Monday, May 31, 2010

Subsidy Rationalization

Managed to get hold of the presentation materials by Idris Jala. The following is the highlights that I think is important for us to understand the rationalization. I reverse the sequence of his presentation to cut short all the chase.

His punch line was we can go bankrupt by 2019 at the rate of government debt grows at 12% per annum. The question was why the government debt growing at 12% per annum? Was the fuel subsidy the culprit? Yes, it is one of the problems.

The second problem was social development spending which is almost double of fuel subsidy or 56% of the subsidy bill. Why our GDP is not growing fast enough despite of huge amount of money gone into this category?

O Yes, students benefited the most, almost half of 2009 subsidy program. The question is why are we not getting our ROI(return on investment)? It's because Malaysian tax payers sending our best brains to Singapore, USA, Australia, UK, etc. These guys are not coming back after they graduated?

Corruptions and leakages are the same old arguments.

Don't get me wrong, I am not saying we should not get rid of fuel subsidy just because we have other problems. All I am saying is, low hanging fruits are easy to pluck.

Their plan to save 103 billion over 5 years is a good start but without rising in productivity, there is only so much you can take cost out of the system. In an old business fashion way, it's the sales man!. In this context, how can we get more revenue after cutting the cost?

There is another problem, if we are running subsidy program at 74 billion annually, cutting 20 billion will still leaving us a gap of 54 billion, how are we going to fund it? Assuming GDP is not growing much, are we still going to have a debt of 800 billion instead of 1,158 billion? Are we not still not walking down to an eerie path?

Saturday, May 29, 2010

Just say hi!

It has been damned frustrating when my house Internet line gone down over last few days. TM people have been responsive and helpful but still unable to resolve the problem. Managed to find a hot spot and thinking of doing a short update this morning.

The big news is the government makes some gutsy plan to remove subsidy gradually. I have not got a chance to read and think through all the implications yet. Generally should be good at the macro level, improving deficit will lead to stronger Ringgit and that in turn should improve quality of life in general(stronger purchasing power). Whether this will create some short term knee jerk - dampening consumer spending on discretionary and big ticket items, will remain to be seen.

Just a clarification, my post saying to cover short look prescient, certainly is not something to boast. That was just one heck of lucky shot. Common sense tells me I should not keep open short positions at these levels. Covering short and going for long are two different things. Covering short does not mean going for long. Will move in into the market slowly and steadily. Will also keep the gun powder dry throughout the period till October.

Wednesday, May 26, 2010

It's about time to cover shorts

It's time to cover short positions. The VIX is receding, should be heading lower of 30s, generally kind to stocks.

The market tested Dow around 9700 yesterday and losing steam. One of the beaten down stocks like Goldman Sachs was turning positive while the rest of the stocks took a beating.

Over in KLSE, one of the put warrants, FBMKLCI-HA, refused to move up. This suggest not many "smart" people willing to bet on the downside despite of it broken down below 1,250. The strike price is 1,148.

Sunday, May 23, 2010

Great dividend Yield Company - Amway(RM 7.42)

It has been a while I did not talk any company in specific. Don't get me wrong that I'm turning bullish. It has nothing to do with bullish or bearish view, just plain opinion on this company.

There were a few companies able to swim against the tide even during the last great panic in 2008/2009. Amway is one them.

There is only one reason if we want to buy Amway – dividend. Amway is a multi-level company. This logo defines their offerings very clearly – home, beauty and health. Just look around you, there is a good chance that you can find people using Amway’s products. Amway is a great brand. This will ensure a repeat sale even though is a bit cyclical-moving along with the general economy. I’m not going to repeat the next standard script, improving economy, stronger Ringgit will boost their bottom line, da…..da…..daa……. If we smooth out over a few years, we should expect them to earn around RM 85 million profits, and all of them will be returned to shareholders.

These two are great charts.

You will notice that they have been paying dividend consistenly -- at least 100% of their earnings. Any improvement in the business will certainly send the money back to our piggy banks. Dividend yield is between 6 – 7%, or net of 4 to 5.25%.

What is striking in the second chart is they pay quarterly dividend and particularly higher in Quarter 3. Holding them through the end of the year, will beat FD rate.

The only issue is growth but they are trying to resolve them by trying to open up more branches – 8 so far and 3 more in the pipeline. Each of them will cost about 4 million. May cut a bit on the cash flow. I’m hopeful expansion will generate higher future sales equal to higher dividend.

Disclosure: No position.

Saturday, May 22, 2010

A bit more on technical stuffs

Saw this on Bespoke website. This is one of the important sentiment indicators, people are getting a bit more pessimistic now. Statiscally speaking during bull run correction, 2-4% below 200 day moving average is normal. In deep correction like first phase of 1981/82 bull run, it lasted about 4-5 months. Index stayed below 200-d SMA by 12%. That was the basis that I think S & P should get to around 970(1,100*0.88=968) in the worst case scenario.

Thursday, May 20, 2010

S&P 500 broke below 200d-MA

200-day Moving average of S & P 500 is situated at 1,100. At the point I'm writing this is 10:25 pm, S & P 500 is 1,077, broken down below 200 day moving average. Failure to bounce off from this level will accerate short positions. It has also made a new low now. The trend has changed - peaked out on April 16, slightly more than one month ago. The next level that I will pay attention is around 970. I don't use a lot of technical stuffs, broken down below 200-day MA is something I have to respect.

Wednesday, May 19, 2010

Thinking of buying an EVO?

Goosh, why am I talking about car again? Found a good article to share. Happy reading.

Buying a Lancer Evo?

Lets get straight to it. Unlike some performance cars, no Mitsubishi evo can be run on a shoestring. So, although you can now buy some of the earliest Evo’s at a bargain price, servicing, insurance and parts remain as costly as later models.

So, which one to buy? The evo I,II and III look quite dated now and are rarer, but significantly cheaper to buy and still remain a choice to some buyers. The better equipped Evo IV and V look much more aggressive, with improved handling and performance. The VI is still favoured among enthusiasts, especially the Tommi Makinen edition.

The tamer looking Evo VII- often accused of being the softer choice, is still a deeply impressive driving machine. Of the later Evos, the VIII / MR’s – the first to have six speed gearbox- heralded a return to more aggressive styling, plus even more aggressive handling and performance. If you are buying an earlier evo, get the dealer to offer some sort of warranty.

For some, the stripped out RS versions and mega powered Extreme models are too hard edged to be daily drivers.

Tuning wise, completely standard cars are a rarity, so expect most cars to boast a few minor mods, like sports exhaust or brake/suspension upgrade.also remember that, let the engine warm up properly before driving hard and allow the turbo to cool for a minute or two before turning off the ignition. (turbo timer is important)

The 4G63 engine used in all evos is resilient, provided regular servicing is performed. Fully synthetic oil (and AYC fluid, where fitted) needs changing every 4500 miles, and spark plugs and timing belts every 45,000 miles. Most cars will also have boost gauge fitted, with standard boost around 1.2bar. Cooling system expansion tanks can over flow when its hot, so always check the water level. Avoid cars displaying engine warning lights on the dashboard. Starting problems or stuttering acceleration could be caused by loose vacuum hoses, worm plugs or failed coil packs. Noisy tappets are normal.

If the car is not driven regularly, the battery is easily depleted – and some evo VIIs have pressure relief valve springs which are too stiff and can cause stalling. Changing to an evo VI part seems to resolve the problem.

Standard clutches wear extremely quickly on all models, and many cars have upgraded items. Look for slippage, high biting points and an acrid smell of burning clutch material.

Gearbox have been known to give up, with bulky changes into first, second, fifth and reverse gear being the most common indicators. Worn gearbox output shaft bearings will also cost a lot.

Any clonking from the front end could indicate front helical LSD bolt failure. On later models, the ACD pump has been known to fail. This could be expensive to replace. So check that the green lights in the snow/gravel/tarmac switches light up properly.

Strut top mount bushes, anti roll bar bushes and drop links all wear out with age, producing a knocking noise on turning. Many owners will have changed to aftermarket coilcovers.

Brakes take a hammering on all evos, and some suffer from warped disc. The only solution is to replace the original disc with quality aftermarket kit. (if after skimming for the 3rd time). Ensure that the brake fluid is changed every 18.000miles on all cars.

Bodywork and exhaust
Expect some stone chips on the front end and rear arch extensions. Look for signs of overspray and inconsistent panel gaps, which may indicate hidden accident damage. Rust inside the bootlid is common, but you should also check the suspension and underbody.

On all but the oldest Evos, interior trim should be in good condition, but the recline adjustments on Recaro seats gradually slips back over a period of time. The only proper solution is an expensive replacement base frame.
All warning lights should go off on start-up; if the AYC, ABS, or oil lights stay on, Walk away! Also check the operations of all electric windows and mirrors, aircon and optional sunroof.

Many owners fit an aftermarket boost gauge as a diagnostic tool. When properly warmed up, check out the maximum boost on test drive. On evo I,II,III,IV should be under 1.0bar. and under 1.3 bar on later models. Also ensure that the water spray system to the intercooler is working properly.

This is a compilation on articals that i've read.. hope this helps those up coming evo owners!!!!


Leslie, Zero to hundred

Monday, May 17, 2010

China stock market entered bear market, a reason to be concerned?

(Bloomberg)The Shanghai Composite Index dropped 136.69, or 5.1 percent, to close at 2,559.93, the lowest since May 4, 2009. Today’s decline is the biggest since Aug. 31, when the gauge fell 6.7 percent on concern a slowdown in lending growth would slow economic growth. The CSI 300 Index retreated 153.31, or 5.4 percent, to 2,714.72.

The Shanghai index has lost 22 percent this year, the world’s fourth-worst performer among the 93 gauges tracked by Bloomberg, on concern the government will keep tightening monetary policy to contain inflation and avert asset bubbles. The measure on May 11 entered a bear market after falling 21 percent from its Nov. 23 high.

Equity losses have dragged valuations on the Shanghai index to 19.1 times reported earnings, compared with the multiple of 37 times in July 2009, according to weekly data compiled by Bloomberg.

Premier Wen said the government will “decisively” contain excessive increases in housing prices in some cities and curb growth of industries with overcapacity, the official Xinhua News Agency reported May 15. China should keep the strength of macroeconomic controls “reasonable” and boost policy coordination, Xinhua said, citing Wen.

I believe these actions and developments are lengthening the bull run around the world. BUT, big BUT, I'm still maintaining my stance that the consolidation and correction should(not necessary will) continue for 1-2 months to take the steam out of the system.

I noticed Shanghai Composite Index had been under pressure(government induced), that was the reason I decided to sell out Parkson earlier. If you ask me why I have not selling out XDL yet, it's because the stock has been sold down too badly and I prefer to sell on rally later. I however will cut loss at $ 0.32.

Comment on our Bursa, as usual our Bursa is still pretty resilient, especially Bank Negara Malaysia was hiking interest rate again last week(on much stronger economy outlook). This will continue to increase demand for Ringgit causing it to strengthen further for a while. Ringgit strength and KLCI have been positively correlated lately. But I think I'm still on the cautious side and not ready to dip my toe into the market yet. It's better to miss a 5% gain rather than end up with 5-15% losses.

Saturday, May 15, 2010

Will Sime Darby be a party spoiler?

Sime Darby confronted with massive selling on last Friday on news of massive costs over run in its energy and utilities division. 40 million shares changed hands on that day. Volume wise, it stick out like a sore thumb. Based on 14% or 840 million of shares held by foreigners, it will take while for the dust to settle down. Don't catch a falling knife that will cut through hands and fingers.

CIMB research did a good job tracking their history of write-offs.

Only one conclusion. You can see how screw up these guys at Sime Darby, they f**ked-up big time in ways you can never imagined, almost every division will give you some surprises. Market hates surprises! From the history, you can see how lacking are their risk management, execution and operations management. Every time you hear a board or a management team needs to bring in outsider, you know that the board/management team had no idea of what is going on. Clueless. Absolutely clueless. It's reminds me of Dibert's management.

Letting their CEO go will make us feel better, sins had been atoned. But it is enough? I sometimes really not sure whether to laugh or cry. We assembled some kind of big conglomerate so that we have some big entity in our bursa to attract foreign investors. Can the logic hold? What's the point of having a 800 pounds gorilla that destroys the whole habitat? What don't they just break up the company to unlock the value?

I am not going to argue how the analyst derived the value of Sime Darby. Let's take it as it is so that we can concentrate on the point of breaking up the company. We all can see that just the plantation unit alone will create of 43 billion market capitalization, is this not big enough? Their industrial unit responsible mostly for selling heavy equipment like Caterpillar which gets a lot of tail wind from infrastructure, mining and logging activities, worth 10 billion and not to mention their property division also worth close to 10 billion as well. Unless, they know that they are vulnerable, almost certain that one of their divisions will screw things up, therefore need other units to cover their asses???! Because of this, the analyst wipes out 12 billion market value from the valuation. I don't blame the analyst but Sime Darby is to be blamed!

Still referring to history that compiled by CIMB. Sime Darby has been having high profile Board of Directors like Musa Hitam, Andrew Sheng, Tajuddin Ali, Ahmad Sarji and etc. They have been appointed since September 2007. Bad things continue to happen during their watch since 2007, what does it tell us?

The more important question, will Sime Darby trigger the sell down across the board? If this stock retrace to RM 6 level, it will bring KLCI to 1300 points level. So will Sime Darby be a party spoiler? Watch the tape.

Wednesday, May 12, 2010

Gone fishing for a week

Will be back this weekend.

Sunday, May 9, 2010

Some perspectives on recent market turmoils

The markets have been extremely nervous, I do not wish to contribute more fears by injecting more negative thoughts but I'm trying to share my thoughts.

Greece fallout was the beating boy, has been quoted as "catalyst" of the recent market correction. If you read blogs and any other commentators, most of them will not believe that this was the catalyst. Most will think it's natural thing for the markets to correct because since the bull market started in March 2009, we hardly had any serious corrections. In the last 7 pull backs had been very minor, only 5-8%. We need some serious pullback to test whether there are real buyers out there, before resume with second wave of this bull run.

The speed of the pull back surprised me as I thought it will move sideways for a couple of months, losing more than 10% in less than 10 days was serious.

Back to our own market, I have not seen any pull back more than 100 points from a new high. Here are very rough estimate on the KLCI pullbacks.

These kind of very shallow pullbacks(3-5 trading days with 3-6%) certainly had reinforced people not to afraid but to buy on dip.

There is some kind of believe that our market is much more resilient than others.

The chart will tell you that there were 4 failures attempted to break through 1350. Since the odds were not good, I took profits purely due to Mr. Market has changed his mind, selling for lower price regardless of the value of his business. So, I wound down the higher beta stocks first. My view on how much cash one should hold should be evaluated based on riskiness of holdings. If one has 90% high beta stock, I would wind it down to 90% cash, without a need of second thought. If I have 90% low beta stocks, I would be very comfortable to leave my portfolio alone at 30% cash.

Thursday, May 6, 2010

Lightened up Turtle Portfolio holdings

Sold 2,000 shares Whitehorse @ 1.55;

500 shares Parkson @ 5.52.

With that, Turtle portfolio cash position should be in the region of 27-30%. Depending on how things develop, I might go 50% cash max.

Most are still hanging on the hope and wanting to take action after seeing quarter one 2010 results. Any disappointments or just on the dot will accelerate profit taking.

KLCI: 1331

Wednesday, May 5, 2010

Some common-sense thinking on yuan

I like this guy, speaking with very plain language with good common sense.

(theStar)Some common-sense thinking on yuan
Comment by Dr Lim Ewe Ghee

RECENTLY, the United States postponed its condemnation of China as a currency manipulator, pending negotiations on whether China will appreciate its yuan. Note the United States has raised hell about somebody’s exchange rates before.

Remember “Japan Bashing” when Japan’s trade surpluses allegedly implied an undervalued yen? Trade tensions ensued, Japan occasionally acquiesced, and the yen appreciated. And appreciated – 23% in 1971-73; 37% in 1977-78; 49% in 1985-87; and 20% in 1993-95. Yet the “problem” remained. Japan still had the largest bilateral surplus in 1995 – but the bashing stopped. By then, the Japanese economy was on its knees, trapped in its lost decade.

Was the ever-appreciating yen a major contributor to Japan’s economic collapse? No consensus yet, but Stanford economist Ronald McKinnon ties the “syndrome of the ever-rising yen” to Japan’s deflation trap. Whatever the final consensus, common sense dictates skepticism attends a solution that never solves the “problem.”

Think as follows: Suppose appreciation unwinds the surplus; we get bashing, cave-in (appreciation), surplus unwound, End of Story. But, suppose the surplus remains! Then a destructive dynamic is unleashed, whereby bashing equals cave-in equals unresolved surplus setting up expectations of more and more bashing and cave-ins – as long as the surplus is not resolved! The pressure on the currency then never quite stops. Bashing is a political weapon that is itself a significant problem. Now, China’s story.

In 1994, China fixed its yuan at 8.68 per dollar to stabilise a high, volatile, inflation that had reached 20% annually. It worked. Inflation fell to track US inflation. During the 1997-98 Asian crisis, China stuck to the policy despite pressure to devalue, earning itself policy credibility. After the crisis, financial stability allowed producers to focus on real improvements – productivity, quality, cost cutting. The country utilised its abundant labour to become competitive in consumer manufactures, while the advanced economies specialised in capital intensive production – standard economic theory.

So, what’s not to like?

Hordes of rural Chinese labour flooding into world markets to rise from unrelenting poverty. Hordes of US working families buying cheap consumer goods that raise living standards.

What’s not to like?

Enter US special interests! US mercantilists and their political, academic, and media allies point to China’s surpluses with an old playbook – currency manipulation! Undervalued yuan! Enter China-bashing! In March 2005, Congress threatened a 27.5% tariff. China acquiesced and the yuan appreciated 22% over three years, but the surplus widened! Another 20%-40% needed, came the experts! Sounds familiar? How does another Asian economy deal with the thuggish return of an 800-pound economic gorilla? First, DO NOT CAVE!

Reasons why China should not cave

● Cave-ins set up a destructive dynamic: As noted, a cave-in is counter-productive and could lead to continual pressure on the currency and more economic problems.

● Argument has no merit: Why is the yuan undervalued now, not in 1994? Why didn’t the United States protest “currency manipulation” then? Because the policy was harmless until China became too competitive for US special interests! Let’s simplify matters. Suppose Google creates a phone to compete with Apple’s iPhone. Business is slow but through innovation, cost cutting, Google makes a better product at lower price. Apple lobbies its politicians who threaten Google with legislation unless it raises (appreciates) its price and become uncompetitive or less competitive! The argument has no merit!

● Fixed exchange rates are not currency manipulation: The special interests demonise fixed rates as currency manipulation, but fixed rates were prevalent and beneficial in history! They insist that the very operations of fixed regimes – central bank buying/selling of foreign exchange to maintain the fixed rate – is proof of “currency manipulation” since it prevents currencies from reaching free market equilibrium! By that criterion, almost every country currency manipulates because most either fix or have managed floats. Thus, the criticism is feckless, asserting its conclusion, rather than arguing why free floats are best for developing economies, not fixed or managed floats.

● Free float is not right for China: Exchange rates today, under liberalised capital accounts, are forward-looking asset prices (like stock prices) driven by current and expected future fundamentals – news, sentiments, even bubbles. Thus, a free float will deliver trade balance (or unwind a surplus) only if foreign exchange demand mainly reflects import demand. But import demand is only a tiny fraction of foreign exchange demand, which reflects mostly asset flows (hedging, investment etc). Instead of trade balance, a free float will likely just introduce new problems of exchange volatility for China, with its yet thin financial markets.

● Sustained surpluses do not imply appreciation immediately required: No theory suggests such a rigid connection. People run life-long deficits with their grocers – no depreciations required! Historically, Britain ran large surpluses with the United States – with no attendant hysteria for appreciation or else! Why?

Trade balances are macroeconomic phenomena: a means of shifting consumption/investment profiles over time through borrowing or lending to the world. They are simply more significant than whether certain special interests are unhappy with the exchange rates they face.

● Caving would not solve the surplus but could cause deflation: As macroeconomic phenomena, trade surpluses will fall only if a country’s excess of savings over investment falls. But appreciation alone cannot ensure that. Falling exports from appreciation may cause incomes/savings to fall, but investments (and imports) could also fall. And if the surplus does not respond, as during Japan Bashing and in 2005-08 for China, a cave-in could set off the destructive dynamic of more expected cave-ins; and investments could easily move abroad. If China caves, its surplus likely remains but it falls into recession.

What Should China Do?

First, ignore the bashers and look inwards – will continuing current policy add great risks to asset/goods inflation or over-exposure to one borrower? Second, hire a top US public relations firm to argue its case, reverse China’s role as an economic piƱata in the US media. Third, insist the US reforms its Social Security/Medicare/tax systems to incentivise savings. Fourth, insist that bashing ends and make sure any policy revision cannot be interpreted as a cave-in or loss of control over China’s own economic destiny.

● A graduate of Yale University and the University of California, Davis, the writer is a senior research fellow at the Center for Policy Research and International studies (CenPRIS), Universiti Sains Malaysia (USM). Previously, he was senior economist at the International Monetary Fund, Washington, D.C. The above are solely the views of the researcher, and do not necessarily represent the views of CenPRIS or USM

Tuesday, May 4, 2010

Monday, May 3, 2010

UEM Land ?????

This chart is just an illustration on how dangerous to buy based on what we read in the newspaper. The stock which many know that it is "gomen"-linked already started to rise, prior to the PM making announcement to privatise several parcels of land in Kuala Lumpur. Those closely link with the "gomen" must have made their quick bucks.

The poor public as usual were the suckers, speculating there were more goodies to come! Duh, within a month, many "investors" already sat on 15% losses already!

This is just to show how most people have no game plan to set-up a trade. I'm sure at $1.2, a trader would have 68.99% chance of making money, $ 1.0 70.83% or $ 0.70 90.99%.(Don't take the probabilty too seriously :)-

Saturday, May 1, 2010

Portfolio Turtle - May 2010

I've just updated my record. Portfolio stands at 10.74%, expect to be under-pressure in the coming months. Cash level is quite low 3%. May have to take some profits or cut losses to raise cash.

Just a quick comment on my BJToto-CF or BJToto-CD post. Reading a reader comment, I was under impression that my post was recommending BJToto-CD and it's okay to buy BJToto-CF. Both are not Okay!

I'm using that pair just to demostrate gearing is important not just looking at premium or number of days to expiry date. Some are even more sophisticated(I mean pro) are calculating implied volatility, delta, gamma, etc. To be honest, I don't speak Greek and I only look at this category when the value is screaming at me without a need to use any calculator!

I want to clarify to avoid any misunderstanding especially I'm seeing interests returning to call warrants are coming back and brokers issuing them like nobody business.

I've sold out all my call warrants over the last three months. So I've zero holding on call warrants now. As the corrections can drag into October-November, call warrants with expiry date sometime in February 2011 are also not safe. Those of us with buy-and-hold tendency will get the hardest hit, ruining our portfolio. Please be careful!

Love, Uncle Turtle.