Saturday, October 31, 2009

Turtle Portfolio Update - November 2009

Added $ 888 saving for November 2009.

Time flies, bit by bit $888/month, Turtle accumulated RM $ 20,844 saving. The portfolio gained 10% after navigating through scary October month which is famous for stock market crash. This is particularly gratifying as almost 98.8% US domestic mutual funds are losing money, only 1.2% making money in the last two years! (

My short term outlook. Correction in Bursa Malaysia should continue, as at 30 Oct, 60% of FBM30-KLCI components are still above 50-day moving average.

FBMSCAP, an indicator of speculators risk appettie, appears to be cautios for the last few months and resting on a critical support. Clearing above 10,424 of Aug 09 will invite more retail investors and speculators to play.

The downside, failing holding at current will have a possibility of 4 - 13% correction - something that most of us should be able to stomach. A word of cautious though, some stocks will suffer much more than FBMSCAP index. Dip buyer beware!

Mark Hulbert: A Stealth Bull ?

Mark Hulbert who tracks stock market newsletters highlighted some interesting points:

Dow at 9962 points, stock market timers advised their clients to allocate only 19.4% to equity, almost 80% out of market.

Many were very quick to take profit, when the market dropped by 3.3% maximum started a few weeks ago, they cut equity exposure from 42% to 19%. Interesting.

Such eagerness to get out of stocks in the face of only a modest pullback is an indication of just how strong the wall of worry is right now.
(click on this link if you want to read the whole article)

Friday, October 30, 2009

The US Economic is Back!

The US economy is back on growth path again. The bearish camp will continue to argue weak employment lead to weak spending, economy on stimulus steroid, unrecognized write down will bring down the stock markets. I would at this point searching for hints of governments plan to remove excess liquidity rather than making good bearish arguments.

S&P closed at 1066, up by 60% from mid March '09(666). This entry is for future record demonstrating how market is pricing ahead of actual recovery(3-6 months ahead).

Wednesday, October 28, 2009

It's a correction --- not a path to Great Depression II

When US $ index began travelling downtrend to a point of maximum of pessimism on Oct 22, stock markets around the world rally went into correction. It's not a surprise to me. The US $ index hit the bottom on Oct 22 and begin to strengthen, in my opinion some kind of short covering is going on. So, I would expect many asset classes to correct.

Right at our home, when I posted banking stocks hit new highs, I have a feeling it was about the time to correct because we almost running out of oxygen. I would think the correction is going to be short and shallow -- max 3 - 5 days more to go. Would expect people to step in to buy when S & P is hitting slightly below 1,050. Sorry, I got to keep things short because I am on the road for a few days.

Monday, October 26, 2009

First China A-shares ETF on SGX

Very light posting today. Saw this a while ago to share with all if you have access to buy stocks in Singapore Exchange and are interested in China A-shares. 30 times earning do not excite me, will consider when it comes down to 20 times earning. As usual, I got nothing to do with UOB.

(Business Times)FOR the first time, Singapore investors will have access to the restricted market of the China A-shares through an exchange traded fund (ETF).

The United FTSE/Xin-hua China A50 ETF, the first China ETF to be listed here, aims to raise an initial US$60 million. It will be denominated and traded in Singapore dollars.

This is also the first ETF to be managed by UOB Asset Management(UOBAM).

Chong Jiun Yeh, executive director at UOBAM, said the ETF will be priced at net asset value (NAV) for a start, with an indicative price range of between $2.40 and $2.50 per unit. The total expense ratio (TER) is estimated to be 0.94-0.95 per cent.

Given investors' appetite for the China growth story, demand from both retail and institutional investors is expected to be strong, Mr Chong added.

This is demonstrated in the performance of Hong Kong-traded I-Shares A50 China Tracker fund, which is currently trading at about 3-5 per cent premium to NAV.

The FTSE/Xinhua China A50 Index comprises 50 of the largest Chinese stocks, mainly financials and industrials. Its biggest component stock is Ping An Insurance, followed by state-owned banks.

Mr Chong noted that valuations of China A-shares 'appear relatively reasonable', with the index currently trading at 30 times price to earnings ratio, compared to its peak of more than 50 times. 'The positive cyclical China 'growth story' is expected to remain intact' as the case for policy tightening is an unlikely one, he said at a briefing yesterday.

But access to the A-shares market is restricted to Chinese investors and approved qualified foreign institutional investors (QFIIs). The upper limit on the QFII quota for any single investor to invest in China stocks is US$1 billion.

The quota available for the United FTSE/Xinhua China A50 ETF is US$100 million, as UOBAM and Rabobank - the counterparty and designated market maker for this ETF - each have a QFII quota of US$50 million.

This may cap the issue of new units and trading premium but Mr Chong said they plan to apply for an increase in QFII quotas.

With this ETF, the total number of ETFs on SGX will hit 43. Between April and September, trading volumes in ETFs hit $1 trillion. For the last quarter, trading volumes in ETFs on SGX grew by 30 per cent.

SGX's head of market development Chew Sutat said the growth prospect of ETFs is positive as investors seek simpler, transparent products. 'We certainly hope to repeat the growth rate of 30 per cent quarter-on-quarter,' he added.

Asked if the new ETF that tracks Chinese blue chips will snag trading interest in the smaller S-chips or China firms listed here, Mr Chew said he does not expect a significant impact on trading in S-chips.

'The investor profile for those who are taking a punt into S-chips versus those that the ETF hopes to attract could be quite different,' Mr Chew said. Investors also have had the opportunities to invest in China-related unit trusts and mutual funds.

UOBAM said the initial offer period for the new ETF is from Oct 29 to Nov 4. The indicative listing date is Nov 12.

Sunday, October 25, 2009

Conflicting message by E&O insiders

CIMB issued a report asking their shareholders to sell E&O and buy rights to ICSLS(Irredemable convertible secured load stock). At that the point of their writing, E&O ordinary shares was quoted at $1.27 on 22 Oct, based on rights to buy ICSLS of $0.65, the intrinsic value,they argued, was $0.635(click on the image to see their working). The ordinary shares went under water as it went down further to $1.23 on Friday - theoretically in a bear territory(21% from recent high of $1.57). As the share price is heavily owned by retail investor after big instituitions like Goldman Sachs, Merill Lynch and etc exited the company at the height of 2008 financial panic. The selling pressure may persist as retail investors tend to be trend oriented -- overshooting on the way up or way down.

Kok Meng Chow, E&O's Finance Director, disposed 107,200 shares of E&O-LR. What is she thinking? As at 23 Oct, she still has another 350,050 E&R-LR shares. She exercised her ESOS of 250,000 shares of E&O ordinary shares early of this month. Her position as at 8/10/09 was 914,500 shares, I estimated she disposed around 1.5 mln shares in the last 2 months.

Kamil Ahmad Merican converted his 150,000 shares of E&O-LA on 9 Oct. After the conversion, he has 1.2 mln E&O ordinary shares.

Chan Kok Leong, an Executive Director exercised his ESOS of 1.2 mln adding his stake to 4.7 mln shares as at 28/09/09.

Tham Ka Hon, a large owner, has been busy converting his ICULS shares to ordinary shares. He also acquired a few millions E&O ordinary shares through 9 Oct. He has increased his interest from 17.92% to 20.54%.

I will not argue too much with CIMB pegging a fair value of $1.89. The major owners think the long term value remains bright. The Finance director is a mirror of short-term trading sentiment - bearish/cashing out. Up to this point, I was unclear of the cause-effect, was poor showing of E&O-LR putting pressure on E&O or the other way round. It will be interesting to find out at the opening bell.

Disclosure: No position yet.

Saturday, October 24, 2009

Why White Horse Berhad ?

White Horse Berhad is in a boring business, making ceramic tiles but also one of the largest in Malaysia. What stands out though they are making quite a bit of high end tiles. 70% of theirs customers are homeowners and renovation contractors while remaining 30% goes to property developers. They have set-up a few of distribution centers in a number of countries to boost their export market in the last 2 years, namely Australia, Thailand, Vietnam, India, Indonesia, Singapore and Cambodia. The contribution from their export markets is not significant yet, about 10% plus.

Despite of weakening of worldwide economy for the last few years, revenue has been defensive, surprisingly 2008 was a new all time high. 1H of 2009 revenue was RM 218 mln vs. 234 mln 1H 2008, a slight drop of 7%. Net profit maintained at around RM 21 mln despite of top line had declined. Annualize their 1H '09 earning, EPS will come in about RM 0.19/share. At RM 1.32, this company is selling for PE of 7 times. They have been paying dividend consistently without fail since 2001. 2008 DY is around 5%. The gross margin has been under pressure in 2009 due to poor economic environment. Comparing to last 5 years gross margin of 31 - 34%, 1H 2009 of 28% certainly does not look very pretty. Raw material is about 40% of their operating expenses but half of them are in Euro $ or US $ denominated, strengthening of Ringgit will certainly helps to boost margin. There are more upsides to it when they are riding out from bottom of the cycle and oversea marketing efforts should bear fruits in the near future.

Reading through their management profile, one thing stands out, the key owners have more than 30 years industry experience though they have secondary eduction only. Nothing very flashy about their shareholders - only two smart money investors - Lembaga Tabung Haji (10%) and Great Eastern Life Assurance (2%). The rest are very tightly held by the owners.

Stable profit, consistent dividend, owners risking their own money, proxy to consumer spending and property market recovery(the worst is behind us) and some growth story is a good investment thesis. Ben Graham will certainly happy to approve my purchase, paying only half of the book value RM 2.41.

Friday, October 23, 2009

2010 Budget comments

I've been very critical of the present ruling government for a while but I think they begin to listen to Rakyat. If they walk the talk, they will have a chance in 2013.

Thumb up:
1) Committed to reduce to 5.6% of fiscal deficit with prudent GDP growth expectation of 2-3%. Some upside if growth comes in stronger than expected.

2) Maximum personal income tax reduction from 27% to 26%. EPF/insurance relief from $6k to $7 and RM 500/year relief for broadband subscription. Tax relief from $ 8 k to $ 9 k. High income group will be a bit happier.

3) Incentives to develop service sector.

4) Incentives to promote Green technology.

5) Reverting to 11% saving on EPF.

6) Working on public transportation

7) Taking care of student welfare and begin to talk about merits.

Minor dissapointment
1) Property taxes are up on residual value - 5%.

2) No goodies for REIT

3) Why discriminate between those work in Iskandar (15%) vs. the rest (26% max)?

Portfolio Record Update - White Horse Berhad

(click on image to see details)
Updated recent purchase on White Horse Berhad. Bought when it crossed the important psychological barrier of 1265. I'm now 98% invested.

Have a great weekend.

Thursday, October 22, 2009

Kopi 'O' reflection

Saw some comments dropped at my posts. There is a general feeling of fear of a big drop in the stock market, either triggers by the US markets correction or fear of China authorities will shift gear to tighten their monetary policy due to strong GDP growth(China’s Economy Grows 8.9%, Fastest Pace in a Year ) or local market is running dry on liquidity.

If you are a regular reader of my blog, you will know that I stick to core value of being conservative even though I talk like a trader at times. I hope I did not send a wrong message to all that I have turned into a penny stock Turtle or turning myself into a Chartist or Statistician. Adding a little knowledge to our investment knowledge or spice up things a little will definitely will not kill us. I kind of like to blend different investment philosophies that suit my personality, intellectual curiosity and financial circumstance to make things work for me. Being conservative means I draw margin of safety that could come from two sources:

1. Significant departure between price and value in traditional metrics such as PE, PEG, P/BV, P/FCF. P/EBITDA, etc ….

2. Market participants lost their minds temporarily.

This is like being in a garbage collection business. Let’s say we are in old newspaper collection business. You normally pay for $ 0.30 for 2 kg of old newspaper. For some reasons, the whole town got neurotic thinking of some kind of newspaper ink can cause health problem and decided to sell you between $0.0 - $ 0.05, will you accept the offer or quit the newspaper collection business? This of-course does not happen every day but it may happen 1 every 20 or 80 years.

One important point to consider is this, are your customers(newspapers companies) will be out of business ? If they are not, it is a good opportunity to take advantage of the situation.

When I see some of the garbage stocks being beaten down to almost nothing, as long as I think the stock market remains open in next 10 years, there are customers will take these rubbish out of my hands.

The philosophy of this investment is strictly trading on extreme pessimism. This is nothing new, Sir John Templeton had done in 1939 during the Second War. He borrowed some money to buy 104 companies less than US $ 1 dollar and being paid handsomely later on.

What I am saying is we should not be in regular old newspaper collection business but when it happen(1/20 or 1/80 years, seize the opportunity. Set up an Ad-hoc newspaper collection business and make that 1 -2 trades of my lifetime. With stock market recovered almost 50% or more, I will be real careful with this strategy. At this this juncture, be very careful of anchoring the previous High, if you do that, it will definately ruining your savings. If a stock has fallen by 90%, one dead cat bounce of 23.6 - 50% from the bottom is a safe bet. Beyond that, it's very dangerous game. I will definately anchor at the bottom and never at the top to keep myself in check.

I think the markets are clearly climbing the wall of worries, 40% fear and 60% greed. The ratio is shifting rapidly on daily basis. I am still sticking with my conviction this rally is not over until mid 2011.

Wednesday, October 21, 2009

Taking a look at banking sector

Banking stocks are typically a reflection of general economy wellness. After looking at a few of big banks in Malaysia, it's may worth to take a look at some of the winners and losers.

Obviously, there are two stocks have broken out from two-year high: CIMB and Hong Leong Bank. AMMB is almost breaking out from its two year high as well. Trend player will love to see if they breakout from multi-year high. Public Bank is 5% away. It's also telling us these winners have done something right. Whether optimism will drive them to the extreme or not will remain to be seen.

The obvious loser is Maybank which is stucked at 30% from its all time high. RHB is a touch and go depending whether people like their recent acquisition move.

Tuesday, October 20, 2009

Turtle bought 2,000 shares of White Horse

Turtle bought 2,000 shares of White Horse at RM $ 1.32. Will update more on this decision over the weekend.

Turtle Portfolio Update - Rec'd dividend from Shell

Received RM 30 dividend from Shell Refining.

Return on portfolio is 11% as at 19 Oct 2009. Managed to catch up first year 10% target. Can be tough to catch up another 9% for the second year in four months time. While it is very tempting to do a lot of trading but need to bound by passive rules for this portfolio, so no major changes to investment strategy

Saturday, October 17, 2009

Penny Stocks Strategy....Swing hard during financial crisis

If I bought FBMKLCI at the low 838 on March 10, '09, and held it through Oct 16, closed at 1256. The return is 50%. Happy?

There is something that I wanted to do for a while but have not done more work on it. Can a guy that has zero knowledge about stocks, I mean literally know nothing like economics, PE, NTA, etc made a killing in the stock market at the height of panic?????.

All that guy needs to do is to tell his broker to buy about RM 1,000 for every stock less than RM 1.00 on the Main board. I did not get through every stocks during the panic because it was way too many of them. So, I decided to just calculate return of 300 stocks based on decending volume on Oct 16, 09 closing price. Now you know why I have been procastinating this homework. I normally prefer to take a look only 30-50 stocks with minimum $ 500 M market capitalization.

If you buy 300 stocks on the main board on March 10, it should be safe enough because the risk is well spread. It will cost you around RM $ 312 k but you will get a very handsome gain of RM 252 k or 83%. Wow $ 300 k is quite a huge sum huh? The moral of this story is if you want to get lucky, be rich. (Heee.....heeee)

I'm still analyzing the data what if you have on $ 100 k or $ 50 k, will this work? The results will be shared later on.

At the end of my exercise, my thoughts begin to open up because the odd is pretty good. This of course assume that you catch it precisely almost at the bottom around March 10, 09. In terms of odds, you have
  • 6% chance of losing money

  • 1% chance of break even

  • Depending on your view, 28% chance of underperform the benchmark.

So, adding that all up, 35% chance of doing about or worse than simply buying an index fund. The upside however was pretty good, 65% chance of outperforming the index.

  • almost 50% chance of doubling your money and

  • odd to tripple your money is somewhat smaller, 10 - 12% chance
So whether you are happy with 50% return with the safer way or stomach your mental perception of majority "useless" companies to gain another 33%. To decide playing this category of game, it's depending on how deep is the pocket of a person and stomach size(risk tolerance).

When I looked at the 300 charts, it was awesome because most stocks hit the lowest point around that day. What is more interesting, some the stocks that I tracked were at point of maximum hatred. One them was Supermax that I posted If, trade you must. Picking a few of them with concentration strategy will serve you very well.

Here are the top 25 gainers and worst 20 losers(based on this study).

Happy Diwali

Wishing all friends and readers happy Diwali.

Friday, October 16, 2009

US' Geithner warns ending stimulus will imperil recovery

This is one of the news that I follow very closely -- when are the authorities going to withdraw their stimulus supports or plan to raise rates to mop up liquidity. As long as they send consistent messages to the markets that they are going maintain loose monetary policy. It's still a good bet to remain in the markets. However, let me speak like a pro with a twisted tongue: that does not mean we don't have corrections along the way. As soon as the corrections are over, we are going to see new highs......good enough?

(TheStar)NEW YORK: Treasury Secretary Timothy Geithner said Thursday the economy is in the midst of a recovery that could be imperiled if the government's support systems are removed too quickly.

"A classic pattern in past financial crises is governments tend to put on the brakes too soon, withdraw support too early, and that's been a very costly mistake and we're going to be very careful to avoid that mistake," Geithner said at a conference sponsored by The Economist magazine in New York.

Geithner stressed that a robust recovery depends on businesses investing more in the economy and that it is the government's responsibility to give them the tools to do that.

While he said he's seeing signs of improvement, Geithner stressed that the recovery will be slow.

Wednesday, October 14, 2009

"Almighty presence"

I have been standing firm that it's liquidity that's driving these markets. It is also worldwide government stimulus spending that keeps everyone above water. May be some of us have forgotten that worldwide governments pledge to spend about US $ 2T(trillions) on stimulus packages. To recap, US $ 787B, China $ 586B, EuroZone $ 24B, Japan $111B, UK $ 45B.........

What we have seen in 2009 is just a peanut. Only 25% of that US 2T in 2009 are being spent, we already feel that "almighty" presence. The best is yet to come, the bigger snowball is still rolling down the hill, another 60% of that is going to happen in 2010, of which is only 3 months away.

Tuesday, October 13, 2009

Is Proton a value trap?

Some stocks though are cheap but it could remain cheap. Is Proton one of them?

CIMB Research has maintained that PROTON HOLDINGS BHD [] is a trading buy at RM4 with a target price of RM6.05, stating that recent reports of DRB-HICOM BHD []’s bid for a 32% stake in the national carmaker wasn’t unexpected.

“Overall, we are neutral on DRB-Hicom’s bid for Proton. While there is potential for synergies, we do not see how DRB-Hicom, a conglomerate with diverse operations, will be able to transform Proton into a globally competitive entry,” said CIMB.

While CIMB is encouraged by Proton’s recent turnaround, the research house believed that a tie-up with an experienced and reputable foreign partner is what paves the way for technological exchange, and that is what national carmaker needs to stay ahead in the competitive industry.

I'm not a fan of heavy industry, it will drive me even further away especially the government has to justify their national pride or thinking it's a national security thinge.

Before I comment on Proton, look the first class one first - Toyota. It has a market cap of US $ 122 B vs Proton US $ 644M. Despite of its world class execution and innovation, return on equity(%) 11, 11, 8 for 2006, 2007, 2008 and losing money for 2009.

We need to put different emphasis on different measurement metric for different industry. In heavy industry, I think Price/EBITDA is important because it represent the ability to generate cash flow. Price/EBITDA(X) comparison is as follow for2007/2008/2009

Toyota 5.5/3.15/11.81
Proton not available/7.4/7.34

Only one aspect of valuation seems to be cheap, Proton has a Price/Book Value of 0.4 vs. Toyota 1.2X. But then Toyota is a global brand and generating at least close to double digit ROE.

So, the only way for shareholders to realize their investment is to hope for somebody to show up to buy them. If someone want to set-up a new operations, it is going to cost them some money. It's going to cost them about the same book value(assuming Proton acquiring all the assets efficiently). IF the share price is about RM 4, its BV is about RM 10 based on P/BV of 0.40. CIMB argues that Proton has been trading around 10 year historical P/BV of 0.8(BV RM 8), if there is a real genuine car maker were to enter paying RM 6, they are still getting 40% discount to BV or 25% discount to historical traded P/BV.

I don't see DRB-Hicom can add value as a new partner. However, are they buying a stake from the government so that they can get around the political BS to resell it to others? In other word, is this a first step for more serious reform? A Yes will increase odds a lot better. If not, it's a value trap -- a Graham's dog.

Sunday, October 11, 2009

Taking a closer look at property sector

(Click on chart if you want to take a look at gems)

In the early bull run, property sector normally assumes some leadership role. Where are we now? It has taken me almost the whole day to put togother the information in a table. If you take a close look at it, you will notice a few things:-

1. I've taken the pains to add up all market cap of the properties counters listed in the Star paper. The number came in about RM 39B. The whole sector is smaller than just one stock like CIMB(44B) or Maybank(47B) or slightly bigger than Public Bank (37B) as at Oct 7, 2009.

2. Only about 18 stocks with market cap above $500M, which contributed to about 72% of the whole sector market cap. There are way too many properties counters listed in our Bursa - Geez - 88 of them. The rest of 70 counters only account for 10B+.

3. 16/18(88.9%) stocks retreated after they hit 52 week high. You may noticed that sector leaders like SP Setia, UEM Land went into correction mode since June 09. They have not gone into bear market territory yet.

4. Most of the followers went into corrections mood too sometime in mid-Aug.

5. There are last few laggards begin to catch up, hitting 52 week high last week.

6. It will be critical to watch leaders closely to determine whether rally in this sector has rolled over.

7. Valuation wise, PBV has more or less revert back to last 2 years valuation except some are selling to deep discount like BJAsset, BRDB and SPB.

8. Looking at RNAV or GDV is a little bit tricky because it has a lot of subjectivity into it. Big assumptions are are billing timing, assigning the value of land or properties and etc, which are unrealized yet.

9. In other words, RNAV has element of "mood" into it, if I feel optimistic, then I can assign much higher price per square foot. Tebrau for example, some are speculating land in IDR can shoot up to RM 110 psf, based on the landbank of 1,012 acre, Tebrau's RNAV will jump to RM 7. Even you apply 30% discount to it, UOB KayHian argued you should pay RM 5 for the stock(damn Singaporeans). I will ask UOB to be cautious because it is highly speculative.

10. Those black cells in the table signify I'm refused to put RNAV based what analysts think or people have yet to figure out its worth.

It's 1.30 am now, got to go to bed. Won't be posting till next Tuesday. Take care.

Friday, October 9, 2009

Number Crunching

Not many things to blog. Just throw out some numbers for info only. Just to show you how each sector performs as at Oct 7, after hit the low in March 09?

At the level of 1,230, should you continue to chase winners, buy some laggards or doing nothing?

Wednesday, October 7, 2009

Australian raising rate --- a good news or a bad news ?

The whole world cheered when Australian central government raised interest rate by 0.25% to 3.25%, from a 49 year old low: 3.0%. Looking at half full - that's a powerful signal of strong recovery and the worst is behind us.

However, if other central bankers like the US, ECB or Japan starts tightening cycle, that could spells disaster unless they are convinced with a V-shape recovery or else certainly a potential policy mistake.

On the flip side, if the rest of the world still keeps their interest rate low, the Aussie will be a fertile ground for hot money(much stronger exchange rate). Australian Dollar to Ringgit year-to-date is pretty strong.

Liquidity tightening will certainly help preventing bubble(Austrian school economist will be extremely happy) but we will have to go through the pains and financial asset prices will have to fall. The six trillion dollar question is: do the governments have the political wills to pull it off?

(TheEdgeMalaysia)SYDNEY: Australian housing and CONSTRUCTION [] data on Wednesday added to evidence of economic recovery that spurred the central bank to raise interest rates on Tuesday, Oct 6 and is expected to bring more tightening in months ahead, says Reuters.

Demand for investment-related home loans and construction finance jumped in August, government data showed. A separate industry survey showed a pickup in overall construction last month, helped by a revival in demand for housing, ending 18 months of contraction.

Potential end of dollar-based oil deals

Potential end of dollar-based oil deals? Is this the ultimate bearish signal about the dollar? From contrarian stand point -- dollar seems like reaching to an ultimate point of maximum pessimism for the short term(1-2 years).

TOKYO (MarketWatch) -- Growing speculation over the potential end to dollar-based trading in the oil market may be part of the reason gold prices have rallied beyond $1,020 an ounce to stand near their highest level in 18 months.

And the strength was kept even as several top officials, including Saudi central bank chief Muhammad al-Jasser, denied the report.

Gulf Arab states, along with China, Russia, Japan and France, are planning to put an end to dollar-based trading in the oil market, according to an exclusive report published Tuesday in the U.K. by The Independent.

"News on gold's expected future role in oil transactions between these trading partners has sent the price past $1,020," said Peter Spina, chief investment analyst at

Tuesday, October 6, 2009

Global art market is recovering

Looks like all asset classes recovered strongly inclusive of the very economic sensitive art market. The confidence is strong enough that the operator is planning to expand their operations.

SINGAPORE: The auction house Christie's said on Friday the global art market is showing signs of recovery as prices stabilise and collectors return to the market.

One of the recovery signs was the record-breaking sale in February set by Yves Saint Laurent's art collection in Paris, which fetched nearly half a billion US dollars.

Christie's worldwide sales rose nearly 13 per cent in the first half of this year to US$1.8 billion, compared with the previous six months. However, sales in H1 2009 were down nearly 50 per cent on-year.

According to Christie's, Chinese investors are expected to drive growth because they tend to allocate more of their funds to alternative investments. The Southeast Asian contemporary segment is also expected to outperform previous estimates.

Andrew Foster, president of Christie's Asia, said: "The Southeast Asian market has been quite consistently strong in growing. It hasn't had that intense jump in prices that the Chinese contemporary market had over the last two years.

"(But) I actually think that it's going to recover more quickly, with the confidence of sellers to put objects on sale. I think it will recover more quickly than some of the other contemporary markets globally."

Moreover, the Asian art industry is expected to get a boost when Phase 1 of the Singapore Freeport opens for business in December.

The facility will be the world's largest free trade zone dedicated to the storage of high value art and collectibles. It will introduce a critical mass of new wealth management services to the region, such as art banking.

Phase 1 of the Singapore Freeport is already 86 per cent pre-booked. It is expected to store at least US$3 billion worth of assets when completed.

Singapore Freeport said apart from art, there is also a high demand for space to store gold as Asian countries relocate their assets closer to home.

Alain Vandenborre, president of Singapore Freeport, said: "What I didn't see coming was a huge demand for gold storage, which is now coming from different sources... Private banks for clients (and) also institutional banks in the market who want to have a facility in Asia where they can store sovereign state gold reserves confidentially. There's a facility like that in US obviously, there's one in London, no such facility in Singapore."

Based on the strong response, the company expects to start construction of Phase 2 in 18 months.

Sotheby's auction house that listed in NYSE(BID) price recovered by almost 150% since the low also signaling tremendous improvement in risk appetite. You can see the boom-bust cycle quite clearly from the chart.

Monday, October 5, 2009

Sunday, October 4, 2009

2010 Budget - a tough balancing act ?

Most investors will look forward to budget announcement to trade(punt for a few quick bucks). But, this is a non-event to me because I don't see any long-term fundamentals improvement(yet)- still keeping my fingers crossed. This will certainly affecting us all in the long-term.

Running a government budget, like running a family budget, it's quite simple. Two things: income and expense. If our expense exceeded our income for a long time, we are surely looking for troubles. Our government has been running for fiscal deficit for 12 years. While it's necessary to keep the current stimulus, the promise to unwind has to be kept!

When we run into deficit - the obvious solution is either working harder or working smarter to raise our income or cut our expenses like hell. We can register ourselves in a Harvard MBA(human capital) and land ourselves as CEOs of big companies, our incomes suddenly will swell by 3-5 times(productivity - high income nation). This will surely wipe out our deficit very fast despite of big tuition fees(investment or net development expenditure). After the reversal of bad fortune, we can suddenly buy a bungalow and a big car(better quality of life). However, if we spend a fortune but ended up as CEOs in small companies that pay lesser than our current job, we will be in trouble - big time.

Our Malaysia government situation was a bit worse than what I described - refuses to enrol in a Harvard MBA and keep giving money to siblings(a.k.a corruptions and cronies) generously. Income is deteriorating(see the downtrend of GDP growth since 2007). Luckily we have a rich grandfather(Petronas) that gives us RM 45 billion a year(oils income).

If our income continues to stay stagnant(low/declining GDP growth) and expenses keep growing at 15%/year and grand-pa funds is depleting at an alarming rates!; soon the only way left is to borrow. When our creditworthiness(sovereign credit rating) declining by days, like many others, we will be forced to dip into credit card that charge us 18% interest rate per annum.

We are still quite lucky as we still can borrow from our fama(father and mother-domestic debt). If left unchecks, fama bank will soon runs out money and we will have no choice but to turn to foreigners. The end game of that will be bankruptcies when nothing works. While I don't think traffic light is flashing red but certainly not a green - yellow may be. I pray hard that we don't run into this scenario during my lifetime(which Americans are facing now - high fiscal deficit, low growth, high external debts - IOUs and negative current account deficits).

Saturday, October 3, 2009

Asian Rising?

This year marks 60th anniversary of The People's Republic. Western media made a big hue and cry about China's military parade, fearing the rise of China military might after gaining economic strength. The respected magazine the Economist ran articles for this big occasion, unfortunately sounding extremely negative.

FOR a country that prides itself on its “peaceful rise”, it was an odd way to celebrate a birthday. The People’s Republic of China marked its diamond jubilee on October 1st with a staggering display of military muscle-flexing (see article). Goose-stepping soldiers, tanks and intercontinental ballistic missiles filed through Tiananmen Square, past the eponymous Gate of Heavenly Peace, where, 60 years ago, as every Chinese schoolchild is taught (wrongly, it now seems), Mao Zedong declared that the Chinese people had “stood up”.

For many Chinese, daily life remains a grim struggle, and their government rapacious, arbitrary and corrupt (see article). But on the world stage, they have never stood taller than today. China’s growing military, political and economic clout has given the country an influence of which Mao could only have dreamed. Yet Chinese officials still habitually complain that the world has not accepted China’s emergence, and wants to thwart its ambitions and “contain” it. America and others are trapped, lament these ascendant peaceniks, in a “cold-war mentality”. Sometimes, they have a point. But a bigger problem is that China’s own world view has failed to keep pace with its growing weight. It is a big power with a medium-power mindset, and a small-power chip on its shoulder.

Fortunately, the Asians have learned to be more vocal defending their views and exercising independent thinking rather than kow-tow to big brothers that seem to be more clever and eloquent in their arguments. Look at these three comments to that article, surely you can feel the heat and passion.

I don't get it, Economist. Early on in the article, you whine at not knowing "What message was it meant to convey to an awestruck world?"

Finally, you begrudgingly recognize that "its main audience was not the outside world, but China’s own people."

It's so disingenuous to flip the tone of the entire article around at the last moment. China wasn't looking to push anyone around, nor does it care much about political influence it can wield outside its own borders. It is fully focused on improving itself, I dare say as any good capitalist country should be like, as well.

The Economist must love hypocrisy. How else can my country (America) proclaim to be freedom-loving and laissez-faire yet be heavily involved in changing the "hearts and minds" of the world?

The Economist also runs thin at trying to explain just what it doesn't like about China, apart from its political system. It does admit the stimulus worked, but complains it was "without debate." However, the Economist also supports universal-healthcare in America, but doesn't acknowledge our system of debate has all but destroyed this legislation.

Because we are raised in a society to think a certain way, it may be hard to think outside the box. "Benevolent dictatorship" may seem like an ancient and archaic political system, but keep in mind, if you are of the "Big Three" monotheistic religions, you already acknowledge that to be your preferred method of rule.

I wish for more checks and balances in the PRC and CCP, but they are coming. The world's impatience to deal with China's slow rise will not hasten political or economic reform, but simply create friction. Step back, relax, and let another country be free to deal with matters how it always has.

It looks like China didn't or does not know how to rule her country and only the west knows the best!

When China was weak, the hegemony west and Japan termed her "the sick man of East Asia", may I ask who cared about the poor and pitiful China during and before l949!? And China was almost carved into pieces and who cared and spoke for China!?

Did any western country or Japan ever tasted the bitterest bitter that their king's bed was sleeping and had fun with the local woman by an invader-general!? Where was the Chinese pride? Only humiliation and humiliation!!!

General MacArthur didn't sleep in Japanese Emperor's bed!!!

In Shanghai and other cities that the west and Japanese took up the lease territories and proclaimed with signboard of "No entry for Chinese and dogs"; The poor and pitiful Chinese were classified as DOG and who aided Chinese with a kind word!?

In l949, when Mao took over mainland, UK tested him with two destroyers sailing into Yantze River but escaped with Mao's consent not to engage the west when the nation was just to be established; The economic embargo etc....... to ratchet the China's rising can anyone with reasonable mind and professed human rights and democracy dare to say all were and are righteous!?

After inception, PRC never invaded any bordering nation except in defense of her integrity and what was wrong in defending her integrity!? Xinjiang and Tibet were long long ago historically and legally part and parcel of China; Those who critical China with invasion of these two territories, please refer proper history books and maps written by your westerners before opening your childish mouths!!!

The China had not owed the world anything but the western world and Japan due to her countless historical and moral obligation to understanding her and not just smearing with lopsided views and hostility!

If Japan were to compensate the war torn China, Japan cannot repay and would be forever poor for 100 years or more and which prompted US manipulated San Francisco Treaty indemnified Japan but both KMT and CCP govt of China didn't ink that paper!

The US was rich enough and generous for her political views but why sacrifice China who badly in need of monies to rebuilt her dilapidated vast land!?

What a piece of ignorant hypocritical crap!

If this country (China) did not show some deterrent force, some savages (such as England) would be trying to colonize them or knocking at their door pushing opium with their gunboats.

Go read some history before you write such stupid article.

Friday, October 2, 2009

What is upseting the markets?

Take a peep at the market during lunch time -- KLCI is relatively resilient and working hard to defend 1200. It's a 50-50 that 1200 can hold as traditionally this is a tough resistance and a strong support as well. Having said this, almost as good as saying nothing all, I will wait and see.

What is upsetting the US markets ?

Job reports ? Unemployment rate to rise, could hit 10 percent

China PMI came in weaker ? Came in 54.3 vs. expectation of 55?

The US ISM came in weaker unexpectedly ? Decreased to 52.6 in September from 52.9 in August.

And people ignoring positive news

IMF raises 2010 growth from 2.5% to 3.1%.

Pending Sales of Existing Homes in U.S. Rose 6.4% in August

US consumer spending surges in August

One simple explanation : markets are looking for excuses to take money off the table. The good news and bad news were about even for the last few days yet the market indices turned red, obvious path of least resistance is correction. Market will continue North bound after the corrections.

Thursday, October 1, 2009

Gold Tells You U.S. Bubble Hasn’t Popped Yet: Alice Schroeder

Interesting view - gold is a currency. Owning some gold is not a bad thing. In Malaysia context, owning gold when Ringgit suddenly become very strong but lagging behind fundamentals, is a good insurance.

Oct. 1 (Bloomberg) -- If you owned stocks and gold and had to sell one, which would it be?

The Standard & Poor’s 500 Index has gained almost 60 percent since its low on March 9. Gold is near a record price. I know a fair number of people who would keep the gold.

I’ve never been a gold bug myself. They get no respect. They are associated with survivalists, conspiracy theorists and nutcases. They are always looking for the hyperinflation that never comes. Gold bugs pay a premium over the metal price for gold and silver coins on the notion that they will need the currency, come the Apocalypse.

On the other hand, the relationship between gold and financial crises goes back centuries. In the aftermath of the credit-bubble bust, we confront a Moby Dick-size pile of leverage and the question of whether this is inflationary or deflationary. So it’s worth considering what the price of gold may be telling us.

Leverage is a broad term that covers the complete history of finance, which all boils down essentially to the same structure: debt secured by assets. You give me a cow, I give you a piece of paper. Later innovations are simply variations of obligations secured by assets.

So a simple explanation of bubbles is that they form whenever someone creates a rationale to increase obligations too far beyond the level justified by the assets, regardless of the form of the asset or obligation.

Dutch Tulips

Consider tulip mania, which like all bubbles featured leverage; it was fueled not just by ordinary debt, but by leveraged tulip options. When the end came, the government of Holland declined to bail out those who had mortgaged their houses and businesses to buy tulip bulbs, and the multiyear depression that followed ruined an otherwise sound economy.

Our recent real-estate bubble wasn’t like tulip mania, in which the inflated asset had only a tenuous connection to the economy it came to dominate. The real-estate bubble swelled on the genuine beliefs among consumers about their future prospects and earnings. To be sure, some of those prospects and earnings were exaggerated to the point of fraud.

Thus the bubble burst when credit-card junkies had spent the last dollars they could justify, and the final peanut brain had been unearthed who could be persuaded to sign up for a negative-amortizing mortgage.

Because this link, however slim, remained between people’s prospects and earnings and the debt they could carry, real- estate prices even in hard-hit cities such as Las Vegas declined only by half. Stock-market losses were similar. These numbers are reported as if they were staggering, but they are less so compared with many bubbles.

Free Lunches

Some now blame consumers’ disinclination to spend and get the economy going again on banks’ newfound reluctance to lend. To the contrary, we are in the midst of a deflationary trend that is temporarily being masked by inventory restocking and free lunches like “cash for clunkers.” Consumers are done with borrowing. They will keep fueling the deflation by going through their attics and garages to find stuff they can sell on EBay to raise cash.

That’s because consumers have figured out that it was all a big head-fake from the Federal Reserve. Real incomes haven’t grown in years. Manufacturing and, increasingly, service jobs are still moving overseas. The Treasury is trying to pump the economy back to a high-water mark that was phony to begin with, and doing so in the face of a savings rate that is going up.

Trade Gap

The Treasury will succeed in printing enough money to forestall severe deflation. Even so, dollars will keep flowing out of the U.S. to other countries as the trade gap widens. Only when we start creating more jobs and higher earnings can this dynamic reverse. The question is, when will that be?

Enter the gold bugs. They aren’t just betting on inflation, as is the conventional wisdom. Gold has a wicked history of being an unreliable inflation hedge. It has, though, at times been a haven against sudden currency depreciation.

In all the talk of inflation because the Treasury is printing so much money versus deflation because it may not print enough, there is one type of inflation that is rarely discussed. This is the mega-inflation caused by a sudden currency devaluation. Currency is like any financial innovation, an obligation secured by assets. When the obligation is perceived to have increased far beyond the level justifiable by the assets, which in this case make up a country’s economy, a bubble has formed.

As in any bubble, those who recognize this need to act well in advance. Historically, governments have taken action to prevent currency flight when the owners of a severely overvalued medium of exchange start selling so much that it adds to the pressure on its price. They make private purchases of gold illegal, or tax the exchange of currency.

Right now, the American economy is worth less than the value implied by the market value of its obligations. How much less, no one knows. But gold bugs will tell you, privately, that this is why they are buyers. Might as well stock up, they say, before gold becomes a controlled substance.

I haven’t, so far, but the temptation is rising by the day.

(Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life” and a senior adviser to Morgan Stanley, is a Bloomberg News columnist. The opinions expressed are her own.)