation is running at 7% not 5%. If Bernanke is wrong*, a bigger bubble is in the making? A Super-bubble -- according to Soros, the boy cried wolf three times!

What is the impact on equities? Well, much to ponder over the weekend.

NEW YORK (Fortune) -- Even Warren Buffett is wrong some of the time. Federal Reserve chairman Ben Bernanke is hoping this is one of them.

Buffett, the billionaire investor behind Berkshire Hathaway (BRKA, Fortune 500), fingered "exploding" inflation Wednesday as the biggest risk to the economy. "I think inflation is really picking up," Buffett said on CNBC. "It's huge right now, whether it's steel or oil," he continued. "We see it everywhere."

Indeed, the prices of gasoline and milk have shot past $4 a gallon, and Dow Chemical (DOW, Fortune 500) has announced twice in the past month that it's raising prices to offset soaring commodity costs.

Yet Bernanke's Fed signaled Wednesday that, after nine months of interest rate cuts and expansive lending to the financial sector , it isn't eager to reverse course and push rates higher to try to tamp down rising prices.

Why? Because the Fed remains skeptical that high commodity prices will ripple through the economy, leading to broad price hikes and big wage increases.

* Corrected from right to wrong, my apology to earlier readers.

Thursday, June 26, 2008

US Economy? Sucks

I'm really tired after a long day, bombarded with endless questions. I saw a bit of repeated visitors to my blog everyday, in order not to disappoint anyone, I will post something no matter how tired I'm but will be absolutely short.

I've a company top executive visitor from the US. I asked him how's the state of US economy? One word: Sucks. The consumers are hit with high fuel prices and foods are expensive. Key market demands are down. He is also seeing Europe in a similar situation. So far, the only reason why they are seeing the US GDP number is still in positive territory is because of commodities -- steel, agriculture, exports, etc.

The only question left on my mind is this: has the stock market priced this in? Economy and stock market are two different things -- always keep this in mind.

Wednesday, June 25, 2008

Should I cut loss on Parkson?

I'm finally walk down to a path of every investor is facing, investment value went down after I bought into Parkson. It went down by almost 15%, the market vindicated that I bought too early. I don't know what happened to me especially I knew HSI may well go down to 22,00(clik to see my entry on Gennie out of bottle), why didn't I wait? Well, no point crying of spilled milk, you did what you did during that time. Do a better job in future -- learn from my mistake.

Assuming I did not buy at $ 5.80, will I buy at $ 4.94? The answer? Yes, then there is no point that I sell my investment now. However, if Parkson bottom lines were to drop by 20%, be merciless, I must sell regardless of price.

Tuesday, June 24, 2008

Fact: Crude Oil Supply and Demand

It takes me a while to finally get hold of this chart about worldwide supply and demand. Non-Opec reduced their supply while Opec going for full steam, unfortunately this created a very tight match between supply and demand.

The chart also tells us the second ramp up of demand from 2003 was a lot steeper than the first phase from 1992. The first slope rise was like 1% per year but the second slope was almost 2% per year, unfortunately supply was almost flat from non-OPEC producers. Luckily, Opec members picked up the slack. This still opened up the doubts whether Saudis are running out of oil since they are unable to response, traders are still skeptical now about Saudis' long range plan to produce 15 million barrel a day. The previous record output at full throttle was 11-12 million barrel per day.

World's demand is 86 million barrel per day, if the world can slow down by 1% and oil producers can produce an additional 1 million barrel per day, we can have about 1.9 million barrel per day spare, the world will be able to respond better to geo-political events and natural disasters.

Let me end this entry with two quotes. I think a skeptic will remain skeptical, a believer will have stronger faith. Which camp am I in?

"The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality," said Soros.

"Statistics are no substitute for judgment."
-Henry Clay

Sunday, June 22, 2008

Saudi Arabia raising oil production

Saudi Arabia cut back from 9.6 million in early 2006 to 8.6 million in April 2007. They plan to push it back to 9.7 million barrel per day, from current 9 million barrel per day -- by July. They plan to have drastic increase to 12.5 million barrel per day by end of the year, however the Bloomberg reported different timing(end of 2009?). If necessary, they will push to 15 million barrel per day. I would suspect some other oil producing nations will add another 1 million barrel per day though they opposed Saudi's plan. They need the revenue badly, cutting production at lower price will not help. With that kind of supply plan, we can find out real soon whether high oil price really caused by Index Speculator. Is this the "positive development that shows up at the darkest eleventh hour" in my yesterday entry? Well, will find out soon, as soon as I wake up tomorrow.

JEDDAH, Saudi Arabia (CNN) -- Saudi Arabia will in the near future increase its daily oil production to 9.7 million barrels from 9 million in a move to counter the sharp rise in international oil prices, Saudi King Abdullah said Sunday.

In addition, Saudi Arabia's Minister of Petroleum Ali I. Al-Naimi announced that the country would invest in its oil projects to allow the nation to produce 12.5 million barrels per day by the end of the year.

King Abdullah's announcement came at the end of the Jeddah energy summit, where he also called for OPEC to set aside $1 billion for a strategy to ease the oil price crisis. He said $500 million should be given to developing nations to help them get the energy they need.

The 9.7 million daily production would be the most Saudi Arabia produced since 1981.

Tanjong PLC : Q1 '08 Review(Ref $ 14.2)

This is what I learn about why we don't buy low and sell high. Stocks are only available for low price when majority of people hate it, the fear of losing more money. People will not fear for no reason, you must be mad if you're fearful for no apparent threats. The threats that most people perceive now are fear of changing government, fear of riots, fear of the US market crashes, fear of further credit implosion, fear of inflation, etc. Whole of KLSE is selling for 11 times PE at 1200, this is cheap, even cheaper when Malaysian market shunned by foreign investors after we imposed capital control. I'm sure Mark Mobius salivates now.

In the case of Tanjong, the revenue has been growing solidly with overseas power asset acquisitions but stock price seems to be bouncing around, even trending down lately. The latest acquisition in Bangladesh contributed another 90 mln in the latest quarter to the group's top line but not much contribution to bottom line due to development cost. Normalized profit contribution from Bangladesh operation will be around 100-120 mln. Tropical Island which has been the black sheep in the group has been showing improvement after launching new attractions, losses narrowed to 2 mln in the latest quarter. Going forward, I would estimate Tanjong will generate about 800 million PAT per annum without the IPP windfall tax. Even you shave off 75 mln in the worst scenario of IPP windfall tax, Tanjong will still generate about 725 mln PAT or EPS of 1.68. Apply 12 times PE, Tanjong worth at least RM 20/share.

(click all images for larger image)
Let's see how crazy the market is going to offer me. Even we have to wait for 3 years for this phase of uncertainty to pass, this is a good bet to get 15% return.

Saturday, June 21, 2008

The Race of Negative Catalyst

Learning sharing session. This cycle taught me a lot about investing under fire. You have two races going on at the same time - inflationary and deflationary. That's why we are seeing both headlines at the same time, who will be the winner ?

When subprime broke out "officially" in fall last year, investors continue to park their money in emerging markets and bond and commodity. The housing bubble continue to deflate, more banking write downs and credit crunch begin to take its toll. Housing prices continued to fall and no sight of ending yet.

Deflationary forces continue to force people to make choices, where to park their money? Tight demand and supply in soft commodities and hard commodities create an investment opportunity, unfortunately those trillion dollars are chasing after the smallest market on the planet. This for sure will drive price through the roof. Oil is a big portion of consumer spending but it's unfortunately take a long time for supply to response. For short term, curbing demand by cutting subsidies may help, for long term, if no supply coming on stream, demand shock will create a pricing shock again.

The unintended consequence of money flowing into commodities had created huge inflation risk for emerging economies. With record surplus, most government decided to subsidize or implementing price control. Suppressing inflation will only work for so long, the longer you do that the stronger the demand will be, the higher the price you will get, it's a self-reinforcing cycle.

Everybody is betting on a recession in the US and UK will bring down commodities -- i.e. inflation will take care by itself. But no, the growing emerging economies will continue to create much stronger demand. So, this is a wrong bet. Finally, riots, street protests, change of government shake up things. Something has to be done, you can't just sit and wait for miracle. When they lift the inflation cover -- cutting subsidies, inflation race is on again. Raising interest rate is unavoidable and effective tools to combat inflation.

This will threaten the debt markets because it will destroy the value of bonds. There is also potential small bank failures in the US. Money will need to run again. Where will you run ? Hard asset like gold? Emerging economies with strong reserves?

Equities? Talking about equities, S & P 500 profit as a percentage to GDP is still above average, room to fall further. Inflationary expectations lead to decline in companies profit will make matter worse.

When inflation pressure is receding, will money begin to flow back to debt market? Equities? Emerging market again? Some positive development normally show up at the darkest eleventh hour, this makes market timing very very difficult. This also makes sector rotation play tough.

The silver lining is of course regulation change preventing institutional money to flow into crude oil future will save the day. Will this lead to underinvestment in crude oil production and alternative energy -- lead to a big future problem?

I am keeping this entry as a marker for future reference. When will the price gets to the bottom?

Reference :
DJIA : 1182
S & P : 1,317
KLCI : 1206
HSI : 22745
Nikkei225: 13942
Gold : US $ 903
Crude Oil : US $ 135
10 yield : 4.17
FedFund Rate : 2%

Friday, June 20, 2008

Gold May Rise to $5,000 on Inflation, Schroder Says (Update1)

This is another investment idea worth exploring. This however will be more complicated than usual because of many factors are interacting - inflation expectations, switching from soft asset to hard asset, etc. BHC investment writes a great deal about it. Marc Faber advises to buy when it corrected back to $ 780 - $ 800 during process of de-leveraging. You can buy an index to save you all kind of headache: SPDR GOLD SHARES (formerly: StreetTracks Gold Shares) from SGX.

June 19 (Bloomberg) -- Gold prices may rise to $5,000 an ounce as investors seek to protect themselves against accelerating inflation, said Schroder Investment Management Ltd., which oversees $277 billion of assets globally.

``You could easily see for the next several years that prices rise not to $1,000 an ounce, but prices rise to $5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value,'' said Christopher Wyke, London-based emerging market debt and commodities product manager at Schroder, which oversees about $10 billion of commodity assets.

Investors are turning to gold for protection as two-thirds of the world's population cope with inflation rates that are climbing to more than 10 percent, Wyke said. Cash and inflation- linked bonds are poor substitutes as low interest rates, coupled with surging inflation, erode the real value of assets, he said.

Bullion for immediate delivery was down 0.2 percent at $892.48 an ounce at 9:57 a.m. in Singapore, after gaining 3 percent in the past four days. Wyke didn't give a time frame for his gold prediction.

Demand for gold will also rise as central banks become net buyers for the first time in 20 years, driven by developing countries, he added. Last year, world production of gold sank to the lowest since 1937 as reserves are depleted and few new sources of gold have been found.

An Investment Idea: YTL

Saw this in the Edge: YTL ventures into China This deserves further investigation, will it be a profitable investment idea? Stay tuned.

I think this a good move to scale up their business and exploit their core competency from Wessex operations.

YTL Corporation Bhd is venturing into China via a strategic tie-up with Asia Environment Holdings Ltd (AEH) to collaborate in the fast-growing and lucrative water industry.

In a statement, YTL said the two companies had entered into an agreement yesterday to draw on the group’s water expertise, branding and financial strength and AEH’s local knowledge and proven execution skills in China.

Water will be the next crisis after oil. You can stop driving but you can't stop drinking. Will try to find time to summarize on what I read later. As China is moving to clean up its environment, this is a promising area to make money.

It said it had been estimated that two-thirds of China’s water resources were polluted, a problem exacerbated by low water resources per capita and high water leakages amounting to 28%.

Please don't jump in to buy now, let me do my homework first. Value the company to determine how much it's worth. It may turned out to be a fluke. Have a nice weekend.

Thursday, June 19, 2008

A Vote of No Confidence against AAB - Is SAPP pulling out?

18 June 2007 must be a bad day to a lot of people. You felt like woke up at the wrong side of the bed. You saw this as soon as you turned on your computer: Big sell-off on Wall Street. You must be kidding me, less than 1% drop considered a big sell off, you ignored the good news: Oil was dropping for the last three days but still around $ 130++, you must be kidding again.

You must be thinking whether today is your perfect setup day to buy on dip. If you have a buy list, congratulation, you must be ready to pounce. When trading day started, it went on perfectly like you predicted, opened below yesterday. People must be scared but you were steady.

10:30 am, you made yourself a cup of coffee, you saw this heading, now you got confused. It has reached your entry point but will it get lower?

You begin to wonder, the next five days going be hell to you; investors and speculators hate uncertainty though this is a very small party. Me too.

After lunch, you looked at your notebook before went back to work. You felt a bit better because the market seems have baked in this bad news -- the day that many speculated finally arrived. If the market can survive this one last excuse trying to bring it down. You figured out this must be an important catalyst to test the bottom, right? You have next five days for people to get really scare, so you decided to wait.

6.30 pm, after work, you checked your PC again, turned to your favorite business newspaper: the Star. You saw this at the very small corner of most viewed.

(click all images for sharper image)

You must be kicking yourself today, you should have bought some shares today because it is seems like nobody cares whether the PM is going to step down or not. Why? The most clicked news was "Doc molested me, claims clinic assistant". SAPP plans to pull out was not even on the top three most viewed.

Feeling regretted, you begin to refer to your chart. You smiled to yourself, it has violated important support of 1,216 the next important test is 1,157. Better still, internet chat room traders calling for 1,000.

You must be getting impatience by now, "what's your point?" you asked. I've just written up a Havard Business School MBA case study at free of charge. Unlike local universities, a typical Havard MBA case study will have no questions, so you just have to figure out by yourself. Have a nice day :)

Wednesday, June 18, 2008

Tiger Wins US Open

(Click to see larger image)

Sometimes you wish someone will take down a giant like him, to shake up the world of golf. It's amazing that a guy with one leg and spraying ball all over the course won the US Open, for the third time. Most of his die hard fans should know that he underwent knee surgery and out of actions for a while. He went through a lot of physical pain this week, that most of us didn't realize it, can't tell from his face.

He played many memorable shots but what he played on hole 17 on the third day was truly amazing. He had an errant tee shot ended up in punishing long grass of typical US Open course. His second shot was pretty like an average Joe(Turtle) shot, his ball landed in the rough between bunkers in front of green. His third shot really reminds me of don't ever bet against Tiger -- anything can happen. He was standing in an awkward position(most people will tell you to put your weight on the left but you just can't do that on the slope like that), technical descriptions over, he hit his ball and landed on the green and hop and hop and hop into the cup, carded a birdie. He was shocked, disbeliefed. Me too. He birdied -- just like that. That was the turning point to take outright lead after eagled hole 18.

Rocco Mediate. Rocco who? It doesn't matter who he is, what matters, he made Tiger worked very hard for it. Tiger was pumping his classic cocky fist on Sunday when his ball disappearing in the 18 hole cup, you just know how meaningful that was to him -- he wanted badly to force into playoff. The rest is history...............

Never Quit Though You Have Been Beaten Down. Fight a Good Fight.

Well done Tiger, Well done Rocco.

Tuesday, June 17, 2008

Throwing in a towel?

By observing the volume transacted over Bursa Malaysia lately, I think most people are almost giving up hope already. Most of the Internet stock chat rooms are quiet. Over the last 3-5 years, I think volume transacted on 17 June 2008 was one of the lowest.

I used to keep a copy an article published in the Star in 2006 painted Bursa Malaysia as if like the-end-of-the-world and an abandoned child with no attention (one of the lowest volume). Right after that article was published, the unexpected big bull run was born in September 2006. Many later conviced to join the rally but were not aware of danger ahead. 2006 was the peak of US housing bubble, it has been on downhill since then. Pessimists think US housing recession will persist into 2012-2014. Don't get into this guessing game unless you have nothing to do. Now many said Wall Street crisis is over though the Main Street is still suffering.

Nobody is talking about stocks now. If you go to newsstand, the Edge will stack up - unsold! You can see quite a lot of stocks hitting 52 week low. If you are looking to buy, the time is near. As usual, let me be candid, my timing has not been great so far, both my "Turtle" stocks that I bought went down around 10% before rebound. So take this read with a pinch of salt, a few pinches are all right with me too. Good luck!

Has my driving habit changed -- post RM 2.7/liter petrol ?

As the saying goes, we are a creature of habits. Do we need RM 2.7 / liter to kick our habits especially the bad ones? I bet it does. I'm for one not a car crazed guy begin to research on "alternative-fuel-solution".

This will give me an excuse to buy a new car, right? Honda Civic Hybrid launched in August 2, 2007 was a teasing idea. However, when I looked at the price tag, Ouuch -- RM 158,000. Gee, let's put on Buffet thinking cap to calculate the payback based on future cash-flow. Never mind, I think I pass.

The next idea is converting my car to NGV. This probably cost between RM 5,000 to RM 8,000. If anyone has a petrol bill of RM 450/month at RM 2.70/liter, a saving of 80% will give you a payback between 14 - 22 months. A suggestion given by my friend, go claim your RM 625 rebate before converting because NGV cars are not qualified for rebate. ( Click this article in the Star for more details)

A third suggestion is blog more, go out less: save you RM 300/month. But then, guys, are you creating too many domestic issues at home, you know what I mean. Have a productive day ahead.

Monday, June 16, 2008

PPB(Perlis Plantation Berhad) and Wilmar Internationl-Part 1

Let's try to understand Wilmar International before I write a bit more about PPB.

Outstanding shares: 6,385 mln;
Market Capitalization : S $ 29,626 mln;
Selling for 2008 20 PE,
ROE: 12% with 60% gearing. ROE dragged down by goodwill as a result of acquisitions.

Through acquisitions over the last two years, Wilmar grew to about US $ 16 billion in revenue.

Keyword for their business model is Integrated Agribusiness.

Over the years, it has established a resilient integrated agribusiness model that captures the entire value chain of the agricultural commodity processing business, from origination and processing to the branding, merchandising and distribution of a wide range of agricultural products. Through scale, integration and the logistical advantages of its business model, it is able to extract margins at every step of the value chain, resulting in significant operational synergies and cost efficiencies.

Source: 2007 Annual Report

Business is divided into four segments:
1. Merchandising and processing - (i) Lauric and palm oil (ii) Oilseeds and grains.
Account for almost 80% of their revenue, 77% of PBT.
(i) Lauric and palm oil.

(ii) Oilseeds and grains

2. Consumer pack - market edible oils to consumers under various brands. 15% of revenue.

3. Palm Oil - cultivation of oil palm in Indonesia and Malaysia. Acquired 500 k hectares land with 200 k hectares planted. Target to plant 40 k hectares every year for the next 10 year. Account for 5% of revenue only.

4. Others - Fertilisers, ship owning and chartering.

Revenue by geography, China is the largest market contributes 51%, South East Asia 23%, Europe 8% and India 5%. Basically, they are covering the three most populous countries in the world, China, India and Indonesia - almost 50% of world population?

With that background,is there a case for an investment or speculation?

1. Growing income in emerging countries create awareness for nutritional food and more grains.

2. Tropical oil is still the cheapest and versatile.

3. Huge future landbank for oil palm plantation.

4. Barrier of entry -- very difficult to copy their business model and economies of scale.

5. Africa and Russia market development are underway. India market has good potential growth.

6. Not making money from CPO but from processing and end products.

7. A company that emphasize on R & D

8. Strong risk management and also on ability to grow via acquisitions.

9. Biodiesel policy by government around the world change the industry tremendousely. This has created a big demand for soft-commodities. If Obama is the next president, you can bet this alternative energy thing.

10. George Soros, Bill Gates, Goldman Sach, Morgan Stanley are big financial guys put a lot of money in agrofuel.

1. Collapse of crude oil bring about collapse in soft commodities. It's a low margin business. Net income %: 2003 -- 0.9%; 2004 -- 1.2%; 2005 -- 1.25%; 2006 -- 3.07%; 2007 -- 3.5%. Profitability improvement is due to better economies of scale and also favorable commodity sector.

2. If you trade, the risk of screw up always exist -- involving future, options and etc.

3. Change in government regulations like price control or taxes. Sold down of stock earlier of this year when China government requires them to submit for approval prior to price increase on cooking oil.

4. Weather and natural disasters.

5. Much slower growth ahead via organic growth.

What is my take? Wait for this growth angel downgrade to SGX dog status? Is Kouk business acumen declining with his Transmile entry and average down some more and exchanged PPB Oil with Wilmar International? For once, let me keep you in suspense -- I give you the facts, you form your own opinion.

Saturday, June 14, 2008

Impact of Oil on World Trade

It has been a crazy week for me -- pulling my hairs -- trying to figure out how to increase price. Life was pretty business as usual when crude oil stays around $ 100 -- not many people come back for price adjustment. As soon as crude oil hit $ 140, things had really changed. We need to cope with 26% higher electricity charges next month. Freight costs and plastic packaging costs are going up. Raw materials related to metals and plastics have been staying very high. We have been doing some productivity improvement to offset costs increase but there is no way you can cut costs in big quantum anymore. Any company with more than 20-30% cost cutting opportunity has been way too fat in the past and deserves to belly up.

With drastic costs increase, we have only two choices -- continue to let the business run below cost of capital or pass on the cost increase. Yup bite the bullet, pass on the costs is the only rational choice. But then we will have two risks (i) competitors hold on to same price to gain market share or (ii) customer reduce demand. It is very common for Asian businessman to hold on to their price by justifying harmony business relationship and have a long term view. It is going to be worse if you are competing with Japanese competitors. I think it is not necessary to get into the lecture of competitive advantage, branding, position, product innovation and etc. While it is fun for me to criticize financial results of public listed companies, I know how difficult it is to sustain high profitable growth and at the same time focus on return on investment by managing account receivable, account payable, month-on-hand, capital expenditure and etc.

Our team is also working on a few scenarios what will be our company strategy if crude oil price hit $ 150 or even $ 200 or $ 250 per barrel. It is a very bad news for Asia, "the factory" for the world. Why? High transportation cost will shift world trade pattern -- discouraging world trade. Production will migrate closer to the point of use.

Look at the period of 70s -- we had negative growth!

I have a customer was shocked and mad to find out the freight costs were more expensive than the products we sold them, they insisted we refund them money. Guess what, they start to look to buy from companies in Latin America. What happened to us was not a joke, look at this chart, freight cost from Asia is almost 3 to 4 times more expensive compare to shipping from Mexico.

China's freight intensive business has been declining since the oil price soared.

It is true that it will take time for many of industries to move from "here" to "there" because of infrastructure and supporting industries but this is a beginning of a reversal -- Asian will no longer can depend on export to spur growth. We will have to either move up the value chain, increase consumption or increase intra-Asia trade. Personally I need to get my resume ready(switch job to a different industry).

Are we over-reacting to possibility of high crude oil price? Well, I've been asking myself for months now, hoping it will top out but what if it don't? Like it or not, to manage business or investment, we got to be prepared at least mentally to cope with it professionally and personally.

Free-Trade Era May Be Nearing End Amid Food, Growth Concerns?
June 13 (Bloomberg) -- After six decades of ever-expanding international commerce, the high tide of free trade is ebbing.

As tens of thousands of South Koreans protest U.S. beef imports, rising commodity prices push nations to keep more food for domestic consumption and the U.S. chooses a new president who might be less supportive of free trade than his immediate predecessors, the world may be facing the end of a cycle that began in the immediate aftermath of World War II.

The liberalization of global trade has come ``to a screeching halt,'' said Fred Bergsten, director of the Peterson Institute for International Economics in Washington. ``It'll take years to rebuild the foundations of free-trade policy.''

Back to investment, based on what I'm experiencing now in the real world of manufacturing, I will avoid industrial sector and observe how they perform for a while. Consumer companies like Dutch Lady, F & N, Nestle and etc have great branding power but can it translate into bottom line preservation?

Friday, June 13, 2008

China's Inflation Rate Declines

China's CPI down from 8.5% in April to 7.7% in May, first time to slip below 8% in four months. More reports from the WSJ:

Food prices, a key component in the price index, rose 19.9% in May from a year earlier. But that was down slightly from a 22.1% increase in April. It said fresh vegetable prices fell 15.7% from a year ago. Nonfood prices climbed 1.7 percent, compared with 1.8% in April, the statistics bureau said.

Lower CPI numbers did not translate into any comfort at all because there are some quarters still worry about inflation as PPI numbers suggest non-food inflation is creeping in.

n Wednesday, authorities said China's producer price index for May-- an indicator of wholesale and raw material prices -- rose to 8.2% from April's 8.1 percent, boosted by double-digit increases in prices of oil, coal, steel and other industrial materials.

Many still expect China to continue to crack down on inflation as they see some suppression of price is going on.

"While agriculture seems now to be responding … there are other price pressures out there that are being severely repressed," Stephen Green, China economist for Standard Chartered Bank in Shanghai, said in report Thursday.

Chinese retail gasoline and diesel fuel prices were raised about 11% in November but have remained frozen since, despite surging crude oil prices. In January, food processors were ordered to get approval for any price hikes, and fertilizer prices have been frozen to protect farmers.

Well, I think many still expect RMB continue to appreciate to combat inflation. Many call for a quick one-off appreciation to slow down "hot money".

Thursday, June 12, 2008

Tectonic Plates Are Moving

Central bankers around the world think long term inflation expectations drive inflation. Let's quote Bernanke, his statement has been appearing all over Internet in the last 24 hours.

The Fed "will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation," Bernanke said.

They still refuse to acknowledge they are the main culprit--printing too much money, can't they get it?. They think they can frighten the market by talking tough, trying to call the bluffs. Be carefuuuuuuuul, if your last card is 2 and not an Ace. They also trying to intervene in the markets -- exerting psychological pressure. Great student of Sun Tzu, conducting war based on deception and attacking enemy's plan and avoiding attacking city. Will it work?

My readers, I will step aside while tectonic plates are moving. Don't fight the Fed. Hopefully, the Fed will win, commodity will top out, but you know I am a little bit skeptical, don't you?. Asian central bankers have done something more concrete. China raised 100 basis points again for reserve requirement. India raised 0.25% interest rate. Vietnam revalued its currency. But read this from the WSJ:

A year ago, in a group of 24 large developing nations tracked by Bank of America, about three-quarters were either meeting or staying below their inflation targets. Today none of them are. Inflation overall in these countries has returned to levels last experienced in 2002, estimates Fitch Ratings.

Will there be an earth-quake if they failed? Someone said something like this but I can't remember where I heard it, if supply fails to respond, price will continue to rise till it damage demand. Pretty scary, hope it will not happen -- now you know why most people buy a bit of commodity insurance?

Wednesday, June 11, 2008

Asian central banks intervene to defend currencies

Things seem to get more complicated. In the past, foreign investors will look for signs of inflation pick up in Asian economies to bet on reflation theme but now they are fearful and start to sell emerging currencies. This will make central banks job more complicated because more expensive imports will fan higher inflation . (Click link)

June 10, 2008, 2.33 pm (Singapore time) - Central banks in Thailand, India and South Korea stepped into markets once again on Tuesday to defend their falling currencies from a rallying dollar and foreign capital outflows spurred by worries over inflation.

Two traders in Bangkok said the Bank of Thailand had intervened again to help the baht recover from Monday's 5-month low of 33.41 per dollar. The central bank also sold dollars on Monday.

'Intervention persists,' said a trader in Bangkok. 'I think they want to repel speculators.' The baht rebounded to 32.93 per dollar, up about 0.9 per cent from late Asian trade on Monday. It has fallen more than 3.5 per cent in the past three weeks.

I think Ringgit was not spared also. See chart, 1 USD = 3.27 Ringgit as of 10 June.

This perhaps due to US intentions to artificially boost up their currency which backed by nothing. Geez, how the hell a country that preaches free market decided to go for intervention?(Click link)

By MARTIN CRUTSINGER, AP Economics Writer Mon Jun 9, 6:10 PM ET

WASHINGTON - President Bush's forceful call on Monday for a stronger U.S. dollar in the world economy may be coming a little late for Americans fed up with gas prices topping $4 a gallon and steadily rising costs of other imported goods.

Speculating business is getting more complicated with all kind of variables dancing around. No wonder our good friend W. Buffett bet hedge funds will not beat S & P 500. (Click link)

(Fortune Magazine) -- Will a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500?

That question is now the subject of a bet between Warren Buffett, the CEO of Berkshire Hathaway, and Protégé Partners LLC, a New York City money management firm that runs funds of hedge funds - in other words, a firm whose existence rests on its ability to put its clients' money into the best hedge funds and keep it out of the underperformers.

You can guess which party is taking which side.

Protégé has placed its bet on five funds of hedge funds - specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses.

On the other side, Buffett, who has long argued that the fees that such "helpers" as hedge funds and funds of funds command are onerous and to be avoided has bet that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds that Protégé has selected.

We're way past theory here. This bet, being reported for the first time in this article (whose author is both a longtime friend of Buffett's and editor of his chairman's letter in the Berkshire annual report), has been in existence since Jan. 1 of this year.

I like the challenge of playing all kind of variables in speculation game but I don't like to lose money when I get it wrong, so I will not put down real money. I am making no secret to put the third stock in my portfolio which require no stock picking skills at all: FBM30etf.

Tuesday, June 10, 2008

Technical Analysis : Parkson Holding Berhad

Saw the chart while Turtle was going through brokerage reports over the weekend. Turtle is going to do something very dangerous today because he may look very foolish, trying to make technical analysis commentary on Parkson, which is not his cup of tea. Most of the chartist will want to avoid this stock because it is clearly on the downtrend. Those are buying is attempting to catch a falling knife which is a big no no in the world of trading.

Investing or trading requires imaginations of what future look like. From technical analysis stand point, there are two scenarios, one is continue to fall to RM 4 selling at PE of 7 times with estimated EPS of $ 0.50/share. Scenario 2 is continue to bounce around $ 5 - $ 7 (PE of 10 to 14 times). Should one wait until a clear trend is emerging?

If scenario 1 were to happen, Turtle bought Parkson at $ 5.80 leaving himself a potential loss of 32%. Since Turtle is leaning towards fundamental camp, he believe if Parkson is able to grow at the worse case of 15%, the stock will be able to bounce back to $ 7.00(around 12 times PE) in one year time, a potential 20% gain. The biggest fear that Turtle has is misjudge company earnings and not so much of the technical analysis judgment error.

What Turtle saw was a good probability of Parkson to break all time high of $ 10 in 3 - 5 years time. Well, time will tell.

P.S. This will be the first and last technical commentary to avoid further embarrassment. Have a nice day!

Monday, June 9, 2008

Impact of Oil on KLSE performance

After went through pages of brokerage reports on recent petrol price hike impacts on stocks, I made one simple conclusion - watch oil. Those bet on stocks now are almost like "shorting oil", shorting at the wrong time could be expensive because stocks prices may go down further. If I want to short oil, wait till it goes below 200 days moving average to be certain the bull run is dead.

After running year-to-date price trend on a few stock leaders in different sectors - consumer: BAT, bank: Public Bank, airline: MAS, plantation: IOI Corp, gaming: Genting, property: SP Setia and Oil and Gas: KNM. I concluded that those buying defensive stocks probably ended up with even, others will be losing money even they are in favorable sector like plantation and O & G. Those were brave enough to buy during major correction(March) and sell on rebound(early May) made 20 - 30% profit. Those reentered market again recently probably sitting on losses.

Last Friday was a bloody day on Wall Street with 3% loss but on relatively thin volume. They reacted to 5.5% unemployment data reignited the fear of recession and oil surged about 8% to US $ 140 in one day. $ 150 is just $ 10 away.

Volatility is back - actually started from mid May - signify correction is coming. However, it will be a better idea to put together a buy list that badly hit by crude oil and wait for the oil bull run running down the hill; avoid stocks that get tail wind from crude oil.

Saturday, June 7, 2008

Post Election: 100 days reflection

Malaysia will never been the same again after March 08, 2008. The people have spoken. It’s Malaysian – a multi-racial country – wanted change. Divide and conquer, scarce tactics, etc are no longer working. We can see a multi-racial opposition party that consists of Malay, Chinese and Indian in PKR. Chinese and Indian in DAP working hands-in-hands for the betterment of Malaysian. The landscape has changed: the end of politics monopoly – a competition-based politics is born.

At least, we all can see the government is a bit Kia-Su. The Prime Minister launched a series of confidence recovery to fight for his political survival despite of many calling him to step down. He is more determined with reformation instead of paying lips service when he came on board in 2004, when the people given him the full mandate and landslide victory.

He phased out the “dinosaurs” ministers like long-serving trade minister Rafidah Aziz. He injected half of the new faces into his team. There is a Chinese saying, some will never shed tears until they see a coffin. I think Badawi out of desperation will have no choice but to make things happen of what he promised in 2004 to fight corruptions and restore judiciary independence. Under pressure, he at least expressed his regrets of saga lead to sacking of the country’s top judge in 1988. He took on more risks to face-off with his old boss in Lingam’s case over the issue of appointments and promotions of senior judges. His old boss quit UMNO and hoping more will follow him to unseat Badawi. Unfortunately, our 4th PM miscalculated: no money and power, no followers.

Badawi was getting shrewd to strengthen his position. He bows down to key demands of key states like Sabah and Sarawak. He pledged to tackle illegal immigrants, increase funding for rural development and building more power plants. As soon as he secured supports, preventing them defecting to opposition, he announced restructuring of fuel subsidy. It was shocking to most people with 41% increase of petrol price. Though many were complaining but no major violence breakout. Many of the educated lots understand the logic but grass root society may find it difficult to swallow. Two thumbs up from me on the potential income tax reductions, RM 625 rebate and food security subsidy program.

We are stepping into the right direction with better check and balance. Mega projects were reviewed, some scrapped some still will go on. I applaud our opposition grilled Maybank CEO for overpaying Indonesian Bank. Penang state managed to secure multibillion foreign direct investments from IBIDEN and Honeywell and still courting many others. Selangor’s residents get relieve from water tariff reductions.

Let me sum up my reflection and observation this way, it’s better late and never. I’m bullish on Bursa Malaysia over the long term. The fruits of the reformation can be reaped later as we soon as we are moving into a society of fair play and compete based on ability and not privilege. For short-term, we have to go through some rough patches. Some foreign investors will feel uncomfortable with the stability of our government especially taking such an unpopular decisions.

This reminds me of the previous Chinese Premier, Zhu Rongji advice to Pakistan president on Pakistan’s debt, investment problems and investors’ confidence. Investors are like pigeon. When a government frightens them with poor decisions, they all will fly off together. When the government improves its policy to attract them back, they will return only one by one. I’m not equating Malaysia to similar deep trouble that Pakistan once had, I am saying as long as Malaysia is able to maintain its fundamentals, Ringgit and Bursa Malaysia will be perceived undervalued – the pigeon will return one by one.

Thursday, June 5, 2008

Main Street: Panic Buying, KLCI Street: Panic Selling?

It took me a lot longer to get home yesterday because of traffic chaos. Most people were panicked queued up to fill up their cars. I never see such a buying panic in my life. The line was as long as 1km. People were willing to show their ugly faces for RM 25 - RM 40 savings, assuming their car tanks were empty. I'm sure most people will not have empty tanks but they are willing to wait for 30-60 minutes for that last cheap RM 1.92/litter savings. Was the savings significant? See what emotions can do to brains. So long buying panicked for the main street.

RM 2.70/litter arrived on 5 June 2008, the next day, KLCI Street headed for a panic selling. This fuel subsidy restructuring announcement caught many by surprise. Was the selling justifiable? I would be real careful not to step into buying yet until I fully understand the impacts. Or unless I'm buying the whole KLCI index, stock pickers need to sort through all the implications.

We are talking about fundamentals change and not sentiments change unlike regional contagion effects or political Tsunami right after Barisan Nasional lost 5 states. We are talking about serious inflation landscape change, from 3% to probably 5-6%. We are talking about manufacturers conversion costs will go up - electricity, transportation, etc. Soon will wages chase after price stability? Will private sector RM 900 minimum wage will be a reality?

As usual, by just looking at top volume, top gainers and top losers will tell me a lot of things. Like a conductor reading scores, they are beautiful notes to me. Looking at the losers, investors believe consumer disposable incomes will be reduced significant - they will give up premium cigarette ( BAT was the top loser) and go for cheaper alternative ( JTI was the winner of the day);

Big ticket items will be hold back or cancel: banks, cars, property counters got whacked!;

Industrial counters that uses significant natural gas got hit - Top Glove, Supermax and etc;

IPP - I saw Tanjong in red;

Plantations - windfall tax - yup I saw KLK and IOI - most still try to sort out the impact on locations;

Forget about holidays - Genting, Resort, AirAsia can go to hell!

Global crude oil down - O & G leaders got hit - I saw KNM covered that face avoiding punches from investors.

Overall volume was not that heavy - 500 million shares changed hands. Have sellers done with the selling ? Just wait for a week from now. The consolation, institutional funds will try to support because most of them are loaded with cash and avoid wraths of fund holders (quarter end reporting). Relatively mild selling volume also indicated Foreign players already exited earlier?

I'll have to sit down very calmly on this weekend to sieve through all the reports.

Small Cap - a big dissapointment?

Wow! 49% of the small caps missed estimates? Is this the sign of bad things to come -- lead to a huge sell-off? This may put off a lot of retail investors for a while. I normally like to hear story of companies missing estimate because of potential mis-pricing. I normally will be very happy even I can find 1 or 2 mis-pricing stocks out of hundreds of them. Those mis-price by almost 50-60% will be a good bet to compensate for opportunity cost tied up to wait for the market to recognize.

I also like fallen angels of growth stocks when they missed the high growth rate. Disappointed investors will send those stocks down to eternal hell. Again, mis-pricing of 60-70% will be a good bet.

Wednesday, June 4, 2008

Thank God, the Fed is Listening, but too little too late?

This a welcome development as the Fed begin to shift attention from economy growth and financial crisis to inflation and the dollar.

(WSJ--3June08)Mr. Bernanke also suggested that the Fed is unlikely to lower official interest rates further, though his remarks suggested that -- barring a further rise in inflation expectations -- the Fed probably won't contemplate higher rates until there is more stabilization in home prices.

It's good that he begin to talk down the inflation expectations however he must restore credibility as most sees it as a dinasour and a toothless tiger bows down to Wall Street demands. Ben please walk the talk, if you mop up the excess liquidity, expectations could not be translated into actions i.e. commodities prices will be friendly.

Mr. Bernanke's comments suggest the Fed still sees global economic forces -- particularly faster growth in emerging economies and supply constraints -- as the main factors in the rise in commodities.

Still, Mr. Bernanke said high commodity prices are an "important risk" to the inflation forecast, especially if they become embedded in expectations for future inflation.

Recent consumer surveys suggest households expect inflation to rise significantly over the next year, and they've boosted their longer-term expectations as well.

Mr. Bernanke warned that higher inflation expectations could become "self-confirming" and are thus a "significant" upside rise to price stability.

Malaysia, Thailand Cut to `Underweight' at Goldman

The Bloomberg reports Goldman downgrades Malaysia and Thailand to 'underweight'.

June 3 (Bloomberg) -- Malaysia's political volatility made its shares least favored in Southeast Asia, Goldman, Sachs & Co. said, recommending that investors also pare holdings in Thailand, Indonesia and the Philippines as growth and earnings slow.

The nations' equities were cut to ``underweight'' from ``market weight,'' Singapore-based analysts including Rick Loo wrote in a report dated yesterday. The region's shares are unlikely to rise as economic concerns escalate, they said.

In Malaysia, opposition leader Anwar Ibrahim is seeking to oust the ruling party, while Thailand's benchmark SET Index yesterday plunged the most since January on speculation anti- government protests and rising consumer prices will dent growth. Inflation will hurt the Philippines most and Indonesia faces a ``tighter fiscal and monetary backdrop,'' Goldman said.

The question is: did they exit the market and recommend to underweight? Is this a new news or old news? Well, let's see whether KLCI will fall more after this being made public.

Tuesday, June 3, 2008

Inflation headlines are finally showing up

Inflation is one of the things that I've been watching closely. Buffett always worries about inflation. Now, the headlines are finally flashing everywhere. Looks like media, big boys, politicians, central bankers, etc begin to talk about it extensively compared to two months ago. Some people think this is more of a transitional period for developing economies, it's cyclical in nature. They opined inflation should peak soon as developed countries knocked into a slow down or recession. Did Asian Central banks got their bet right? Bloomberg writes: China Leads Asia in Retreat From Inflation Battle.

June 2 (Bloomberg) -- Plummeting currencies did in the first Asian economic miracle. The second may fall victim to surging inflation.

Central banks from Beijing to Bangkok are losing their bets that a global slowdown would temper price increases. While export demand from the U.S. and Europe may have eased, it has been replaced by rising domestic consumption that has helped push inflation rates in Asia as high as 26 percent.

The result: In China, Thailand, the Philippines and at least eight other Asian economies, benchmark borrowing costs are lower than the rate of inflation, resulting in negative real interest rates, according to data compiled by Bloomberg. The risk is that prices will spiral even faster, leading to overheated economies and an eventual bust.

``Unless there are concrete measures to tackle inflation, investors are going to reconsider the Asian growth story and realize it's not as rosy as it seems,'' says Sailesh Jha, an economist with Barclays Plc in Singapore. ``Confidence will weaken, and there'll be a significant correction in asset prices such as stocks as capital flows out.''

Thailand's central bank has held its main rate at 3.25 percent for almost a year, while inflation has tripled to 6.2 percent. The People's Bank of China, which announced in early December a planned shift to a ``tight'' monetary policy, has kept its main lending rate unchanged at 7.47 percent since the end of 2007, even as inflation soared to 8.5 percent, near a 12- year high.

Asian Central bankers had better take quick action to catch up loss time. I've been worry about this when I made two entries earlier(Forget about subprime, in Asia the big fear is inflation and oil speculation) With enough pressure builds up, some will take some money off the table--reducing their bets exposure. As soon as this "first wave" fear subsides after a big sell-off, it will attract more hot money to bet on interest increase or currency appreciation. The "second wave" will continue to drive up asset prices again. If left unchecked, this self-reinforcing loop is dangerous. It will create assets bubbles, when it burst, it will be very ugly. There will be people get hurt.

Why I bought Parkson?

At last I bought Parkson, after waiting for 2.5 months. I made the first entry about Parkson by examined the macro picture in March 15. The next day, I wrote a brief entry about Parkson. I was a bit unlucky because Parkson went on sales around $ 5.40 - $ 6.00 but having insufficient funds. I told myself between discipline and making money, I prefer to preserve discipline. Parkson continue to deliver earnings at high growth rate bring down valuations quickly.

Learned something new, when a stock has presence in many countries, volatility will jump cause by good news or bad news. If something were to happen in China, Hong Kong, Vietnam or Malaysia, news may move price, could be very wild too.

Two negative catalysts had brought down the price so far (i) disappointments by Hong Kong investors (ii) Vietnam stock market turbulence. Will there be a third negative catalyst to bring the stock down another 10%? It may well could happen but I don't know.

You may notice that I don't use that much of technical analysis. I derive my entry price largely by valuation and observe general pessimisms. I'm happy being approximately right - if the price goes down more than 15%, I know I bought too early.

When I saw Parkson opened around $6.10 this morning, I figured out with 5% intra-day volatility could bring the price down to $ 5.80. So just ordered 500 shares at $5.80 and went on to work. Just a very simple mechanism to time my purchase - neither too technical nor too scientific.

Monday, June 2, 2008

Turtle bought 500 Parkson shares at $ 5.80

Turtle bought 500 Parkson shares at $ 5.80. More updates later.

Food Fight Over Biodiesel

United Nations Food and Agriculture Organization is organizing a Summit in Rome to debate about food fight over biodiesel. I extracted part of the article appeared in the WSJ.
"The fuel of the rich is competing with the food of the poor," says Willem Jan Laan, director of external affairs for Unilever, the consumer-goods company. Unilever buys shiploads of vegetable oil every week to make soap, shaving cream, ice cream and candy. That puts Unilever in competition with fuel companies for the corn, rapeseed, oil palm and other crops used to make biofuels. Mr. Laan says that at a panel discussion in the coming week, he will argue for increased use of other alternative-energy sources, such as wind and solar power, and fewer biofuels.

I would argue that for very short term, everyone should drive lesser. If you look at the main demand driver, it's transportation. Based on Exxon Mobil forecast, this sector will take up huge portion in years to come but non-OECD demand is still relatively small compared to total global fleet. By looking at the data, alternative energy will solve some of the industrial and power generation but not transportation.

As people getting richer, they will own more vehicles. Exponential demand growth can be observed once certain income per capital breakthrough is achieved.

For now, I agree with the statement that we should not let them convert food into gasoline to fill up their gasoline hungry automobiles. It's a dumb idea. Additionally, the US protectionist policy also contributed to the problem - maintaining silly tariff of US $ 0.54/gallon on imported ethanol. This is extremely irrational because sugar-based ethanol produces by Brazil is a lot cheaper than US corn-based ethanol.

It is not fair for them to point fingers at Asian saying we are the cause of the food inflation.

"The problem is rising food and feed demand in Asia," EU Agriculture Commissioner Mariann Fischer Boel said in a speech this past week. She argues that only 1% of EU arable land is used to plant biofuels, making the impact on land prices negligible.

I think many people are desperate and hitting every where but missing every where also without examine the root cause. If you ask 5 times WHY, you should get the real root cause. Why food inflation? Because we divert them to biodiesel. Why biodiesel? Because of high energy price. Why high energy price? Because flight of the dollars? Why flight of dollar? Because the Fed printing money like nobody business. Why the Fed printing money like nobody business? Just to save a few politicians and Wall Street firms.

Sunday, June 1, 2008

Turtle Portfolio Update - June 08

Received regular saving $ 888 for June. This monthly regular saving is forcing me into a dollar averaging program. I can buy about 3-4 times/year. With an interval of 3 - 4 months, this has helped me to smooth out volatility.

Vietnam stock market turmoils has sent most of the Malaysian stocks with Vietnam operations into a tailspin. Parkson is no exception. This will provide an excellent entry point because their operations are too small to dent Parkson's earnings. It has taken more than 15 years of blood, sweat and tear for Parkson to be sucessful in China, this kind of turmoil is nothing as they have just set foot in Vietnam.

SINGAPORE: The worst may not be over for Vietnam’s stock market, the world’s biggest decliner, as shares resumed declines after a computer breakdown halted trading for three days.

The benchmark VN Index fell 1.5% to 414.10, extending this year’s 55% retreat, after a government report showed prices jumped the most since at least 1992. Morgan Stanley said Vietnam was heading for a “currency crisis” and Fitch Ratings cut its outlook on the country’s debt rating.

The Ho Chi Minh City Stock Exchange fixed the computer error that interrupted the VN Index’s 17-day tumble, the longest streak since October 2003, according to a statement from the bourse on Thursday. The gauge tripled in value from the end of 2005 through 2007. The VN Index yesterday closed at its lowest since Aug 2, 2006.

“We’ll see a continuation of the selling,” said John Shrimpton, a director of fund manager Dragon Capital Group. “Inflation is one aspect causing the drop. The market was clearly overvalued.”

The VN Index, started in 2000, surged almost five-fold in the two years through its March 12, 2007 peak as the economy grew at the fastest pace in a decade and a government equity sale programme helped lure foreign and domestic investors.

Even after the tumble, Vietnamese stocks are not cheap enough to prompt Templeton Asset Management Ltd’s Mark Mobius to buy.

“It’s got a little way to go down still,” said Mobius, who oversees US$47bil in emerging-market equities at Templeton in Singapore. “If you’re going to go in there, you better think long term, otherwise you can get stuck with a very illiquid security.”

I've made an entry last month saying there is no point reviewing portfolio gains/losses too frequent on price basis, since it has down from last month, let me just report as it is, MUI is down from 23% gains to about 7%, so that my readers will not think I am running away. From next month onwards, I will not be reviewing by monthly basis but yearly basis.