Portfolio Update - February 2009

As usual, I received $ 888 saving for the month of February 2009. I'm sitting on about $ 3,700++ cash which is about 30% of the portfolio. As I mentioned in my earlier entry, I am waiting for the right timing to deploy cash.

In a volatile environment, I would think that we need to stay diversified and never be fully invested no matter how bullish I am on equities. One also must not take large positions. My timing on Mui and Parkson was certainly wrong as I dipped into the market too early. Fortunately, I realized that I was wrong, I began to pay a lot more attention to market psychology compared to the past. I also began to pay attentions to a group of people that use technical analysis - when valuation group defeated, most people will turn to chart which nothing but looking at floor and resistance based on past prices. It has been working well when market lost its sanity, as soon as sanity returns, valuation group will overpower this group, I begin to see people says not all stock is created equal. Stocks with high dividend yield is recovering very strongly.

I made a wrong call last month, I thought January was going to fly but Dow ended up about flat but stays above 8,000. The market threaten to go below 8,000 at least 4 times(including yesterday), this is a very testing time - the market is searching for a big negative catalyst. US Q4 GDP has been bad but still did not manage to push it down to below 8,000, I am not sure what will be the big negative catalyst to push it down. Or simply less bad news will do the job to let the market crawl up slowly.

On gold, I was qualifying a technical buy if brakeout above $ 850, buy on pull back was OK, now that it has broke out above 900++ and retail investors start to pour in money(gold invested in ETF is pilling up), upward momentum is there. The heat is turning up but it has not turned into euphoria yet. Searching the word gold bubble on Google simply does not exist so no bubble so far. But I think it is overbought, there is a good chance that people will chase to US $ 93 - 95 before correction set it to retrace back to US $ 87 - US $ 88. Then it should move towards challenging the previous peak at around US $ 100. Breakout from US $ 100 will be really interesting, I can almost bet for a parabolic rise. I seldom chase up things at all time high if there are better alternatives. For example: USO ETF( United States Oil) is selling for US $ 29 and there is a potential that it can rebound by 20% to US $ 35 vs chasing GLD ETF at US $ 91 to bet it will rise 20% to US $ 110 in six month time, which alternative has better return on risk adjusted basis? Nothing wrong with either bet but just a matter of personal choice and risk temperament.

I remember one thing that Warren Buffett said last year when he put his money to work in Goldman Sachs, all bets are off if there is no government bailout. I am still holding on to this premise, all my investment bets are off if I see the bailout fails - this is the only single negative catalyst that I think will bring the market to its knees.

'Buy American'

NEW YORK (CNNMoney.com) -- A debate is brewing at home and abroad over an economic stimulus measure that would require materials used in the program's infrastructure projects to be purchased from American companies.

In the $819 billion House bill passed Wednesday, the so-called "Buy American" provision would, with some notable exceptions, ensure that only U.S.-produced iron and steel be used for construction. It expands on a 76-year-old federal law. The Senate, which is likely to take up stimulus next week, would go even further, effectively requiring that any products and equipment be American-made.

"The Buy American provision will help stimulate our own economy," Sen. Byron Dorgan, D-N.D., who wrote the provision, told CNNMoney. "When taxpayer dollars are used, we should urge that money to support the things produced here at home."

(click here to read the whole article)

There is a counter argument in every argument. Most people would have taken a side before they start arguing. I can make a frightening case that we all got to be very frighten about this development(trade war ? protectionism?) or I can argue that this is nothing new especially under Democrat ruling. If we go back to history, US-Japan has similar problem under Reagan leadership. In 1987(is that year familiar to you ? - market crash, Japanese conquered the world, record US deficit?, multi-year weak US $ index?), US slapped 100% import tariff on Japanese electronic goods like television, computer, air conditioners and etc. At one time(mid 90s to early 2000), when the US automotive makers could not compete with the Japanese, they accused Japanese government manipulated Yen helping Toyota-san, Nissan-san, etc against McGM, McFord or Mc......



Today, the American has not been making much noises towards Japanese, do you know why? Despite of long period of love-hate relationship, Japanese is still one of the largest US Treasury holders, do you know why? Just some questions to ponder before you are jumping the gun, if this news is disturbing you.

Beauty is in the eye of the beholder.....so is value

(Click image to enlarge)

I got this interesting chart from EWI. He has been saying the Dow will go below 7,200before this bear market is over. How cheap is the US market? Price/Book basis has not entered screaming buy but bond yield/stock yield basis, you can find a lot of screaming buys. If you can find good cash generator businesses, with the bond yield(risk free rate) at record low, stocks look very compelling based on discounted cash flow model. I believe this is one of the reasons why Buffett pulling out his personal money out of bonds and buys stocks. This also lead me to believe risk free rate is going to stay low for a while. He has ben right about inflation/commodity boom about to peak out when he sold PetroChina and bought into Kraft last year.

While I have been setting bullish tone on stocks and the market seems to confirm this temporarily, you may ask me why my Turtle Portfolio has not been buying anything yet. The answer lies in money management, I will maintain strategy of holding at least 30-40% at any one time in case great buying opportunity shows up. This also implies that I believe the market is going be very volatile despite of good buying opportunity.

Show me the money - earnings !

I was at first thinking of not publishing today but changed my mind - judging from last two days responses that readers are still coming back. I suppose many of you must be die hard investors that will never give up no matter what circumstances. I'm confident that we will outlast this bear market, depression or whatever the mainstream media wants to call it. Enough of small talk, let's get down to business. The earning releases from the US corporations have not been very encouraging as you can see on the front page of WSJ. Funnily, the DJIA seems to be able to hold above 8,000 despite of many companies reported earning down by 70%, 80%, 90%, etc. A bulk of them are related to restructuring and etc which could be one-off(I hope) and yield long term saving.

(WSJ)Operating earnings for companies in the Standard & Poor's 500-stock index probably slid by 28% compared with fourth-quarter 2007 results. And the start of 2009 doesn't look much better. Analysts think earnings will decline by 20% in the first quarter and by 18% in the second, according to forecasts collected by Thomson Reuters.

If those estimates prove to be accurate, the total drop would be 35% since profits peaked in mid-2007. Since 1950, the only other decline approaching such magnitude has been the 32% falloff from September 2000 through December 2001 (a stretch that included the terrorist attacks of 9/11). The average peak-to-trough earnings decline during downturns in the same period was 18%, according to Strategas Research Partners.

Earnings estimates may continue to come down for 2009. "Bottom-up" analysts -- those who cover individual companies -- are expecting members of the S&P 500 to post combined earnings of $70.73 a share this year. "Top-down" analysts, who look at broad economic forces, see just $63.78.

Assuming finacials, information technology, industrial, materials and energy contributes about 60-70% to S & P 500 and other defensive sectors like health care, consumer staples, etc contribute the rest. A conservative estimate of 50% down from 2008 non-defensive companies earning while defensive companies hold up their earning, S & P 500 earning will have to decline by 30-35%. In this case 2009 S & P 500 earning should be around $45 - $ 50. This has been the basis of many of perma bears to call for S & P for 500 - 600 ( PE 10 to 15 X). If we go back to 1974 level of pessimism, at 6 times PE, S & P worths only 270 - 300, I think I'm really scaring you now.

For those who are more optimistic, I think they are looking for recovery in 2H 2009, earning to rebound by 30-50%. Or some sectors will have to expand by that much from Obma stimulus plan. [Don't ask me how I derrive every $ 1 stimulus spending to translate into corporate profits. My tool is simply too primitive to do this at the moment]. In that case, S & P earning could be around $ 85, this will give them a basis of arriving S & P target at 850 - 1,275, which many will find it a more sensible number to believe.

A bit of historical pespective, prior to 1987 crash, the peak of DJIA was around 2,700 and bottomed out around 1,766. When the market improved by about 200 plus points or so to around 1,900++ in December 1987, the bearish camp kept calling for DJIA 1,000 but the market rallied a bit by bit climbing wall of worries until level of 2,700 level was taken out around September 1989. By the time Dow 1,000 dissapeared from investors minds, more people convinced the worst market crash in human civilization will have ZERO chance of returning and they started pouring in their money in the stock market. The usual familiar plot ended, the market peaked around 2,900 plus and crashed to 2,300++. History does not repeat itself, but it does ryhm. I find that this time, most of the old folks that lived through many cycles are a lot more calmer and optimistic than young guys. I expect Dow 6,000 or S & P 500 target of 500-600 to be around for a while until Dow 14,000 - 15,000 is taken out. I also expect people to argue super cycle bear market yet to be here.

Enough of history, back to 2009. The judgement day will be Q3 2009 - failure to show any recovery by at least 30%, equity market will be thrashed. Just as simple as that.

Fish gotta swim, birds gotta fly, bulls gotta run???

(WSJ-Jason Zweigh)Fish gotta swim, birds gotta fly and analysts and market strategists gotta try predicting what stocks will do every year. But you don't gotta act on those predictions -- at least not before you ask how likely they are to hit the bullseye.

In December, Barron's asked a dozen experts to forecast the level of the Standard & Poor's 500-stock index at the end of 2009. Not one called for the market to go down; they all predicted gains between 5% and 38%, with a median of 13%.

Given how wide off the mark their predictions usually land, you may already be skeptical of the forecasts of Wall Street's finest Pollyannas. But their inaccuracy doesn't make your own forecasts more likely to hit the target. You should be as skeptical of your predictions as of theirs.

Nearly all of us try forecasting the market as if each of the past returns of every year in history had been written on a separate slip of paper and tossed into a hat. Before we reach into the hat, we imagine which return we are most likely to pluck out. Because the long-term average annual gain is about 10%, we "anchor" on that number, then adjust it up or down a bit for our own bullishness or bearishness.

But the future isn't a hat full of little shredded pieces of the past. It is, instead, a whirlpool of uncertainty populated by what the trader and philosopher Nassim Nicholas Taleb calls "black swans" -- events that are hugely important, rare and unpredictable, and explicable only after the fact.

History shows that the vast majority of the time, the stock market does next to nothing. Then, when no one expects it, the market delivers a giant gain or loss -- and promptly lapses back into its usual stupor. Javier Estrada, a finance professor at IESE Business School in Barcelona, Spain, has studied the daily returns of the Dow Jones Industrial Average back to 1900. I asked him to extend his research through the end of 2008. Prof. Estrada found that if you took away the 10 best days, two-thirds of the cumulative gains produced by the Dow over the past 109 years would disappear. Conversely, had you sidestepped the market's 10 worst days, you would have tripled the actual return of the Dow.

"Although we could make a bundle of money if we could accurately predict those good and bad days," says Prof. Estrada, "the sad truth is that we're very, very unlikely to do that." The moments that made all the difference were just 0.03% of history: 10 days out of 29,694.

We also over-extrapolate the recent past. After the five fat years from 2003 through 2007, when stocks shot up by an annual average of 12.8%, who expected 2008 to be a bloodbath? And now, with stocks down 37% last year and another 8% so far this year, the market feels like a runaway boulder crashing downhill through the woods. But the market's path is no more predictable than it was a couple of years ago; black swans, materializing out of thin air, can make stocks go up as well as down.

So is all prediction pointless? Not quite. In an important new study for the National Bureau of Economic Research, finance professors Miguel Ferreira and Pedro Santa-Clara of Universidade Nova in Lisbon, Portugal, have developed a sophisticated method to predict future results.

You can do a roll-your-own version. Take the dividend yield on stocks (3.4%), then add the annual rate of earnings growth over the past 20 years (3.4%). That's 6.8%, what John C. Bogle, founder of the Vanguard funds, calls the "investment return."

Next, factor in the "speculative return." The price/earnings ratio on the S&P 500 is around 15. If investors pay more than 15 times earnings for stocks down the road, the market will rise more than 6.8% a year; if they set lower P/Es, the overall return will be less.

Earnings are likely to keep falling, and investors are unlikely to set higher valuations anytime soon, so 6.8% is probably high. For 2009, Messrs. Ferreira and Santa-Clara forecast a 4.2% return. But over the longer term -- five years and beyond -- I think stocks could gain at least 7% a year. That would be worth sticking around for.

Along the way, the Dow might slump to 6000, or drop 10% or more in a day. But just as huge losses often come out of a clear blue sky, gains can arrive when the world seems darkest. If you forecast the market with your gut feelings alone, you may never hit the target.

Welcome to Ox year. Again, I find Jason Zweigh writing refreshing to keep us in perspective - have a long term view on things. Come to think of it, it is not that people have no patience or no long term view. I realize it is more than that, lack of faith in the future for sure is one of the culprits. I mean we could be wrapped around by fear blanket, the companies that we are invested will longer exist or simply bankrupt. To invest in equities or anything, we must be optimistic about future. Even the Great Depression recurrs, so what, our forefathers have overcome it, the world prospers for the last 50-60 years.

Jeremy Grantham of GMO gives me a real sense of historical perspective.

This is a good time to look at the Japanese crisis of 1989 to present since, along with the Great Depression, it is probably one of the two most relevant examples for today’s problems. The Japanese had an even bigger problem in write-downs of “wealth” than we have now. They had to write down perceived wealth by an amount equal to a
stunning three times GDP! Even in 1929, we had to write off amounts equal to only three quarters of a year’s GDP,as the stock markets then were less developed and housing was decidedly pre-McMansion. This time in the U.S., however, we must write down perceived wealth or capital by almost precisely one and a half times GDP, worse than the Depression but happily much less than Japan.

You see, Japanese had written down almost 4 times of the Great Depression yet they country still survives. Don't get me wrong, I am not under-estimated the problem, I am even leaving to a possibility of S & P can go down to 600, who knows what the rest of people will do. It is not about me, it is about "them" - the market is an aggregate of all players and they determine where they want to go and how far up or down, I simply have no control over them. I'm in Buffett's camp, I am terribly pessimistic in the short term but extremely optimistic about the long term future.

When I look at the DJIA chart, 1929, 1933, 1973, 1974, 1987, 2001 were just some blips of that upward trend. Unless you have no future income streams, the game is not over. Stay positive, don't lose sight on the final destination.

Happy Chinese New Year

............................... Have a safe and happy holiday.

Gold ( Update 3)

(WSJ)Gold prices jumped to the highest levels in three months as a continued flight to safety by investors triggered so-called technical chart-based buying.

The price of the nearby January gold futures contract rose $37.10, or 4.3%, to $895.30 an ounce on the Comex division of the New York Mercantile Exchange, the highest settle since Oct. 8. The price of the most-active April contract rose $37.20, or 4.3%, to $897.70, after hitting as high as $905.50, the strongest level since Oct. 10.

"We're continuing to get what appears to be traditional flight-to-quality buying, even though the dollar continues to be strong," said Michael Gross, futures analyst with OptionSellers.com.

A stronger dollar typically pressures gold prices. But in the current environment, weakness in European currencies caused by troubles in the European banking sector is translating into buying of gold, said one trader.

"I think we're seeing people move into gold simply because they don't want to get caught in anything else," said Sterling Smith, vice president with FuturesOne. "If you want to be in dollars, you're either sitting on cash or very low-yielding instruments."

Bart Melek, commodity strategist with BMO Capital Markets, cited more flows into exchange-traded funds as an example of strong gold demand. Holdings backing the SPDR Gold Trust, the world's largest gold ETF, climbed 13.15 metric tons Thursday to a record 819.11 tons. A metric ton is equal to 2,204.62 pounds.

Momentum-based buying was triggered when gold accelerated through the 200-day moving average, an important technical-chart point, and broke above the late-December highs.

George Gero, vice president with RBC Capital Markets Global Futures, said some hedge-related selling from mining companies appeared to occur around $900, but this was overrun by investment demand and buying back of previously sold positions. He also cited speculative buying.

A key for gold may be what happens around $900, Mr. Smith said. The market had trouble maintaining momentum above that price in the fall.

Meanwhile, gold has shown a tendency to peak around roughly the third week of January, though last year it hit its record high in March, said John Person, president of NationalFutures.com.

In the world of commodities, my believe is most them are more technical-based driven and momentum-driven, due to leverage factor. It is kind of hard to play buy and hold unless we are very sure of buying at the very bottom, shorting at the top or positions are hedged. It's all about momentum and market psychology. With gold broke through 200-d MAV, I will now watch the reaction - normal reaction will be some retreat but maintain above US $ 850. Once this test is pass, then it's a buy technically. If one plays like a trader then we must abide by trader rules - we must have stop-loss limit, position sizing, bla,blaa,blaa..........

Other observation about gold. If I am forced to explain why gold shot up, technical chart buying is one. Other than that, fear of Dow going below 7,000. A start of a second financial Tsunami from European banks which could be much worse than American banks. European banks liabilities/GDP is about 335%[US $ 41 trillion] vs. USA 65%[9.8trillion]. Tough words from newly appointed Treasury secretary against China's Yuan drives fear of rising protectionism which could lead to global trade implosion pulls the whole world into depression.



Switch subject. GE's earning met expectation but at the lower end, share prices got hammered down by 11%.

(WSJ)General Electric Co. met its lowered fourth-quarter earnings target Friday -- with a big boost from a tax benefit -- but failed to resolve investor qualms about the recession's impact on its industrial and financial businesses.

GE reported progress in its plan to shrink and fortify its finance unit by boosting its assets and lowering its reliance on short-term borrowing, which dried up last fall amid the credit crisis.

But investors worry that GE may be forced to cut its dividend, or pay more to borrow money. GE shares fell nearly 11%, or $1.45, to $12.03 in 4 p.m. New York Stock Exchange trading. The stock is off 65% in the past 52 weeks.

Jeffrey Immelt, GE's chairman and chief executive, warned of an "extremely difficult" year. GE is focused on "controlling our own destiny" by cutting costs and looking outside the U.S. for pockets of growth, he said.

Ignore the noise

The market has been very confused, one day they did not like what they hear when Obama says nothing how he is going to address the financial issues, they sold down financial sector - unbelievable crazy if you see how they sold down Wells Fargo. Dow shed 300+ points when he took over the President office on the first day.

The next day, IBM reported their Q4 '08 earning, beaten their expectations(without looking at the details, see below), they rocketed the market almost 300 points, back to where it was before Obama took over the office. I am not sure what GE is going to report on Friday -- substantial shorts have been built up already for the last two weeks, this is kind like playing in the casino - big small - you will have equal chance of making money and lose money. This kind of trading environment will prove to be disastrous. Don't be surprise when GE has 10% one-day rise when they meet or beat expectation.

Back to Bursa Malaysia, our moods will be affected as well. Looking at Public Bank latest results, earning seems like already peaking and due for some corrections. Traders relying on technical analysis saw KLCI retracing back to 50-d MAV must be standing on the sideline or taking profit. With the external moods see sawing, I will sit back and relax. Not to mentionthat high yield currencies are still unwinding. For example, British Pound/Japanese pair has broke 14-year low yesterday.

Let the bull and bear fight it out. I willl only deal with the winner after they settled their fight.

(WSJ)Those investors cheering IBM's higher-than-expected fourth quarter earnings may want to take a closer look at the numbers. It might give them pause.

IBM stock was up 11.5% Wednesday after its 17% jump in earnings per share. But the arguably more-important indicator of IBM's performance -- its top line -- fell 6.4%. Due mostly to currency changes, the drop was worse than even reduced Wall Street assumptions.

What's more, it'll be tough for IBM to maintain the earnings growth it reported. EPS of $3.28 was boosted by lower tax expense, share buybacks and lower pension expenses, which together accounted for a total of 56 cents a share, according to Barclays Capital.

Barclays noted that both the pension and tax benefits wouldn`t be available in full-year 2009 and the share buyback effect would be lower.

Indeed, pension costs are likely to turn into a drag on earnings. The peculiarities of pension accounting resulted in last year's drop and will likely keep costs from rising this year. But eventually the market losses -- IBM's global plan was down about 17% last year -- will show up in higher pension costs.

The impact of the crash on IBM's pension plan did surface in the company's balance sheet. A noncash adjustment "related to year-end pension remeasurements" for 2008 and 2007 cut shareholders equity by a whopping 52.7%, a reduction of about $15 billion from the end of 2007.

IBM won't be the last company to take such a hit on its pension plan.

Obama sworn in as 44th President of America

What a historic day on January 20th, 2009. A dream comes true, a non-Caucasian, took over the President office of America. To American, I salute you for demonstrating to the world, EQUAL means EQUAL.

Stock market however greeted Obama with an equally historic moment. Dow dropped by almost 4% making it the worst drop on the 1st day of a new President sworn in since 1953. This is not a surprise during severe bear market but much more worse than the past. Dow dropped by 0.72% when Nixon sworn in. In 1974, the market dropped by 0.96% when President Ford took over the office and in one of the more severe declined after the American has a lost decade was Reagan - the market greeted him with 2.1% drop but of course that was the beginning of a new great multi-year bull run.

How did the stock market perform in the first 100 days in those bear market under a new President? In 1973, the stock market declined by 9.58%, almost flat in 1974 and rose 4.72%in 1981.

Given such a pessimistic environment and attractive valuation, will the market bounce back? Your guess is a good as mine. Have a great day.

Quote of the day

"The market can stay irrational longer than you can stay solvent"

John Maynard Keynes

Gold --- Update II

Not many exciting news going on. Thought of just follow through on my gold story. I've been watching a number of guys that bullish about gold ---- when pressed by the talking heads, their responses usually errrr...arrr.. may by 2010 or 2012 we will see gold to move beyond US $ 1,000. Marc Faber recently says gold is relatively more expensive than industrial metals.





I investigated COT report further, found open interest dropped by half compared to beginning of 2008. Large speculators are still quite bullish(80%+) but large commercial buyers have turn very bearish (26%+).


(Click image to enlarge)

Investment is account for about 1/5 of the demand while jewellery and industrial account for almost 3/4. With the weaker economy outlook, there is no surprising to me the large commercial traders are shorting gold.



http://www.invest.gold.org/sites/en/why_gold/demand_and_supply/

I'm still betting against inflation because there is no free lunch - printing money by central bankers around the world - and walk free. The big but: chances of it showing up in 2009 is quite slim unless we believe economy is going to recover strongly in 2009. I guess you cann't have your cake and eat it at the same time. I will defer the timing of my purchase to avoid money being tied up for a while. With that, I rest my case.

Gold(Update)

Feel so good to be able to upload charts again. As promised, here are the two charts that I want to share with you mentioned in my yesterday entry.


The chart shows that Gold ETF has always stayed above 200 MAV(Green line), whenever there is a correction, it can always fight off the bear and move back up quickly until second half of 2008. Down trend begins to form.

The second chart below show that it has been struggling to fight the bear. Gold fought back after being pulled below US $ 80 recently which makes many feel relief. If it can consolidate and move above US $ 85 will be a good news, if it consolidate and move down - God bless all - All hell breaks loose.


(Click images to enlarge)

Top Search Trend : Deflation

Came across Google top search trend. Believe it or not - Deflation is the something preoccupies people's minds right now.


(click to enlarge chart)

They do believe deflation despite of many say GOLD is the ultimate currency. Gold ETF went below 200 MAV after years of advancement. It has also failed to move up beyond US $ 85 for some reasons. We are in a dicey situation. Suggest not to step in to buy until a clear picture emerge. We are at the cross road. I have failed to upload charts for several days but I think Google server is having some problems - will post the Gold ETF chart with 200 MVA later.

Wow! Money Market Asset overtakes Equity Asset

I've talked about the sectoral torture for the last two days. It appears that we are kind of experiencing that. It just drop a bit by bit over the last two months, DJIA lost close to about 1,425 points since November 3, 2008 when it hit 9,625. Honey, you have just lost 15%. Yeah, I know about the bad news yesterday, I read it here.

NEW YORK (CNNMoney.com) -- Stocks slumped Wednesday afternoon as a bleak retail sales report and more dour news from the banking sector amplified fears of a prolonged recession.

After the close, Apple (AAPL, Fortune 500) CEO Steve Jobs said he's taking a medical leave through the end of the second quarter because his health-related issues are "more complex" than he thought. Shares tumbled 10% in after-hours trading after having been halted for the first hour of the extended session.

The Dow Jones industrial average (INDU) lost 250 points, or 2.9%, ending at its lowest point since Dec. 1. The Dow has now tumbled for six sessions in a row.

The Standard & Poor's 500 (SPX) index lost 3.4% and ended at the lowest point since Dec. 1. The Nasdaq composite (COMP) lost 3.7% and closed at its lowest point since Dec. 4.

(Click to read the whole article here)

There is no surprise to me that people are getting very bearish as this is indicated by how investors allocated their money. Money market fund asset as of November 2008 stood at US $ 3.7 trillions vs equity of about US $ 3.6 trillions. A year ago, equity fund was US $ 6.5 trillions, loss of value in equity is certainly a contributing factor but still, there is an increase of almost 600 billion in money-market fund that has ZERO yield, comparing November 2008 to December 2007.

(click this link if you want to see the original statistics)

This is one of the contrarian signals - don't' follow the herd. I know we have quite a few false signals but when the right signal comes, when it sky-rocket, I am afraid I may not be fast enough to catch all of that.

Earning Acid Test: Alcoa II

There was some pretty aggressive sell-offs in the industrial stocks sector within the Dow 30 caused by Alcoa earning dissapointment. But it did not, however, spread to other sectors. Whether this is going to be a Chinese water torture style - as sell off will bleed their victims slowing - sector by sector yet to be seen. This is not a big news, DJIA falls only by 0.3% which is almost a non-event. The US market was OK and people are less bearish. For example:

Jan. 13 (Bloomberg) -- Options traders are betting stock swings in the Standard & Poor’s 500 Index will decrease at the fastest rate since the aftermath of the market crash in 1987, a sign that equities may keep rallying.

The difference between the benchmark index’s historic volatility and a gauge of so-called implied volatility based on expected swings rose to the highest in 21 years, according to data compiled by Credit Suisse Group AG and Bloomberg. The gap widened as investors paid less to insure against price declines, sending the Chicago Board Options Exchange’s Three-Month Volatility Index lower.

Historical volatility must fall 25 percent to bring the measures into accord. The last time the difference was this wide, stocks climbed for two quarters, according to data compiled by Bloomberg. Declining volatility is usually bullish for equities because it shows growing investor confidence.

(click here to read more)


But the real big news yesterday was the US trade deficit started to shrink as they cut import ( less spending, cheaper oils and less export). The rest of the world is going to make adjustment to their habits ( translation --- suffers).

(WSJ)Trade among nations is declining sharply around the world, an unusual development even in a recession -- and one that makes it more difficult for countries to pull out of their economic dive.

Combined exports and imports by the U.S., the world's biggest economy, dropped 18% in the four months from July to November, to $326 billion from nearly $398 billion in Commerce Department figures released Tuesday. Two-thirds of the drop was in imports, which helps explain why so many countries dependent on trade with the U.S. are suffering: Their exports, a key source of growth, are falling as spending by U.S. consumers and companies continues to sour.

Men walk past stacks of shipping containers at a port facility in Shanghai.
Japan, the No. 2 economy and heavily dependent on exports for growth, posted a 27% decline in November compared with a year earlier, its Ministry of Finance said Tuesday -- the biggest slide it has ever recorded. Its imports also dived by 14%, contributing to the pain of exporters elsewhere in turn.

China posted its most severe foreign-trade decline in at least a decade, in government figures for December released Tuesday. Germany had its worst export drop this decade in November, down 11.8% from the previous year; the next three biggest European economies had drops nearly as bad, according to a calculation by The Wall Street Journal.

Korean Blogger Arrested

(WSJ)SEOUL -- South Korean officials arrested a blogger who for months had been criticizing the government's economic policy, charging him with spreading false rumors that led to a drop in the country's currency.

Park Dae-sung, following his court appearance in Seoul over the weekend.
Prosecutors identified Park Dae-sung, who is unemployed, as the widely read blogger writing under the pseudonym Minerva.

The charge stems from a Dec. 29 posting in which Mr. Park allegedly accused bureaucrats of writing a letter to local bankers to persuade them not to buy dollars so as to raise the value of the won. Prosecutors said Monday that news accounts of Mr. Park's anonymous posting had led to a plunge in the value of the won that forced the government to intervene in trading.

Mr. Park's allegations suggested bureaucrats were trying to undercut the government's measures to help banks obtain U.S. dollars.

The arrest of Mr. Park highlights two facets of Seoul's response to the economic crisis that worry analysts: a currency policy that isn't transparent enough for traders and an intolerance of criticism of public policy.

Currency traders keep close watch for changes in the government's stance because the won is thinly traded, giving the government outsized influence. The government signaled early last year it no longer supported a strong won, beginning the most recent shift in trading sentiment.

In 2008, the won reversed three years of steady gains with a 26% decline in value versus the dollar, the chief currency against which it is traded. That decline is one of the most visible effects of the global crisis in South Korea.

Meanwhile, since the debt crisis turned global in September, officials have lashed out at economists and journalists who negatively portray South Korea's economic prospects or policy measures. And regulators last month announced an investigation of foreign stock analysts who placed "sell" ratings on South Korean stocks. The arrest of Mr. Park appears to represent this new level of sensitivity to criticism about the economy.

This is an unbelievable news. By commenting on this piece, I am revealing my personal thoughts on the freedom of expressing oneself. Though I have not and probably cannot read what this blogger is writing, his writings that lead to S. Korean government believes he is one of the reasons of Won decline - he must be super-convincing. It is one thing to have a lot of money in your pocket to move the market but another by blogging. Do you seriously think a blogger can move the market?

I think authorities could have undermined people's intelligence. Most will not give a damn of what I'm writing if the argument is flaw. However, if the argument is valid, this individual has served his country by giving free consultation without chargng a dime(while he is jobless). Why don't they do something about it instead of asking people to shut up? I think this will prohibit the development of an inquisitive society. Just too bad!

Earning Acid Test : Alcoa

The US Aluminium prducer Alcoa released their earning results after the market hour. The operating earning per share came in way below expectation - loss of US $ 0.28 per share vs. expectation of loss US $ 0.10. This is way-off by almost 3 times.

Let's see how the market going to take it after a string of losing streaks in more than a week.

http://money.cnn.com/2009/01/12/news/companies/Alcoa_earns/index.htm?postversion=2009011218
( Click link if you want more details)

REIT: Ripe for picking?

I have mentioned the danger of seeking false security by switching to high dividend stocks when the bear market was still pulling down everyone pants(skirts). I believe we have seen the falling knife hit the ground, on the average of 38% drop from the peak. It has bounced back about 7% on the average from the low.

I believe the great panic 2008 should be behind us. Even the price were to drift to a final low with slow torture, there should be very limited downside. The time has arrived to pick up these stocks on the pull back. At the current price, the industry wide yield is about 10.7%. If the prices were to drop by another 10%, we should be able to breakeven within 1 year, the risk-reward is quite compelling.



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Yeah.....it's that job report

Yeah, the day before the job report was released, there was a gloom and doom about the job losses will go up all the way to 700,000 in December, well it came within expectations, 500 k plus.

Jan. 9 (Bloomberg) -- The U.S. lost more jobs in 2008 than in any year since 1945 as employers fired another 524,000 people in December, indicating a free-fall in the economy just days before President-elect Barack Obama takes office.

“Consumers are now going to get more and more scared at the prospect of losing their job,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. Obama’s proposed fiscal stimulus “needs to be big, needs to be bold, needs to be swift. If they can do something quickly we can limit the hemorrhage by mid-year.”

Well what does that means? Will risk appetite continue? Currency traders think so. I am assigning much higher probability January/Chinese New Year effects before corrections come in.

USDJPY - The ratio of long to short positions in the USDJPY stands at 1.76 as nearly 64% of traders are long. Yesterday, the ratio was at 1.42 as 59% of open positions were long. In detail, long positions are 16.5% higher than yesterday and 49.7% stronger since last week. Short positions are 6.1% lower than yesterday and 11.9% weaker since last week. Open interest is 7.2% stronger than yesterday and 118.4% above its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

See you all next Monday or Tuesday.

Competitive Currency Devaluation

This week is quite busy as I'm catching up with work after long absent from work. Here is a piece from WSJ talking about competitive currency devaluation. US $ is a winner as long as the global economy is weak?! See you all during weekend.

(WSJ)Desperate times call for desperate measures.

Signs are mounting that Taiwan's central bank has gone from trying to keep its currency from falling too fast to actually holding it down.

Such a move, ostensibly aimed at giving the country's exporters some relief from crumbling markets, is guaranteed to irk the island's neighbors. At least, that is, until it inspires them to follow the same path.

It isn't uncommon for Taiwan's central bank to smooth the day-to-day moves of the New Taiwan Dollar by buying or selling the currency and others. Lately, though, currency traders have said the bank has been most active in selling its own currency, and buying U.S. dollars.

Analysts at HSBC estimate the central bank bought a net $1.5 billion in November alone, becoming a net buyer for the first time since the Taiwanese currency started to fall in August.

The central bank declined to say what its approach is, but acknowledged that it is intervening to ensure the exchange rate is not "incompatible with fundamentals." Those fundamentals would almost surely include a nearly 42% decline in exports in December.

The currency is down nearly 2% against the U.S. dollar -- and almost 9% against a stronger yen -- since the end of September.

This week, Taiwan reported that its foreign-exchange holdings rose by 4% in December, from November, and 8% from December last year. That's the second consecutive monthly increase -- and the strongest evidence yet of the central bank's swing from seller of U.S. dollars to buyer. The reserves are now worth $292 billion.

Taiwan isn't alone in holding its currency lower. Hong Kong has openly been selling its currency for the last two months, although that's to maintain its currency peg against the greenback.

And there are signs that others could be doing the same thing. Several Asian exporters which have already released data on last month's reserves have reported increases from November levels -- although it's only in Taiwan's case that traders claim knowledge of the central bank's intentions.

In either case, other exporters can hardly sit by and watch Taiwan make such moves without responding. One chief rival in the electronics sphere -- South Korea -- has room to breathe. The won is down 28% against the New Taiwan dollar over the past year.

Still, now that the Taiwanese currency has joined the devaluation game, it's down 8% against the won since early December.

Concern about falling Asian currencies is starting to look passe. Instead, the Year of the Ox could bring with it the real possibility that Asian currencies will engage in a depreciation cycle against the dollar.

Parkson SSS slow down warning

Parkson Holding Berhad issued a statement to Bursa Malaysia warning the same store sales slower growth from 15% per annum to 7-8% in Q4 '08.

We attach herewith an announcement made to The Stock Exchange of Hong Kong Limited ("HKEx") by Parkson Retail Group Limited ("Parkson Retail"), a 53.68% owned subsidiary of the Company listed on the HKEx, on 6 January 2008 pursuant to Rule 13.09(1) of the Rules Governing the Listing of Securities on the HKEx.

The Board of Directors of Parkson Retail having assessed the current available information, wishes to inform potential investors and shareholders of Parkson Retail that Parkson Retail Group is likely to record a lower Same Store Sales (“SSS”) growth of between 7% and 8% for the fourth quarter of the year 2008 due to i) the deferment of the new year holiday sale season for 2009 which commenced on 31 December 2008 (as compared to 2008 new year holiday sale season which commenced on 29 December 2007), the deferment is estimated to have affected the SSS for fourth quarter of the year 2008 by more than 2.5%; and ii) the continuing deterioration of the trading environment along the coastal region of the People’s Republic of China which has negatively affected the Group’s operations in the same region. The SSS growth for the year 2008 is likely to be approximately 12%.

Despite the lower SSS growth in the fourth quarter of the year 2008, the Parkson Retail Group’s overall profitability growth should remain healthy and the Board of Directors of Parkson Retail remains positive on the medium to long term growth prospect of the Parkson Retail Group.

This growth will cut by half. Projected EPS is likely in the range of RM 0.23 for 2008, assuming 7% growth, 2009 will be around RM 0.24. The intrisic value will grow at the satisfactory but sentiments will turn very sour. I expect the share price may retrace below RM 3.50, if the sentiments going even more negative, I am considering to pick up the share later.

Do something?

Do something? A lot has been done but where are the results? Patience. patience, patience?

Good development

Things are moving.

1. Recapitalization - still work-in-progress.

"NEW YORK (CNNMoney.com) -- The Treasury Department said Monday it had invested $15 billion in another seven banks, including two companies that recently completed large takeovers of other banks

2. Obama is contemplating tax cuts, putting more money in the consumers pocket, instead of all government spending. This is a very quick way of pumping money into the system. One thing is uncertain whether they will spend it or save it.

NEW YORK -- The dollar posted steep gains against the euro, the yen and the Swiss franc Monday amid optimism that a broad-based U.S. stimulus plan will help jumpstart the economy.

Investors were impressed by the size of the tax break, about $300 billion, which was contemplated by President-elect Barack Obama and congressional Democrats as a way to create jobs and pull the U.S. economy out of recession.

"Obama's tax cut, business incentives and breaks are currently deemed a positive surprise for corporate America," said Neil Jones, head of European hedge fund sales in London at Mizuho Financial Group Inc. "The dollar has performed well across the board."

3. Beside conventional tool of cutting rate, The Fed steps in to buy bonds to lower borrowing costs. They are doing something, doing doing something fast. Based on Japanese experience was a failure, can American succeed?

The Fed announced plans to buy up to $700 billion in bonds backed by home and consumer loans and said in December that it may purchase longer-maturity Treasuries.

My year end reading: The Snowball

There are quite a number of books being written on Warren Buffett but nothing like this one written by Alice Schroeder. The writing of his life is astonishingly detailed, no one comes this close to her depth - not even his former daughter-in-law. He must have a very high confidence in her letting her to access to his materials, friends, family, personal time and etc. He picks the right person to do the right job, as always. She writes with facts, simplicity, clarity, balanced and grounded with a lot of research. She spent 5 years writing the book, for RM 96.95 weight over a few pounds, 960 pages and 2.3 inch thick, it's definitely good value for money. But the lessons are priceless.

Reading the book like traveling back to past through a time machine: all the way back to the Great Depression, World War II, McCarthyism, color TV, JFK, Vietnam War, 1974 Bear market, Gulf war, Internet, etc....... Those periods have been full of turbulence and hypes - yet Warren Buffett survives and makes billions.

It has been giving me a sense of Deja Vu like what the Bible says.

What has been will be again,
what has been done will be done again;
there is nothing new under the sun.
Ecclesiastes

Every time you run into big bear market especially like 1973/1974, people will keep drawing analogy of the return of the Great Depression. So is this cycle of 2007/2008 bear market.

During the period of FDR spending, most reacted the same way. They rather buy hard assets rather than stocks. His father, a congressman, was one of the hardcore gold bugs.

“The Gold standard acted as a silent watchdog to prevent unlimited public spending…I can find no evidence to support a hope that our fiat paper money venture will fare better ultimately than such experiments in other lands. Because of our economic strength the paper money disease here may take many years to run its course…but we can be approaching the critical stage. When that day arrives, our political rulers will probably find that foreign war and ruthless regimentation is the cunning alternative to domestic strife.”

-Congressman Howard Buffet

During inflationary period of 70s, Bill Ruanne a student of Ben Graham and his good buddy pulled out a chart showing the price of gold surpassed Berkshire's for five year. He jokingly asked the rest whether he should buy some gold.

During the expansionary periods by the government, many believe they should own farm so they can grow their vegetables in case of government collapses. We are having the same feeling now too!

Behind every successful man there is a woman. This is quite true, his wife big Susie was that woman. Buffett is hopeless when coming to take care of himself and a bit awkward when come to socializing, kind of a geek. It was Susie that turned him around. Susie has been a care giver for her whole life. It has many touching stories that the author detailed Susie's sacrifices. She was serving the rejected and outcast of society, which is an extremely unusual.

He practices what his teacher taught him "Investing is most intelligent when it
is most businesslike." Many of the companies he bought got into trouble, he stood behind those companies to ensure they rode out of troubles. He bets heavily on the people he admires and strong franchise. A few businesses he bought like The Washington Post, Blue Stamps, Buffalo News and Solomon got into troubles as soon as he has a staked in it, but it worked out quite profitably over a long period of time.

The story of his strong believes of corporate governance and aligning the the management with the interest of shareholders in Solomon was well told. His unconventional way of tackling the excessive management compensations, lavish lifestyle investment bankers, etc. He cuts their bonuses and let people go. He lets regulators go after their wrong doings. He has no interests to defend them, he continue to stay very critical of his organization. He instills his employees to be their own compliance officers. His words struck me deeply.

Lose money for the firm, and I will be understanding. Lose a shed of reputation for the firm, I will be ruthless.

Are billionaires born or made? He was pretty much being left alone by his parents during his childhood. What struck me the most was his ambition to be rich at the age of 6 by starting a business of selling Coca Cola and chewing gums. He filed his income tax at the age of 14. He will want to improve himself at the young age reading Dale Carnegie. His father was a stockbroker, that gives him the early exposure to stock market. He was naughty, irritating his teacher by shorting AT&T stock. His father was his hero and instilling the idealist values in him like fight what you believe, inner scorecard, honesty and etc. He was born with the ambition to be rich but without the right environments and values, he could have been just another average Joe.

His children were less successful if we use the traditional yardsticks to measure them. The dropped out from university, the did not get into Harvard, Yale or Stanford. Marriages fell apart. Did he spoilt them? No, he has been pretty tough on them. He however let them have the freedom to discover who they are and pursue what they care the most passionately - charity, agriculture and music. At the end of the day, your children will pick up your values if you walk the talk. Charity begins at home. The root of many uninspiring of new graduate and new work force ? Parents!

Portfolio Update - January 2009

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Turtle received $888 for the month of January 2009.

My 2009 accumulation plan based on anticipated cash flow of $888/month:-

50% of the funds will go to good dividend stocks - Tanjong, Public Bank, Berjaya Toto, Resort or REIT.

50% of the funds will go to anti-inflation asset class which has been flatten in 2008 - (i) Public Bank Gold Investment Account or

AmPrecious Metals Fund which investing in mining stocks from www.fundsupermart.com.my. Looking at the list of their holdings, I quite like it as most of them are blue chips gold mining stocks.


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(ii) Plantation stocks - IOI, KLK or PPB but need to wait for a huge correction to warrant a buy.



Warning: As usual, I will not write all kind of incomprehensible disclaimers, I am not associated with any of the fund companies. Stocks and funds mentioned are strictly based on my accumulation plan. Also, since we are still in a bear market, purchase timing is crucial. Please, please, please exercise your judgements.