Turtle Portfolio Update - May 2009

(Click on the image to enlarge)
Added RM $ 620 saving to May 2009.

Bad US GDP number but Good Rally

Perhaps you are tired of this headline, let me cut the long story short. The number is quite bad in Q1 '09 because it sank by 6.1%(Q4 '08 6.4%). The good signs in the bad number are these:

1. Rebound in consumer spending

2. The inventory correction has been too steep. Soon businesses will have to produce something.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHyjnZCJkYIU&refer=home

On friendship and parenting advice

I am not a huge fan of Bill Gates as I thought he is too cunning and ruthless. He even negotiated contract in his favor with his brother during his boyhood. Nevermind, that's a story of another day. However the soft side of him as a loyal friend changed my stance on him a little bit but not too much. Anyway having a friend willing to accompany you to fight for your life-long cause is great.

April 28 (Bloomberg) -- Microsoft Corp. co-founder Bill Gates, recruited by his friend Warren Buffett to join the board at Berkshire Hathaway Inc., said he’s committed to the firm for the rest of his life.

“I’ve got a commitment to stay involved with Berkshire as a lifelong thing,” Gates, 53, said in an interview scheduled to be broadcast today. “We always have to think about what might happen and make sure Berkshire is not just great now, but forever.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=aRC2DR.cwZFs&refer=home

Beside good advice by Jim Rogers to invest in commodities, I thought the human side of him on parenting is also worth listening.

You have a lot of advice in your new book for your daughters, on money, education, travel, dating. Do you have any advice for boys?

Well, my first advice to my daughters was to be careful of boys, and to be leery of boys, having been a boy myself. For the most part my advice for the boys is the same — be careful of girls. Be careful of people of the other sex. Be careful of wild promises. Just like on Wall Street.

http://jimrogers-investments.blogspot.com/2009/04/interview-with-time-magazine-28-april.html

Still bullish on China

Swine flu, Swine flu, why are you coming at the wrong time ? There are quite a lot of stock indices approaching resistance or fast approaching 200-day moving average. With or without Swine flu everyone needs an excuse to pause. So, let it be, let it pause. While pausing, I have got news for you.

Goldman, CLSA, Barclays, UBS, RBS are bullish on China. GDP growth will reach 7 - 8%

(Bloomberg)“This is a dramatic rebound,” said CLSA’s research note. “China has the resources needed to keep GDP growth in volume terms high for 2009 and 2010.” It estimates growth will reach 8 percent in 2010.

Goldman Sachs’ forecasts are higher than some other economists, who have also increased their growth expectations for China. Barclays Capital last week raised its estimate for economic growth this year to 7.2 percent from 6.7 percent, while UBS AG lifted its forecast to as much as 7.5 percent from 6.5 percent.

Royal Bank of Scotland Group Plc’s estimate rose to 7 percent from 5 percent, and Merrill Lynch & Co. expects growth of 8 percent for 2009.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUnSHaqsTGx0

I know this mean nothing to a lot of people. Perhaps this will excite you: Goldman Sachs raised stock target :

CSI 300 -- old: 1,980 New: 2,600

Hang Seng China Enterprise Index -- old: 8,900 new: 10,300

http://www.bloomberg.com/apps/news?pid=20601089&sid=atc3LTH_TQo8&refer=china

LPI : A Reliable and Steady Company

Basic information:
No of outstanding shares: 137 mln
Market Capitalization : 1.3 bln
2009 Consensus EPS: 0.8
PER(2009) : 12.4X
DY: 0.8/9.95 = 8%

LPI is in general insurance business. Fire and motor insurance take up almost 64% of their business. Underwriting surplus wise, almost half of it is coming from fire insurance.



What I like about their business model is making money from underwriting and not generating income from float. Underwriting margin has been consistent at 20%. Beside conservative underwriting, they have been working hard on customer retention and branding. Net retention for 2008 was 66% vs 60% in 2003. Business reference from Public Bank is an added advantage. Productivity has been high, no of policies issued per employee jumped by almost 30% ( 2007: 1473 vs 2008 1901). The other good sign is gross premium income per employee, it was RM 647 k in 1999 but almost doubled to RM 1.1 mln in 2008. Their management has been very hands on and many of them have been serving the company for a long time. When you have long serving employees that can deliver continuous growth, it is quite safe to conclude the management track record is quite proven.



Financial strength is important asset post-credit crunch era. Their capital adequacy ratio has been way above Bank Negara requirement of 130%, LPI CAR stood at 181% in 2008. With some of the regional giants are scaling back, this is an opportunity to expand capacity and margin. Beside organic growth, regional growth by coat-tailing Public Bank in Cambodia should generate reasonable growth over long term.

LPI assets have been growing steadily to almost 800 mln. 84% of the assets are in investment. Almost 67% in Fixed Deposit, 16% in Fixed Income ( Government Bond and Corporate bond) and remaining in equity. Most of the equity is Public Bank which generating almost 30 mln dividend (non-insurance investment income). Balance sheet is quite clean and able to meet any obligation for any claim payout.

One area needs to watch out is the share price has been very tightly correlated to Public Bank. LPI share price can slide when Public Bank is under pressure.



The other caveat is funding cost can go up when inflation begin to creep in during recovery stage. But more immediate concern is dividend income can come under pressure when Public Bank confronted by weak economy or decides to preserve capital.

The past year growth has been impressive. However, with conservative expectation, if LPI is able to grow net income around 10% per annum for the next ten years, share should worth between RM 8 - 9. Buying below these values together with steady dividend(unbroken dividend record since listed in 1993), investment return should be quite satisfactory.

Status of Malaysia Economic Stimulus

How do you pick a high quality management team? My hero Warren Buffett seems to be able to do deal with people very fast because he can more or less able to tell whether the person loves the job or loves the money. He was once asked how did he pick the right management team when making investment decision. I don't think you can start interviewing the management team and evaluate based on a series of metrics. You know it by simply looking at their track records. Watch what they said and what they do and bottomline is results. Observe when their current leader steps down, if he/she is a good leader/manager, there should be a good successor in place and business continues to deliver great results.

It's the same thing when comes to evaluating our government. Their track records are not in their favor. When Pak-lah came on board in 2003, he intiated Government Linked Companies reformation. He launced his speech on his GLC transformation in May 2004 when stock market corrected 12% (KLCI fell from 904 to around 794). The feel good factors carried the momentum for about 7 - 8 months, KLCI recovered from the low of 794 to 924, 16% gains. Where are they today ? Easy way out is to blame him and that is the reason why he stepped down. Global credit crunch pulled everyone down. Partially true if we judge them by market capitalization but how about by their KPIs?

What is really dissapointing is this. We paid McKinsey, BCG and other high profile GLCs to draw up a grand plan but where are they today ?

The Putrajaya Committee on GLC High Performance (PCG) would like to thank the following for their support
and input into the development of this Reference Document for the Programme.

Bumiputra-Commerce Holdings Berhad
(formerly Commerce-Asset Holdings Berhad)
Bumiwerks Capital Management Sdn Bhd
Employees’ Provident Fund
Commerce International Merchant Bankers Berhad
Ernst & Young
Khazanah Nasional Berhad
Lembaga Tabung Angkatan Tentera
Lembaga Tabung Haji
Malayan Banking Berhad
Malaysian Airline System Berhad
Malaysian Employers Federation
Malaysian Franchise Association
McKinsey & Company
Ministry of Entrepreneur and Co-Operative Development
Ministry of Finance
Ministry of Human Resource
Perbadanan Nasional Berhad
Petroliam Nasional Berhad
POS Malaysia and Services Holdings Berhad
PricewaterhouseCoopers
Prime Minister’s Office
Sime Darby Berhad
Telekom Malaysia Berhad
Tenaga Nasional Berhad
The Boston Consulting Group
The Chambers of R. Sivagnanam & Associates
Sure Target Consultancy Sdn Bhd

We know where we stand with the benchmarking exercise and what are the indicators to pick.



Source: http://www.pcg.gov.my/trans_manual.asp, in case you want to read more about the grand plan.

After 5 years, we are going back to square one again:

(Malaysia Insider) KUALA LUMPUR, April 21 – Khazanah Nasional Berhad has declined to draw up the key performance index (KPI) for the government, citing a conflict of interest and instead will recommend other consultants for the task.

Sources said Khazanah has already informed Datuk Seri Najib Tun Razak’s government about its decision after the Prime Minister announced last week that the state asset manager will make the index within a month with the first evaluation of performance due in November.

“Khazanah says it’s a conflict of interest as they report to the Prime Minister, who is also Finance Minister. How can one draw up targets for the bosses?” one source told The Malaysian Insider.

But the sovereign wealth fund, which has drawn up targets and transformation manuals for government-linked companies (GLCs) with the help of foreign consultants, have agreed to recommend these consultants to determine the KPI.

Click here to read the rest: http://www.themalaysianinsider.com/index.php/malaysia/23998-khazanah-declines-kpi-job-cites-conflict-of-interest-
Those commented on that article don't even know what the hell they were talking about, still talking KPI is good, let's get foreign consultant to come in and etc...... Enough is enough and my blood is boiling!

Now I am really pissed! Royally pissed you know. OK, let's get the consultant in again. Come on, I'm trying to be gracious and do not want to dirty my blog with unpleasant words. What is so difficult to set your KPI? We are paying million of Ringgit to CEO and now they tell us they don't know how to set KPI ? Do you know your job? If you don't I am more than happy to take your job for only half of your salary. What the hell the board of directors are doing? Do you know your job? If not, pay me 24,000/year director fees, I will do it for you to question your CEOs. But I doubt I will get the job because I don't know how to suck up to people.

Now let's turn to status of Malaysia Economic Stimulus. I was trying to find out the status of fund disbursement of economic stimulus. So I visited nice cool website of Rangsangan Ekonomi Malaysia at
http://www.rangsanganekonomi.treasury.gov.my/index.php?option=com_content&view=category&layout=blog&id=38&Itemid=1&lang=en

I'm dissappointed again, only 45,000 visitors care to know and guess what, nothing, absolute nothing was updated except a few speeches. Call me, label me a skeptic and cynic which I will accept it graciously but show me the RESULTS.

LPI: Worth to investigate further

One of the stocks that I like is LPI. I have always like their business model: conservative under-writing and earning money from underwriting and not through investment(big bulk of it is in bond). It has bounced back about 16% from the low. Is it safe to jump back in? Well the first question is: how much does it worth ? It's worth to investigate further over the weekend.

PETALING JAYA: Insurer LPI Capital Bhd does not expect a sharp spike in claims ratio despite the present economic crisis.

According to a representative of the management who declined to be named, claims ratio generally increased during poor economic conditions but, with proper risk management and prudent underwriting practice over the years, LPI’s claims ratio is unlikely to be adversely affected.

Nonetheless, the insurer has seen a large drop in demand from certain sectors due to the economic slowdown.

“The impact was seen in the marine insurance sector, of which import and export trade suffered a noticeable reduction,” he told StarBiz in an e-mail reply.

(click here to read the rest)

30% bumi quota for 27 subsectors scrapped

(the Edge) PUTRAJAYA: The government has removed the 30% bumiputera equity requirement for the 27 services sub-sectors with immediate effect in line with the Asean trade liberalisation and efforts to boost the services sector.

Datuk Seri Najib Razak said on April 22 the sub-sectors covered health and social services, tourism services, transport services, business services and computer and related services.

“There will be no more 30% bumiputera equity requirement for these sub-sectors,” he said at a press conference at the Prime Minister’s office.

Click here to read the rest: http://www.theedgemalaysia.com/highlilghts/4945-pm-30-bumi-quota-for-27-sub-sectors-scrapped.html

Visited a few popular sites like The Malaysian Insider, Malaysia Kini, etc....but there have been no comment or nasty comment yet. Not sure whether silence is a sign of approval? That is understable because if you applaud, you may be blasted for supporting Najib. If you make negative comment, you are biting your own tongue for being unfair since he is doing something to walk the talk - One Malaysia.

The sub-sectors are mostly for small businesses which is a non-event, either majority of them already dominated by bumi or if you have non-bumi running these busineses, most of their bumi partners are passive partner anyway? So, it is technicality that we are talking about here, non-event really. Or none of these sectors affecting powerful elites ?

I don't think foreigners are keen to compete in these sub-sectors anyway. The sectors that they want more access are labelled as politcally sensitive(what the heck is that???)

(WSJ) Mr. Najib Wednesday told reporters in Malaysia's administrative capital Putrajaya that foreigners investing in parts of the service sector would no longer be required to take ethnic-Malay partners, who currently must own 30% of any joint venture. The newly opened sectors include health, tourism, and business and technology services, but don't include areas in which there is heavy state-involvement or which are politically sensitive, such as air travel, utilities and retail, where companies such as France's Carrefour SA and Britain's Tesco PLC have pushed for more access.

This was what he said last month:

(Reuters-March 12)Deputy Prime Minister Najib Razak, who is slated to become premier on March 31, told the Financial Times that Malaysia could embrace some reforms such as liberalising the services sector but was not able to dismantle policies favouring ethnic Malays.

“We cannot have too drastic a move until people are ready for it,” Najib said in an interview published on Thursday

.

http://in.reuters.com/article/asiaCompanyAndMarkets/idINKLR48544520090312

Surprisingly, foreigners make more positive remarks:

(WSJ)Singapore-based HSBC economist Robert Prior-Wandesforde predicts Malaysia's economy – the third most open in Asia – will contract 3.5% this year, leaving the country's leaders scrambling for ways to give the country a short-term boost and prepare the ground for a sustained recovery when the global economic climate improves.

"This is an area where investors have been looking for a change for a long time. There might not be an immediate effect – there's not a lot of investment anywhere – but over time it will help," said Mr. Prior-Wandesforde, who forecasts Malaysia's economy will rebound strongly and grow 5.5% in 2010.

http://online.wsj.com/article/SB124040220273943253.html?mod=googlenews_wsj

It's a short-term steroid and don't hope for meaningful structural shift yet.

A Joke about GM and Microsoft

Most of the markets finally went into corrections but this time KLCI has shown some resilience. I am a little tired of same headlines -- buy on rumors sell on news -- on a lot of stuffs. If the trading volume cuts into half from recent volume, it will take between 4 - 6 weeks to clean out the weak hands before resume with rally. Anyway, we will be better off if we just take a break and read something else.

At a recent computer expo (COMDEX), Bill Gates reportedly compared the computer industry with the auto industry and stated "If GM had kept up with technology like the computer industry has, we would all be driving twenty-five dollar cars that got 1000 mi/gal."

Recently General Motors addressed this comment by releasing the statement: "Yes, but would you want your car to crash twice a day?"

Not only that, but....

Every time they repainted the lines on the road you would have to buy a new car.

Occasionally your car would die on the freeway for no reason, and you would just accept this, restart and drive on.

Occasionally, executing a maneuver would cause your car to stop and fail and you would have to re-install the engine. For some strange reason, you would accept this too.

You could only have one person in the car at a time, unless you bought "Car95" or "CarNT". But, then you would have to buy more seats.

Macintosh would make a car that was powered by the sun, was reliable, five times as fast, twice as easy to drive, but would only run on five percent of the roads.
The Macintosh car owners would get expensive Microsoft upgrades to their cars, which would make their cars run much slower.

The oil, gas and alternator warning lights would be replaced by a single "general car default" warning light.

New seats would force everyone to have the same size butt.

The airbag system would say "are you sure?" before going off.

If you were involved in a crash, you would have no idea what happened.

Commercial Real Estate

This post is just for information. I don't have particular positive or negative opinion on this development.

NEW YORK (Reuters) – General Growth Properties Inc, the second largest U.S. mall owner, filed for bankruptcy protection on Thursday in one of the biggest real estate failures in U.S. history.

Ending months of speculation, the Chicago-based mall owner, which listed total assets of $29.56 billion and total debts of $27.29 billion, sought Chapter 11 bankruptcy protection from creditors along with 158 of its more than 200 U.S. malls, while it seeks to restructure some of its debt.

Since November, General Growth has warned that it may have to seek protection from its creditors when it was unable to refinance maturing mortgages.

The company said in a statement that it planned to continue exploring strategic alternatives during the bankruptcy protection, from which it is seeking to emerge as quickly as possible through a reorganization that preserves its national business.

General Growth's filing in the U.S. bankruptcy court in Manhattan makes it one of the largest nonfinancial companies to succumb to the financial crisis in the U.S.

Before the bankruptcy protection filing, the company had defaulted on several mortgages as well as a series of bonds. It has also put several of its flagship properties up for sale.

http://news.yahoo.com/s/nm/20090416/bs_nm/us_generalgrowth_bankrupcty

Just for your info, the market rallied on Apr 16, 2009 while this news was released.

Quite a few prominent analysts have been warning commercial real estate is the next shoe to drop. The private residential real estate has been sliding for a while but non residential is only beginning to roll from the top of the hill. How big is commercial real estate market? What is the impact on banks? I am still finding answers to these questions.

Learning from history - 1930s

Two of the worst recessions in the recent memory are 1973-1974 and early 1980s. However, in both recessions, there were no credit market implosions. Since this time of recession is triggered by asset bubble(housing bubble), frozen credit market and banking crisis, a lot of people are going back to study 1929.

Looking into the Great Depression makes sense to learn what they did right and wrong to get themselves out of the dark hole. Make no mistake that the Great Depression was triggered by a series of policy response mistakes. That is why W. Buffett or George Soros were paying a very close attention to how the authorities were going to handle the crisis. We should not be too obsessive with drawing the % of stock market index up or down.

When FDR finally took over the office, he made a commitment to reflate the asset prices back to 1926 level.



Along the recovery from 1933 to 1937, they made a mistake by getting too concerns with inflations even though the prices have not gone back to pre-crisis level.



They gave a lot of verbal warnings that sending wrong signals to the market that that essentially triggered interest rate to move up a little bit and led to huge decline of output(triggered another great recession, see the first chart). It is also worth to note that the short term and long dated interest rates are extremely low.








Realizing their mistake, they resumed with reflation path in 1938 until they get out from the Great Depression around 1942.

The recent policies response taken by the central bankers around the world should put the economy back on track. The next test is to see how the authorities going to handle inflation when it started to show up. Will they make a mistake of 1937 later? No matter what happens, I still feel hard assets will be a good bet because history teaches us reflation is inevitable.

Back to some short term stock market comments, it's going to be volatile. Though the general direction should be up but looking at entry point is a tricky business. That's why on and off, I will flash some cautious remarks.


Reference: http://cges.georgetown.edu/docs/IRF%20-%20papers/Conference/1Friday%20MorningPresentations/Eggertsson%20Presentation.ppt

JP Morgan: Time to buy cyclical stocks in emerging markets....really?

(TheEdgeDaily)KUALA LUMPUR: The time is now to buy into emerging markets' cyclical stocks in the engineering, construction and financial sectors, given markets globally have bottomed, said an equity strategist.

JP Morgan Securities (Asia Pacific) Ltd managing director and chief Asian & emerging markets equity strategist Adrian Mowat said utilities and telecommunication stocks might appear "dynamic to investors" but were defensive and would not be fluid during the period of an economic recovery.

"Generally, I won't want to risk on utilities and telecommunication stocks in an emerging market now. I also don't have a strong view on commodities," he told a press conference yesterday.

Mowat said engineering and construction stocks stood to have a margin of improvement as infrastructure works in particular would benefit from falling steel and copper prices, adding that dipping coal prices for power generation would also lower the input cost of cement.

He said the Malaysian market's sector composition had quite a large weighting on utilities which would be less attractive to investors who wanted to ride on the recovery.

Mowat said cyclical market returns would be more substantial by looking at the construction stocks versus telecommunication firms.

"You will see capital flow back into the emerging markets in the region and Malaysia will benefit from that. I think it has started but is not going to be huge," he added.

Mowat noted that the equities market would become more expensive in the recovery stage as analysts would keep revising down earnings while the market would be discounting into the recovery.

Asked if Malaysia had bottomed, he said emerging markets had hit their lows in October last year while that of the developed markets happened in early last month .
On whether Malaysia's estimated budget deficit of 7.6% in 2009 would deter investors, Mowat said that should not be a factor as public sector debt to GDP in the emerging world was well contained, adding that most of the bond market struggled mainly due to lack of supply and captive buying instead.
"Bear in mind, the Malaysian government also owns large outfits, like the oil company that isn't listed," he said.

Read in between the lines....Malaysia market is too defensive, too commodity-based, so don't expect foreign money to pour in. Also note that these buggers want play hit and run on high beta markets(sell into rally in a nicer word).

Chances are local players are playing recently?. No wonder Ringgit to USD did not move at all.



I have watching very quietly from the sideline, nice to see billlion shares change hands and today hit quite a record....1.9 billion. Technical indicator has been flashing overbought for almost two weeks. KLSE shows some volatility and wobbling. Take care!

Catch 22...How long is this recession journey going to be?

I don't like to take cheap shots on invesment pro. Take a look at this article written by a CIO in the Star today. I let you read the whole article so that people will not says I quote him out of context.

http://biz.thestar.com.my/news/story.asp?file=/2009/4/15/business/3685978&sec=business

If I read him correctly and rephrase in my own words, unless we see economic data convincingly, there is no way equity market rally can be sustained.

But make no mistake. If one were to analyse the current market euphoria, this is in fact a third bull market that the Dow has experienced over the past six months and, on every occasion, the Dow had risen more than 20% from the lows. However, weak economic data points and failure of the US banking system saw markets making fresh lows yet again. Is it any different this time?

.........

In essence, what matters most are strong and sustainable rebound in consumer confidence as well as a growth in both the US PMI of the ISM indices.

Until and unless we are able to see some of these data points in a convincing manner, we have not taken the recession journey fully and, hence, we are not there yet.

The author is saying unless you see convincing economic data, then only you can have sustainable rally?

Did the author forget that unless you see sustainable rally, then only we probably have some hopes that the economy will be recovering? (Assuming stock market is a machine discounting future( 6 - 9 month ahead ?))

Let you make your own judgement whether mainstream writing can help or harm you more.

China bank lending and money supply M2 -- Mind boggling

I love to cheer when China is emitting positive news. Not this time, I must pour cool water because of mind boggling bank lending growth and money supply M2. Two charts that I don't like to see -- hockey stick trend. I don't think it is sustainable. The China authority will have to issue warnings or even taking actions to cool off things. If China authority taking actions while the worldwide financial assets are pulling back, that is going to hurt quite a bit. That's why I'm still cautious, another good reason to be cautious I hope.

Suckers Rally

To those already have positions at lower price, hang on to the ride as long as you can. To those thinking of establishing a long position, I found an interesting article to share with all. The key points.

What are the reasons for sucker rallies?

Bearish sentiment is usually very high and even at extremes.


The high volatility VIX indicator at a major low is usually at extremes.


Economic numbers are showing signs of improvement, leading the pundits to declare that the worst is over.


Stock valuations are low. Value managers in particular tout the huge under-valuations seen in the market. Trouble is, stocks can become even more undervalued.


When a rally does get under way, many jump in from fear they will miss the move, thus fueling a further rally.

Why do sucker rallies come to an end?

Overconfidence creeps back into the market even as economic numbers may be beginning to slide.


Bullish sentiment rises.


The longer the rally goes on, the more are sucked back into the market as the smart money is selling. Sucker rallies are usually on low volume.


Rally ends suddenly as reality sets back in.

What kind of sucker rallies do we get?

Failed suckers - these are usually short-lived lasting a week to a most a week or two lifting the market less than 10 per cent from any low.


Mini-suckers - usually rallies of 10 to maybe 20 per cent from any low, lasting a few weeks to a month or so at best.


Big suckers - usually more than 20 per cent and could even rise as much as 50 per cent from any low. Big suckers can last a number of weeks but usually no more than a couple of months or so.


Really big suckers - can last for months and even years and gain 50 to 100+ per cent from the lows. It is usually during really big suckers that the pundits declare that the bear is dead and that we have entered a new great bull market that will go on for many years

.

Click on this link if you are interested to read the whole article.
http://www.gold-eagle.com/gold_digest_08/chapman040909.html

George Soros Retired Again

Some new information is nagging at me for almost a week. The information arrives at the very untimely manner, I mean the markets are charging fiercely and at the same time, economic data showing improvements. Honestly, unless you shut down TVs, newspaper or Internet, the rising markets tend to cloud your judgement. The rising markets and good news or less bad news are mutually reinforcing.

Adding to confusion, the market is very oversold.





A few things that George Soros said in a recent CNBC interview attracted my attention:

1. AND I WOULD SAY THAT IT'S PROBABLY THE FIRST TIME THAT THE AUTHORITIES ARE ACTUALLY AHEAD OF THE CURVE.

2. FIRST OF ALL, AGAIN, I'VE WITHDRAWN NOW FROM ACTUALLY RUNNING THE FUND. I DID IT LAST YEAR. WE CAME THROUGH IT. NOW I'VE HANDED IT BACK TO THE PEOPLE WHO CAN DO IT. SO I'M OUT OF THE MARKETS, AS I WAS BEFORE I CAME OUT OF RETIREMENT. SO I'M BACK IN RETIREMENT.

3. I THINK THAT ACTUALLY CHINA STANDS TO EMERGE FASTER AND BETTER THAN MOST OTHER COUNTRIES. I THINK, ACTUALLY, BRAZIL THAT HAS BEEN HURT BY THIS FINANCIAL CRISIS AFTER LEHMAN IS ALSO BASICALLY QUITE WELL SITUATED. SO I THINK INDIA, BECAUSE IT IS LESS TIED IN WITH THE REST OF THE WORLD. SO I THINK THAT THE GLOBAL ECONOMY WILL PROBABLY START GROWING NEXT YEAR.

Source: http://www.cnbc.com/id/30033019

His confidence seems to have improved a lot for him to say the authorities are ahead of the curve and going back to retirement again is really something. This certainly challenging me to think hard...damn hard....has the worst really behind us?

Secondly, the famous Dr. Copper is hinting global economy is improving. Copper is supposedly used widely in a lot of economic activities supporting strong price runs up. The stock piles are coming down slowly.

Counter argument: China is accumulating inventory to prepare for massive infrastructure projects launch. Stock piles are still pretty high compared to the last few years averages.




http://www.marketoracle.co.uk/Article9965.html

Thirdly, the worldwide PMI and IPI show some signs of stabilization. Export-oriented country like China, Malaysia, Singapore or Taiwan hit the worst patch in January and started to rebound in February. Based on my recent business trip, the feedback for factory orders in March are stronger than February and April is still looking pretty firm.

Counter-argument: A possible explanation within the industry is restocking after months of severe de-stocking????



The Emerging Market is outperforming the US market - DJIA and S & P 500 by quite a wide margin is bringing back the argument of decoupling. Let say the US economy is really sucks in the worst case scenario, the emerging economies are going to get on with their life -- for example the US stucked in a range from 1962 - 1982 but Japanese and Indian markets were roaring posting a few hundred percentage gains!



Counter argument: The direction of the stock markets is tightly correlated except people are more willing to bid more aggressively on emerging stock markets on rising US market. As soon as the US market retreats, the speed and magnitude of Emerging Market is going to fall quite rapidly.



I still a few more points to argue with myself. Hope to share it later.

Just to say hello!

Dear friends,

Though my job travel quite a bit but I'm trying behave as normal as possible trying not to broadcast I'm busy traveling. Overdoing it will put people off. I made a small exception this week as I'm struggling to post consistently due to very punishing schedules. So, just to say hello to keep in touch with regular readers -- I'm still alive and kicking. Just a very short one today.

Economic Cycle Research Institute(ECRI)'s says the US economy is bottoming in coming months. The leading indicators(U.S. Long Weekly Leading indicator, USLLI and weekly Leading Indicator, WLI) are turning up. I earlier said this stock market is liquidity driven and fear of missing the party, I still think it is but this information is prompting me to open my minds to explore and make some conclusion some time soon on the possibility of a trough for the U.S. economy.

Click on the link if you want to hear Achutan's analysis.http://www.businesscycle.com/news/press/1381/

Random thoughts on commodity, II

Worldwide commodity is a US $ 7 trillion market. Based on 2006 data, crude oil[41%] is the biggest stuff that we consume and followed by agriculture[31%]. Crude oil naturally will occupy the lion share in DJ-AIG Commodity Index. The index cannot move significantly higher unless crude oil begin to move.



Agriculture is the next biggest commodity that we consume. The writing has been on the wall that the soft commodity inventory have been declining for a long time. I did not want to cheer along when the price was high at that time, now that the price has collapsed and the "fact" remains unchanged. Now it's a more appropriate time to write about them though not many people will want to read them. A lot of countries going after the same high tech industries for last 30 years and neglecting agriculture sector. The cycle time to increase supply is not that long in terms of planting to harvesting but to convince more people to give up a job with nice Gucci tie to be a farmer will be an uphill battle. The sacrifice is just too huge, so we need a lot of incentives ( primarily higher price) to convert them.



I have written before the key demand drivers in soft commodities primarily due to higher standard of living and the dumb idea of diverting food to bio-fuel. Consider this:

China’s role has been profound, reflecting its enormous economic progress and huge population. In the past decade, says Carlo Caiani of Caiani & Company, an investment-advisory firm based in Melbourne, the consumption of milk has grown seven-fold, and that of olive oil six-fold. China is consuming twice as much vegetable oil (instead of less healthy pork fat), 60% more poultry, 30% more beef and 25% more wheat, and these are merely the obvious foods. Scores of niches have expanded dramatically: people are drinking four times as much wine, for example.

And yet even with all this growth, people in China still, on average, consume only one-third as much milk and meat as people in wealthy countries such as Australia, America and Britain. The gap is even larger with India, which is also growing fast. Overall, protein intake in Europe and America is unlikely to expand much, but a combination of rising incomes and population in developing countries could increase demand by more than 5% annually for years to come. “Once people are accustomed to eating more protein, they won’t take it out of their diet,” says Mr Caiani.

Expanding supply at the same rate will be difficult, because the amount of arable land under cultivation is growing by only a fraction of a percentage point each year. In China and India many of the most fertile areas are the ones being developed for roads and factories. That means existing land is becoming more valuable, and must become more productive.

The Economist: Green Shoots

The second driver was sacrificing food for fuel. We can relax a bit due to weak demand for crude oil. But when crude oil demand is back, it will come back with a vengeance.



Most of the older arguments are still valid except weaker crude oil demand is taking some pressures off. But there is a new argument getting stronger because of the FED and possibly ECB doing QE will trigger high inflation. When the investment pros acting on the argument, the pursue of hard assets will quickly push up commodity prices. Consider this chart on the correlation between commodity and inflation.


To sum up thing: the perfect storm will happen when fundamentals, inflation and weak US $ collide. There is also a possibility of commodity price going higher in tandem with equities.

So you've decided to be a writer?

Most Chinese parents will advise their children not to be an artist, writer, soldier or police. The reason for the first two is simple: you may starve to death while creating master pieces and the reason for the latter: you can die while on duty but with great honor. I guess to be a blogger is all right. In case you have decided to serve and share your thoughts, I find Richard Russell's advice is quite interesting how to be a sucessful writer(paid or unpaid).

"I've been asked a thousand times, 'What's the secret of success in the advisory business?'

(1) You've got to be an obsessive nut to start with.

(2) You have to be able to write in a way that people understand and like to read.

(3) You can't come across as a phony who knows it all. Readers know that nobody knows it all.

(4) It helps if you have a long life and don't want to retire.

(5) You need a wife who can put up with a husband whose head is full of the markets 24 hours, day and night.

(6) Woody Allen said the 90% of success in life is just showing up. If you can show up for the markets 250 days a year, you're ready to start an advisory service (but I wouldn't wish this business on my worst enemy -- it's the closest thing to absolute madness. No wonder nobody else has lasted in the business 50 years).

(7) This is a lonely business. So be prepared. Need a friend? Get a dog. Need two friends? Get two dogs.

(8) One last thing -- you must have thick skin, because no matter what you write, some subscriber will send an e-mail calling you a moron or brain-damaged, and the scary thing is, that makes you think, because they may be right."

Richard Russell has been in stock market newsletter(Dow Theory Letters) writing business for 50 years.

The Chart Of the Day -- A History of Home Value

(Click on the image to enlarge)

When I saw this chart, my eyes popped -- OMG, now I understand how we got here. Geez....the great housing bubble is truly is a Great Bubble. With those vanilla(derivatives) icing putting around the housing values -- no wonder we have such a big mess. It was lucky that we escaped the Great Depression 2.

Let's quote Mr. Thomas Gradgrind.

"Now, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life. Plant nothing else, and root out everything else. You can only form the minds of reasoning animals upon Facts: nothing else will ever be of any service to them. This is the principle on which I bring up my own children, and this is the principle on which I bring up these children. Stick to Facts, sir!"

So facts you want. How do you define a horse?

"Bitzer," said Thomas Gradgrind. "Your definition of a horse."

"Quadruped. Graminivorous. Forty teeth, namely twenty-four grinders, four eye-teeth, and twelve incisive. Sheds coat in the spring; in marshy countries, sheds hoofs, too. Hoofs hard, but requiring to be shod with iron. Age known by marks in mouth." Thus (and much more) Bitzer.

Bitzer ability to define a horse is extra-ordinary which in no way I can match. Let me try anyway. The fact is the US housing price gone up by double in value, had declined half-way down and has more to go based on the law of reversion-to-mean.

What I am saying governments will do what ever it takes to contain the banking mess from damaging real economy. I still believe that banking stocks should be avoided as long-term buy until toxic assets are purged. Purging by manipulating accounting rules is not counted.

This rally is liquidity driven, so watch the cash level of institutional players. From psychology point of view, if your fund is down by 50% in the last two years and I can guarantee you if these managers don't start buying and missing 20-30% or even 40-50%, they can expect their clients to pull out money and chase after those performing one. The fear of missing the party and not short covering is driving the rally now, you know it because you can see people was buying on every dipped.

Market snapshots

First don't shoot the messenger. Most market indexes bounced more than 20% around the world except our laggard sleepy KLCI. A few braver ones call for a bottom or bull run is at its infancy strictly based on 20% bounce from March low. The bearish camps are making lesser comments but it will look rather foolish when the market keep going up and they keep making negative comments, so the intelligent things to do is to shut up. Or perhaps the media lost most of the calling numbers of bearish analysts already.

I sometimes just look at the top 10 read stories(Market watch) to let me have a feel on the market pulse. The market is still a bit fearful but making some baby steps to move out from safe haven(gold) and cash(item 1 & 7). Economic data spike from free fall is being interpreted by the market as "STABILIZATION" (item 2). Less bad news with a lot of cash at the sideline needs a reason(or any reason will do) to move the market up. The market is pricing in 6 - 9 months ahead for this recession to end. BTW, the market is gossiping about double dip recession -- not anymore on the Great Depression II.

Global leaders seem to be happy and stay united (at least publicly and who knows what happens behind a closed door). Contrarian technical group - Bob Pretcher - thinks based on his Elliot Wave Principle, Dow should hit 10,000 in the short term ( 4 - 5 months?, my own speculation on timing). Some camps say it's psychology that driving down the asset prices, so let's bend this mark-to-market a little bit, when you do that market sentiment will improve, asset prices will go up and we will winding stuffs in an orderly manner (item 8)[My Ass......]* A little bit of cheer leading from CEO will help(Item 9)[Boooo.....booooo.]*

* note to my insert -- I can make more careless or cynical comments because of improved market sentiments. It's a big sin when you comment like this when everybody is scared like hell. It's a civic duty you know.

Retrenchment, VSS or No-Pay-Leave, Part II

I used to see how some of the semiconductor companies spending millions of ringgit on VSS and get back their people a few months later. Kind of silly at hindsight. The scene is quite similar to investing, management normally capitulates when they cannot see recovery - sell at the bottom and buy at higher price later??. In the past boom, employees were laughing all the way to the bank as if they got generous bonus from their companies. I hope Penangites will be as lucky as always in the past. Thanks to IT revolution for the past 30-40 years, Penang has been prosperous. Penangites did not suffer as badly as in 1997/1998 Asian financial crisis as the global economy was doing very fine.

Most of us like to think we have done a good job, I meant - we like to think we are Jack Welch or Peter Drucker - constantly shaking up our organization, retooling, rethinking or reinvent ourselves, etc. The truth is downturn will reveal how much fats we have picked up along the way. I raised a question whether it is necessary for management to reduce work-force even it is profitable. My take, unfortunately, is painfully yes. Creative destruction is necessary to reconstruct and to make us fitter and survive longer. The tension, conflicts, shock and etc will tell us who we are -- flatly in front of our face, without prejudice. It will also tell us who can do work and who has been carrying ba***. It is not salary saving that matter but the process of re-examination of business process and business models that force an organization to emerge stronger in the future. You will be shocked to find out how one person can do three person work.

As an employee, I always maintain an attitude my organization will not need my service at a short notice. Will always try to deliver more value for every $ 1 my employer pays me. That way I can sleep soundly every night. Be prepared financially so that I will not get caught flat-footed. There is no need for the world to give us a sympathy vote.

If we take an attitude of the stock market don't owe us a living, so is our professional life - the company don't owe us a living. Invest in ourselves, better ourselves, make the company needs us.