Let there be ............................... liquidity

About two weeks back, I heard someone came on TV mentioned that this recovery will look like an Internet address ......... W W W. That was the most interesting shape that I came across. Now that the authority is committing to ensure stimulus will not be unwind, the market will be flushed with liquidity, some of it will continue to flow into financial assets. Internet address recovery seems to very interesting to me. I believe the most scientific and sophisticated way of researching stock markets from now on is to go to wet market or take taxi to find out whether they will me any stock tips. When that happens, then I know the end is near. More importantly I look like a super-idiot when I sell something and people start to curse me because it goes up a lot higher before bungee jump kicks in.

BRUSSELS, Sept 2 (Reuters) - G20 countries have agreed it is too soon to withdraw measures to end the global economic crisis and will discuss coordinating policy to wind up the trillions of dollars in support at talks in London this week.


European finance ministers meeting in Brussels said the worst of the recession was over in the 16 countries that use the euro currency but ruled out an immediate end to the fiscal and monetary help.

http://www.forbes.com/feeds/afx/2009/09/02/afx6841978.html

Turtle Portfolio Record Updates

Just doing some records housekeeping added in last Friday Bumi-Commerce purchased.

The Study of FBM-KLCI 200d-SMA

200-day Simple Moving Average(SMA) is an important number to look at. When the index surges way above 200-SMA is an indication of the sentiments are way too bullish or plunges way below it telling us "blood is on the street".

If you look at the chart, periods A and D were very strong bull run after years of consolidations while C was recovery period after extreme sold down.

Periods B & E were at the extreme bearish territory when the index plunged way below its historical 200-SMA(30-40%). For other normal times, index should continue to rest slightly on or above its 200-SMA. Here are some of the statistics that I extracted from the yahoo. Please note that this is only a very rough guide since I am lack of sophisticated tool to extract information like this.

We are about 20% above 200d-SMA now and slightly above historical average of 18%. If we are repeating the recovery of 1997/1998 financial crisis, the rebound could be very sharp after a series of corrections(more than 10% pull back). It can go up way above average and as high as 44%.

If sharp pull back is not materialize, then sideway move to take heat out of the system will be quite probable.

I will assign a very small probability of the market can go below 200-SMA at this juncture since we have quite a good earnings season. Analysts were playing catch up gaming -- busy upgrading. Look at these two charts. The expectation is 15% earnings growth for 2010.

Why Bumiputra-Commerce Bank Turtle?

I was like others, a skeptic of Nazir's leadership to lead Bumi-Commerce especially he is linked to Najib. Also no thanks to old legacy of Bumiputra Malaysia Finance name proximity tainted with infamous cowboy management and scandals during the 80s. So, I was very skeptical when Nazir acquired Southern Bank and doubted he can integrate Southern Bank acquisition successfully. I was expecting folks in Southern Bank to leave due to clashes of cultures. Believe it or not, I begin to pay more attentions as he successfully integrated that acquisition and turnaround the consumer banking sector. He went a few more steps ahead with his regional aspirations. He integrated a few more acquisitions like CIMB-GK(Singapore stock broking), Niaga-Lippo(Indonesian 5th largest bank) and now trying to turnaround his Thailand banking operation.

If you look at his senior management team, it's full of diversity(Ang-mo, Japanese, Malaysian(Malay, Chinese, Indian), Singaporean, Indonesian, Thai, etc). Most of them are very young (late thirties or early forties). With whole bunch of new blood, a good bet that they can transform the organization to be more innovative, competitive, performance-based(meritocracy) and adaptive to changes.

Now the catalysts.



Catalyst #1: Improving capital market. There is no doubt that you can see very clearly that 63% of the profit contributions are coming from investment banking and treasury. If we are still in 2008, this will certainly makes a lot of people feel jitters. However, the picture is changing as the capital markets are improving. Good chance of double digit growth in this segment in 2010.

Catalyst #2: Banking on economic recovery. Domestic loan growth has been robust, CIMB came in #2 after Public Bank. 9% ytd growth is quite impressive despite of dire situation in the first quarter. Good chance of 12-13% loan growth in 2010.



Catalyst #3: Contribution from CIMB Niaga-Lippo as Indonesia has been experience robust economic growth. Indonesia definitely it's under-penetrated market. With their workforce of close to 12,000. CIMB Niaga is contributing about 19% in Q2 '09 to the group's profit, in 5 years time, CIMB expects this Indonesian unit contribution to the group to be as high as 42%. You should be able to figure out what is that growth rate going to be.

Catalyst #4: Operations improvement(asset quality, cost/income, etc) plus income expansion will lead to higher profitability i.e. ROE 14-15%. Nazir mentioned in his 2008 annual report that he is driving towards 18% ROE over the medium term.

Consensus net profit for 2009 and 2010 is RM 2.3 billion and RM 2.75 billion. This will translate to EPS 0.64 and 0.75 based on outstanding shares of 3,578 mln. Personally, I feel the consensus number has been on the conservative side, they will play the catch-up game later. I feel the earning will be around 0.85 for 2010. At RM 10.24, we are pricing in for 12 times earning for 2010. Earnings surprise plus better sentiments will be able to sell the story to price in 2010 earning as we are almost getting through 3/4 of 2009 already. At 15 times earning, somebody will be willing to pay for RM 12.75, this is my basis of my price target of RM 12.5 - RM 13.0. A lot of CIMB initiatives plus confidence building will take another 2-3 years to flow in, that's why I will buy and sell based on market sentiments now and then.

A bit of diversion as I am trying to wrap up things, if Nazir can successfully leading the team to deliver first class performance(benchmarking Public Bank), this should be a role model that a multi-racial society can put aside religion, race, privilege to compete based on merits, to suceed in the era of globalization. And his brother will have to learn a few tricks from him.

Turtle bought Bumiputra-Commerce - 300 shares @ RM 10.24

Turtle bought Bumiputra-Commerce - 300 shares @ RM 10.24, recycling from previous money from Tanjong liquidation. This is more of a trading buy with a target price of RM 12.5 to RM 13.0. While both stocks(Bumiputra-Commerce and Tanjong) are certainly rock solid at this point of time, very suitable for buy and hold but I can also do short term trading. I plan to rotate about 15% of my capital on blue chips when the market is moving side way. Hopefully this approach will enhance my return. One thing I must be prepared, the stock price could go a lot higher when I exited them. It can cause me to kick my butt(look like a complete idiot, grrrrrrrrr). This is the switching risk that I have to deal with it.

I'm testing a strategy of 70% buy and hold, 15% on short-term blue chip trading and 15% cash as dry powder in case of good opportunity shows up.

I feel trading blue chips with strong fundamentals will allow me to sleep soundly at night. In case the share price drop, I still can hold on to it knowing business will continue to improve over time and I still make money, albeit lesser money due to wrong entry timing. I prefer not to execute "momentum stocks" trading strategy for Turtle portfolio.

The reasons of the pick will be published over the weekend.

Betting against the house - Genting ?

The market has been very volatile and driven a lot by newsflows. Since it has been a while I did not talk any stock specific, I am going to do it for fun today.

(TheEdgeMalaysia)SINGAPORE: Genting Singapore plc, which is building one of two casinos in the island nation, surged to a record on Sept 3 on speculation its S$6.6 billion (RM16.2 billion) resort casino in the city-state will open ahead of schedule.
The stock surged 9.3% to S$1.17. It recently traded 7.5% higher at S$1.15, set for its highest close since listing in September 1991.

“It’s possible for the resort casino to open by the end of the year,” CLSA Asia Pacific Markets analyst Aaron Fischer said in a telephone interview.

The project is still scheduled to open in early 2010, according Robin Goh, spokesman at Resorts World, the Genting Singapore unit building the casino.

Fischer wrote in a note dated Sept 1 that Genting Singapore could be worth as much as S$3 based on the city-state’s potential gaming revenue of between US$3.2 billion (RM11.3 billion) and US$4.7 billion once the two casinos open next year. That compares with Macau’s US$14 billion gaming revenue.

By the time The Edge published this around 2 pm, the Genting stock price already selling for RM6.74. The stock price closed at RM 6.81 for the day, you make 1% assuming you bought when the second session opened. Should you be happy? What I am alluding is the big boys already bought ahead. CIMB research released a report with a target price of RM 9.30 yesterday and they disclosed that they have position in this stock. So can you still make money?

Gaming stocks will typically run up about 1.5 - 2 months before the opening. Deutsche Bank did a price study recently. They found out Melco International, LVS Ventian Macau, Galaxy-Starworld and Wynn Macau share price went up 93%, 34%, 21% and 27% respectively 1.5 month before the opening. Genting price already went up more than 70% from the low, surely this will complicate things by applying the same formula. Taking out Melco as an anomaly, assuming the share price can run up from RM 6.00 from the most recent correction, 25 - 30% further rise will take you to RM 7.5 - RM 7.8. So I believe CIMB is over-stretching their target.

To take biasness out, let me pull out an older research report. Goldman Sachs released a research note to their clients on July 31, 09 with an impressive workout Singapore gaming market size potential of US $ 3 billion. They assinged a very conservative target of RM 6.60 even though they are aware of such big potential. They reckon the potential earning downside in Genting are cannibalization and poor showing from non-gaming sector.

If gamble you must, be sure you know who are betting against you.Good luck!

Disclosure : None

Fully discounted the economy recovery?

Has the recent price ran up discounted all the economy recovery? The US markets closed 2% down overnight despite of quite a number of good news being announced on the same day:

1. The American manufacturing expanded

Sept. 1 (Bloomberg) -- American manufacturing expanded for the first time in 19 months, and pending sales of existing homes rose more than forecast, indicating the worst recession since the 1930s has ended.

The Institute of Supply Management’s factory index posted its biggest two-month gain since 83, rising to 52.9 in August; readings higher than 50 signal an expansion. The National Association of Realtors said signed purchase agreements for existing properties jumped 3.2 percent in July, for record sixth consecutive gain.

2. Pending sales of existing home rose in July, six in a row

Sept. 1 (Bloomberg) -- The number of contracts to buy previously owned homes rose more than forecast in July and increased for a record sixth consecutive month, reinforcing signs that the housing market is steadying.

The index of signed purchase agreements, or pending home sales, gained 3.2 percent after a 3.6 percent rise in June, the National Association of Realtors said today in Washington. The index level of 97.6 was the highest since June 2007. Compared with July 2008, pending sales climbed 13 percent.

3. U.S. Auto-Sales rate may be highest since April 2008

Aug. 31 (Bloomberg) -- U.S. auto sales in August probably will run at the highest rate since April 2008 after the federal government’s “cash for clunkers” rebates fueled demand. The so-called seasonally adjusted annual rate for this month will be 14.3 million, the average estimate of 10 analysts surveyed by Bloomberg.

The figure, an industry benchmark, hadn’t exceeded 10 million in 2009 until the incentive program began in July. Ford Motor Co. may post the biggest monthly sales gain.

4. China Manufacturing Grows at Fastest Pace Since 2008

Sept. 1 (Bloomberg) -- China’s manufacturing expanded at the fastest pace in 16 months in August, driven by record lending in the first half of the year, two surveys showed.

The Purchasing Managers’ Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said in an e-mailed statement today in Beijing. A PMI released by HSBC Holdings Plc also climbed.

With so many good news being announced including a number of European countries were out of recession and yet markets tumbled, the market is in search of reasons. The inconvenience truth was, a-ha --- banking sector is in trouble again. KBW Bank Index fell 5.8%.

My take is everyone is anticipating September to be a very weak month, so they just took profit off the table. There will be some chaos but I think correction is quite normal in my view, of which I have been waiting patiently since 2 - 3 weeks ago.