Are Jim Rogers and Marc Faber right?

I've been constantly thinking whether Jim Rogers and Marc Faber are right - criticizing heavily on the US government interventions to save troubled banks. They always say take the Japanese lessons - saving zoombie banks will not help anybody. Throwing money trying to inflate asset markets will not work.

I was arguing with myself American and Japanese are very different. Can we count on Americans?

You can always count on Americans to do the right thing, after all other options have been exhausted.

Winston Churchill

Unlike Japanese who are very consensus driven and slow, Americans are very pragmatic and moving very fast. A Japanese economist, Takeo Hoshi, writes this:

Now the TARP (Troubled Assets Relief Program) has been transformed from a program that primarily buys troubled assets at financial institutions (as the name suggests) to a program that focuses on injecting public funds to supposedly healthy banks to recapitalize them. The program with the new emphasis, which I call the TARP II, is better than the original TARP in that it directly addresses the issue of capital shortage that is at the center of the current financial crisis, as many have argued.

As I discussed in my paper with Anil Kashyap, Japan eventually shifted from the policy that primarily focuses on purchasing problem bank assets to the one that uses public funds to recapitalize major banks, too. In this sense, the U.S. response is going through the same changes that the Japanese policy went through, although the U.S. is now moving much quicker than Japan did. It took about five years for Japan to move from the bad assets purchases to capital injection. It took the U.S. only five days or so.

I was thinking that's very impressive, it took American 5 days rather than 5 years to realize their mistake. So, I ran a chart on Nikkei 225.


(click for larger chart)

You can see the volatility during the period of Japanese attacking the problem by buying troubled assets. Nice trading range actually for 5 years but the big decline happened when they start to do the recapitalization. It was not the recapitalization failure but the Asian financial crisis and followed by Dot.com bust! It was a huge decline of 60%, dip buyers must have gotten burnt very badly after they trusted their timing buy on 30% pull back. Then the Japanese stock market had a huge recovery - 120% run up which benefited from the solid world economy expansion but never able to get back to where it was, never breakthrough 21000.

Nikkei 225 is still very expensive selling for 12 times PE, 2% dividend yield at 7,000 - 8,000. If we were to expect it to go back to 40,000 selling for 60 times PE will be unrealistic. To equate recapitalization program failure to not able to go back to Nikkei 40,000 will be too harsh.

I agree with them on one point though, beyond betting on oversold(risk-reward no longer attractive after 100% rebound in some cases), buy and hold on the US financial firms will test your patience to the limit.

Only one question on my mind now, will Americans start spending again? If not, this will be very similar to Japanese. The Japanese economy which is not consumption led was at the mercy of the world economy.

Why Stocks Rally on Bad News?

Dow jumped 16% after hitting a new low on Nov 21, 2008 @ 7478 and managed to close at 8719, even though there are a lot of bad news on the economic fronts. Terrible durable goods, Purchasing Manager Index and personal spending - all points to deep recession and missing estimates too. The consolations were initial claims and personal spending better than consensus. Still, after 3 days of solid rally, news like this should pull back a bit. Scratching your heads?



It is seems like the market is baking in this:

(WSJ)On average the 54 economists surveyed expect gross domestic product to decline 3% at an annualized rate in this year's fourth quarter. That comes after the Commerce Department reported a 0.3% drop in the third quarter. Another negative reading is forecast for the first three months of next year with an essentially flat reading for the second quarter. Slow growth is seen for the second half of 2009, reaching 2.1% by the fourth quarter.

"By the third quarter of next year a recovery will be under way," said John Lonski of Moody's Investors Service, but he added that expansion won't return to pre-crisis levels until 2010.

As long as GDP contraction is not getting worse than -4%, expectation wise, they are giving a chance to the market until mid-2009.

So, like most says, the market is so oversold - there is a good chance of a rebound between 20 - 40% between now till March 2009, from 7478. Watch out for 9000(yellow light) and 10,000(red light).

Foreign capital inflow

You really have to give foreigners some due respects for they are able to maintain clear heads to snap up bargains during panic selling. You can see very clearly that there were waves of selling in October but Malaysian market actually experiencing net capital inflow. The amount was not significant but still telling us something.

How is our neighbor Singaporeans whom always think they are more superior and smarter than others fare? Not doing much better, they lined up to redeem their unit trusts when recession hits them.


(click for larger image)

We, however, cannot laugh at them because when Malaysians hit the wall after Chinese New Year, I fear that many too will line up to redeem their investments. If this scenario comes to pass, it will present an excellence to snap up bargain again.

Lies, damn lies

People says Wall Street is a dirty place. It's a place full of greed and deceitful people, many innocence will be slaughter there. They will do what-ever it takes to make a profit, including selling their mothers. They will spread lies and sow seeds of fears and take advantage of fearful - sell short. I have been restraining myself from using harsh words on these bastards but I no longer need to control myself. They are such an assho**.

(WSJ)Two days after Lehman Brothers Holdings Inc. sought bankruptcy protection, an explosive rumor spread that another big Wall Street firm, Morgan Stanley, was on the brink of failure. The chatter on trading desks that Sept. 17 was that Deutsche Bank AG had yanked a $25 billion credit line to the firm.

That wasn't true, but it helped trigger a cascade of bearish bets against Morgan Stanley. Chief Executive Officer John Mack complained bitterly that profit-hungry traders were sowing panic. Yet he lacked a critical piece of information: Who exactly was behind those damaging trades?

Trading records reviewed by The Wall Street Journal now provide a partial answer. It turns out that some of the biggest names on Wall Street -- Merrill Lynch & Co., Citigroup Inc., Deutsche Bank and UBS AG -- were placing large bets against Morgan Stanley, the records indicate. They did so using complicated financial instruments called credit-default swaps, a form of insurance against losses on loans and bonds.

Look at this, while the whole world is working hard to restore confidence and to prevent collapse of financial institutions, yet they are trying to bring each other down. It's a shame to see some of the big names like Merrill Lynch, Citigroup, Deutsche, UBS and etc. No wonder they sometimes criticize without mercy when regulators imposed short-selling. Bad people!

Sampson Rock of Wall Street

It's time to sharpen my saw. I will be taking a few days off going to read a book that I just got hold recently. Will let you all know what I think after completed the book. I hope this is as exciting as the Reminiscences of a Stock Operator by the same author Edwin Lefevre.

Sampson Rock of Wall Street tells the story of stock market manipulations made by a railroad tycoon as he wheels and deals his way into wealth. His scheme to increase his already vast wealth of holdings by depressing the stock in one of his properties becomes known to his son who then sets out to seize control of the railroad himself. A true classic, this timeless tale of stock market games and the machinations of a master market manipulator is as relevant today as it was a century ago.

The book's Introduction, written by bestselling author William Bernstein, contributes many insights and context including the following: “Financial loss has many parents: inadequate quantitative ability, overconfidence, underestimation of risk tolerance, ignorance about the knowledge and competence of those on the other side of your trades, and the granddaddy of them all, unawareness of financial history. Sampson Rock will teach you about all of them.”

I still have another book, 838 pages thick on my book shelf to digest -- The snowball-- by Alice Schroeder.

“The Snowball” (with a title that refers to Mr. Buffet’s way of making things get bigger and bigger) tracks his financial coups without becoming a string of “and then he bought ...” stories. Part of the book’s liveliness comes from the feisty, penny-pinching characters with whom Mr. Buffett liked to lock horns. The story of Mr. Buffett’s business rise is also a social climb of sorts, despite his cultivated folksy air. The book details his eyebrow-raising friendship with Katharine Graham of The Washington Post, an anomalous liaison since he claims that Daisy Mae of the “Li’l Abner” comics was his feminine ideal. In any case, Mr. Buffett required a constant supply of hamburgers and motherly care. He surrounded himself with Susie, a surrogate wife (Astrid Menks, whom he later married) and a close circle of other women.

With me going to a mountain to rejuvenate, my postings could be very minimum unless there are extremely market moving stuffs. Take care!

Crude Oil to hit US $ 300 in 7 years but today is less than US $ 50

November 20, 2008, 9.31 pm (Singapore time)

Oil prices drop below US$50

LONDON - Oil prices sank under US$50 a barrel in London on Thursday, reaching the lowest levels for three and a half years, as the market was plagued by weak energy demand.


Brent North Sea Crude for delivery in January tumbled to US$48.54 a barrel - last reached in May 2005. The contract had closed on Wednesday at US$51.72.

In New York, light sweet crude for delivery in December dived to US$50.20 a barrel - the lowest level since January 2007. -- AFP



Charles Maxwell of Weedan has been following oil for almost 50 years. He appeared on the Bloomberg around September when oil was around US $ 100. He said oil to hit US $ 300 in 7 years. But he thinks next six month will hover within US $ 75 - US $ 115 but will not go down to US $ 30-40 / barrel.

He appeared again with Marc Faber recently on the Bloomberg(November). Marc described him as a walking encyclopedia of oil industry. He thinks oil is finding a bottom in the next 16-24 months when it is around US $ 60 / barrel now. He sounds a bit cautious now but I think the thesis of oil going up will hold up.

Buffett has been adding energy to his holding in Q3 2008 .

The Omaha, Nebraska-based insurance and investment company said it owned 83.96 million shares in Houston-based Conoco, worth $6.15 billion, as of the end of September, equal to a 5.6 percent stake. That is up from 59.69 million shares as of June 30, and 17.51 million three months earlier.

While I don't know how high the oil price will go but I'm convinced this will be a long term profitable investment. Buffett and Bill Gates generated a lot of sensations when they made a private trip to Canada to look at oils sand in late August. He subsequently appeared on CNBC and not sure US $ 120 is sustainable, well he is right but watching what he does, I think the long-term trend is up.

QUICK: Wait, does that make you think that an investment in a tar sands company, somebody who's making--taking advantage of that would not be worth it at $120 a barrel for oil?

Mr. BUFFETT: Well, the biggest variable in whether it's a good investment is the price of oil. Now, it's important to know how much they can get out and what their costs are going to be and what the capital costs--all of that is important and that fits into it. But you still have to figure out what your own feeling is about what oil's going to be selling for three years from now or five years from now. Because you could be the world's greatest mining engineer, but if you were wrong about the price of oil in a big way it would negate all that knowledge. So it--I can tell you that if 100--if you had $120oil from now till, you know, 50 years from now, that the tar sands would be--would work out very well. But I don't know the answer to that. And I may form an opinion at some point, and I've got it--I'm prepared to form that opinion now.

QUICK: But you are not actively looking right now to invest in any of these companies?

Mr.BUFFETT: Do I have a buy order this morning? The answer's no.

A word of cautious though, don't get in too early while the story of global recession is still unfolding.

Closing: The issue of oil and water, both are finite resources, make it to the big screen - 007. A year ago and now is still the same - defying fundamentals - from extreme optimism to extreme pessimism. Demand did soften but is the pricing falling t another extreme justifiable? Just something to think about.

Giving up hope on Warren Buffett?

The bear crossed the line on the sand!

Dow plunges below 8,000 - 1st time since '03
Major indexes close sharply lower. Fears grow about economy and auto industry.

NEW YORK (CNNMoney.com) -- Stocks fell hard on Wednesday, with the Dow closing below 8,000 for the first time since March 2003, as ongoing anxiety about the economy and uncertainty about the future of the auto industry weighed on the market.

The Dow Jones industrial average (INDU) shed more than 400 points to close 5% lower. All 30 Dow components lost ground.

The Standard & Poor's 500 (SPX) index slid 6% to its lowest level since March 2003. And the Nasdaq composite (COMP) lost 6.5% to settle at its lowest point since April 2003.

This is the second time, hard core fans of Warren Buffett forsook Omaha - October 10 and yesterday November 19, 2008. This has indicated the hardcore buy and hold share-owners have abandoned ship. I think the market will be bottoming out over next few months as the last line of defense has broke down.

How negative is the mass sentiments? This 2008 Christmas Carol says it all.

You'd better watch out

You'd better not cry

You'd better keep cash

I'm telling you why:

Recession is coming to town.



It's hitting you once,

It's hitting you twice

It doesn't care if you've been careful and wise

Recession is coming to town



It's worthless if you've got shares

It's worthless if you've got bonds

It's safe when you've got cash in hand

So keep cash for goodness sake, HEY



You'd better watch out

You'd better not cry

You'd better keep cash

I'm telling you why:

Recession is coming to town!



Finance products are confusing

Finance products are so vague

The banks make you bear the cost of risk

So keep out for goodness sake, OH



You'd better watch out

You'd better not cry

You'd better keep cash

I'm telling you why:

Recession is coming to town.

US bear markets

My technical analysis on Parkson receives a lot of attentions. Most yawns at my big picture talks but suddenly many got very excited when I talked about some technical analysis yesterday, perhaps scarcity makes the trick. To be honest, I'm not very heavy on TA because it discounting past and current information and tells me a little about market sentiment. Nothing more, nothing less - not much about the future.

I am going to share with you all on my observations of a few severe bear markets. So, let's get started.

Let's start with the famous 1929 crash.


(click for larger image)

Any chartist can tell you that October 1929 was the capitulation as you have hanging man, high volume and lost of 40% from the top. Wrong! You will be in deep sh*** if you put 100% of your money thinking of making a big bet. The market killer back then was a psycho who loves to torture his prey slowing and painfully. The second capitulation was a slow death - 11 months of blood letting until the final capitulation came in. Volume was very thin, no liquidity or no confidence? I think both.

1973 and 1974. Dow lost about 40-50% but I like this killer, he finishes his target fast. Once it enters the bear territory, the whole torture was completed within 4 months and a 5-year new bull run was born.



Tech bubble. It was a long bear market - 3 years. I don't like to die this way. This killer is also a psycho. She first put three bullets on you - left foot, right shoulder and one on your right chest. She let you run and crawl for 10 miles and put one more bullet on your left foot. So you crawl another 2 miles and finally she finishes you off - the bullet went through your heart on March 2003. There are multiple capitulations.



Now back to 2008. Given the severity of the credit crisis and economic problems but at the same time the central bankers around the world are acting at breakneck speed, I am leaning towards on multiple capitulations if the market don't U-turn within 30 days or no response when big stimulus package like another US $ 500 billion being announced. 8,000 is the line has been drawn on the sand, if the bear manage to cross after a few rounds of fights(despite most think Oct 10 was the capitulation), see you at 7200.



At 8,000 level one cannot completely in 100% cash. If you miss the U-turn, you are going to miss it very badly. Let's say the market did go down to 7,000, your downside is only 12.5%. If you are 50% invested, when it go down to 7,000, you put down another 50%, your average cost is 7,500 and enjoying potential rally of 40-50% later. Sitting on the side-line deciding on timing to put additional 50% was what I meant wait.

Don't obsess with the hanging man, doji star, bearish engulfing, etc, trust me - I have been down to this path before - you cannot make big money this way. You make money by riding on the big rise(make sure you have underwear and parachute with you)!.

PS, Chartist, please don't be offended, I don't reject knowledge, all I am saying is look beyond charts. After all, if you look at my works, I can be a trained chartist, don't you agree? Hee hee, have a nice day!

Implications of slowing US consumer spending

First how bad it is? Historically, it's very bad. But the deteriorations started way back in the end of 2007 but accelerating in the second half, has the system begin to adjust itself and going into the darkest moment - worst yet to come ?


(click for larger image)

How did the US market take it?



Are we going back to re-test 8,000?

At this point, I don't have any answers. Sitting on cash and watch will be the best thing to do now.

Farm-Credit Squeeze May Cut Crops, Spur Food Crisis

This may be one of the worst time to write about commodity. I'm going to write anyway. The world already short of inventory as I have written about this a few times. For new readers, you may click one of my old post (here)

Harder credit to come by may cut crops and essentially drive up soft commodities. Jim Rogers has been repeatably saying he is buying agricultures.

Bloomberg written a piece about 3 weeks ago on impact of credit squeeze.(click here) Key points:

1. Oct. 27 (Bloomberg) -- The credit crunch is compounding a profit squeeze for farmers that may curb global harvests and worsen a food crisis for developing countries.

Global production of wheat, the most-consumed food crop, may drop 4.4 percent next year, said Dan Basse, president of AgResource Co. in Chicago, who has advised farmers, food companies and investors for 29 years. Harvests of corn and soybeans also are likely to fall, Basse said.

Smaller crops risk reviving prices of farm commodities that sank from records in 2008 after a six-year rally that spurred inflation and sparked riots from Asia to the Caribbean. Futures contracts on the Chicago Board of Trade show wheat will jump 16 percent by the end of 2009, corn will rise 15 percent and soybeans will gain 3 percent.

2. In Brazil, the world's third-biggest exporter of corn after the U.S. and Argentina, production may fall more than 20 percent because farmers can't get loans to buy fertilizer, said Enori Barbieri, a National Corn Producers Association vice president. The nation's coffee harvest, the world's largest, may drop 25 percent for the same reason, said Lucio Araujo, commercial director at farmer cooperative Cooxupe, located in Guaxupe.


3. Global inventories of corn, wheat and soybeans before the harvest in the Northern Hemisphere next year will be the second- lowest since 1974, enough for 67 days of consumption, compared with 144 days of supplies in 1986, U.S. data show.

Plantation stocks will be back in fashion in 2009.

Hall of "R"

A list of countries enters the hall of recession:-

1. Singapore

SINGAPORE, Oct 10 (Reuters) - Singapore eased monetary policy on Friday for the first time since 2003 after the Southeast Asian economy sunk into its first recession in six years and as the meltdown in financial markets threatened to further hit growth.

2. Hong Kong

HONG KONG -- Hong Kong joined the growing list of economies that have slipped into recession as growth in the third quarter was hit by softening global demand for goods and services, prompting the government to cut its economic growth forecast for 2008.

Hong Kong's gross domestic product fell 0.5% from the previous quarter on a seasonally adjusted basis, following a fall of 1.4% in the second quarter, according to government data released Friday.

3. Germany

BERLIN: The German economy, the largest in Europe, has entered a recession, according to data published Thursday that showed gross domestic product shrank for a second straight quarter as the global financial crisis intensified.

The Federal Statistics Office reported that German gross domestic product contracted 0.5 percent in the third quarter - more than the 0.2 percent decline that had been anticipated. That follows a decline in the second quarter of 0.4 percent, a slight revision from the 0.5 percent drop previously announced.

4.Euro

BRUSSELS, Belgium: The 15 countries that use the euro are officially in a recession, the European Union said Friday, as their economies shrank for a second straight quarter because of the world financial crisis and sinking demand.

5. ........................(You figure this out,OK?)

The big buying opportunity is getting nearer. Buffett wrote to his shareholders in 1997 on how to think about market fluctuations.

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

You can get a lot of things right and still lose big

I'm going to post the whole article written by Mark Hulbert here. I read his column regularly as one of the sources to read the market sentiment. I will not say much as I think I have bombarded many of you non-stop on "R" and earning deteriorations over a week.

This article reminds me of what happens when million of retailers trusted their financial advisers but unfortunately they did not walk the talk. I pity many of those bought into Lehman mini-bonds with their hard-earned retirement funds and fixed-deposits.

ANNANDALE, Va. (MarketWatch) -- Sometimes you can't win for losing.

Just ask Harry Schultz. Or Howard Ruff. Or Jim Dines.

All three advisers, each of whom has been editing an investment newsletter at least since the 1970s, have built their investment careers by questioning conventional wisdom's trust in the soundness of the financial system. Not surprisingly, all three have been vociferous champions of gold and other precious metals.

You'd think that they would have cleaned up over the last year, since the disintegration of the financial system in recent months is almost exactly what they have been warning us about for decades.
But you'd be wrong.

Of the 181 newsletters on the Hulbert Financial Digest's monitored list, these three advisers' newsletters are in 173rd, 175th, and 176th places for year-to-date performances through October 31, with losses ranging from minus 64.9% to minus 70.0%.

How can this be?

The easy answer is that these advisers didn't put into their model portfolios the securities that would benefit from the financial collapse that they envisioned.
But that's not a very satisfying answer. Why didn't they construct their model portfolios around investments that would rise when the rest of the financial world was going down?

The answer, as I see it, has to do with how difficult it is to forecast when a collapse will actually take place. It's one thing to know that the financial system is shaky, and quite another to forecast when it actually will crumble. And these advisers would have lost even more over the last several decades had they bet aggressively on a collapse every time they thought that one was imminent.
In essence, these advisers came face to face with John Maynard Keynes' famous pronouncement that "the market can remain irrational longer than you can remain solvent."

In fact, it turns out to be surprisingly tricky to construct a portfolio to profit from an anticipated collapse. You can't just own securities that will skyrocket during such a collapse, for example, since they will lose huge amounts during the months and years you wait around for that collapse to occur.
As a result, advisers who worry about a collapse sometimes end up constructing portfolios that are not all that different from those of other advisers who are more sanguine about the health of the financial system.

The ironies are many.

Researchers refer to the consequences of these dynamics as the "limits to arbitrage." One famous study conducted in the mid 1990s by Harvard economist Andrei Schleifer and University of Chicago professor Robert Vishny, for example, found that arbitrageurs more often become momentum players rather than hedgers: Rather than betting against an apparently obvious mispricing, they often will bet that a mispricing will continue and become even more extreme.

That's the theory, at least. And it only partially applies in individual cases such as the letters edited by Schultz, Dines and Ruff.
But, clearly, these three advisers would have constructed far more profitable model portfolios this year if they had known that the financial collapse they have so long warned us about would happen in 2008.

KLCI 895

KLCI closed at 895(reference point). Maybank recorded EPS QoQ declined by 22% - magic words like impairment, softer net interest income, higher costs, etc begin to creep in.

TMB recorded losses due to unrealized forex loss of RM 196 million but there are all kind of other funny stuffs like operating costs gone up and realized losses of equity disposal and not to mention increased depreciation with softer top line ( all adds up to about 153 million ), even without these costs, operating income declined by almost 25%! With the unrealized forex ? Bomb ! EPS of - 5 sen(loss) for Q3 '08. No dividend declared - pretty disappointing. This is a preview of what I posted about earnings disappointments.

I can't imagine what will happen to earnings going into 2009 especially the real macro deteriorations are happening around October 2008. But I can't wait for disappointed investors reactions when the market opens tomorrow.

(The Star) PETALING JAYA: Investors will seek affirmation that Telekom Malaysia Bhd (TM) has the ability to keep its promise of high dividend payout when the telco announces its third-quarter earnings today.

TM has committed to an annual payout of “RM700mil or 90% of net profits, whichever is higher” in conjunction with its demerger in April that split the fixed line and mobile businesses.

An analyst at Aseambankers Malaysia Bhd said: “TM has built up a lot of expectation that they would return cash to shareholders and the market will be looking for signs that they are on track for the minimum RM700mil payout.”

10:55 pm - 11 November 2009. Penang

Malaysia market commentary

You might be wondering why I have been keep talking about the US market and not so much of Malaysian market. US is the central of earthquake that transmits Tsunami to the rest of the world. So, monitor the central is important to assess the damage on the shores.

Back to Malaysian market, important development over the last two weeks (Business Times)

1. Malaysia is an extraordinarily open economy with gross exports clocking in over 100 per cent of GDP. Moreover, nearly 40 per cent of those exports are electrical and electronic items which can decline rapidly if there is a severe recession in the US.

2. Ms Zeti has gone further and for the first time said that the central bank was prepared to cut interest rates. The authority has kept interest rates steady at 3.5 per cent since April 2006 despite insistent calls that rates be lifted to check growing inflation fuelled by rising oil prices.

3. MALAYSIA'S central bank governor Zeti Akhtar Aziz met the country's top bankers late last month to give them a message: don't cut off credit lines to clients suddenly deemed suspect because of the global financial crisis.

Ms Zeti needn't have worried. Loan growth has moderated - from more than 10 per cent to around 8 per cent - but only because of slowing economic activity.

4. (theStar) KUALA LUMPUR: The Malaysian Institute of Economic Research (Mier) has revised upwards Malaysia’s gross domestic product (GDP) growth in 2008 to 5.3% from 4.6% previously due to higher-than-expected growth in the first half of the year.

But the independent research house forecast a lower GDP of 3.4% for 2009 due to the poor global economic outlook, and predicted that a recession might hit the country by the second or third quarter next year.

One of the high tech electronic hub, Penang, is already sensing something very bad is going to happen.

5. (theEdgeDaily)GEORGE TOWN: Faced with the possibility of retrenchments next year in the manufacturing sector due to the global economic slowdown, Penang is asking the federal government for an RM500 million allocation to retrain workers over the next five years.

Without disclosing details, Chief Minister Lim Guan Eng said though he did not know the numbers, he was aware of retrenchment or downsizing plans which would be undertaken by certain multinational companies next year.

He said instead of waiting for it to happen, Penang wanted its workforce to be prepared for gainful employment in any eventuality.

“Even the national growth forecast has been halved to 3.57% and it will definitely have an impact on all of us. We are asking for RM500 million for five years, which will amount to RM100 million a year to retrain these workers.

I am not sure whether most of the market participants have genuinely discounted the development. While I am taking a more positive stance anticipating the real economy to be on a firmer footing in 12-24 months, I don't think the market has gone through the short term re-pricing yet. For example, OSK is still calling themselves realistic while forecasting 3% growth. If the actual earnings contract by 10-15% in 2009, KLCI can well go down to 700-800 points before pricing in a genuine earning recovery.


(click for larger and sharper image)

Xie-Xie(thank you) China.

China surprised the market pleasantly. I am convinced that they will continue to achieve 8% GDP growth. However, the rest of the world must also chip in to help themselves to boost their economies either by fiscal or monetary policy. I am seeing a much brighter side of 2010. However, the market tends to have very short memory. Good news like this will quickly push up the share price but they will also quick to knock down the price when they are confronted with bad numbers(buying opportunities) which lagging behind efforts like this that will show real results in 9 - 12 months later. I begin to take a more positive stance - return of the Great Depression II is getting slimmer.

(WSJ) BEIJING -- China unveiled an economic stimulus program it billed as totaling $586 billion, aiming to bolster domestic demand and help avert a global recession.

Though the two-year package appeared to include some previously announced measures, its size was clearly designed to revive the fading confidence of Chinese businesses and consumers, and impress foreign governments. Asian shares rallied sharply early Monday on the Chinese announcement, with benchmark stock indexes in Tokyo, Hong Kong and Shanghai all jumping close to or above 5% in the early hours of trading.

The announced sum of four trillion yuan represents about 16% of China's economic output last year, and is roughly equal to the total of all central and local government spending in 2006. New spending of even half that amount would be substantial next to China's six trillion yuan annual budget for this year.

The plan includes spending in housing, infrastructure, agriculture, health care and social welfare, and features a tax deduction for capital spending by companies.

China's economy won't be able to absorb so much spending immediately: Economists expect one or two more quarters of slowing growth at a minimum before a rebound could take hold.

Beijing has long held that economic growth of at least 8% is needed to provide the improvement of employment and incomes the ruling Communist Party relies on for popular support. China's growth has slowed to its weakest pace in five years, with output expanding just 9% in the third quarter from a year earlier after gaining nearly 12% in 2007.

Recession? Already - Phew !

(click for larger and sharper image)
October unemployment came in 6.5% vs consensus of 6.3%. DJIA rallied almost 3% anyway despite of bad news, partly on technical rebound and partly the number already baked in. This has an implication -

(WSJ)The economy contracted in the third quarter and is expected to shrink at an annual rate of up to 4% in the fourth. Many forecasters also are penciling in a 2% annualized decline in the first three months of next year.

Since the US Q3 GDP already in -.3% and another negative number for Q4 is almost 100%. By academician definition, a consecutive two-quarter negative number will be defined as a recession. Please welcome "R". Act I done.

Act II, how severe and long ?

The good news is once recession is declared, market tends to move up higher most of the time - worst case is flat to 10% down. Best case is 20-40% up. For this round, the market pre-recession declaration is priced in as severe as 1973.



PS. Don't get me wrong, I'm still cautious, historical data are for references only.

Get us out of recessions!

I can't keep up with all the stimulus package from east to west and the worldwide central banks are racing to cut rates - some says we will have free money soon. Consider these:-

1. Nov. 7 (Bloomberg) -- The age of free money may be at hand.

As major central banks slash interest rates with unexpected speed, benchmark borrowing costs are now below core inflation for the first time since the early 1980s, and policy makers are signaling they will go deeper.

Yesterday's cuts by the Bank of England and European Central Bank, which came with the Federal Reserve and Bank of Japan on the cusp of zero rates, are a bid to shock life back into their recessionary economies and strained money markets. It may be an uphill battle as consumers and businesses show greater interest in saving than spending, and banks hoard capital rather than lend it.

``It's the race to zero,'' said Stewart Robertson, an economist at Aviva Investors Ltd. in London, which manages about $230 billion. ``There's no obstacle to more rate cuts.''


2. Nov. 7 (Bloomberg) -- The Bank of Korea lowered interest rates for the third time in four weeks and signaled it's ready to act again to prevent the economy from sinking into the first recession in a decade. The nation's shares and currency rose.

3. Oct. 30 (Bloomberg) -- China may keep lowering interest rates after three reductions in two months as the global financial crisis drags down exports and production.

The People's Bank of China late yesterday reduced its benchmark one-year lending rate to 6.66 percent from 6.93 percent. The bank also said in a statement on its Web site that the deposit rate will drop to 3.60 percent from 3.87 percent.

I can go on and on but you get the message already. When we get out from this mess, inflation is waiting for us at the end of the other gate. We have to get ourselves ready when the pendulum begin to swing to the other side - INFLATION. For now(whole of 2009), we got to ride on temporary-deflation wave.

Earning, earning, earning

Welcome to earning recessions.

(WSJ)TOKYO -- Toyota Motor Corp. on Thursday reported a 69% drop in net profit for the fiscal second quarter and slashed its fiscal-year forecast by more than half, projecting that its net profit will fall to its lowest level since 1999 as a steep decline in U.S. sales and the global financial crisis battered earnings.

Toyota is suddenly forced to cut its temporary workforce in Japan, scale back production and sales forecast and re-evaluate its future plans to trim costs and shore up profits as it prepares for at least another 12 months of slow sales.

Analysts need to sharpen their pencils - Estimates are still too rosy.

Earnings for the 956 companies in western Europe that reported results since Oct. 7 declined 6.7 percent on average, trailing expectations by 5.4 percent, Bloomberg data show. Profits for the 392 companies in the S&P 500 that have reported, including Boeing Co. and AT&T Inc., have shrunk 7.2 percent, while beating predictions by 1.6 percent, the data show.

Companies in the S&P 500 Index may see fourth-quarter earnings advance 15 percent, down from 42 percent projected at the end of August, according to a Bloomberg survey of analysts' estimates. Profits in 2009 may grow 13 percent, analysts say now, compared with the 24 percent predicted two months ago.

Saw headline of mass firing - 12,000 to be axed.

Nov. 6 (Bloomberg) -- Citigroup Inc. and Goldman Sachs Group Inc., faced with a weakening economy and the prospect of mounting losses, began firing workers as part of the firms' plans to cut more than 12,000 jobs, people with knowledge of the matter said.

Goldman, which converted last month from the biggest U.S. securities firm into a commercial bank, yesterday began telling about 3,200 employees, or 10 percent of its workforce, they were out of a job, according to one of the people who declined to be identified because the decisions were confidential.

Citigroup has been notifying staff this week who are affected by the bank's plan to discard 9,100 positions over the next 12 months, or about 2.6 percent of its headcount, another person said.

Since market will typically bottom out 6 - 9 months before a recession is confirm, finding the bottom can be tricky. It is also very tricky to confirm a low is the final low before bouncing back. Like golfer, we always wish to have hole in one. Keep trying, keep wishing you will get lucky one day. All the best.

Digesting US-Post election and recession

Bloomberg summarized a nice piece about the issue of recession and the US post-election. ( Click link here )

Nov. 5 (Bloomberg) -- The stock market posted its biggest plunge following a presidential election as reports on jobs and service industries stoked concern the economy will worsen even as President-elect Barack Obama tries to stimulate growth.

The market's decline came a day after the biggest presidential Election Day gain since the New York Stock Exchange first opened for trading on a voting day in 1984.

The report by ADP Employer Services showed companies cut 157,000 jobs in October, the most since November 2002 when the U.S. was emerging from a recession. The Institute for Supply Management said service industries in the U.S., which make up 90 percent of the economy, contracted by the most on record.

Judging from the sell off, it is seems like the market has not reached an equilibrium point of pricing in a recession yet. Many hope to avert a recession and still in denial stage. Based on my last few days of traveling, there will be more frightened cats come out from the bag January 2009. There will be tough months ahead - we have not heard of businesses close shop, mass lay-off, banks' NPL to shoot up yet. I do believe we are in for a rough ride soon.

Worldwide stocks going for sales

(click for larger and sharper image)

Jim Rogers' quarrel with CNBC

Key points of he was saying

1. Stock market sells down by forced selling(redemptions due to financial institutions failures like Lehman Brother, AIG and etc) cause temporary deflation but long term is inflation.

2. Long commodities short stocks ( Toyota, IBM, Bank of America and etc.......)

3. The world is going to recover some day but it is going to be inflation because of gigantic amount of money has been printed.

4. 1929 bank runs cause by liquidity problem. Now is different, you have banks with horrible balance sheets, you should let them fail.

5. He has not sold his oils though it have been on free falling of more than 50%.

My views:-
I agree with him the recent panic selling was due to forced selling.

Long commodities - yes - but timing could be tricky. Short stocks ? Yes selectively on those heading towards down cycle and has weak balance sheet(too bad we can't do it here much compare to other markets) but we can also long the right stocks (stocks in with pricing power, strong free-cash-flow and a consistent dividend paymaster or simply buy an index fund).

Sorry Jim. I cannot agree with you. Governments interventions were necessary, credit markets literally frozen and spilled over into the real economy.

Not selling when things corrected over 50% ? Yes, I have a few of those as you can see it, I did not sell it out mainly as this is a long term portfolio and making it as passive as possible. I will use mainly dollar averaging to lower my average costs - make up timing mistake or irrational selling by others. In current volatile market environment, I can easily whip-saw by the market, if I make 3 mistakes in a row with 20% stop-loss, I would have an equivalent loss of 48.8%(1-0.8*0.8*0.8). I'm going to look like a fool either I am playing the passive or active way. If I cannot live with the negative marks on my portfolio, step out from stock market completely, I should not own stocks at this moment. But I should not get angry later when the market snap back and I am out of the market

The other objective I have is to let others to draw strengths and inspirations. We typically will feel very anxious and tend to follow the crowd to sell regardless of the reasons. We got to know some people got to sell because they have no choice as they are facing redemptions but we are not. You can always come back to my blog if you have peer pressure - at least know one person is not selling out yet. One caveat though, provided you are holding fundamentally sound companies. I hope to be a living testimony to walk the talk. In relative performance comparison, I am still doing all right.

I will be traveling next week, postings can be erratic. Good luck to all.