There was a one hour interview on CNBC with Warren Buffet, the second richest man who has donated $31 billion to charity. Here are some very interesting aspects of his life:
1. He bought his first share at age 11 and he now regrets that he started too late!
2. He bought a small farm at age 14 with savings from delivering newspapers.
3. He still lives in the same small 3-bedroom house in mid-town
years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.
4. He drives his own car everywhere and does not have a driver or security people around him.
5. He never travels by private jet, although he owns the world's largest private jet company.
6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of
these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He
has given his CEO's only two rules.
Rule number 1: do not lose any of your share holder's money.
Rule number 2: Do not forget rule number 1.
7. He does not socialize with the high society crowd. His past time after he gets home is to make himself some
pop corn and watch Television.
8. Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gates did not think he
had anything in common with Warren Buffet. So he had scheduled his meeting only for half hour. But when
Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
9. Warren Buffet does not carry a cell phone, nor has a computer on his desk. His advice to young people: "Stay
away from credit cards and invest in yourself and Remember:
A. Money doesn't create man but it is the man who created money.
B. Live your life as simple as you are.
C. Don't do what others say, just listen them, but do what you feel good.
D. Don't go on brand name; just wear those things in which u feel comfortable.
E. Don't waste your money on unnecessary things; just spend on them who really in need rather.
F. After all it's your life then why give chance to others to rule our life."
Get Updated
Tuesday, October 28, 2008
Interview with Warren Buffet
Sunday, September 21, 2008
Trap 3
An indication that the investors are over- or under-reacting to eventsare when share prices fall by a large quantum aafter a hint of bad news, such as when financial institutions reported losses due to the defaults on subprime mortgages in the US. The American stock market fell after hearing about the losses due to the subprime sector. This created fear among investors and some will overreact. Investors usually start behaving irrationally when the market starts goin down.
WHAT TO DO
Revisit the basic principles of investing: asset allocation. To avoid getting caught up with irrational exuberance, investors should allocate their protfolio between strategic and tactical investments. Then, limit tactical investments based on "hot" themes to their portion for tactical investments.
Strategic investments offer modest but steady returns and should be held for the long term. Tactical investments offer the potential of quick but volatile returns and should on make up between 10% to 30% of your investment portfolio. How much tactical investment you make within this range depends on your risk profile.
Investors can avoid overreacting to bad news by anticipating periods of underperformance. As long as your stocks meet your long-term investments goals, don't worryabout outperforming the benchmark or your peers on a short-term basis. Stocks will move up and down. This is all part of an economic cycle.
Perhaps the best way to handle snetiments of optimism or pessimisms is to double-up oyur research. If your stock falls, look for reasons. If your share gains in value, also try and identify the cause. Only then can you make an informed decision on wether to sell or hold on to your investment.
Saturday, September 20, 2008
Stocks soar worldwide on U.S. action
In a dramatic end to a volatile week, shares on exchanges around the world moved sharply higher Friday as Washington moved to restore confidence in America's financial markets.
The Dow Jones industrial average closed up 368.75 points, or 3.4 percent, and the broader Standard & Poor's 500-stock index was up 4 percent. The rise Friday came on the heels of a 410-point rise in the Dow on Thursday.
The Dow shot up more than 400 points shortly after the start of trading on Friday as the markets took heart in Washington's move to buy distressed mortgage-backed securities that continue to drag down the financial sector.
"What the authorities have done is tackle the root of the cause of the lack of confidence," said Ian Gordon, an analyst at Exane BNP Paribas in London.
Although the Dow closed slightly lower for the week, it recovered 800 points in the last two days.
"Nobody knows how sustainable this is, but the immediate reaction just to the rumors about the steps yesterday showed that this has the potential of being the beginning of the end," Michael Holland, chairman of Holland & Company, said of the market rally.
In London the FTSE closed up 8.8 percent, while in Paris, the CAC 40 rose by 9.3 percent, its biggest jump in more than five years. The DAX gained 5.5 percent in Frankfurt.
Financial stocks were especially bolstered by the government's actions, which included moves to insure money market funds and curb short-selling of financial companies' shares. Citigroup's stock was up 18 percent, Bank of America gained 15 percent and JPMorgan Chase rose 12 percent. Shares of Morgan Stanley, which has been involved in talks about a possible merger, were up 22 percent.
"Markets tend to react in tandem and for the time being the momentum is positive," said Andrew Popper, chief investment officer at SG Hambros Bank in London. "The overall context is that the central banks and the U.S. government is very proactive and that is what the market wants and needs."
"It is hard to see whether it will bring back the confidence in the long term," Popper said. "We had so many false recovery beginnings already. One has to be prepared for some storms ahead. I don't think this is the turning point. We still have the restructuring of the entire industry ahead of us."
In the Treasury markets, rates and bond yields rose as traders unwound their safe-haven positions. The dollar rose against the yen, but fell slightly against the euro.
The spreads between Treasury yields and two-year interest-rate swaps narrowed on the news of the bailout plant. The rate on a two-year interest-rate swap, used by companies to hedge and investors to speculate on rate changes, narrowed 17 percent, the most since September 2003.
In Moscow, meanwhile, both of Russia's main stock exchanges, the Micex and RTS, halted trading twice Friday as the markets surged, Reuters reported. The Micex and RTS exchanges said the suspension was caused by technical limits on how fast stock prices can grow, the report said.
The Hang Seng index leaped 9.6 percent in Hong Kong, gaining 1,695.27, to close at 19,327.73 points. Another spectacular turnaround took place in Shanghai, where the composite index soared 9.46 percent to close at 2,075.09. Trading had slowed as many stocks increased by the daily limit of 10 percent soon after the stock market opened.
As the wave of buying swept across the Pacific, the Nikkei 225 index gained 3.8 percent in Tokyo. The All Ordinaries index climbed 3.9 percent in Australia, and the Kospi index increased 4.8 percent in Seoul.
Ajay Kapur, the chief global strategist at Mirae Asset, a large Korean investment bank, said that the surge in Asian stock prices was a response to discussions in Washington on the possible creation of a government-owned corporation that would buy distressed mortgages from banks and other financial institutions.
"Almost the entire rally is based on the hope that the U.S. authorities will take credible action," Kapur said.
But not everyone thought the rally could be sustained. "This is just a breather we're getting," said Jeffrey Davis, chief investment officer at Lee Munder Capital Group in Boston. "The rally will stop because we don't know what it all did to hedge funds and other institutions that maybe had to make decisions in stressed periods. The rally will subside and people will take the weekend to look at what damage it had."
"The best thing that can happen now is lots of cross-border transactions," Davis said. "If there is anxiety and legislation going on in Europe, though, that can really slow things down."
Across Europe, banking stocks leaped higher with Crédit Agricole up 16 percent, BNP Paribas gaining 10 percent, Anglo Irish up by a huge 61 percent and Bank of Ireland adding 52 percent. Deutsche Bank and Credit Suisse Group both climbed 15 percent while, in Australia, Macquarie Group, the country's biggest investment bank, gained 38 percent.
The continental European and Asia gains were mirrored in London after regulators in Britain followed their counterparts in the United States to propose new regulations Thursday on short-selling, the practice of betting on a fall in share prices.
At the close of trading, Barclays rose 29 percent, HSBC rose 15 percent and Royal Bank of Scotland Group gained 32 percent.
The increases across the globe reflected a calculation that action by the United States and other governments would stem the tide of losses that has roiled American financial institutions, forcing the authorities in the United States to rescue some, notably the big insurer American International Group, while allowing Lehman Brothers, a Wall Street stalwart, to fail.
Gordon at Exane BNP Paribas said the measures taken by the authorities had "very quickly" reversed losses. "What we've seen over the last two days was a significant technically driven collapse and that is being reversed very quickly. I think it should hold in that we now have a window through January and we probably won't have a repeat of the things we've seen lately. It's bringing the market back to normal and make things easier," he said.
But some experts took a more cautious view, questioning the limits of American financial power.
"This is a short-term reaction that is definitely positive but we are still waiting for the details of the rescue fund to come out over the weekend," said Thomas Romig, a fund manager at Cominvest Asset Management in Frankfurt.
"It's definitely a positive sign because we've seen some holes appearing in financial vehicles around the globe as a result of the Lehman bankruptcy but in the medium-term one needs to ask the question about how the United States is going to pay for all those rescues."
The official Xinhua news agency announced on Thursday evening that a government agency had begun buying shares in three of the country's biggest banks: the Industrial and Commercial Bank of China, the Bank of China and the China Construction Bank. The government also removed a tax of 0.1 percent on the purchase of shares.
"With the latest Chinese government measures to save the market, announced last night, mainland Chinese retail investors are finally convinced the government is stepping in the market to help," said Peter Lai, a director of the Hong Kong office of DBS Vickers Securities, a brokerage firm with headquarters in Singapore.
Thursday, September 18, 2008
Asia Stocks Tumble to 3-Year Low on Bank Woes; Macquarie Slumps
Sept. 18 (Bloomberg) -- Asian stocks tumbled, pushing the region's benchmark index to the lowest level in three years, as credit markets seized up and concerns grew that more financial companies will collapse.
Macquarie Group Ltd., Australia's largest investment bank, plunged by a record 23 percent as Morgan Stanley and HBOS Plc sought buyers. Newcrest Mining Ltd. rose as gold extended its biggest jump in 26 years. U.S. three-month Treasury yields traded near the lowest since World War II as investors fled stocks for safer havens.
``Confidence has been shattered,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``The market is worried about a domino effect in the financial sector, with no one sure who's going to fall next.''
The MSCI Asia Pacific Index dropped 1.7 percent to 108.74 as of 7:39 p.m. in Tokyo, the lowest since Sept. 16, 2005. The index trimmed an earlier 4.3 percent drop after the Federal Reserve, the European Central Bank and the Bank of Japan moved to pump dollars into the financial system. Hong Kong's Hang Seng Index rallied from a 7.7 percent loss to close little changed.
Most benchmark indexes in the region fell. Japan's Nikkei 225 Stock Average lost 2.2 percent to 11,489.30, led by Sony Corp. after Goldman Sachs Group Inc. cut its recommendation.. Taiwan's Taiex index lost 2.7 percent, prompting the government to announce it may buy shares to help prop up the market.
Bank Takeovers
Today's central bank action, which was announced after Japanese and South Korean markets closed, is aimed at heading off the credit crisis that has caused Lehman Brothers Holdings Inc.'s bankruptcy and the takeover of American International Group Inc. by the U.S. government.
Futures on the Standard & Poor's 500 Index rose 1.4 percent in after-hours trading. U.S. stocks slumped to the lowest in three years yesterday, with the Standard & Poor's 500 Index sliding 4.7 percent.
More than $19 trillion has been wiped off global stock market value since a high on Oct. 31 as the worst U.S. housing recession since the Great Depression and a resulting global credit crisis slowed the world economy.
Morgan Stanley, the investment house that fell by a record yesterday, started weighing a merger with Wachovia Corp., according to people familiar with the matter. Lloyds TSB Group Plc agreed to buy HBOS, the No. 1 mortgage lender in Britain which has been faced with a shortage of funds.
Exuberance Over
Macquarie slid 23 percent to A$26.05, taking its loss from a high in May 2007 to 73 percent. Babcock & Brown Ltd., Australia's second-biggest investment bank, lost 17 percent to 76 cents. Babcock has plunged 97 percent this year, making it the third- largest loser in 2008 on the MSCI World Index behind Fannie Mae and Freddie Mac.
In a sign that banks have lost confidence in the solvency of their competitors, the London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent yesterday, the biggest advance since Sept. 29, 1999. Corporate bond default risk indexes rose to records in the Asia-Pacific region today.
The perceived risk of U.S. government debt, long held to be absent of any default risk, also climbed to a record yesterday as the government's involvement in bailing out financial markets weighed on its own balance sheet.
Unprecedented
Sumitomo Mitsui Financial Group Inc., Japan's No. 3 listed bank, slumped 6.6 percent to 582,000 yen. HSBC Holdings Plc, which CNBC reported as being a possible bidder for Morgan Stanley, lost 0.2 percent to HK$114.90. The stock trimmed an earlier 7.6 percent slump.
``People want to avoid any type of risk,'' said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., with $54.6 billion in assets. ``I've never seen this kind of crisis before,'' said Okumoto, who has been in the financial-services industry for 23 years.
U.S. Treasury three-month bill rates were 0.071 percent as of 11:58 a.m. in Tokyo. They dropped 65 basis points yesterday to close at 0.04 percent, a level not seen since 1940. Two-year yields were 1.65 percent, near the lowest since April.
Newcrest, Australia's largest gold producer climbed 15 percent to A$24.50, the biggest gain since September 1999, after the price of gold surged the most in 26 years and silver rose the most since 1979 yesterday. Lihir Gold Ltd. jumped 16 percent to A$2.48. Zijin Mining Group Co., China's largest gold miner by market value, rallied 21 percent to HK$3.90.
Sony, the maker of the PlayStation 3 game console, lost 8.7 percent to 3,270 yen, the steepest fall since April 28, 2003. Goldman's Yuji Fujimori cut his rating on the company, citing rising risks for the company's mobile phone, television and digital camera divisions.
Wednesday, September 17, 2008
2nd psychological trap
When investing, this tendency often results in investors "anchoring" to their own estimates of a company's earnings or the "fair value" price of a share.
In a bull market, investors can also "anchor" each new high achieved by a security ti its previous highs abd the new higher recent price is taken as evidence of value.
The share's distant price history appears irrelevant to any desicion-making. The effect of anchoring on an investment desicion is similar to the fear and regret (previous post). The recent price of the share that is used as a psychologial anchor slows down rational valuation estimates. Losing positions will be held too long and winning stocks will be sold too quickly.
WHAT TO DO?
Investors are always upset and regret not executing their transactions at the highest or lowest prices. But the highs and lows are not accurate benchmarks as the share may only be at that price for two hours in a single day. It is better to compare your sale or purchase price with the average rpice of the security across a two-week duration. Also, remember that market participants are not the same as before. We have more hedge funds woth billions of dollars invested int the market and they can be very aggresive. This is when prices of securities can be pushed up or down very quickly.
Anchoring can lead to a strategy of buying stocks that have fallen considerably in hopes of buying it "cheap". Investors anchored to a recent (high) price value take this as an indication of value, and the new (low) price appears chaep. To avoid this pitfall, check your intentions in buying a security that is on its way down. If you had evaluated the security and determined that you would like to accumulate a position in this company, then it can be beneficial to take advantage of any price weakness in the share price cause by the overall market sentiment. On the other hand, be alert if a sharp price decline is the primary motivator behind your desicion to buy and a recent higher price is a main factor in the stock's attraction.
Saturday, September 13, 2008
Malaysia's Anwar leads criticism of government crackdown
Malaysian opposition leader Anwar Ibrahim on Saturday led demands for the government to end a crackdown that saw the arrests of an opposition politician, a blogger and a journalist.
The arrests on Friday under tough internal security laws raised fears that the ruling Barisan Nasional coalition will launch a widespread campaign against dissent as it faces an opposition bid to seize power within days.
Rights groups have condemned the use of the Internal Security Act (ISA), which allows for indefinite detention without trial, and the United States summoned Malaysia's top envoy in Washington in protest.
Anwar, who is trying to sign up enough defecting lawmakers to topple the government, said it was running scared after March general elections that handed his opposition alliance unprecedented gains.
"Instead of pursuing a reform agenda it has chosen to burn the country to save itself and to maintain its odious grip on power," he said in a statement.
The three arrested have been accused of inciting ethnic tensions in the multicultural country, but Anwar accused the government of stirring up a phony racial crisis in order to deflect attention from its own problems.
"We ask the government how far it is willing to go to usurp justice and destroy the institutions of good governance in its attempt to drive the Malaysian people against each other," he said.
Anwar insisted he has the support to seize power, but indicated that the timing of his parliamentary coup, slated for next Tuesday, could be affected by the ruckus.
"The priority is political stability. It's not an issue of deferring, we have the numbers to move," he told a press conference, adding he was "mindful" that he too could be targeted with arrest.
Home Minister Syed Hamid Albar denied the detention sweep was aimed at suppressing dissent and said the police had moved to secure public order as tensions rose and people started to hoard food.
"This country is multiracial and their relations can be fragile," he told a press conference. "If the police feel public order is under threat or possible conflict could occur in the country, they will take preventive action."
Syed Hamid said that the journalist, 32-year-old Tan Hoon Cheng from the Chinese-language Sin Chew Daily News in northern Penang state, was released Saturday afternoon.
"She is not a security threat," he said, adding that one of the reasons she was taken into custody was because "we received reports her life was threatened."
Tan was thrust into the national spotlight after reporting on an outburst from a ruling party member who called ethnic Chinese "squatters" and was disciplined by the ruling party which represents Muslim Malays.
The arrest drew rare condemnation from the Malaysian Chinese Association, the second-largest political party in the Barisan Nasional, which said the ISA may need to be abolished.
"MCA is dismayed, disappointed and shocked with the ISA detention of Tan Hoon Cheng," said Ng Yen Yen, head of the MCA's women's wing.
Syed Hamid said investigations would continue into the other two detainees and "if there is no reason to hold them they will be released within 60 days."
Opposition lawmaker Teresa Kok, 43, from the Chinese-based Democratic Action Party, a member of Anwar's opposition alliance, was arrested over allegations that she complained about the noise of morning prayers at a mosque.
She has said the accusation is "preposterous".
The third detainee is Malaysia's leading blogger, 58-year-old Raja Petra Kamaruddin, who has repeatedly targeted government figures on his website "Malaysia Today".
He has already been charged with sedition and defamation after linking Deputy Prime Minister Najib Razak and his wife to the sensational murder of a Mongolian woman.
Three Malaysian newspapers -- Tan's Sin Chew Daily News, The Sun, a free English-language daily, and Suara Keadilan, which is published by the opposition -- were also Friday threatened with suspension.
"This, together with the arrest of Raja Petra under the ISA, may be viewed as a chilling message that our fundamental freedoms are not secure," said Ambiga Sreenevasan of Malaysia's Bar Council.
1 out of 5 phschological traps
Today i will be talking about the 5 psychological traps and how to aviod them with rational decision-making.
I will only be talking 1of the traps each day, so lets get started with the 1 trap which is Fears of Regret and Loss Aversion.
According to behaviourists, most investors tend to postpone selling losing stocks in order not to finalise errors that have been made. Not to mention it always happens to me. This is due to the fear of regret and loss aversion. The fear of regret can also occur when investors miss out on a stock that appriciates in value. To avoid the possibility of feeling this regret, these investors tend to acquire only stocks that are popular. Behavioural finance experts also find that investors are much less embarrassed about losing money on favoured stocks than from losing money on an unknwon or unpopular share.
The loss-aversion theory states that people experience different degress of emotion when gains and losses are made. A loss alsways appear larger than a gain of an equivalent size and this is why investors may choose to hold on to their losing stocks and sell their winners. This is also the reason investors often take on more risks to avoid making loss, prefering to hold on onto their losing investments in the hope that the price will recover. Gamblers on a losing streak exhibit this loss-aversion tendency, doubling up bets in a bid to recoup what they had already lost.
WHAT TO DO??
- As a lot of money has been lost by holding on to a stock that is not appreciating in value, investing professionals advise investors to decide ahead of time which investment should be sold if it drops to a certain level during a market correction. A sudden drop in the stock market is not the time to be sorting out your portfolio. You want to treat any pullback as an opportunity to increase holdings of your favorite stock.
- To prevent impulsive selling of securities that have made losses in order to avoid making a begger loss, investors should check if the fundamentals of the asset have changed. Advice to exit an investment, asset class or market, can be based on a market view or asset allocation reason. For example, switching the gains made by bonds to stocks tha t have not performed is to rebalanceyour portfolio. However, if bond fund have lost value due to the rising default risk, existing bonds and increasing equity exposure is due to a change in the fundamentals of the bond asset class.
- Investors should also practice setting stop-loss orders before their investments. Think about you much you can afford to lose. Be disciplined if the stocks price does depreciate and sell at the point that you have planned.
Friday, June 13, 2008
For your knowledge.......amazing homework....
Put these points together.
1. If you know that an announcement would be made on Thursday that TNB rates will be revised upwards you would surely buy Tenaga shares on Tuesday.
2. If you own an investment bank or have sufficient credit line with an Investment Bank you would have bought as much as you could knowing that the price will surely go up.
3. Since you have to pay within 3 days (T+3 rule), you would have planned to sell on Friday. Â So you could have bought 1Million Tenaga shares on Tuesday and sold it today for a cool MYR1Million profit without paying any money (perhaps some borrowing costs for 2-3 days).
4. Of course none of us are privy to the announcement of the fuel hike, but the family of the PM are privy to it.
5. Of course none of us have a large credit line with an Investment Bank but the family of the PM owns an investment bank.
6. Why the surprise announcement on 05 June when the PM has said that it would be in August ? Well you can only make a big and quick profit if you control the timings and surprise others.
7. For those in the know (the powers that be and their cronies) this has been one hugely profitable week buying and shorting the related shares. The poor rakyat had to queue just to fill up their tanks and perhaps save between MYR20-MYR100.
Now read below..... Need those in know of the basic economics of crude, fuel etc to comment.
WHAT IS NEVER MENTIONED IN Mainstream Media like NST/TheStar/ Utusan/BH are these facts....
Malaysian PerCapita Income USD 5000 VS
Singaporean PerCapita Income USD 25000
Further The Star made a comparison of prices in Thailand , Singapore and Indonesia .For Thailand it is quoted at RM3.90/liter, however are they aware that in Thailand new cars are cheaper than Malaysia by RM10,000? They pay only one life time for their driving license? No renewal fee after that? Also that goes for road tax as well? And do TheStar also aware that you can drive all the way from Hadtyai to Bangkok on a six lane highway without paying any Tolls ??!!
Whereas here in Malaysia you have to pay yearly renewal for road tax , driving license and TOLLS, TOLLS, TOLLS!!!
For Singapore how can you quote RM 5.20 ? Please quote in Singapore Dollars because they are earning in Sing Dollars. You might as well say Europeans are paying RM10/liter. RM5.20/liter = Sing $ 2.20/liter, still cheaper than Malaysia in view of fact that Singapore is not a crude oil exporter. Are you saying that you fill up petrol in Singapore by paying Ringgit?
In economy, dollar to dollar must be compared as apple to apple. Not comparing like durian in M'sia is much cheaper than durian in Japan !! Of course-lah, Japan is not durian producer!!! Comparing Malaysian durian with Thailand durian make more sense!!
For Indonesia we might say is cheaper there at RM2.07/liter but compare that to their level of income!
Now, let us compare the price with OIL PRODUCING countries:
UAE RM1.19/litre
Eygpt RM1.03/litre
Bahrain RM0.87/litre
Qatar RM0.68/litre
Kuwait RM0.67/litre
Saudi Arabia RM0.38/litre
IranRM0.35/litre
Nigeria RM0.32/litre
Turkmenistan RM0.25/litre
Venezuela RM0.16/litre
MALAYSIA RM2.70/litre
RM 2.70!!! Individual perspective:
As of last month a Toyota Vios would 'cause a damage' of about RM 89,000.In the international market, a Toyota Vios is about USD 19,000USD 19,000 = RM 62,700 (using the indicative rates of USD 1 = RM 3.30)That makes Malaysian Vios owners pay an extra RM 26,300.
This RM 26,300 should be cost of operations, profit and tax because the transportation costs have been factored in to the USD 19,000.
RM 26,300/ RM625 petrol rebate per year translates to a Vios being used for 42.08 years.
I do understand that the RM 625 is a rebate given by the government, but it also means that one has to use the Vios for 42.08 years just to make back the amount paid in taxes for the usage of a foreign car. Would anyone use any kind of car for that long?
Now with these numbers in front of us, does the subsidy sound like a subsidy or does it sound like a penalty? This just seems to be a heavy increment in our daily cost of living as we are not only charged with high car taxes but also with a drastic increase in fuel price.
With all the numbers listed out, I urge all Malaysians to join me in analyzing the situation further.
Car taxation is government profit, fuel sales is Petronas' (GLC) profit which also translates into government profit. The government may ridicule us Malaysians by saying look at the world market and fuel price world wide. Please, we are Malaysians, we fought of the British, had a
international port in the early centuries (Malacca), home to a racially mixed nation and WE ARE NOT STUPID!!!
We know the international rates are above the USD 130/barrel. We understand the fact that the fuel prices are increasing worldwide and we also know that major scientist are still contradicting on why this phenomenon is happening. Some blame Bush and his plunders around the world and some blame climate change and there are others which say petroleum 'wells' are getting scarce.
Again we go back to numbers to be more straight fwd
1 barrel = 159 liters x RM2.70/liter = RM 429 or USD 134
On 1 hand, we are paying the full cost of 1 barrel of crude oil with RM2.70 per liter but on the other hand the crude oil only produces 46% of fuel.
Msia sells crude oil per barrel at USD130 buys back Fuel per barrel at USD134. And not forgetting, every barrel of fuel is produced with 2 barrels of crude oil.
1 barrel crude oil = produce 46% fuel (or half of crude oil), therefore 2 barrel crude oil = approximately 1 barrel fuel. In other words, each time we sell 2 barrels of crude oil, equivalently we will buy back 1 barrel of fuel.
Financially, Malaysia sell 2 barrel crude oil @ USD 130/barrel = USD 260 = RM 858 then, Malaysia will buy back fuel @ USD 134/barrel = RM 442/barrel. Thus, Malaysia earn net extra USD 126 = RM 416 for each 2 barrel of crude sold/exported vs imported 1 barrel of fuel !!!(USD 260-134 = USD 126 = RM416)
So where this extra USD 126/barrel income is channeled to by Malaysian Govt???????? ?
Another analysis:
1 barrel crude oil = 159 liters. 46-47% of a barrel of crude oil = fuel that we use in our vehicles.
46% of 159 = 73.14 liters. @ RM 2.70/liter x 73.14 liter = RM197.48 of fuel per barrel of crude oil. This is only 46% of the barrel, mind you. Using RM 3.30 = USD 1, we get that a barrel of crude oil produces USD 59.84 worth of petrol fuel (46% of 1barrel). USD 59.84 of USD 130/barrel turns out to be 46% of a barrel as well.
Another 54% = bitumen, kerosene, and natural gases and so many more. And this makes a balance of USD 70.16 that has not been accounted for.
So this is where I got curious. Where is the subsidy if we are paying 46% of the price of a barrel of crude oil when the production of petrol/barrel of crude oil is still only 46%?
In actual fact, we still pay for this as they are charged in the forms of fuel surcharge by airlines and road taxes for the building of road (because they use the tar/bitumen) and many more excuse charging us but let us just leave all that out of our calculations.
As far as I know, only the politicians who live in Putrajaya and come for their Parliament meetings in Kuala Lumpur (approximately 60+ km) are the ones to gain as they claim their fuel and toll charges from the money of the RAKYAT's TAX.
It is so disappointing to see this happen time and time again to the Malaysian public, where they are deceived by the propaganda held by the politicians and the controls they have over the press.
Which stupid idiot economist equates rebates for rich or poor with the cc of the vehicles? An average office clerk may own a second hand 1300cc proton Iswara costing $7,000 (rebate = $625) while the Datuk's children can own a fleet of 10 new cars of BMW, Audi and Volvo all less than 2000cc costing $2 millions and get a total rebate of $625 x 10 = $6,250! Wow what kind of economists we are keeping in Malaysia ...wonder which phD certificate that they bought from...
Misleading concept of Subsidy:
The word "subsidy" has been brandished by the BN government as if it has so generously helped the rakyat and in doing so incurred losses. This simple example will help to explain the fallacy:
Example:
Ahmad is a fisherman. He sells a fish to you at $10 which is below the market value of $15. Let's assume that he caught the fish from the abundance of the sea at little or no cost. Ahmad claims that since the market value of the fish is $15 and he sold you the fish for $10, he had subsidised you $5 and therefore made a loss of $5.
Question : Did Ahmad actually make a profit of $10 or loss of $5 which he claimed is the subsidy?
Answer:
Ahmad makes a profit of $10 which is the difference of the selling price ($10) minus the cost price ($0 since the fish was caught from the abundance of the sea). There is no subsidy as claimed by Ahmad.
The BN government claims that it is a subsidy because the oil is kept and treated as somebody else's property (you know who). By right, the oil belongs to all citizens of the country and the government is a trustee for the citizens. So as in the above simple example, the BN government cannot claim that it has subsidised the citizen!
Wednesday, June 4, 2008
Fuel Price Hike
It would be super interesting to see how the government is going to tackle the inflation this time. If a plate of char-kuey-teow could skyrocketed from RM3.00 to RM4.50 during the last 30 sen a liter hike, I suppose the same plate of noodle will costs RM7.50 soon – that is if you’re lucky. Why the government has this funny hobby of watching people rushing to the petrol stations to fill up their tanks, late into the night? Simply puzzling! And to those voters who voted the BN (National Front) – Congratulations!!!Anwar Ibrahim, the head of the largest opposition party and a former finance minister, said he feared that the billions of dollars the government will save by cutting subsidies would be wasted.
In the past, he said, Malaysia's oil revenues were "disbursed for megaprojects and projects that benefit the rich and the cronies."
"People can be persuaded to accept the gradual reduction of subsidies," Anwar said by telephone from his home in Kuala Lumpur. "But not when the funds are not disbursed in a transparent manner."
Tuesday, April 1, 2008
CPO is violating its uptrend line
Saturday, March 29, 2008
KLCI : Challenging Massive Gap
Immediate resistance for the market remains at the 1243-1296 pts area. To the downside,continue to look for an immediate support at the 1200 pts level followed by the 1157 pts level.
Monday, March 17, 2008
JPMorgan to Buy Bear for $2 a Share
As the assimilation proceeds, the financial industry wants to know exactly how badly Bear Stearns bet on mortgage-backed investments. Unwinding the nation's fifth-biggest investment houses should provide some insight into what other financial institutions might have on their books.
JPMorgan's acquisition of Bear Stearns for the shockingly low price of $2 per share, or $236.2 million, occurred Sunday night, in a deal that was fast-tracked by the federal government to avoid a bankruptcy. A complete collapse of Bear Stearns might have completely crushed the already-dwindling confidence in the global financial system, which has frozen up after last year's collapse of the subprime mortgage market.
Bear Stearns was the most exposed to risky bets on the loans; it is now the first major bank to be undone by that market's collapse.
The Federal Reserve and the U.S. government swiftly approved the all-stock buyout to complete the deal before world markets opened. The Fed also essentially made the takeover risk-free by saying it would guarantee up to $30 billion of the troubled mortgage and other assets that got the nation's fifth-largest investment bank into trouble.
"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."
JPMorgan said it will guarantee all business -- such as trading and investment banking -- unti Bear Stearns' shareholders approve the deal, expected to be completed during the second quarter. The acquisition includes Bear Stearns' midtown Manhattan headquarters.
JPMorgan Chief Financial Officer Michael Cavanagh did not say what would happen to Bear Stearns' 14,000 employees worldwide, or whether the 85-year-old Bear Stearns name would live on after surviving the Great Depression and a slew of recessions. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns' prime brokerage business, which completes trades for big investors such as hedge funds.
At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank's official meeting is Tuesday. Before the emergency move to lower the discount rate -- the rate at which banks lend each other money -- the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.
Some analysts expected it to be a brutal day for global stocks. Shortly after the news broke, Japan's benchmark Nikkei stock index plunged more than 3 percent in morning trading.
JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago.
"The past week has been an incredibly difficult time for Bear Stearns," said Bear Stearns Chie Executive Alan Schwartz in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."
Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of th world's largest investments banks -- it was a prop for the U.S. economy and the
global financial system. An outright failure would cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.
After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.
Tuesday, March 11, 2008
ASEAMBANKERS : Daily Technical Outlook
While bottom fishing activities narrowed early losses, we reckon that the downdraft on the KLCI has yet to bottom out, and could ignite further profit taking. The MACD signal line has plunged further into negative territory, suggesting that any technical rebound would be short-lived. At this juncture, we believe a free fall below the 1,150 level could bring the KLCI towards the next suppor at 1,100. Therefore, investors should stay on the sidelines and avoid playing catch up.
Friday, March 7, 2008
12th General Election
By Stocktube
Huge crowds numbering to a staggering 50,000 were seen braving rain and traffic for the sake of listening to oppositions’ speeches in Penang, Malaysia. But the billion-dollar question is will these people who enjoyed the spectacular speeches are brave enough to put the cross (for opposition) onto the voting paper tomorrow? Opposition party DAP should still remember how despite the same huge crowds back in 1999 the Penangites sent the party packing. It was disastrous and DAP was speechless after the Penang Chinese chickened out.
It was quite easy to check-mate DAP really. Everything boils down to the Chinese voters who are very scares of the slightest threat. Forget about common sense and logical thinking. The Penang Chinese could easily be intimidated with the simplest yet silliest threat of all. Just throw in threat such as the Chinese representatives in the government will be reduced to almost nil. Tell them that the next Chief Minister will not be Chinese if they vote oppositions. Better still throw in the threat that all the multinational companies will pull out from Penang if opposition wins, hence potential loss of jobs. Also threat them with no more education allocation for Chinese schools if Penangites vote for oppositions.Despite being complex, Penang Chinese are as kiasu and kiasi as Singaporean and are definitely not risk-takers despite being fooled by the National Front again and again without fail. Oppositions are claiming this is the best time to deny the arrogant National Front their two-third majority and could even form the new government but let’s get real. It’s easier to strike RM20 million lottery than to capture 75 parliamentary seats necessary to deny Abdullah Badawi’s team. The stars are not aligned in favor of oppositions.
While the oppositions could rely on the already irritated Indian to swing most of the votes, the same cannot be said about Chinese votes especially Penang. Chinese votes will be split for the opposition as well as the National Front leaving the Malay votes quietly send the National Front to victorious. That’s the most likely scenario. It holds water the argument from the author of Malaysia-Today author, Raja Petra Kamarudin, that while the Indian somehow awaken from their 50-years sleep the Chinese and Malay are still in their stupid mode. It’s true that while Indian has already got their Hindraf, the Chinese are still thinking of bank-draft while Malay is enjoying their over-draft.
On the other hand let’s see what if somehow the opposition miraculously able to deny the National Front their two-third majority by capturing 75 parliamentary seats. You don’t expect the BN to sleep through it (I know, I know, the Prime Minister has the tendency to sleep on the job), do you? How hard could it be to spend a couple of millions to buy over some oppositions to make up the two-third majority, not that the oppositions had not crossed over before. MalaysiaKini managed to interview former dictator Mahathir who shared his view on why we need opposition (now he’s talking), Samy Vellu should be kicked out (can you believe this old fox?) and the feel good factor is simply not there.And please don’t forget the bonus or reserve votes specifically tailored made for National Front to the tune of over 200,000 army votes. The bias Election Commission can deploy this huge votes anywhere required to
Enjoy the campaign (ceramah) video by Raja Petra Kamarudin in SS2 below. Can you imagine what could happen if there’s no YouTube? Oppositions will be slaughtered by the government-controlled print and electronic media. Perhaps Abdullah Badawi should consider buy over YouTube instead of the stupid “Corridors” projects.
Thursday, March 6, 2008
Stick to fundamentals
We continue to like the plantation and construction sectors, plus the GLC restructuring theme. In our view, investors should stick to the fundamentals, as politically charged “election plays” could continue to see some selling pressure after polling day. Note that in 3 of the last 4 general elections, the KL Composite Index has underperformed the MSCI NJA Index after the polling dates.
- Bumiputra-Commerce Holdings Bhd (BUCM.KL, RM10.40, OUTPERFORM, TP RM14.15)
- IOI Corporation (IOIB.KL, RM7.85, OUTPERFORM, TP RM9.00)
- Telekom Malaysia (TLMM.KL, RM11.20, OUTPERFORM, TP RM13.30)
- Tenaga Nasional (TENA.KL, RM8.95, OUTPERFORM, TP RM13.50)
- Resorts World (RWBW.KL, RM3.72, OUTPERFORM, TP RM5.85)
- SP Setia (SETI.KL, RM4.90, OUTPERFORM, TP RM6.90)
- IJM Corporation Berhad (IJMS.KL, RM7.10, OUTPERFORM, TP RM10.30)
- Alliance Financial Group BHD (ALFG.KL, RM2.81, OUTPERFORM, TP RM4.11)
Wall Street Drops amid Credit Concerns
Concerns about credit grew after Thornburg Mortgage Inc. and a Carlyle Group bond fund revealed troubles with investments backed by mortgages. The entities failed to make margin calls, which are payments to guarantee much larger debt or investments.
And the genesis of the credit concerns that erupted last year -- souring mortgage loans -- dealt investors another blow after the Mortgage Bankers Association reported that home foreclosures rose to record levels in the fourth quarter. Worries about defaults have made lenders hesitant to extend credit, preventing the credit markets from functioning normally.
Wall Street's sense that credit troubles are seeping further into areas of the financial sector once deemed safe weighed on financial stocks and the broader market.
Gold -- regarded as a defensive investment -- slipped Thursday, but remains only about $20 away from the psychological benchmark of $1,000 an ounce.
Bad news about the housing market further dented sentiment. The Mortgage Bankers Association said the proportion of all mortgages nationwide that fell into foreclosure jumped to a record 0.83 percent in the final quarter of 2007. The group also warned that foreclosures are likely to continue to rise as the number of homeowners behind on their mortgage payments has jumped to its highest level since 1985.
The Federal Reserve added more unwelcome housing news in reporting that Americans' debt on their homes exceeds their equity for the first time since the central bank began tracking the figures in 1945. Homeowners' percentage of equity fell to 47.9 percent in the fourth quarter.
Wall Street is worried that Americans distressed about their home values or struggling with mortgage payments will pare their spending. Investors appeared to take an upbeat report from Wal-Mart Stores Inc. as a mixed signal. While Wal-Mart reported stronger-than-expected sales for February, some investors are worried that success at the world's largest retailer reflects increased bargain-hunting by consumers.
Wall Street Falls on Continuing Worries About Credit Markets
Oil Prices Spike to Record $105.10
boost production.
Monday, March 3, 2008
Buffett Says US Economy Essentially in a Recession
Buffett said Monday in an interview with CNBC that the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases.
The chairman and CEO of Omaha-based Berkshire Hathaway says millions of people have also lost equity in their homes because home prices have dropped.
The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.
But Buffett says the economy is clearly in a recession "by any commonsense definition."
Tuesday, January 22, 2008
What if the Fed Cut Doesn't Help?
The Fed, pushed by shattered worldwide investor psychology, is pulling out all stops to shore up confidence. Treasury chief Hank Paulson went so far as to call this latest cut a confidence builder.
Trouble, as has been pointed out here previously, is the “what if they give a party and nobody comes” syndrome. In this case, what if they do a big-bath cut and it doesn’t help?
They got the answer pretty fast: The consumer is doing horribly. The value of their homes, especially in the most inflated parts of this country, has deflated. The availability of credit via their homes or other sources has deflated. The value of their 401ks and IRAs has deflated.
Here’s the problem: Even if rates once again fall to boom-era levels, credit standards have tightened to the point that even a little bit of sugar won’t help the medicine go down. And don’t go thinking everybody will refinance as mortgage rates slide. Unfortunately, their homes may not appraise out. Batten down the hatches: Ain’t over yet for the bad news — or the Fed.
Monday, January 21, 2008
KLCI Weekly Outlook
Immediate outlook:
The Kuala Lumpur Composite Index (KLCI) plunged last week following dismal performances of regional bourses as well as Wall Street. The index lost 77pts or 5% week-on-week. We did mention earlier that the index was overbought last Monday and that a pullback was likely. But after Wednesday’s sharp selloff, its daily chart showed a reversal pattern called island reversal. It looks like the KLCI may have peaked at 1,524.69 in the immediate term.
The immediate outlook
is fragile as the index is sitting just above the trend line support at
1,435. A break below the 1,435 support line is likely to induce sellers
to sell further. The selling pressure could send the index back down to test its 100-SMA at 1,375. While the index could hold this level and rebound from here, we rate the odds low due to the dead cross on its MACD and falling RSI.
Medium-term outlook (2-6 months):
The
long-term trend is still up but in the short term, the outlook has
taken a turn for the worse with the island reversal. The odds of the
index hitting our target level of 1,601-1,630 in 1H08 would be greatly
reduced should the index fall below its 100-day SMA.
The
possible bearish divergence on both MACD and RSI also adds to the
negative feel for the index. A confirmed dead cross on the MACD would
also suggest that this uptrend is over. Hence, investors need to keep a
close eye on the 1,435 and 1,375 support levels as well as the weekly
MACD.
Fibonacci retracement levels for the index are 1,377 (38.2%), 1,333 (50%) and 1,287
(61.8%).
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Friday, January 18, 2008
Market Technical Reading : Losing 1,400 Could See Stronger Follow-Through Selling …
- It needs a strong rebound above 1,492 and 1,500 to return the market confidence after recent shocks.
- Given another nasty drop in overnight US market, we see a higher chance on a steeper fall today.
- If the KLCI losses the 1,400 psychological level and the 1,395 support, follow-through selling could be stronger than before.
Thursday, January 17, 2008
Another Positive Down The Drain
August caused a dramatic revaluation in the HK market. However, owing to the corrective phase in Shanghai and Shenzhen, apparently the long-awaited through-train scheme will not start for at least two years.
The program for individual mainland investors to put money directly into Hong Kong stocks has been held up because the mainland authorities want more time to make sure everything is running smoothly in the new system before opening it up to the public. Also, the authorities feel there is no need to rush the launch of the through- train program since mainland investors can already use the QDII program to invest their money overseas. BS, the reason why the program was delayed was due to the significant pullback in China stock markets. If the Shanghai and Shenzhen markets had continued to surged, believe you me, the "through-train" program would have been accelerated to allow liquidity to pour out of the system.
When news of the program first surfaced in August, the market became flush with excitement, thinking a torrent of money might start flowing into Hong Kong almost immediately. Now, we will see the same air being sucked out of the system in HK. Downgrade on HK immediately. The sentiment has turned.
Rogers Predicts U.S. Recession, Worst `in a While'
By Saijel Kishan and Mark Barton
Jan. 7 (Bloomberg) -- The U.S. economy is heading for a recession that may be the worst ``in a while'' and investors should sell the dollar as global currencies weaken, investor Jim Rogers said. ``It's going to be one of the worst recessions we've had in a while because we had so many excesses going into it,'' Rogers, chairman of New York-based Rogers Holdings, said in a Bloomberg Television interview today from Singapore. ``It's going to be bad for all of us as currencies come under more and more stress and we have more inflation in the world.''
The dollar dropped for a second straight year in 2007, falling 8.3 percent on a trade-weighted basis as the collapse of the U.S. subprime-mortgage market prompted the Federal Reserve to cut interest rates three times. Rising energy and food prices have pushed up inflation in Europe.
``I hope by the end of this year all of my assets will be out of the U.S. dollar,'' Rogers said. ``The dollar is a currency that's terribly flawed and it's going to be under duress for many years to come.''
He reiterated today that he's also buying the Chinese yuan and the Swiss franc as other currencies weaken.
Bernanke Hints at Another Rate Cut
Fed Chairman Ben Bernanke said Thursday evening economic data to be released over coming week may determine whether or not the Fed cuts interest rates at its upcoming FOMC policy meeting on Dec. 11. Asking how the economic picture has changed since the committee's last meeting, Bernanke noted the labor market has remained solid, while home construction and sales have continued to be weak. Data received over the past month on consumer spending, "have been on the soft side. The Committee will have considerable additional information on consumer purchases and sentiment to digest before its next meeting," adding, "the combination of higher gas prices, the weak housing market, tighter credit conditions, and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead."
Current developments, Bernanke said, have "the potential to impose additional restraint on activity in housing markets and in other credit-sensitive sectors." Economic forecasting, Bernanke said, has become more difficult in the face of current market stresses. "Needless to say, the Federal Reserve is following the evolution of financial conditions carefully, with particular attention to the question of how strains in financial markets might affect the broader economy,"
Rate Cut a 'Close Call'; GDP Growth Shrouded in Uncertainty - Fed Minutes
Minutes from last month's FOMC meeting released Tuesday indicate the Fed's decision to cut interest rates by 0.25% to 4.5% was a "close call." Ultimately, though, "most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this
meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity." The minutes did note that the loosening "could readily be reversed" should circumstances warrant.
The Fed sounded an encouraging note on consumer spending: "Available data suggested that consumer spending had been well maintained over the past several months and that spillovers from the strains in the housing market had apparently been quite limited to date." Some members noted, however, that consumer confidence indexes have recently declined, and "anecdotal reports" suggested a softening in retail sales in some areas.
Newly enhanced Fed forecasts, which now go out to 2010, indicated the Fed was more sure-footed in its inflation outlook than in its view of economic growth: Fed officials said growth would slow to 1.8%-2.5% in 2008, down from about 2.45% in 2007. The Fed sees 2.6% growth in 2009-10. Core inflation as measured by the PCE index is seen as remaining staedy at 1.7-1.9% over the period. However, the minutes noted, "most participants judged that the uncertainty attending their October projections for real (gross domestic product) growth was above typical levels seen in the past. In contrast, the uncertainty attached to participants' inflation projections was generally viewed as being broadly in line with past experience."
Equity markets continued down following the release; Treasury markets were higher.
Why The Fed Should Not Cut Interest Rates
According to Rogers, it makes absolutely no sense for the Fed to lower the interest rate. With a rate cut, the dollar would tank even more and oil could easily top $100/bbl and inflation could potentially get out of control. Rogers also has argued that the United States may very well already be in recession. He said the housing and auto industries are already in conditions worse then a typical recession. Even big Dow Components such as Caterpillar (CAT), have said business hasn’t been this bad in fifty years.
Rogers also claims that while a lower dollar does mean higher exports and probably a cut in the trade deficit short term, it would hurt us in the mid/long term. Historically no country has ever been successful mid/long term devaluing their currency. There is nothing wrong with keeping interest rates steady, even if it means driving the United States into recession (assuming we aren’t already in one). It’s a normal part of the business cycle.
If you keep trying to bandage short term fixes, there will be many more negative long term effects. He also referred to Fort Knox, saying there gold would only be able to prop up the currency for maybe two days and our Treasury Reserve of 60 billion dollars would last about five seconds.
Who knows what will happen in the long term, but if we keep going down this road we will undoubtedly have high oil prices, a terrible currency, a potential run on the dollar, and even
hyperinflation. By not lowering interest rates and giving into short term greed, we help reduce the risk of high interest rates further down
the road.
Cutting Rates Further Will Only Lead to Disaster
Who wants to be in the shoes of the Federal Open Market Committee [FOMC] on Wednesday? Escalating market pressure for a rate cut collide with a horrible inflation outlook as exploding oil prices start pushing commodities higher. Will there be enough hawks defending at least stable rates, or will the doves led by Nanny Benny cave in to panicking markets and do the worst of all by cutting rates further?
Chances are the FOMC will do nothing in a situation that would require a rate hike if fighting inflation is still a predominant concern which can be doubted in the face of the housing and mortgage bust.
Alan Greenspan once called gold a very reliable inflation indicator. A study that proves gold's high correlation with inflation can be found here. As the oldest currency in the world has jumped to $795 in Asian trading on Monday, it appears the world is headed for markedly higher prices soon. Oil's ascent above $93 is poised to add to the spin of the inflation spiral that can be seen so clearly in basically all commodities. Been to your baker lately?
Americans are destined to get the worst of it all, thanks to a Federal Reserve dollar plunging to record lows against the Euro on a daily basis.
Rollercoasting financial markets still indicate that the credit crunch - what happened to the "savings glut" of 2005? - is only worsening as banks hold back their funds in fear that their interbank counterparties go bust overnight. All attempts to prop up markets with SIVs should be seen as what they are: Vain efforts to pump up unsupportable prices. Where do all these billions come from? Certainly not out of the vaults of rich investors but created with Ben Bernanke's electronic printing press. Banks trying to play in the darkroom to hide the disaster run the risk of getting rimmed.
Cutting rates can be a very deceiving medicine that may work well in the short term. It will lessen the burden of debtors whose adjustable mortgages are set for a hike this fall. But it will not change the fundamentals that have been created by a 7-year streak of reckless deficit policies accompanied by a crumbling US infrastructure and major political and economic shifts around the globe.
The whole mess was created by too much credit. Extending it further will be monetary suicide resulting in sky high inflation.
October Mayhem: Why a Global Selloff May Be Imminent?
With markets wobbling since last Friday, we wanted to put current events into past perspectives.Things are not as “different” as some people wish that they were.
Perhaps for too long, The Economic Clock™ has been showing danger signals. In an absolute sense, we have erred: the US and European markets have continued performing. But, in a relative sense, we also have suggested that The Economic Time has remained superior to these two developed economies for the likes of China, (and thus Hong Kong) and India, who have outperformed the G-2 massively.
Chaos, and thus market crashes, are by definition unpredictable. Even behavioral finance cannot explain why chaos arises; this school can only identify what “the herd” does when chaos hits.
1. Portfolio insurance, or “pass the hot potato”?
However, the marvelous Financial Times (FT) of the past few days raises an interesting point: in 1987, as now, portfolio insurance has exacerbated risk, instead of limiting it, as such instruments are supposed to do. Here are some key points on portfolio insurance:
· Its goal is to protect investors from downside losses. More appropriately, however, Gillian Tett of the FT has dubbed such insurance a “risk transfer gospel”.
· How: futures contracts are bought as insurance against falling equities prices.
· Why it has backfired: “But the strategy broke down because it relied on adding more protection as the market declined. This only aggravated the market’s fall, as would-be insurers all tried to short the market at once.” So, everyone headed for the exit at the same time: everyone sold stocks and bought futures.
· This time around, such insurance has mushroomed – and the risk has been spread across markets. This is not only because markets are becoming more accessible, but also because investors – corporate and individuals alike – have increased their leverage massively. This has at least two consequences:
o Risks more spread out. For instance, in the first half of this year, the equity derivatives market grew by 39%, to USD 10 trillion. This is because “Investors can now boost their exposures to equities and try to protect their portfolios against sharp losses through the use of futures, options and a plethora of equity derivatives such as total–return swaps and options on volatility.” (FT, 19th October 2007), ando Size ballooned. Add to this mushrooming of “insurance” the observation that the lack of communication during the 1987 crash spawned electronic trading. The results: the average daily trading volume on the New York Stock Exchange [NYSE] has risen about ten – fold since 1987, to 1.8 billion shares; meanwhile, the combined market capitalization of shares listed on the NYSE has grown fourteen–fold, reaching US$28,000 billion.
· The result this summer. With ever–more derivatives issued, and with ever–more trading done, the subprime mess of the past summer has boiled down to a game of “pass the potato”. The degree of risk “out there” cannot be measured any more, recent bail out packages suggested, by U.S. Treasury Secretary Hank Paulson of all people!
2. Why October?
Churchill taught that the further back you can look, the further forward you can peer. So for those of us who like past dates, here is a short jaunt down “October crash lane” (FT, 13th – 14th October 2007):
· 28 - 29/10/29: the Dow Jones Industrial Average [DJIA] fell 25% over these two days – and that heralded the global Great Depression.
· “Black Monday”, 19/10/87: the DJIA fell by 23% in one day.
· 27/10/97: the worst day of the Asian crisis forced the New York Stock Exchange to shut down early in reaction to the weight of selling.
According to the FT of 19th October 2007, there are two reasons why investor vulnerability rises in October:
o Closing out. Meanwhile, October is when most American mutual funds close-out their fiscal years. They do this in order to send “…investors a notices of their capital gains or losses before the personal tax year closes at the end of December.” This “tax adjustment” gets nasty if investors have to realize losses on their investments, ando Forward focus. October is reporting season for most companies – in which they provide their outlook for the coming year. Thus, investors start focusing on the coming year’s outlook. With The Economic Time worsening in the G-3, companies will be gloomier about their profits prospects – and this continues souring investor sentiment.
3. Why this October?
We already discussed this earlier on. Here is an update in which we also refer to the FT’s John Authers “Long View” of 13th – 14th October 2007:
· Auspicious October. As we suggested just now: October is when risks “bunch” – especially in the “07” years;
· Stock bunching. Market advances increasingly have focused on pushing individual stocks – which act as the “mule” pulling the market;
· Sector bunching. Investors have been chasing particular sectors – thus increasing their vulnerability to a sudden sell–off;
· Asia–bunching. The abnormally strong rises in China and thus in Hong Kong over the past weeks are food for thought. While we, too, believe theChina story, the market run – up has been exceptional;
· Decliners > advancers. In the major indices, there are more stocks falling than there are rising, and thus
· “Put” option emphasis. Increasingly, people are buying “portfolio insurance” by acquiring the right to sell stock at a pre-agreed price. This suggests that “the herd” senses market declines.
Tan Sri Dato' Seri (Dr) Lim Goh Tong dies at 90
Expect the unexpected
Chart of the Day
Oil Poised for Quarterly Drop as Price Gap to Gasoline Widens
Oct. 8 (Bloomberg) -- The widening gap between crude oil and the relatively low price of gasoline is signaling the first quarterly decline in oil prices in a year.
While oil has fallen in the fourth quarter during 13 of the past 20 years because of the transition from peak summer demand, the pressure for another drop in the months ahead is the most intense since 2004 and may defer any rebound to record crude prices until the first half of 2008.
Citigroup Inc., Deutsche Bank AG and HSBC Holdings Plc anticipate oil will slide from last month's record $83.90 a barrel as gasoline sales weaken to the lowest level this year and
a slowing U.S. economy curbs demand. Profits from making fuels are so low that refiners have 12.5 percent of capacity off line, the second-highest rate of the past two decades for this time of year, data from the U.S. Department of Energy show.
``Refinery profit margins are being squeezed at a time when significant maintenance is scheduled,'' said Tim Evans, an energy analyst with Citigroup Global Markets Inc. in New York. ``The combination of these factors should send crude oil lower.''
Oil traders and analysts have never been more pessimistic, with 75 percent of respondents anticipating prices will fall, according to a weekly survey by Bloomberg News that started in
April 2004.
Crude may end the year below $70 a barrel, compared with $81.66 at the end of the third quarter, forecasts Adam Sieminski, the global oil analyst at Deutsche Bank in New York. If he's right, a $1 million investment in crude oil futures in New York would more than double to $2.3 million, assuming speculators used the exchange's minimum deposit to conduct the transaction.
Lower Fuel Demand
``The most important development of the last six weeks has been that there's been no growth in demand for petroleum products,'' Sieminski said. ``High gasoline prices weren't enough to curb demand. The combination of the threat of layoffs and higher mortgages might finally be doing the job.''
Not everyone forecasts that oil will move lower by the end of the year. Goldman Sachs Group Inc. is the most bullish commodities trading firm on oil, forecasting on Sept. 17 that crude will end the year at $85 a barrel, with a ``high risk'' of a jump above $90, according to a report from analysts including Jeffrey Currie in London. Its two current trading recommendations on oil are both money-losers. One of them was to buy the gasoline refining margin, which has lost more than half its value since then, Goldman's research shows.
U.S. fuel consumption during the four weeks ending Sept. 28 averaged 20.45 million barrels a day, down 0.3 percent from the same period a year earlier, according to the Energy Department.
`First Time'
``We've seen with gasoline that month-on-month demand is lower for the first time in the U.S. in years,'' said Hakan Kocayusufpasaoglu, director of commodity derivatives at Credit Suisse in London.
Gasoline futures on the New York Mercantile Exchange declined 11 percent to $1.9959 a gallon in the last five months, while crude oil has increased 26 percent to $79.94 a barrel during the same period.
``We're at a turning point for prices and margins,'' said Lynn Westfall, San Antonio-based chief economist for Tesoro Corp., the second-biggest refiner in California. ``It's hard to imagine $80 oil being sustainable based on supply.'
The profit from turning three barrels of crude oil into two barrels of gasoline and one of heating oil fell to $5.7406 on Oct. 2, the lowest in 11 months. It surged to $30.479 on May 17, the highest since at least 1989, based on futures prices in New York.
Refinery Usage
U.S. oil refineries are running at 87.5 percent of capacity, according to the U.S. Energy Department. The only time rates were lower for this time of year was in 2005, when Hurricanes Katrina and Rita slammed the Gulf Coast. Crude-oil demand is falling this month because refiners have scheduled maintenance during a lull in fuel sales.
``You're looking at a situation where refinery maintenance will cut back on demand, product demand seasonally has been falling and the threat of hurricanes'' is easing, said Harry
Tchilinguirian, a senior oil market analyst for BNP Paribas in London. ``Last year there was an end-of-season correction'' after it became obvious the hurricane season was not severe.
The Atlantic hurricane season lasts from June through November. So far this year, no hurricanes have damaged U.S. Gulf Coast refineries and oil rigs.
Rising Supply
U.S. crude-oil supplies rose 1.14 million barrels to 321.8 million barrels in the week ended Sept. 28, an Energy Department report showed. The gain left stockpiles 9.3 percent higher than the five-year average for the week.
Crude-oil inventories may also rise because of increased production by the Organization of Petroleum Exporting Countries. The group, which is responsible for about 40 percent of global
output, agreed last month to increase output by 500,000 barrels a day starting Nov. 1.
OPEC pumped 30.3 million barrels a day in August, or more than 33 percent of world crude supplies, according to Bloomberg data.
``The next move will be south toward the low $70s and high $60s before the end of the year, primarily as more bad news comes from the U.S. economy,'' said Pierre Martin, a Frankfurt-based manager of a $565 million commodity fund at DWS Investment GmbH, a unit of Deutsche Bank AG.
