Ben Bernanke's dilemma

Managed to squeeze out some time out during this business trip to write down my thoughts before it is disappears.

Ben Bernanke is panic - pumped $ 200 B into the financial system again, is he afraid that the US economy will enter into a very long recession like Japan when the twin bubbles busted in the early 90s? When Japanese twin bubble busted - equity and property - they were stuck in more than decades of recessions and deflations. Many argued that the market forces taken too long to work out the excesses, free market did not work! Japanese should have loosened their monetary policy right after the party was over.

So, it is a choice of long deflation or ignition of super inflation? Looks like they have chosen the later and hoping raise interest rate to kill it off down the road. They are afraid of liquidity trap just like the era of great depression where John Maynard Keynes was proposing to put so much liquidity in people's hands: to set them free. Will it work? I would say I pity him, it is not a choice of good or better but worse and worst, uglier and the ugliest. Greedy bankers have screwed up big time, Ben is doing the s*** cleaning now, is that his job?

I would stay put for a while to see how things are going. Don't try to get hands itchy even though I have a little bit of money in hands. More US and European banking write-downs are coming!

Post Election: The Return of Sanity

Yesterday selling was as if the whole country was overtaken by a new government(as if socialist or Islamic one OK!). Many anxious about new public and economic policies. Never underestimate fear and confusion. Today's price actions tell us, many believe this country is still rule by Barisan Nasional. The sanity is coming back. There may be some projects delay here and there, some scandals exposure here and there, some resignations here and there, otherwise get use to it. Many should know my edge is not trading, therefore I will not want to write much about KLCI target, valuation of the market is OK, if we still retain the safe haven status.

This kind of rebound based on past experience is not completely unexpected, technical camp will come in for some quick trade, since they cannot short - they might as well push it up, just common sense. Many of the construction, infrastructure and possibly building materials stocks will soon falling off from everyone's radar, you will see prices to deteriorate over time. Buy and Hold buyers: Beware!, if you do not have an exit plan.

Beaten down stocks with domestic driven consumption, significant overseas operations and soft commodities driven will eventually recover. If you wish to get some names, wait till I have around $ 3,000 - you will see the next stock I plan to buy.

Question on everyone's minds, was yesterday the bottom? The 80 Billion Ringgit market capitalization loss yesterday will be answered in 100 days from yesterday. Why 100 days? If things do not shake up by oppositions within 100 days, chances of status quo is quite high, just common sense speculation - just in case my readers still need some scientific answers and predictions. The next write up will be Post Election : 100 Days. What is your wish? Shake-up or no shake up?


BTW, while we got distracted, Hang Seng is testing 23,000 again, just in case we are interested in global investing. I will be away for next few days, catch up soon.

Post-Election: Sell Down - Day 1

Most get their predictions right today, losing 80-100 points. Looking at top volume price actions, one can see clearly it is repricing of risks(some are real, some are not) and not stock market collapse. It can be categorized into the following if we like to break into more systematic themes.

(i) suspected politically linked construction stocks (Gamuda, MRCB, etc,)

(ii) inflation sensitive stocks that losing pricing power like Tenaga,

(ii) foreign investors exposure reduction like IOI Corp, Sime Darby, AirAsia, SP Setia, SupuraCrest, Commerce, Public Bank, Bursa, etc,

(iv) so call non-compliance to Islamic practice stocks like Genting, Resort, Magnum, etc

(v) sympathy selling

The market are scratching their heads whether Malaysia business environment will be as stable as before. Will the market losing the premium factor? They are not sure whether the environment will still be pro-business.

Since liquidity is not an issue for us ( meaning we do not need to buy in a big block), do not rush to buy yet, take a step back and relax. Clear our heads to find out who have wrongly sold their stocks. We want to sell back to them when they found that they were wrong.

Important question to ask ourselves, have the fundamentals changed? Has CPO price collapsed? Will they impose unfavorable gambling taxes? Will they close down casinos? Is PAS ruling the country? Will lesser houses be build? Just shut the world, lock ourself in a quiet room, we will find the answer what to buy. Good luck.

Is there such a thing called value investing? (I)

I am about to write a controversial area that divided the world of investing. Sometimes it is like we have to take side when the father and mother are quarrelling-accusing one another speculator, gambler, etc. Does it have to be that way?

Buffet's fans will always insist he is closely linked to Ben Graham. Fair enough, he has attended his classes and worked for him. Buffet always says he is 80% Graham and 20% Fisher. For those who are open minded, upon closer examination he is truly a controversial man. He will not hesitate to break conventional rules when there is money to be made. Let's see some his transactions:

(1) He paid 3 times book value for See's Candy in 1972. They also paid 1.2 price/sales, 20 millions for 30 millions sales. The sales growth has been unspectacular of 2%. The earnings were less than 5 millions and required 8 millions capital to run the business. How would you define margin of safety while he is paying for hefty premiums in this case?

(2) He bought metal commodity stocks like Kaiser Aluminium & Chemical Co. and Cleveland Cliffs Iron, Aluminum Company of America and etc in the late seventies to early eighties to combat stagflation.

(3) He is constantly looking for opportunities for arbitraging such as merger, recapitalization, reorganization, liquidation, etc. He was pretty active during the 80s merger manias. He is constantly evaluating probability to profit from likelihood of an event that is going to happen. He was even willing to average up beyond the announced acquisition price in Arcata Corp take-over by KKR in 1988. Do you know he played arbitraging game on soft commodity like cocoa while working for Ben at the age of 24 year old? Do you also aware that Ben himself involve in arbitraging?

(4) The disciples of Buffet will continue to advocate to buy simple businesses. He has publicly confessed that he does not understand how to value technology companies. However, he bought Amazon junk bonds at 57% par value for Euro 130 million in 2001 and 2002 after the technology bubble bust. How did he manage to estimate future cash flows of a tech company? Was he not speculating and betting US $ depreciation like Soros?

(5) Buffet is also betting on emerging markets like buying Brazilian real, he asked us to hold our breath while reading his annual letter to shareholders. Many probably know he made $ 3.5 B profit by selling off Petro China which he bought the stock a few years back. He also bought Posco and Iscar for example.

(6)He wrote 92 derivatives contracts involving high yield bonds default indices and also put options on stock indices. The swing of profits and losses could be in $ 1 billion range in any quarter.

(7)He is of course famed for buying simple yet great businesses like Coca-Cola, Gillette, American Express and etc.

(8)He has been buying a lot of main street businesses for a while when he find no great values in Wall Streets. His latest large purchase was Marmon group for $ 4.5 billions.

(9)Contrary to popular belief he does not leverage, his greatest leverage is coming from floats. If one trace his early partnership, he has made use of floats from Blue Stamps and Geico. He and Charlie will even take controlling stakes in closed-end funds to take control of investment decisions.

His insurance floats could be in the range of $ 40 to 50 billions. This is almost like taking loan at 0% interest as he collected the money in the form of premiums and payout later when ever there are claims. As long as he underwriting conservatively, he makes profits and grow his wealth incredibly.

By now some readers will wonder what are the points that I am trying to make. I feel most people have over-emphasized Buffet is closely associated with buying simple businesses and Benjamin Graham. Most have largely overlooked that he is such a versatile investor that put the money where the mouth is. To borrow from Deng Xiao Peng, “seek truths from facts and it doesn't matter if a cat is black or white, so long as it catches mice. “ This has many implications for those who want to improve our investing skills. As usual, I will expand this when ever I can find time. By just a preview, I agree with him : Intelligent Investing.

Malaysian General Election : 8 March 2008

My readers may noticed that I have spent time analyzing foreign stock markets, posting Singaporean newspaper cutting and etc. The message was not only foreign investors have the choice not to invest in mediocre Malaysian companies, we as retail investors have this choice to flee as well. We can fund great foreign companies. If Singapore market is really selling at 10 times forward earnings vs. KLCI forward earnings of 13 times, don't you think it is a rational decision to put money in Singapore Index ETF than KLCI Index Fund? I am glad that Malaysian have spoken, let's hope for the better Malaysia.

The sky is falling(TBT 4 March 08)

I shouldn't have wasted my time doing big picture analysis for the last six months and just wait for the big picture to arrive. I am still waiting for newspaper to publish something like the death of equities or the end of the world......at that point, I will sell my house and buy equities! (Just kidding but I hope my point will be well taken).

Simon Cowell ..... American Idol ... Bashing Time

I will shut up today, let him speak.