Worldwide rates cut coordination or worldwide conspiracy?

Worldwide central bankers coordination or worldwide conspiracy?

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

OMG, even the most hawkish ECB also gave in. What the hell is going on? Stop cursing them, ain’t they do us a favor preventing the second Great Depression. Shall we thank them?

"What we are battling here is trust, confidence, perception," said Peter McCorry, senior equity trader at Keefe Bruyette & Woods. "In that battle, what we've used to a great extent has been ad hoc solutions to situations as they arise," he added. "The rate cuts ... announce this is an international, coordinated effort to bolster financial markets. We're going to take what's wrong, provide the level of confidence and liquidity to get us through. The question I have is what the hell took them so long…. Every act now just by its nature can be seen as an act of desperation."

China is also announced its intention to drop rate.

China's central bank may step up to help stimulate the economy by cutting interest rates and allowing companies to issue medium- term notes, economists said.

The key reason for implementing monetary and macroeconomic policies is to support domestic consumption growth and financial market stability, as well as maintain a stable yuan, People's Bank of China Governor Zhou Xiaochuan said.

China may cut interest rates as many as five times by the end of next year and will boost spending to limit the effect of financial market turmoil on economic growth.

The central bank will cut the cost of borrowing by 27 basis points each time, reducing the one-year lending rate to as little as 5.85 percent next year from 7.2 percent now, Morgan Stanley economist Wang Qing said.

Shenyin Wenguo predicts the first rate cut as early as next month.

Boys and girls, while my prayer is answered a rebound could happen but I’m going to bet against them long-term – inflation is going to haunt us – we are going to pay for it.

Praying for a rebound?

S & P went under 1,000.

Oct. 7 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003, on speculation banks and real-estate companies are running short of money as the credit crisis worsens.

Is the market fearful enough setting stage for a rebound? Volatility Index now is at the highest point from historical stand point. It's a parabolic curve formed since August that suggest the market is really very fearful. Pray for short-term rebound but long-term is trend is still very muddy - crystal ball is not working. For smart investors with 5 - 10 years horizon, dollar averaging from here is not a bad strategy.


(Click image for larger and sharper image)

REIT - Safe Haven? Part 1

My prelude to talk about dividend yield strategy that analysts touted as a defensive strategy during turbulence time. REIT - a safe haven after fallen by 50-70%, a very limited downside plus 7-10% gross yield?

Capita Retail China listed in SGX plunged by almost 77%, worst than China market bubble burst!. Is it safe to invest with almost 10% yield at S 0.68. Discount to NAV is almost 33%.



QCapita listed in KLSE, plunged by almost 50%. Nett yield of around 6%. Discount to NAV is about 15%.

Bursa Malaysia Mega Sale ?

(Click image for larger and sharper image)

This chart capture my attention while I was browsing CIMB research/strategy report.

A few quick comments.

1. 2008 core PE is quite cheap, 12X and as low as 2002.

2. 2008 P/BV is nothing to shout, 1.7X. 2007 was an anomaly selling for 2.5X. 2.5X was flashing warning sign but who cares when earning grew by 22% but now we pay the price.

3. Dividend yield is very attractive. 6% is something very attractive and good hedge against inflation - outperform bond or FD. Capital management has been very good.

4. Net gearing is excellence. Down to 12% in 2008 from 60% in 2001.

5. Not sure 6% core earning growth projection for 2009 is too optimistic. But but .... even earnings drop by 5-10% from 2008, 2009 is selling for 12.7X ~ 13.4X PE. It is still cheap by historical perspective.

It is really cheap is you want to own the whole business. Since company is loaded with cash, privatization activities are picking up speed. 28 proposals year-to-date.



Despite of attractive fundamentals, fund managers are extremely defensive and bearish. They are sitting on 20-25% cash vs. 16% average from 2001-2007.



Is it time? Hmmmmmmmm...................

Ease bumiputra shareholding rules: Bursa

This is a sensitive and emotional issue. However, if this gets done, we are one step forward. This will ease some tensions of allegations many well connected politicians garner wealth rather than benefiting grass-root Malays. I am glad that we begin to see through NEP and looking at other ways of equitable wealth distribution.

(Business Times Online) BURSA Malaysia, the former Kuala Lumpur Stock Exchange, has asked the government to relax shareholding requirements that mar the market's attractiveness, industry officials say.

The main point of contention is that should a company top-up its capital base - say, through a rights issue - regulators can demand that bumiputra equity be restored to 30 per cent if it has been sold down. This has always been a concern because shareholders rightfully complain about earnings dilution.

The bourse wants the rules changed so that once a company is listed and the 30 per cent bumiputra equity requirement is met, it should no longer be subject to any top-up conditions.

Securities industry officials say Bursa Malaysia's proposals to ease bumiputra shareholding requirements will be considered by the country's Economic Planning Unit. It isn't clear if any of them will be approved, as similar suggestions have been made many times in the past. But this time the suggestions come from an arm of the government, which will carry more weight.

Also, the proposals are backed by powerful ethnic Malay businessmen including Nazir Razak, chief executive of investment bank CIMB and younger brother of Finance Minister and soon-to-be prime minister Najib Razak.

Buffett shopping sprees - bottom out?

Buffett has about US $ 44.3 billion cash at the beginning of this year. He spent about 63% of his money or US $ 28 billion year-to-date. That means he still has US $ 16.3 billion in his hands. If he is spending the way he spent which is typically US $ 5 - 8 billion per deal, he can makes another 2 - 3 deals but based on his conservatism, he is unlikely to spend his US $ 16 billion. So, does that means he is thinking the market cannot go down significantly?

Before we jump in with two feet, we must understand he got himself hell of good deals - guarantee of 10% dividend as preference shareholder for GE for example. This kind of deal you and I will never get. When a TV broadcaster asked Jim Rogers what he thinks of Buffett deal on Goldman Sachs. She was alluding to worst of financial crisis will be behind us soon. Jim shouted back that Buffett got such a good deal, so why not?

I saw a few charts released by David Rosenberg an analyst with Merill Lynch the worst is not over. During the S & L crisis in early 90s, the market did not bottom out after the US government announced the bailout in August 1989. The market took almost 16 months later. The S & P was around 350 points in August 1989 and bottomed out around 300 points in October 1990. That was approximately 14% drop.


The US economy was not in recession just like we have not seen any negative GDP number so far. The recession was not trough until more than one year later.



Back to Buffett sharpness to time the market, between 1 Jan 1989 to 31 December 1990, he did not add much large positions to his portfolio. He spent only about US $ 341 million on Coca-Cola. That means he did not believe the worst was over despite of the bailout. In 1990, the year S & P bottom out he did not add any large positions. However, a few months later, in 1991 he added Gilette US $ 600 million and Guiness US $ 265 million to his portfolio, which was much more aggressive compared to a year before. He believed the worst was over in between 1990-91 - he was correct!

If Buffett is right again this time, are we going to see sunny days - happy smiling faces again?

NEW YORK (CNNMoney.com) -- The Senate on Wednesday night passed a sweeping and controversial financial bailout similar in key ways to one rejected by the House just two days earlier.

The measure was passed by a vote of 74 to 25 after more than three hours of floor debate in the Senate. Presidential candidates Sens. Barack Obama, D-Illinois, and John McCain, R-Arizona, voted in favor.

Like the bill the House rejected, the core of the Senate bill is the Bush administration's plan to buy up to $700 billion of troubled assets from financial institutions.

Those assets, mostly mortgage-related, have caused a crisis of confidence in the credit markets. A major aim of the plan is to free up banks to start lending again once their balance sheets are cleared of toxic holdings.

Well, if history is going to be our guide, worst case scenario - a potential downside of another 10-15%. Though I am still bearish, if we have the cash and stomach for it, spending little bit of money may not hurt us, right?

Portfolio Update - October

Turtle received $ 888 for the month of October. I'm sitting on 43% cash after my two stocks lost about 31%. Portfolio as a whole(inclusive of cash) declined by 18% . The portfolio was created when KLCI index was 1417, the index lost about 28% based on yesterday closing of 1018. By sitting on large pile of cash is a cheating way to outperform the index. However, the point is cash outperforms equities at this moment.

Why am I not cutting losses after stocks declined more than 25%? The justifications can go on and on. Since this portfolio is going to expire in 15 years time, companies fundamentals are still all right, it does not really matter to me. It is going look OK 15 years from today.

Wishing all Muslim friends Selamat Hari Raya and maaf zahir batin.