Friday, October 31, 2008

Portfolio Update - November 2008

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October is finally closed. It was not a very fun month. Dow lost 22% in 8 day-stretch during early of the month, that was not something we could forget easily. S & P 500 won many worst month return awards during the Great Depression and October 2008 managed to make it to hall of shame is not a compliment but rather a shame due to misguided policy by the Fed lead to housing and credit bubbles.

It was a very rough ride for traders but was a very fun ride for long term investors. I snapped up iCapital this month because I can buy a basket of undervalued stocks with more discount. I was deciding between Parkson and iCapital. iCapital was chosen as they have cash, selling below NAV and almost maintenance free ideal for small investors with long-term horizon.

I made some minor modifications on portfolio tracking for the ease of tracking on return on capital. I managed to save up more than 10 k plus after receiving 888 for the month of November. Unfortunately, I suffer paper-loss of 27% on my capital.

Thursday, October 30, 2008

Portfolio Update

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I'm fully invested now. I will have to wait at least for 2 - 3 months for cash. I felt like I a kid in a candy store and just can't help but to buy as things are very cheap. I have no regrets that the price went down further, just hope that it will go down a lot more lower when I got more cash. I don't care if they stay this way for next 5 - 10 years. Market oh market - please wait for me!

Yesterday was a very funny day. Dow closed 11% which was one of those best days despite of a very bad news - consumer confidence sank to 38 way off of consensus estimates of 52. Does that means investors think enough is enough, they don't care about recessions or consumer spending contraction anymore? As I drafted this on Oct 29 prior to the US market open, I don't know how they are going to react with the Fed decision on interest rate. Are we through with pricing in a recession ? Too early to tell, let's see how they are going to react with a few more bad economy numbers like unemployment, GDP numbers and etc.

Some old man advice here:-

SAN FRANCISCO (MarketWatch) -- Jack Bogle, founder of mutual-fund giant Vanguard Group, is a longtime detractor of the speculative products and schemes that snowball individual investors and enrich Wall Street.

Bogle's had a lot to criticize, as investment options for individuals became increasingly exotic and expensive. Now, with the U.S. stock market having given up the past several years' worth of gains and on track for its worst year since the Great Depression, it's painfully clear that speculation works both ways.
In a recent interview, Bogle surveyed the mess on Wall Street and offered his view on how investors got to this point and what they should do now.
MarketWatch: What's your take on the market's meltdown?
Bogle: We've had this orgy of speculation and it's crowded out intelligent investing. I'm certain we're in a recession and I'm certain it's going to get worse. But we have to get back to investing and not focusing minute by minute.
What's ridiculous about this is that back at the 2000 high, and again at last autumn's high, the Standard & Poor's 500 (SPX:
SPX 940.51, +91.59, +10.8%) was valued at about $15 trillion. It's now about $9 trillion. Does anybody in their right mind think that the value of American business has dropped by $6 trillion? American business has grown every year in little ways and big, because that capital produces earnings.
In this speculative market we've forgotten the fact that investment fundamentals prevail. The dividend yield on the S&P 500 has gone from 1% to 3%, while the market is down almost 40%. The book value of the S&P has almost doubled, from $2.3 trillion to $4.2 trillion. Instead of having a market price of seven times book value, the market price is twice book. The market relative to the book value and dividends it pays is far cheaper than it's been in a long time.
Q: How can people look at this crisis more rationally?
A: Count your blessings, American investors, because you're probably in the world's best-performing stock market. If you're following the rules of asset allocation, diversification and long-term horizon, stay the course. That's what I'm doing. I haven't changed my allocation since 2000: it's about 75% bonds and 25% stocks. I barely calculate it every year.
Q: How do you see the financial system recovering?
A: We'll need a lot of regulation of financial institutions on capital requirements and balance-sheet quality. Hedge funds' huge importance to the system will ultimately fall of its own weight. And the system will correct itself, probably the hard way, through government intervention.
Q: What would be a sign that the worst of this bear market is over?
A: There will be a point at which stocks will turn, long before the economy does. It's a year or a year-and-a-half to go before the economy reaches bottom. We've got a lot of toxicity to get rid of in our system. We need patience and fortitude; 90% to 95% of what's going on is due to speculators. Turnover in the market this year will be 330%. Last year it was 280%. In 1929 it was 140%. This is a crazy era and we're letting the speculators run the train. We're letting the nuts run the insane asylum. Eventually speculators lose.
Q: What should individual investors do now?
A: The fundamental things will apply as time goes by. What we're seeing is the madness of crowds. We've lost our way. We have too much in costs and not enough value, too much speculation and not enough investing.
The way to insulate yourself is to follow a couple of simple rules. First, allocate your assets intelligently. If you're in over your head, on margin, you have to get some of your money out of the stock market.
Second, have your bond position equal your age. If you're 70 years old and have 70% bonds in this market, you're not bad off. If you're in your 20s or 30s and 70% in stocks, you're going to be investing for decades.

Wednesday, October 29, 2008

How to make RM 28,000/day?

Santa Claus dropped 102,800 shares around 9:33 am of RCE at 5 sen. To those managed to catch it, my heartiest congratulations. To those that missed the boat, just keep looking during total chaos and panic, you may find gold.

(Click for a larger and sharper image)

Tuesday, October 28, 2008

Bought 1000 shares iCapital at $ 1.20

Turtle now has 3,000 shares of iCapital - average cost $ 1.41. More update soon.

Mind over money? Put your money and reputation on the line work better!

In current volatiles environment, putting regular sum for investing is highly counter-intuitive. We tend to procrastinate telling ourselves we will wait for a little while for the market to bottom out and put a big sum of money to work. The truth is not many people will do that for many reasons. It is like weight losing or quit smoking program.

In behavioral economics, most people tends not to do what they claim want to do. We need to create incentives to push ourselves to do it. For example, write 12 cheque of RM 1,000 for your wife or husband to bank in on the first working day of month will have a lot more higher chance of you sticking to your dollar averaging investment program.

Deposit RM 500 with your unit trust agent to tell him or her that he or she will forfeit your money if you don't honor your commitment to do quarterly or monthly top up. Put your money on the line, it will work a lot better.

I've just completed a review of my wife investment program. I can tell you the results are very satisfying. We both agreed not to buy high and sell low. We know that creating a standing instruction may not be a good idea as we tend to continue to buy at high level. So, we came out with a solution. She gives me the money to put into my fixed deposit and start to put the money to work when the market comes down to more reasonable level. The last installment in her mutual fund was in January of 2008. After stop topping up her investment for almost 9 months, I'm now been entrusted to top up her investment every month on all her last 9 months savings. This has helped her avoiding buy high and sell low.

I'm sharing this very personal experience here to inspire some of you who are fighting with investing discipline problem. Create a commitment contract today. Good luck.

Monday, October 27, 2008

Soothe Your Nerves

I was working on some serious questions like has the world stock market priced in a repeat of the Great Depression ? Stagflation ? Stag-deflation ? Armageddon etc..... After debating with myself, I finally decided to post-phone answering these questions. Give everybody a break. Instead of keeping working on serious topics, let's don't forget to enjoy and celebrate life. Plus, following Buffett's advice, I've put some money to work already. Hope you enjoy these photos.

Sunday, October 26, 2008

Disruptive Currency Swings

Big swings in currency market is very disturbing.

(WSJ) Moves in the currency markets witnessed during just a few hours of trading early Friday "are typically what we see in a quarter," wrote Kathy Lien, director of currency research at Global Forex Trading in New York.

For emerging markets, rapid currency declines have been "very disruptive," says Richard Clarida, global economic adviser at Pacific Investment Management Co. and a professor at Columbia University. "It ends up impairing confidence in markets and generating an inflation problem."

What Richard said is very correct. Let's take IOI for example. The share plunged terribly, exceeded my way extreme call of the share price to fall to RM 3.00 when it was around RM 4.50. The share closed at RM 2.45/share last Friday. I'm sure a lot of people are very scared and confused now.

The issues involved are nicely summarized by Business Times Singapore:-

1. TA Securities analyst James Ratnam told Bloomberg that IOI had said its Dutch unit Loders Croklaan had hedged against forward purchases of crude palm oil (CPO) extending up to 12 months. The euro has weakened some 7 per cent against the ringgit this year.

2. The resignation of the company's assistant financial controller, Kong Chee Khoon, has also unsettled the market, though IOI Corp maintains he left for personal reasons.

3. A client note by Citigroup Research on IOI possibly incurring forex losses of up to RM165 million on its US$1.2 billion bonds might have also spooked investors. It estimated a translation loss of about RM165 million on the company's outstanding Yankee bonds based on the Sept 30 forex rate of RM3.4375.

Due first, in 2011, are its US$370 million exchangeable bonds, of which US$80 million are outstanding. Another US$600 million is due in 2013 and US$500 million guaranteed notes in 2015. The company's current debts amount to about RM6 billion.

4. Trading losses are more of a worry, compounded because the amount is unknown.

5. CPO prices continued to fall steeply in tandem with oil futures for January delivery yesterday dropping to below RM1,400 per tonne — a level that is loss-making for less-productive planters. At this level, the CPO price is less than a third of its peak in March, and earnings of planters are bound to be significantly lower.

6. IOI said this month it was postponing the launch of its Sentosa Cove property projects Seaview and The Pinnacle Collection because of a slump in Singapore real estate.

So, there are a lot of things to worry here. Unrealized loss arising from debts due to volatility is not a major concern to me as it is short-term in nature. In the longer term, volatility will die down after deleveraging dust settle down. However, slower property sales and CPO price free fall are something to worry about - though this business is cyclical in nature. The resource-based manufacturing earning may still be very resilient but it contributed only about 20% for the first six month of 2008. I have confidence IOI will ride out of this but I must differentiate between having faith in the management and not to to get caught in the cross-fire when everybody wants to get out now. Will revisit again when clarity is much improved.

Saturday, October 25, 2008

In Search of Market Capitulation.

To be able to buy at bottom is like going for hole in one. In my investing experiences, out of hundreds of transactions, I got very small percentages of hole in one - which I count myself really lucky, the rest are either bogey or par.

I saw a big headline when S & P future hit limit down of 6% yesterday. So, I waited and glued my eyes on the computer for "live" big crash to happen. I was pretty disappointed when the market opened around 5% down and then see-saw back and forth. I went to bed after watching slightly more than an hour - figured out, when everybody is anticipating a big crash, it probably will not happen. Crash may happen when everyone is complacent and they come like thieves in the middle of the night, when we are in deep sleep.

I am posting the whole article by Jason Zwigh on his thoughts on capitulation. Wishing all Indian friends and readers Happy Deepavali.

(WSJ)Wall Street often resembles a blindfolded person looking in a darkened closet for a pair of black shoes that isn't there. With the Dow taking another battering in the past week, another round of futility is under way: the search for "capitulation."

There's a belief that the market can hit bottom only when vast numbers of investors finally capitulate, throwing in the towel and selling off the last of their stock portfolios. In theory, if you could spot this moment, you could make a killing buying at the bottom.

There are two problems here. First, capitulation is almost impossible to define. Second, even if you could get a positive ID on capitulation, that might not do you any good. Market lows aren't necessarily marked by tidal waves of frantic selling; just as frequently, stocks bottom out in a dull and lonely atmosphere as trading dries up and most investors no longer even care. Bear markets often end not in capitulation but stupefaction.

"The idea is, 'We'll know we've hit bottom when the fat lady capitulates,' " says finance professor Robert A. Schwartz of Baruch College at the City University of New York. "But she could just sputter instead, or capitulate more than once, or slowly slide around along the bottom." Warns Prof. Schwartz: "On the way down, you get a lot of faux capitulation. And how do you know, until after the fact, whether it is friend or faux?"

Oddly, even market pundits who believe in capitulation admit they can't define it. "Capitulation is a state of mind, without any specific definition," says Al Goldman, chief market strategist for Wachovia Securities. "You can't measure it; it's best identified in hindsight." Hugh A. Johnson, chief investment officer at Johnson Illington Advisors, says almost wistfully: "I wish I could quantify it for you so I could say, 'Here, this is capitulation.' But a lot of this is anecdotal. Talk to enough investors and you get an idea of whether we have capitulation."

Talk to them later, however, and you may get a different idea altogether. What seems like capitulation today will no longer qualify if the market goes even lower tomorrow. Mr. Goldman puts it best: "I think I'm right that we had capitulation on Oct. 10 [the day the Dow lost nearly 700 points]. But if we keep going down from here, then I would have to say that I was wrong and that it wasn't capitulation."

This is somewhat like insisting that your pet is a dog until you notice that it is meowing.

In truth, bear markets often end not in a crescendo of selling but a cloud of indifference. For example, take Dec. 6, 1974, a day that will long live in market infamy. The Dow closed at 577.60, down 45% from its levels in January 1973. Total trading volume was a tepid 15.5 million shares; a few days earlier, it had totaled only 7.4 million, tying the lowest level in more than three years. Lucien Hooper, one of the nation's leading security analysts, told The Wall Street Journal that day that the market was "just waiting the bad times out." Far from throwing in the towel, most investors weren't even at ringside.

"The most interesting thing about [the 1974 market bottom] was its dullness," veteran fund manager Ralph Wanger recalled to me. "It wasn't a crash, it was a mudslide. You came in, watched the market go down a few points and went home. The next day you went through the same thing all over again." And then, without a moment's warning, the bull woke up and took off. By Jan. 6, 1975, the market had shot up 10%, and a year after that the Dow had risen 54% from its 1974 low.

In short, bear markets sometimes end with a bang, sometimes with a whimper. You're more likely to see a unicorn in your backyard or a chimera in your kitchen than you are to spot an indisputable sign of market capitulation. The obsessive attention so many investors are paying to the huge swings in the Dow suggests that we may not have hit bottom yet; stupefaction seems not to have set in yet. What we can be quite certain of, however, is that stock markets around the world are already on sale. If you have cash to spare, put some to work. If you don't, save up until you do. But don't kid yourself into thinking that you will ever get a clear signal out of such an unclear indicator.

Friday, October 24, 2008

Are you shock that Greenspan is shocked?

I'm glad that I confronted myself to wake up about credit implosion before all these experts now wake up slowly. I can tell you that it was not easy to jump out of the track to make this conclusion myself.

Nevertheless, on a different note, I am not sure whether Greenspan has been pretending not to know or he has no where to hide now.

WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities.

Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform.

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief," said Greenspan, who stepped down from the Fed in 2006.

"The reasons why we set up your agencies and gave you budget authority to hire people is so you can see problems developing before they become a crisis," Committee Chairman Henry Waxman, a California Democrat, told a panel that included Securities and Exchange Commission Chairman Christopher Cox and former U.S. Treasury Secretary John Snow.

"To say you just didn't see it, that just doesn't satisfy me," Waxman said.

Thursday, October 23, 2008


This a follow-up on my last posting on deleveraging. Like many others(professionl or amateur investors), I've underestimated the potential problems of deleveraging. I thought the problem was not that big because we are talking only about US 1.5 trillion sub-prime problem. Ripple effects of this US $ 1.5 trillion is truly amazing as it already brought down many countries to its knees - Iceland for example. The so called decoupling economy where Hong Kong is tied to China can have bank runs, this is truly terrifying. You won't believe Malaysian and Singaporean governments have to step in to tell everybody their money is safe.

The world has been way over-leverage but now that the tides go the other way round - unwinding - is not something that we should take it lightly. That is the reason why I turned so bearish for the last few months.

An article by Bill Gross of PIMCO who understands leverage better than anyone is posted here.

Almost always – but not now because in a global financial marketplace in the process of delevering, assets that go up in price are rare diamonds as opposed to grains of sand. For the past several months our PIMCO Investment Committee blackboard has continued to display the following lesson plan:

What Happens During Delevering

1. Risk spreads, liquidity spreads, volatility, term premiums – they all go up.
2. Delevering slows/stops when assets have been liquidated and/or sufficient capital has been raised to produce an equilibrium.
3. The raising of sufficient capital now depends on the entrance of new balance sheets. Absent that, prices of almost all assets will go down.

When Warren Buffett steps in to buy companies like Goldman Sachs, he who understands a lot about institutional investors psychology would have weighed the possibility of deleveraging would create extremely profitable buying opportunities. By putting money where the mouth is - equities - he would have reached a conclusion of probability of bankers/governments put-off this fire is relatively high. Or will this be a Waterloo for Warren Buffett just like Napoleon who fought many great wars and battles ?

Wednesday, October 22, 2008

China macroeconomics update

GDP : BEIJING, Oct. 20 (Xinhua) -- China's gross domestic product (GDP) grew to 20.16 trillion yuan (2.96 trillion U.S. dollars) in the first three quarters of this year, up 9.9 percent from the same period of last year, the National Bureau of Statistics (NBS) said on Monday.

(Click here)

This is a welcome news by all despite of slipping below 10%. 9% shows the measures taken by the Chinese government has been effective - no over heating. They deflated both stock market and property bubbles without spreading into real economy is also something we should appreciate.

CPI is under-control though PPI is still putting on pressure. Consumption and public spending are going to counter worldwide slow down. Additionally, a lot more tamer inflation (4.6%) will give a lot of flexibility to maneuver over the monetary policy - Yes - easing!. (Click here)

Fixed asset is still growing at a healthy pace of 27%. This further confirm no dramatic slow down ahead. (click here)

These are good news for the world that searching for sources of growth.

Tuesday, October 21, 2008

Why iCapital?

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Am I still bearish on equities? Yes. Why buy then? iCapital's NAV is selling for 7% discount , KLCI is around 900. This implies I am buying around around 830. I believe iCapital has taken profit on AirAsia and recent announcement of VADS privatization will allow them to make good profits. Their cash level will be high to take advantage of further market weakness. I can live with a little bit more downside. I will another $ 888 coming in 10 days, so I still have dry powder left.

Clogged credit market is easing (click here) will provide some short-term rebound. I may sell into strength. When ? I don't know, market is fluid, so am I.

Monday, October 20, 2008

Bought 2,000 shares of iCapital

Bought 2,000 shares of iCapital at RM 1.49/share. Will explain more later.

Sunday, October 19, 2008

Big value investors step in – shopping spreeeeeee????

Saw this at

(Reuters)—Jeremy Grantham, Bill Ackman, Chris Orndorff and Bob Doll are some of the savviest U.S. money managers who are betting that equities have fallen to levels far below their intrinsic value.

After Warren Buffett’s opinion got published, media around the world jumps on bandwagon touting investors to open up their wallets and spend all their money.
Who are these guys? These are big value investors manage a lot of money.

Jeremy Grantham, Chairman of GMO, managing US $ 120 billion.

Bill Ackman, Pershing Square Capital Management LP manages US $ 2.4 billion of fund.

Chris Orndorff, head of equity strategy for Payden & Rygel, a firm which manages over $50 billion.

Bob Doll, he was the ex-Chief Investment Officer at Merill Lynch. He is now the Vice President and CIO for Black Rock. BlackRock’s assets under management totaled $1.357 trillion across fixed income, liquidity, equity, alternative investment and real estate strategies.

I am quite upset to find out some of the writers quoting these guys for the sake of juicing up their stories. This is what Jeremy Grantham said in one of the recent interview published in SmartMoney on Oct 14, 2008:

On US market: ….. I threw in the towel three months ago, and wrote a quarterly letter saying I thought I was the bear around this joint.

But this is much worse than I thought. All the fundamentals are turning out worse than I thought they would. All the competencies of the senior people at the Fed, Treasury and [firms like Merrill Lynch and Lehman Brothers] have turned out to be much less than I had expected; that's very disappointing.

And, therefore, how could one's confidence that the senior people would get us through the storm be very high? Prior to three months ago, we were investing in emerging-market equities. Then we battened down the hatches, and I changed my view from avoid all risk except emerging markets to avoid all risk, period.

The terrible thing — after all this pain — is that the U.S. equity market is not even cheap. You would imagine that, given the amount of panic, that it would be. But it started from such a high level in 2000 that it still has not yet worked its way down to trend, although it is getting close. But the really bad news is that great bubbles in history always overcorrected. So although the fair value of the S&P today may be about 1025, typically bubbles overcorrect by quite a bit, possibly by 20%. That is very discouraging.

On outside US market.
Things are getting cheaper. We score the EAFE [the Europe, Australasia and Far East Index] as absolutely cheap, and it's offering a 7% real annual return over seven years. Emerging-market equities are a bit cheaper, and we see a 9.5% annual real return over the same period.

The problem, though, is that we have so much downside momentum, so many financial problems and so many interlocking relationships, that it is hard to imagine this crisis subsiding because stock prices are digging in their heels and approaching fair value.

Chris Orndoff? His firm has terrible returns.

Bob Doll ? Terrible forecast.

I give you the facts and alternate views, you interpret and decide for yourself.

Saturday, October 18, 2008

Warren Buffett buys equities

Short commentary on this article written by Warren Buffett appeared on October 16, 2008 in The New York Times. This article probably flying all over the internet, generating a lot discussions too. I am keeping this article for my future reference(see at the end of this commentary).

Let's do a bit of Sherlock Holmes work.

First question when did he write this piece?

Hint: what he said in this article... "Yet the Dow rose from 66 to 11,497."

Answer :

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Between 2 - 12 September - before the crash !. This is a bit of old news but just got published after the crash for confidence building.

So it was cheap a month ago(Dow - 11,000)(after Buffett penned his thoughts), got cheaper by another 20% today(Dow-9000), can it get cheaper by another 30%(Dow-6000)? Nobody knows. Keep your powder dry. If you don't need the money in the short term, start buying like Buffett.

Buy American. I Am.

Article Tools Sponsored By
Published: October 16, 2008

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.


A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Thursday, October 16, 2008

Should you be fearful of deleveraging?

Should you be fearful of deleveraging? Fearful, be very fearful. Big bulk of it is in interest rate swap which is less problematic but FX, commodity,credit default, etc that adds up to hundred of trillions US $ will damage the worldwide financial systems when participants lose confidence.

(click for sharper and larger image)

Don't fight the Fed. Yes, that's exactly right. When the Fed started to drop interest rate in Summer 2007, there is a reason for it even though most says they are behind the curve.

Sept. 18(2007) (Bloomberg) -- The Federal Reserve lowered its benchmark interest rate by a half point to 4.75 percent, the first cut in four years, to protect the U.S. from sinking into a recession sparked by fallout from the housing-market collapse.

``Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the Federal Open Market Committee said in a statement after meeting today in Washington. The central bank will ``act as needed to foster price stability and sustainable economic growth.''

Stocks surged, two-year Treasury notes rose and the dollar fell to a record low against the euro. The larger-than-forecast reduction suggests Chairman Ben S. Bernanke is prepared to leave himself open to criticism that he's rescuing investors from bad decisions for the sake of saving the six-year expansion.

``You forget about everything else, and you have to make sure the worst-case doesn't happen,'' said Stephen Cecchetti, a former New York Fed research director who is now a professor at Brandeis University in Waltham, Massachusetts. ``This is very forward-looking.''

When they cut the interest rate for the first time, that was the signal of very bad things to come but Dow Jones Industrial Average closed 13,739 that day. It went on marching to break 14,000. And DJIA down 33% from that first cut. Unbelievable, at hind-sight.

When the worldwide central bankers cut rates concurrently - the markets shivered because it is a signal of very bad things could come. When they went offensively, worldwide tickers jumped very aggressively and losses steam so fast after 2 days of rebound. When they keep buying up banks, pumped billions of dollars into the market, these are very bad signs. I think they saw what is coming but just trying to make deleveraging process more orderly.

Wednesday, October 15, 2008

Market confidence at work ?

I was "speculating" for a rebound since beginning of the month. You may want to relook again my postings from beginning of this month on various indicators pointed to extreme bearish - at some point the market will have to rise again. But the way it rebounded surprised me, for example Hang Seng Index risen by 10% in 1 day - too aggressive.

Market sentiment is at work now, as soon as the central bankers around the world run out of bullets, the market will shift back to the recession fear - that will be the final capitulation I am looking for. For now, I will continue to pass this rebound though can go up a lot. Why ? Because I am a long only player in this "turtle portfolio".

Oct. 13 (Bloomberg) -- The U.S. Federal Reserve led an unprecedented push by central banks to flood financial markets with dollars, backing up government efforts to restore confidence in the banking system.

Paulson is getting very busy, busy, busy. They are going spend 250 billion to buy major banks.

(WSJ) WASHINGTON -- The U.S. government is expected to take stakes in nine of the nation's top financial institutions as part of a new plan to restore confidence to the battered U.S. banking system, a far-reaching effort that puts the government's guarantee behind the basic plumbing of financial markets.
[WASHINGTON - OCTOBER 13: Morgan Stanley CEO John Mack (L) and Citigroup CEO Vikram Pandit leave a meeting at the Treasury Department October 13, 2008 in Washington DC. U.S. Treasury Secretary Henry Paulson invited the heads of major U.S. banks to meet at the Treasury Department while world banking chiefs are in Washington for meetings of the World Bank and the International Money Fund.

Morgan Stanley CEO John Mack (L) and Citigroup CEO Vikram Pandit leave a meeting at the Treasury Department.

To kick off Tuesday's expected announcement, the government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. -- including the soon-to-be acquired Merrill Lynch -- Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp., according to people familiar with the matter.

Monday, October 13, 2008

Is life unfair ?

After completed my weekend readings - mostly bad news - I feel like reaching for some Prozac. Many negative calls - S & P will go down to 500 - 600 points, Dow will decline to 7,000, Hang Seng will go down the drain to 13,000(by iCapital!?), KLCI to 800, STI to 1850, etc.

One question keeps ringing, what is the bottom for Asian markets? Since we are not the culprits of this mess why we have to suffer this much? Is life unfair? Well it went up a lot too - so it is a little payback time.

Did a very quick and dirty exercise, picked two crisis - (i) Asian crisis which was our fault (ii) Dot-com bubble bubble bust which was not our fault. I picked two North East Asia markets and two from South East Asia. Simple average shows market declined by 61% (peak-trough) in Asia financial crisis and 49% in bubble. I extrapolated possibilities of how far the market can go down based on these two averages from peak. (click below table to see results)

Singapore and Hong Kong markets have more or less in the ballpark bottom but another 15-20% downside for Korea and Malaysia markets. Am I over-simplify things? Well just a number game, don't take this too seriously. Most nice looking charts and analysis by highly paid analysts are crappy and wrong anyway. Have a nice day!

Saturday, October 11, 2008

I look like an idiot!!? You too!

This week is really a tough week - guys with tendency to go long is literally dies more than once. Or unless you have 9 lives like cat. DJIA lost almost 20% in one week, almost as severe as 1987 crash. This is worse (I believe), you got 1987 everyday for 5 consecutive days.

(click image for larger and sharper image)

By Wednesday, after losing 10%, honestly speaking I thought further losing another 7-10% was really a low probability event. I saw some stocks suffered more than 20% decline in 1 day.Damn, I was wrong - damned wrong - luckily I did not put any money on the table. I was not alone, read this:

"You make a decision and you look dumb the next day," Mr. Herrmann says. "So you go to gold, and then gold is down. You go to Treasurys, they rally, then they get their noses punched in." His firm overall is holding 22% to 23% of its assets in cash, one of the highest levels ever.

These are signs of forced selling.

The margin calls hit some chief executives who had borrowed to buy company stock. These included Chesapeake Energy Corp. Chief Executive Aubrey K. McClendon, who was forced to sell nearly his entire stake in the company, which he had accumulated in recent years, including a $43 million purchase in July. "These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the world-wide financial crisis," Mr. McClendon said in a statement. "In no way do these sales reflect my view of the company's financial position or my view of Chesapeake's future performance potential."

Deal Journal lead writer Heidi Moore sits down with senior editor Adam Najberg to recap the musings of a panel of financial heavyweights at the NYSE, that included J.P. Morgan's Jamie Dimon, Goldman Sachs chief Lloyd C. Blankfein and others. (Oct. 10)

Other forced sellers included Coca-Cola Enterprises Inc. director Marvin J. Herb, who said J.P. Morgan Chase & Co. had seized 18.6 million of his shares in the bottler, and had already sold nearly 1.4 million of them for $17.7 million "pursuant to a credit arrangement." J.P. Morgan has indicated it plans to sell the remaining shares, Mr. Herb said in a regulatory filing.

The Vix, a measure of market fear based on options trading and tracked by the Chicago Board Options Exchange, rose to 69.95, by far its highest level since it was introduced more than 15 years ago.

I saw this chart on Bespoke website, S & P trading below 26% of 200-day MA is a very rare event. You can only see this in major bear like the Great Depression, 1973-74 bear market, 2001 dot-com bust and etc. The good news when calm return, there will be a very sharp rebound. It will tank right after the bear rally - so be really careful not to be eaten by the bear.

Oil price declined to my target of US $ 70 - US $ 80 per barrel but no hurry to execute any strategy yet.

I will have very light postings next week as I've very punishing schedules ahead. Take care!

Friday, October 10, 2008

Too late to cut loss?

A friend talked to me yesterday - he lost almost 70% value in some of his stocks. Is it too late to cut loss? My answer to him was - Hell YES, it is too late. If he thinks he has bought into some hopeless fundamental stocks, he should sell on rebound (10-15%). However, if he bought into good fundamental stocks, he should add his positions, sell it again on rebound. This can help to minimize his losses but may not recover all his capital.

Dow dropped by 7% overnight, I believe Dow is capitulated. I saw two interesting charts yesterday on this site: You may want to read that article. Here are the two charts.

(Click images for sharper and larger image)

Good luck for today!

Thursday, October 9, 2008

Worldwide rates cut coordination or worldwide conspiracy?

Worldwide central bankers coordination or worldwide conspiracy?

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

OMG, even the most hawkish ECB also gave in. What the hell is going on? Stop cursing them, ain’t they do us a favor preventing the second Great Depression. Shall we thank them?

"What we are battling here is trust, confidence, perception," said Peter McCorry, senior equity trader at Keefe Bruyette & Woods. "In that battle, what we've used to a great extent has been ad hoc solutions to situations as they arise," he added. "The rate cuts ... announce this is an international, coordinated effort to bolster financial markets. We're going to take what's wrong, provide the level of confidence and liquidity to get us through. The question I have is what the hell took them so long…. Every act now just by its nature can be seen as an act of desperation."

China is also announced its intention to drop rate.

China's central bank may step up to help stimulate the economy by cutting interest rates and allowing companies to issue medium- term notes, economists said.

The key reason for implementing monetary and macroeconomic policies is to support domestic consumption growth and financial market stability, as well as maintain a stable yuan, People's Bank of China Governor Zhou Xiaochuan said.

China may cut interest rates as many as five times by the end of next year and will boost spending to limit the effect of financial market turmoil on economic growth.

The central bank will cut the cost of borrowing by 27 basis points each time, reducing the one-year lending rate to as little as 5.85 percent next year from 7.2 percent now, Morgan Stanley economist Wang Qing said.

Shenyin Wenguo predicts the first rate cut as early as next month.

Boys and girls, while my prayer is answered a rebound could happen but I’m going to bet against them long-term – inflation is going to haunt us – we are going to pay for it.

Wednesday, October 8, 2008

Praying for a rebound?

S & P went under 1,000.

Oct. 7 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003, on speculation banks and real-estate companies are running short of money as the credit crisis worsens.

Is the market fearful enough setting stage for a rebound? Volatility Index now is at the highest point from historical stand point. It's a parabolic curve formed since August that suggest the market is really very fearful. Pray for short-term rebound but long-term is trend is still very muddy - crystal ball is not working. For smart investors with 5 - 10 years horizon, dollar averaging from here is not a bad strategy.

(Click image for larger and sharper image)

Tuesday, October 7, 2008

REIT - Safe Haven? Part 1

My prelude to talk about dividend yield strategy that analysts touted as a defensive strategy during turbulence time. REIT - a safe haven after fallen by 50-70%, a very limited downside plus 7-10% gross yield?

Capita Retail China listed in SGX plunged by almost 77%, worst than China market bubble burst!. Is it safe to invest with almost 10% yield at S 0.68. Discount to NAV is almost 33%.

QCapita listed in KLSE, plunged by almost 50%. Nett yield of around 6%. Discount to NAV is about 15%.

Sunday, October 5, 2008

Bursa Malaysia Mega Sale ?

(Click image for larger and sharper image)

This chart capture my attention while I was browsing CIMB research/strategy report.

A few quick comments.

1. 2008 core PE is quite cheap, 12X and as low as 2002.

2. 2008 P/BV is nothing to shout, 1.7X. 2007 was an anomaly selling for 2.5X. 2.5X was flashing warning sign but who cares when earning grew by 22% but now we pay the price.

3. Dividend yield is very attractive. 6% is something very attractive and good hedge against inflation - outperform bond or FD. Capital management has been very good.

4. Net gearing is excellence. Down to 12% in 2008 from 60% in 2001.

5. Not sure 6% core earning growth projection for 2009 is too optimistic. But but .... even earnings drop by 5-10% from 2008, 2009 is selling for 12.7X ~ 13.4X PE. It is still cheap by historical perspective.

It is really cheap is you want to own the whole business. Since company is loaded with cash, privatization activities are picking up speed. 28 proposals year-to-date.

Despite of attractive fundamentals, fund managers are extremely defensive and bearish. They are sitting on 20-25% cash vs. 16% average from 2001-2007.

Is it time? Hmmmmmmmm...................

Saturday, October 4, 2008

Ease bumiputra shareholding rules: Bursa

This is a sensitive and emotional issue. However, if this gets done, we are one step forward. This will ease some tensions of allegations many well connected politicians garner wealth rather than benefiting grass-root Malays. I am glad that we begin to see through NEP and looking at other ways of equitable wealth distribution.
(Business Times Online) BURSA Malaysia, the former Kuala Lumpur Stock Exchange, has asked the government to relax shareholding requirements that mar the market's attractiveness, industry officials say.

The main point of contention is that should a company top-up its capital base - say, through a rights issue - regulators can demand that bumiputra equity be restored to 30 per cent if it has been sold down. This has always been a concern because shareholders rightfully complain about earnings dilution.

The bourse wants the rules changed so that once a company is listed and the 30 per cent bumiputra equity requirement is met, it should no longer be subject to any top-up conditions.

Securities industry officials say Bursa Malaysia's proposals to ease bumiputra shareholding requirements will be considered by the country's Economic Planning Unit. It isn't clear if any of them will be approved, as similar suggestions have been made many times in the past. But this time the suggestions come from an arm of the government, which will carry more weight.

Also, the proposals are backed by powerful ethnic Malay businessmen including Nazir Razak, chief executive of investment bank CIMB and younger brother of Finance Minister and soon-to-be prime minister Najib Razak.

Thursday, October 2, 2008

Buffett shopping sprees - bottom out?

Buffett has about US $ 44.3 billion cash at the beginning of this year. He spent about 63% of his money or US $ 28 billion year-to-date. That means he still has US $ 16.3 billion in his hands. If he is spending the way he spent which is typically US $ 5 - 8 billion per deal, he can makes another 2 - 3 deals but based on his conservatism, he is unlikely to spend his US $ 16 billion. So, does that means he is thinking the market cannot go down significantly?

Before we jump in with two feet, we must understand he got himself hell of good deals - guarantee of 10% dividend as preference shareholder for GE for example. This kind of deal you and I will never get. When a TV broadcaster asked Jim Rogers what he thinks of Buffett deal on Goldman Sachs. She was alluding to worst of financial crisis will be behind us soon. Jim shouted back that Buffett got such a good deal, so why not?

I saw a few charts released by David Rosenberg an analyst with Merill Lynch the worst is not over. During the S & L crisis in early 90s, the market did not bottom out after the US government announced the bailout in August 1989. The market took almost 16 months later. The S & P was around 350 points in August 1989 and bottomed out around 300 points in October 1990. That was approximately 14% drop.

The US economy was not in recession just like we have not seen any negative GDP number so far. The recession was not trough until more than one year later.

Back to Buffett sharpness to time the market, between 1 Jan 1989 to 31 December 1990, he did not add much large positions to his portfolio. He spent only about US $ 341 million on Coca-Cola. That means he did not believe the worst was over despite of the bailout. In 1990, the year S & P bottom out he did not add any large positions. However, a few months later, in 1991 he added Gilette US $ 600 million and Guiness US $ 265 million to his portfolio, which was much more aggressive compared to a year before. He believed the worst was over in between 1990-91 - he was correct!

If Buffett is right again this time, are we going to see sunny days - happy smiling faces again?

NEW YORK ( -- The Senate on Wednesday night passed a sweeping and controversial financial bailout similar in key ways to one rejected by the House just two days earlier.

The measure was passed by a vote of 74 to 25 after more than three hours of floor debate in the Senate. Presidential candidates Sens. Barack Obama, D-Illinois, and John McCain, R-Arizona, voted in favor.

Like the bill the House rejected, the core of the Senate bill is the Bush administration's plan to buy up to $700 billion of troubled assets from financial institutions.

Those assets, mostly mortgage-related, have caused a crisis of confidence in the credit markets. A major aim of the plan is to free up banks to start lending again once their balance sheets are cleared of toxic holdings.

Well, if history is going to be our guide, worst case scenario - a potential downside of another 10-15%. Though I am still bearish, if we have the cash and stomach for it, spending little bit of money may not hurt us, right?

Wednesday, October 1, 2008

Portfolio Update - October

Turtle received $ 888 for the month of October. I'm sitting on 43% cash after my two stocks lost about 31%. Portfolio as a whole(inclusive of cash) declined by 18% . The portfolio was created when KLCI index was 1417, the index lost about 28% based on yesterday closing of 1018. By sitting on large pile of cash is a cheating way to outperform the index. However, the point is cash outperforms equities at this moment.

Why am I not cutting losses after stocks declined more than 25%? The justifications can go on and on. Since this portfolio is going to expire in 15 years time, companies fundamentals are still all right, it does not really matter to me. It is going look OK 15 years from today.

Wishing all Muslim friends Selamat Hari Raya and maaf zahir batin.