這問題看似很複雜，但有時亦可變得佷簡單。就以一個蛋糕比喻為一間公司，股票便是各件切下來的蛋糕，而股票的價值，則根據那件蛋糕的大小來判斷。
經常買賣股票的投資者，往往不會衡量公司的整體價值。我則喜歡先替整間企業把脈，然後再細心研究它的股票。
這正好解釋我愛以市值來評核公司，市值的計算方法，是以公司發行的股票數量，乘以股價得出，代表現時市場認為它值多少。假設中移動發行了二百億股，股價一百四十元計算，市值便高達二萬八千億元。
這些天文數字，已大大超出普通人的金錢概念，一般接觸得較多的大數目，應該是百萬元計。
惟中移動的規模就是如斯龐大，○六年盈利達六百六十億元人民幣，今年估計可賺八百五十億元人民幣，因此市值逾一萬五千億元相當合理，尤其它仍能高速增長。預料○八年盈利可達到一千零五十億元人民幣；若保持這速度推進，中移動市值二萬八千億元，相信很快可獲得接受。
剛才我以市值作例，說明股票與整間公司的關係。只要能評估一間公司的價值，自然容易計算每股的價值。
公司價值幾多，對每位投資者而言未必相同，但仍有兩種清楚辦法釐定。第一種是以資產淨值，你可從資產負債表中查看，將資產減去負債後，便是資產淨值。這方法甚少用，因很多公司擁有商譽，而商譽並非一定加進資產負債表內，令公司資產淨值被低估。
中移動的商譽龐大，即使你加入最慷慨的商譽價值，仍會嚴重低估公司的價值，因此很難用資產值來評估它。
盈利推算估值
第二個方法是以盈利來評估價值，但其參差可以很大。我經常掛在口邊的市盈率，是以盈利由多少股份分配來計算。若你將中移動○七年所賺的八百五十億元人民幣，攤分給二百億股，每股盈利便是四元二角五分。以現價一百四十元計，市盈率三十二倍。
若你將市盈率倒轉，便得出回報率，讓你更方便與銀行存款息率比較。中移動的三釐一回報，比只放在銀行還要好，何況這是以人民幣計算。雖然三釐一的回報並非很吸引，但中移動持續有增長。以下是我的推算：
彼得連治在他的著作《One Up On Wall Street》中，提出以預期增幅來評估合理的市盈率，但單靠推算並非太準確，我會以歷史及預期來混合計算股票價值。中移動平均市盈率二十五倍，以此推算，○九年每股價值約一百七十四元。這推算或許存有誤差，尤其要假設盈利能夠不斷增加；雖然這公司現已十分壯大，惟用戶人數的增幅終會放緩。
Monday, December 10, 2007
US market will be flat over the next decade
John Mauldin, the author of the NY Times top ten best-selling investment book, “Bull’s Eye Investing” and the President of Millennium Wave Investments sets out to prove that in ten years' time the US stock market will likely be no higher than it is now, and possibly significantly lower.
The stock market's future level will be determined by
(a) earnings growth and
(b) the value the market places on those earnings (ie. P/E ratios),
so Mauldin focuses on these two elements.
First, he argues that earnings growth will be disappointing. Companies' earnings will be depressed by the adoption of stricter accounting standards, the expensing of options, and higher pension costs. Combine that with anemic economic growth due to the aging of the population, the current account deficit and the budget deficit, and earnings are unlikely to exceed their historical growth rate of under 6%.
Next, Mauldin argues that P/E ratios are unlikely to rise over the coming decade, and may in fact fall dramatically.
He assembles a battery of arguments to prove his case.
Secular bull markets have never started from times when the market's P/E ratio was as high as it is today. The market is currently overvalued according to multiple measures, and will likely revert to its historical mean. The risk premium is currently low, and a recovery to more sensible levels would depress P/E ratios.
Finally, P/E ratios fall as inflation rises or an economy slips into deflation; so given the US economy's current inflation rate (close to zero), there's nowhere to go that would result in a higher P/E ratio for the market.
With mediocre earnings growth and falling P/E ratios, the market is therefore headed nowhere or a lot lower.
The stock market's future level will be determined by
(a) earnings growth and
(b) the value the market places on those earnings (ie. P/E ratios),
so Mauldin focuses on these two elements.
First, he argues that earnings growth will be disappointing. Companies' earnings will be depressed by the adoption of stricter accounting standards, the expensing of options, and higher pension costs. Combine that with anemic economic growth due to the aging of the population, the current account deficit and the budget deficit, and earnings are unlikely to exceed their historical growth rate of under 6%.
Next, Mauldin argues that P/E ratios are unlikely to rise over the coming decade, and may in fact fall dramatically.
He assembles a battery of arguments to prove his case.
Secular bull markets have never started from times when the market's P/E ratio was as high as it is today. The market is currently overvalued according to multiple measures, and will likely revert to its historical mean. The risk premium is currently low, and a recovery to more sensible levels would depress P/E ratios.
Finally, P/E ratios fall as inflation rises or an economy slips into deflation; so given the US economy's current inflation rate (close to zero), there's nowhere to go that would result in a higher P/E ratio for the market.
With mediocre earnings growth and falling P/E ratios, the market is therefore headed nowhere or a lot lower.
努力射中牛眼
財富來自新概念（innovation）及解決難題方案（problem solution），而非勤勤力力。勤力人只可搵兩餐，但好難發達，最多成為中產階級，但地產商財富卻來自七十年代開始解決港人居住難題。
未來財富主要來自引入新概念，例如過去兩個多月港股A股化，為唔少人帶來財富，請留意邊D企業剛完成大轉身。我地已唔需要大牛市去賺錢，而係努力去射中牛眼，追求100％回報（或跌15％離場）。
Trading is hard work但值得,一份射中牛眼所帶來感覺，除金錢回報外，更帶來一份光榮感。
另一方面，要留心自己係咪過分自信，而睇唔到投資股份缺點？
又或者過分猶豫？
又或者太蠢太早減持，讓太多利潤從自己手中流走？
Trading有如《洛奇》電影中D主角，打倒別人之前，自己先被別人打到面腫！射中牛眼D感覺好比一次又一次追求、戀愛及成功贏得女性芳心。
現實生活中，人只能瘋狂地追求一次、戀愛一次，當贏得芳心後便要結婚，唔容許有第二次。股票市場卻容許一次又一次追求、甚至苦戀，而最後成功。
牛眼投資法強調揀股，較少理會指數高低（恒生指數8000點時亦有唔少股份偏高，恒生指數32000點一樣有唔少股份偏低），採用者必須係對個別股票有深入了解者而非初哥（神槍手通常只有兩粒子彈，第一粒射唔中便第二粒，再唔打中便走頭。只有新兵才使用機關槍，亂槍掃射下，希望有一粒射中）。
未來財富主要來自引入新概念，例如過去兩個多月港股A股化，為唔少人帶來財富，請留意邊D企業剛完成大轉身。我地已唔需要大牛市去賺錢，而係努力去射中牛眼，追求100％回報（或跌15％離場）。
Trading is hard work但值得,一份射中牛眼所帶來感覺，除金錢回報外，更帶來一份光榮感。
另一方面，要留心自己係咪過分自信，而睇唔到投資股份缺點？
又或者過分猶豫？
又或者太蠢太早減持，讓太多利潤從自己手中流走？
Trading有如《洛奇》電影中D主角，打倒別人之前，自己先被別人打到面腫！射中牛眼D感覺好比一次又一次追求、戀愛及成功贏得女性芳心。
現實生活中，人只能瘋狂地追求一次、戀愛一次，當贏得芳心後便要結婚，唔容許有第二次。股票市場卻容許一次又一次追求、甚至苦戀，而最後成功。
牛眼投資法強調揀股，較少理會指數高低（恒生指數8000點時亦有唔少股份偏高，恒生指數32000點一樣有唔少股份偏低），採用者必須係對個別股票有深入了解者而非初哥（神槍手通常只有兩粒子彈，第一粒射唔中便第二粒，再唔打中便走頭。只有新兵才使用機關槍，亂槍掃射下，希望有一粒射中）。
人民幣年底前或加息
12月9日，周日。周二美國減息四分一厘機會已接近百分百，但減息半厘機會只有28%，估計明年1月及3月每次再減四分一厘。
長短棍非一般散戶可用
《金融時報》今年曾推介「Santa Monica Technique」，今年回報率達十倍，的確好，但非一般散戶可運用。上述策略簡單D講就係唔理會大市升降，而利用「長短棍」方式買入睇好行業股，同時拋空睇淡行業做對沖。今年拋空對象自然係美國金融股及房地產股，買入對象係高科技股，結果兩頭贏，例如次按保險股MGIC今年5月至今回落71％，蘋果、Google等又大升。明年計劃拋空項目係軟件公司，睇好項目係製造業中高科技股。
今年另一成功策略就係「牛眼投資法」，發明者係John Mauldin，並2004年出書推介。我老曹係最先向香港讀者推介呢個方法作者，並由2004年起採用佢方法。利用牛眼投資法係每年追求「三位數字」（即100％）或以上回報。牛眼投資法第一步係「Invest like a venture capitalist」，即專攻二線股，事前做足搜集工夫，搵出邊D行業正進入起飛期或轉虧為盈期。牛眼投資法較適合散戶採用，但必須自己做足功課，千萬不可跟我老曹買，因為專家如David Webb 去年聖誕前推介股份，今年恒生指數大升40％環境下仍跌27％；世上並冇必殺技也！作為venture capitalist，就係當一間企業開始轉虧為盈時立即介入，而非等到人人叫好時才介入。Early bird catches the worms，又或者投資D引入創新意念企業，最典型例子係呢幾年蘋果引入iPod後再引入iPhone，令蘋果股價由5美元升上180美元！本港成功例子如利豐（494）及思捷環球（330），利豐引入環球性採購概念，今天已成為藍籌股；思捷環球全力拓展歐洲品牌市場，亦成就非凡。如佢地起步期時已介入，各位如今已成為小富。另一機會五年前，港人由睇唔起國企、紅籌股轉為愛上國企、紅籌股所提供投資機會，例如森池兄推介國壽（2628）今年亦發足狂奔。唔好人云亦云，訓練自己成為「Top Gun」（股市第一槍手）或小李飛刀（例不虛發）。如何利用地緣政治及宏觀角度協助自己揀股？美元由2002至07年回落，既產生危機，亦出現大量商機；油價由10美元升上100美元，亦帶來危機同商機；金價由252美元升上845美元亦帶來機會……。任何事物都有正反兩面，睇錯市唔緊要（人誰無錯？），蝕15％離場；睇市便咬住唔放，最低要求100％回報。至於大藍籌股，留番畀退休人士或已經發達人士，並非仍在追求發達人之對象。明年唔易再透過投資大藍籌股去賺取大利；反之，二線股仍有機會，包括巴西、俄羅斯、印度及中國內需股，相信純利仍以雙位數上升。金磚四國經濟正由出口導向型轉為內需推動型，內需增長估計可維持到2010年。未來推動世界經濟引擎再唔係美國、歐洲、英國同日本，而係四大金磚國。財富正由OECD國家流向新興工業國，未來財富唔再自石油股、能源股及資源股，因為佢地正面對巨大成本上升及低邊際利潤，而且油價已升至半天高；新機會來自內需股及高科技股。
高盛證券指出，三十八個佢地跟開國家中，有二十六個明年GDP增長率下降，其中下跌最快係歐洲同日本，較美國更快。因此，全球明年GDP增長率將由今年4.7％降至明年4％。世界再唔係美國打噴嚏、全球傷風，而係互相影響、互相感染。
內地11月CPI可能創新高
12月5日閉幕中央經濟工作會議對明年中國經濟發展推出新措施：
一、經濟增長由偏快轉為過熱危險性依然存在，外貿順差仍在擴大，使外大量流入而加劇流動性，工業（特別係重化工業）投資增長過快。
二、價格上漲壓力增加，10月份CPI上升6.5％，房價上升9.5％。
三、節能減排形勢依然嚴峻，落後產能淘汰太慢，污染治理仍然滯後。
四、農業發展及農民持續增收難度較大。
五、就業壓力、教育、醫療、社保、收入分配、住房保障問題仍待解決。
2008年起，實施十年穩健貨幣政策正式淡出，取而代之係從緊貨幣政策。另外通過稅收及轉移支付，調節收入差距過大狀況，改善農民和城鎮收入差距，並提高企業制退休人員基本養老金標準。中國人行今年十次上調存款準備金率，呢次一下子上調一個百分點，有D出乎市場預料；上調後存款準備金率14.5％，已超過1988年13％好多。唔單止咁，1999年11月21日將存款準備金率由6％上調至7％後，每次上調都只係0.5％，呢次一下子重手上調1％。
今年內每次存款準備金率上調，股市都低開高收；最近股市指數由11月26日起上升，宣布上調存款準備金率後又點？呢次進一步上調，將影響明年銀行收入，影響集中銀行板塊。一般人估計周二公布11月CPI可能出現新高，如11月CPI創新高，唔排除年底前人民幣加息，對依家已處於弱勢A股不利。除加息手段外，媒體披露商業銀行明年起須逐季上報信貸計劃，進一步限制信貸增長率。
從緊貨幣政策壓抑股樓
利用從緊貨幣政策，防止價格由結構性上漲變成明顯通貨膨脹，減少過剩流動性由銀行體系流向資本市場，推動股市、樓價上升。今年上海股票綜合指數由去年底2675點上升至今，升幅超過一倍；全國七十個大城市房價第三季上升8.2％、北京上升13.5％、深圳上升17.6％，寧波和杭州亦上升超過10％。貨幣政策從緊，估計可壓抑明年內地A股及樓價漲幅。
上海12月8日公布，中國2010年造船能力有望超過二千一百萬載重噸，佔全球市場四分一或以上。中國已連續十二年成為全球第三大造船國，佔全球產量五分一。家中國有造船企業三千多家，其中大、中型共四百三十一家。去年完工量一千四百五十二萬載重噸，上升20％；新接訂單四千二百五十一萬載重噸，上升150％；手上訂單六千八百七十二萬載重噸，上升73％。
2004年中國參加鐵礦石價格談判以來，國際鐵礦石連升四年，累計升幅16.5％。2008年鐵礦石價格談判又開始，大摩及麥格理估計明年鐵礦石進口價上升50％。國家發改委公布11月國內鐵礦石價，唐山產含量66％鐵礦石價每噸1304元人民幣，較去年同期上升86.3％；預期未來鐵礦石價大漲，刺激上周鋼鐵股股價全線活躍。
長短棍非一般散戶可用
《金融時報》今年曾推介「Santa Monica Technique」，今年回報率達十倍，的確好，但非一般散戶可運用。上述策略簡單D講就係唔理會大市升降，而利用「長短棍」方式買入睇好行業股，同時拋空睇淡行業做對沖。今年拋空對象自然係美國金融股及房地產股，買入對象係高科技股，結果兩頭贏，例如次按保險股MGIC今年5月至今回落71％，蘋果、Google等又大升。明年計劃拋空項目係軟件公司，睇好項目係製造業中高科技股。
今年另一成功策略就係「牛眼投資法」，發明者係John Mauldin，並2004年出書推介。我老曹係最先向香港讀者推介呢個方法作者，並由2004年起採用佢方法。利用牛眼投資法係每年追求「三位數字」（即100％）或以上回報。牛眼投資法第一步係「Invest like a venture capitalist」，即專攻二線股，事前做足搜集工夫，搵出邊D行業正進入起飛期或轉虧為盈期。牛眼投資法較適合散戶採用，但必須自己做足功課，千萬不可跟我老曹買，因為專家如David Webb 去年聖誕前推介股份，今年恒生指數大升40％環境下仍跌27％；世上並冇必殺技也！作為venture capitalist，就係當一間企業開始轉虧為盈時立即介入，而非等到人人叫好時才介入。Early bird catches the worms，又或者投資D引入創新意念企業，最典型例子係呢幾年蘋果引入iPod後再引入iPhone，令蘋果股價由5美元升上180美元！本港成功例子如利豐（494）及思捷環球（330），利豐引入環球性採購概念，今天已成為藍籌股；思捷環球全力拓展歐洲品牌市場，亦成就非凡。如佢地起步期時已介入，各位如今已成為小富。另一機會五年前，港人由睇唔起國企、紅籌股轉為愛上國企、紅籌股所提供投資機會，例如森池兄推介國壽（2628）今年亦發足狂奔。唔好人云亦云，訓練自己成為「Top Gun」（股市第一槍手）或小李飛刀（例不虛發）。如何利用地緣政治及宏觀角度協助自己揀股？美元由2002至07年回落，既產生危機，亦出現大量商機；油價由10美元升上100美元，亦帶來危機同商機；金價由252美元升上845美元亦帶來機會……。任何事物都有正反兩面，睇錯市唔緊要（人誰無錯？），蝕15％離場；睇市便咬住唔放，最低要求100％回報。至於大藍籌股，留番畀退休人士或已經發達人士，並非仍在追求發達人之對象。明年唔易再透過投資大藍籌股去賺取大利；反之，二線股仍有機會，包括巴西、俄羅斯、印度及中國內需股，相信純利仍以雙位數上升。金磚四國經濟正由出口導向型轉為內需推動型，內需增長估計可維持到2010年。未來推動世界經濟引擎再唔係美國、歐洲、英國同日本，而係四大金磚國。財富正由OECD國家流向新興工業國，未來財富唔再自石油股、能源股及資源股，因為佢地正面對巨大成本上升及低邊際利潤，而且油價已升至半天高；新機會來自內需股及高科技股。
高盛證券指出，三十八個佢地跟開國家中，有二十六個明年GDP增長率下降，其中下跌最快係歐洲同日本，較美國更快。因此，全球明年GDP增長率將由今年4.7％降至明年4％。世界再唔係美國打噴嚏、全球傷風，而係互相影響、互相感染。
內地11月CPI可能創新高
12月5日閉幕中央經濟工作會議對明年中國經濟發展推出新措施：
一、經濟增長由偏快轉為過熱危險性依然存在，外貿順差仍在擴大，使外大量流入而加劇流動性，工業（特別係重化工業）投資增長過快。
二、價格上漲壓力增加，10月份CPI上升6.5％，房價上升9.5％。
三、節能減排形勢依然嚴峻，落後產能淘汰太慢，污染治理仍然滯後。
四、農業發展及農民持續增收難度較大。
五、就業壓力、教育、醫療、社保、收入分配、住房保障問題仍待解決。
2008年起，實施十年穩健貨幣政策正式淡出，取而代之係從緊貨幣政策。另外通過稅收及轉移支付，調節收入差距過大狀況，改善農民和城鎮收入差距，並提高企業制退休人員基本養老金標準。中國人行今年十次上調存款準備金率，呢次一下子上調一個百分點，有D出乎市場預料；上調後存款準備金率14.5％，已超過1988年13％好多。唔單止咁，1999年11月21日將存款準備金率由6％上調至7％後，每次上調都只係0.5％，呢次一下子重手上調1％。
今年內每次存款準備金率上調，股市都低開高收；最近股市指數由11月26日起上升，宣布上調存款準備金率後又點？呢次進一步上調，將影響明年銀行收入，影響集中銀行板塊。一般人估計周二公布11月CPI可能出現新高，如11月CPI創新高，唔排除年底前人民幣加息，對依家已處於弱勢A股不利。除加息手段外，媒體披露商業銀行明年起須逐季上報信貸計劃，進一步限制信貸增長率。
從緊貨幣政策壓抑股樓
利用從緊貨幣政策，防止價格由結構性上漲變成明顯通貨膨脹，減少過剩流動性由銀行體系流向資本市場，推動股市、樓價上升。今年上海股票綜合指數由去年底2675點上升至今，升幅超過一倍；全國七十個大城市房價第三季上升8.2％、北京上升13.5％、深圳上升17.6％，寧波和杭州亦上升超過10％。貨幣政策從緊，估計可壓抑明年內地A股及樓價漲幅。
上海12月8日公布，中國2010年造船能力有望超過二千一百萬載重噸，佔全球市場四分一或以上。中國已連續十二年成為全球第三大造船國，佔全球產量五分一。家中國有造船企業三千多家，其中大、中型共四百三十一家。去年完工量一千四百五十二萬載重噸，上升20％；新接訂單四千二百五十一萬載重噸，上升150％；手上訂單六千八百七十二萬載重噸，上升73％。
2004年中國參加鐵礦石價格談判以來，國際鐵礦石連升四年，累計升幅16.5％。2008年鐵礦石價格談判又開始，大摩及麥格理估計明年鐵礦石進口價上升50％。國家發改委公布11月國內鐵礦石價，唐山產含量66％鐵礦石價每噸1304元人民幣，較去年同期上升86.3％；預期未來鐵礦石價大漲，刺激上周鋼鐵股股價全線活躍。
Meddling in the markets
George Bush's subprime rescue plan
George Bush’s subprime rescue plan will blunt the sharp edge of America’s housing crisis for a small group of borrowers, but it will not keep the industry’s historic slump from deepening. Nor will it prevent the economy from slowing to a crawl in 2008. What it may do, regrettably, is reassure lenders and borrowers that Washington stands ready to save them from their mistakes.
Mr Bush’s Treasury department unveiled a plan on December 6th aimed at curbing defaults by many of the 1.8m subprime borrowers whose mortgages will reset to higher interest rates in the next two years. Nearly 15% of subprime loans are already in default, destroying the value of securities backed by these loans. The prospect of a new wave of defaults and foreclosures has kept financial markets on edge for months. Credit has tightened, banks have written off more than US$50bn in mortgage-backed assets and housing has dragged the economy perilously close to a recession.
The rescue plan negotiated by the Treasury secretary, Hank Paulson, with other regulators and lenders will freeze interest rates for up to five years for some subprime borrowers. Others will be fast-tracked into new, more manageable private loans, or will be allowed to borrow from the government’s Federal Housing Administration.
Whatever else it may be, the Bush administration’s agreement is an extraordinary intrusion by the government into private mortgage contracts. It is not, however, a government bailout in the classic sense. No public money is being used to rescue borrowers or lenders, nor is the government imposing a solution on the industry. Rather, Mr Paulson has used his influence to pressure the mortgage industry into setting a national blueprint for dealing with borrowers in danger of default
Meddling in the markets
At one level, Mr Paulson’s meddling makes a certain amount of sense. He did not, after all, have to push very hard to convince lenders and mortgage servicers—those who collect monthly loan payments—to agree to a voluntary deal. Lenders, to be sure, had been counting on higher interest payments from subprime borrowers to boost their returns. Many subprime mortgages, for example, were due to rise to 11-12% in 2008 after an introductory rate of 7-9%. But when borrowers default, lenders and the investors who buy their loans get nothing. Better, then, to keep interest rates down and continue to receive a return of some kind.
From Mr Paulson’s perspective, a deal that prevents foreclosures may also help to calm financial markets, which have soared and plunged in recent months. By keeping foreclosed homes from returning to the market, a deal might also begin to stabilise the housing market, and perhaps place a floor under home prices. Although borrowers and lenders could, in theory, have negotiated individual solutions to their loan troubles—and some have done just that—the process was taking too long. Faced with a surge in subprime interest rates and a deepening housing slump, Mr Paulson thought it prudent to use his bully pulpit to force a deal.
But the agreement, in the end, will make only a modest difference. The relief will apply only to borrowers who took out loans between January 2005 and July 2007, and whose interest rates are resetting between January 2008 and July 2010. Borrowers already struggling with higher interest rates will not be helped. The agreement will also do nothing for subprime borrowers at either end of the credit spectrum—those who arguably can handle the higher interest rate, and those who clearly cannot afford a home under any circumstances. Those in the middle—with enough income to make monthly payments at the lower rates, but not enough to survive the rate spike—would benefit.
How many will be helped?
Mr Paulson says his plan may help as many as 1.2m Americans keep their homes, but the actual figure is probably closer to 250,000, based on an analysis by Barclays Capital, using a similar programme in California as a guide. For those homeowners, clearly, this agreement is good news. But how the process will work is not clear. A national blueprint may make it easier to identify those who are eligible for relief, but the process of renegotiating the loan, or applying a rate freeze, must be done individually. Lenders will need to check borrowers’ incomes, debt levels and the current value of homes before they can agree to a change in the terms of the loan. Mr Paulson, in fact, acknowledges his plan’s limitations by saying that other relief measures are under discussion.
The strains in the US housing market go well beyond subprime mortgages. The value of property owned by households soared from around US$10trn in 2000 to nearly US$20trn in 2005, amounting to one of the largest asset bubbles in history. Those excesses have been unwinding for nearly two years, and the process is far from complete. The inventory of unsold homes is at a record high; it is that surplus stock that is driving home prices down.
To be sure, the Paulson plan may help by keeping thousands of foreclosed homes from returning to the market, adding to the glut. But the Economist Intelligence Unit believes home prices, which are currently sliding at the rate of around 5%, year over year, are destined for sharper declines. By the middle of 2008, we expect prices to be falling by at least 10%.
Demand for homes will also be depressed by tightening credit conditions and still-high price-to-loan ratios. Indeed, the steady decline in home prices will keep many buyers out of the market as they wait for prices to drop even more. Nor will the Paulson deal do much to restore confidence and boost consumer spending. Most subprime borrowers are, by definition, at the lower end of the income ladder and account for only a small portion of all spending.
Mr Paulson’s plan may, over time, provide some relief for financial markets if it keeps mortgage default rates a couple of percentage points below where they otherwise would have been. But it will take months, at best, to see any appreciable relief from the new agreement. In the meantime, credit conditions will continue to tighten as bank balance sheets deteriorate and lending in the interbank markets becomes increasingly difficult.
Whatever the economic arguments for the Bush administration’s plan, it amounts to poor public policy.
America’s unfettered brand of capitalism is one of its strengths; investors may be less likely to trust a government that manipulates private contracts when conditions deteriorate.
At a time when the economy is already weak and the dollar is suffering from a crisis of confidence, Mr Paulson’s awkward intrusion into the mortgage market looks more like desperation than a hedge against further trouble.
George Bush’s subprime rescue plan will blunt the sharp edge of America’s housing crisis for a small group of borrowers, but it will not keep the industry’s historic slump from deepening. Nor will it prevent the economy from slowing to a crawl in 2008. What it may do, regrettably, is reassure lenders and borrowers that Washington stands ready to save them from their mistakes.
Mr Bush’s Treasury department unveiled a plan on December 6th aimed at curbing defaults by many of the 1.8m subprime borrowers whose mortgages will reset to higher interest rates in the next two years. Nearly 15% of subprime loans are already in default, destroying the value of securities backed by these loans. The prospect of a new wave of defaults and foreclosures has kept financial markets on edge for months. Credit has tightened, banks have written off more than US$50bn in mortgage-backed assets and housing has dragged the economy perilously close to a recession.
The rescue plan negotiated by the Treasury secretary, Hank Paulson, with other regulators and lenders will freeze interest rates for up to five years for some subprime borrowers. Others will be fast-tracked into new, more manageable private loans, or will be allowed to borrow from the government’s Federal Housing Administration.
Whatever else it may be, the Bush administration’s agreement is an extraordinary intrusion by the government into private mortgage contracts. It is not, however, a government bailout in the classic sense. No public money is being used to rescue borrowers or lenders, nor is the government imposing a solution on the industry. Rather, Mr Paulson has used his influence to pressure the mortgage industry into setting a national blueprint for dealing with borrowers in danger of default
Meddling in the markets
At one level, Mr Paulson’s meddling makes a certain amount of sense. He did not, after all, have to push very hard to convince lenders and mortgage servicers—those who collect monthly loan payments—to agree to a voluntary deal. Lenders, to be sure, had been counting on higher interest payments from subprime borrowers to boost their returns. Many subprime mortgages, for example, were due to rise to 11-12% in 2008 after an introductory rate of 7-9%. But when borrowers default, lenders and the investors who buy their loans get nothing. Better, then, to keep interest rates down and continue to receive a return of some kind.
From Mr Paulson’s perspective, a deal that prevents foreclosures may also help to calm financial markets, which have soared and plunged in recent months. By keeping foreclosed homes from returning to the market, a deal might also begin to stabilise the housing market, and perhaps place a floor under home prices. Although borrowers and lenders could, in theory, have negotiated individual solutions to their loan troubles—and some have done just that—the process was taking too long. Faced with a surge in subprime interest rates and a deepening housing slump, Mr Paulson thought it prudent to use his bully pulpit to force a deal.
But the agreement, in the end, will make only a modest difference. The relief will apply only to borrowers who took out loans between January 2005 and July 2007, and whose interest rates are resetting between January 2008 and July 2010. Borrowers already struggling with higher interest rates will not be helped. The agreement will also do nothing for subprime borrowers at either end of the credit spectrum—those who arguably can handle the higher interest rate, and those who clearly cannot afford a home under any circumstances. Those in the middle—with enough income to make monthly payments at the lower rates, but not enough to survive the rate spike—would benefit.
How many will be helped?
Mr Paulson says his plan may help as many as 1.2m Americans keep their homes, but the actual figure is probably closer to 250,000, based on an analysis by Barclays Capital, using a similar programme in California as a guide. For those homeowners, clearly, this agreement is good news. But how the process will work is not clear. A national blueprint may make it easier to identify those who are eligible for relief, but the process of renegotiating the loan, or applying a rate freeze, must be done individually. Lenders will need to check borrowers’ incomes, debt levels and the current value of homes before they can agree to a change in the terms of the loan. Mr Paulson, in fact, acknowledges his plan’s limitations by saying that other relief measures are under discussion.
The strains in the US housing market go well beyond subprime mortgages. The value of property owned by households soared from around US$10trn in 2000 to nearly US$20trn in 2005, amounting to one of the largest asset bubbles in history. Those excesses have been unwinding for nearly two years, and the process is far from complete. The inventory of unsold homes is at a record high; it is that surplus stock that is driving home prices down.
To be sure, the Paulson plan may help by keeping thousands of foreclosed homes from returning to the market, adding to the glut. But the Economist Intelligence Unit believes home prices, which are currently sliding at the rate of around 5%, year over year, are destined for sharper declines. By the middle of 2008, we expect prices to be falling by at least 10%.
Demand for homes will also be depressed by tightening credit conditions and still-high price-to-loan ratios. Indeed, the steady decline in home prices will keep many buyers out of the market as they wait for prices to drop even more. Nor will the Paulson deal do much to restore confidence and boost consumer spending. Most subprime borrowers are, by definition, at the lower end of the income ladder and account for only a small portion of all spending.
Mr Paulson’s plan may, over time, provide some relief for financial markets if it keeps mortgage default rates a couple of percentage points below where they otherwise would have been. But it will take months, at best, to see any appreciable relief from the new agreement. In the meantime, credit conditions will continue to tighten as bank balance sheets deteriorate and lending in the interbank markets becomes increasingly difficult.
Whatever the economic arguments for the Bush administration’s plan, it amounts to poor public policy.
America’s unfettered brand of capitalism is one of its strengths; investors may be less likely to trust a government that manipulates private contracts when conditions deteriorate.
At a time when the economy is already weak and the dollar is suffering from a crisis of confidence, Mr Paulson’s awkward intrusion into the mortgage market looks more like desperation than a hedge against further trouble.
Sunday, December 9, 2007
積 極 減 持
繼 續 積 極 減 持 ， 沒 有 興 趣 在 接 近 30000 點 以 及 聯 儲 局 會 議 日 子 才 入 場 做 快 閃 黨 ， 自 問 身 手 不 夠 敏 捷 ， 膽 識 亦 大 不 如 前 。
總 要 有 人 提 供 貨 源 給 快 閃 黨 行 動 ， 就 蝕 底 少 收 一 點 ， 希 望 皆 大 歡 喜 。
在 股 市 作 戰 ， 不 外 是 貪 婪 和 恐 懼 兩 大 情 緒 所 主 宰 。
跌 市 時 博 繼 續 跌 ， 現 在 又 貪 心 想 在 幾 日 內 短 炒 ， 去 賺 盡 最 後 的 升 浪 ， 主 因 應 是 自 命 不 凡 。
叻 仔 在 賭 場 多 數 沒 有 好 結 果 ， 自 己 寧 願 不做叻 仔 ， 捱 義 氣 接 貨 忍 受 心 理 折 磨 ， 回 升 則 賺 少 一 點 求 心 安 理 得 ， 可 能 才 是 克 服 貪 婪 和 恐 懼 的 最 佳 實 戰 方 法 。
順 勢 死 守 好 過 炒 出 炒 入
近 期 最 明 顯 的 轉 變 ， 是 美 元 轉 強 ， 這 一 點 令 自 己 相 當 不 舒 服 ， 甚 至 黃 金 長 倉 也 有 點 擔 心 ， 不 過 策 略 一 定 是 死 守 ， 頂 多 短 炒 跑 數 去 幫 補 。
美 元 的 強 勢 ， 應 是 市 場 在 平 淡 倉 ， 因 此 美 股 的 回 升 ， 同 樣 極 可 能 只 是 平 倉 盤 所 帶 動 ， 並 不 是 升 浪 的 開 始 。
港 股 形 勢 當 然 比 美 股 好 ， 可 是 本 地 地 產 股 及 銀 行 股 三 扒 兩 撥 勁 升 甚 多 ， 沒 有 理 由 冒 險 高 追 ， 中 資 股 氣 勢 只 一 般 ， 應 該 有 等 待 的 空 間 。
看 不 透 後 市 之 外 ， 時 近 年 尾 也 是 戰 意 下 降 的 主 因 ， 今 年 幾 上 幾 落 ， 連 場 大 戰 ， 身 心 都 相 當 勞 累 ， 而 且 在 賽 後 悟 出 一 個 道 理 ， 就 是 不 必 過 份 勤 力 ， 掌 握 一 些 大 趨 勢 ， 回 報 反 而 更 好 。
例 如 美 元 及 商 品 在 8 月 尾 後 根 本 是 單 邊 市 ， 只 不 過 順 勢 而 行 是 知 易 行 難 而 已 。
短 線 投 機 也 不 必 太 多 行 動 ， 過 份 貼 市 只 會 被 市 況 牽 走 。
耐 心 等 待 下 一 次 出 擊 的 機 會 ， 勝 算 和 回 報 都 會 更 高 。
如 果 參 考 印 度 股 市 ， 甚 至 強 勢 藍 籌， 繼 續 上 升 並 非 機 會 太 低 ， 只 是 入 市 講 求 值 博 率 ， 最 大 利 好 因 素 已 反 映 甚 多 ， 客 觀 證 據 又 不 夠 強 。
股 市 日 日 開 ， 耐 心 等 待 總 有 機 會 ， 此 刻 絕 非 理 想 下 注 時 機 。
總 要 有 人 提 供 貨 源 給 快 閃 黨 行 動 ， 就 蝕 底 少 收 一 點 ， 希 望 皆 大 歡 喜 。
在 股 市 作 戰 ， 不 外 是 貪 婪 和 恐 懼 兩 大 情 緒 所 主 宰 。
跌 市 時 博 繼 續 跌 ， 現 在 又 貪 心 想 在 幾 日 內 短 炒 ， 去 賺 盡 最 後 的 升 浪 ， 主 因 應 是 自 命 不 凡 。
叻 仔 在 賭 場 多 數 沒 有 好 結 果 ， 自 己 寧 願 不做叻 仔 ， 捱 義 氣 接 貨 忍 受 心 理 折 磨 ， 回 升 則 賺 少 一 點 求 心 安 理 得 ， 可 能 才 是 克 服 貪 婪 和 恐 懼 的 最 佳 實 戰 方 法 。
順 勢 死 守 好 過 炒 出 炒 入
近 期 最 明 顯 的 轉 變 ， 是 美 元 轉 強 ， 這 一 點 令 自 己 相 當 不 舒 服 ， 甚 至 黃 金 長 倉 也 有 點 擔 心 ， 不 過 策 略 一 定 是 死 守 ， 頂 多 短 炒 跑 數 去 幫 補 。
美 元 的 強 勢 ， 應 是 市 場 在 平 淡 倉 ， 因 此 美 股 的 回 升 ， 同 樣 極 可 能 只 是 平 倉 盤 所 帶 動 ， 並 不 是 升 浪 的 開 始 。
港 股 形 勢 當 然 比 美 股 好 ， 可 是 本 地 地 產 股 及 銀 行 股 三 扒 兩 撥 勁 升 甚 多 ， 沒 有 理 由 冒 險 高 追 ， 中 資 股 氣 勢 只 一 般 ， 應 該 有 等 待 的 空 間 。
看 不 透 後 市 之 外 ， 時 近 年 尾 也 是 戰 意 下 降 的 主 因 ， 今 年 幾 上 幾 落 ， 連 場 大 戰 ， 身 心 都 相 當 勞 累 ， 而 且 在 賽 後 悟 出 一 個 道 理 ， 就 是 不 必 過 份 勤 力 ， 掌 握 一 些 大 趨 勢 ， 回 報 反 而 更 好 。
例 如 美 元 及 商 品 在 8 月 尾 後 根 本 是 單 邊 市 ， 只 不 過 順 勢 而 行 是 知 易 行 難 而 已 。
短 線 投 機 也 不 必 太 多 行 動 ， 過 份 貼 市 只 會 被 市 況 牽 走 。
耐 心 等 待 下 一 次 出 擊 的 機 會 ， 勝 算 和 回 報 都 會 更 高 。
如 果 參 考 印 度 股 市 ， 甚 至 強 勢 藍 籌， 繼 續 上 升 並 非 機 會 太 低 ， 只 是 入 市 講 求 值 博 率 ， 最 大 利 好 因 素 已 反 映 甚 多 ， 客 觀 證 據 又 不 夠 強 。
股 市 日 日 開 ， 耐 心 等 待 總 有 機 會 ， 此 刻 絕 非 理 想 下 注 時 機 。
股市小笑話：散戶，豈只會割肉？
飯館老板貼出招聘啟事，有三個人前來應聘老板問頭一位：“你有什麼特長？”
“我做過操盤手。”
“手藝 怎麼樣？”
“也沒什麼，只不過能把股價從5 元炒到50元而已。”
“太好了，我這裏正需要一個大廚，就是你了”。
第二個人遞上了履曆表，老板翻了翻，說道：“噢，是股評家呀。這樣吧，你的工作就是每天站在門口，見人就給我往裏拉，這點事對你來說不難吧？”
轉頭問第三個人：“你是幹什麼的？”
那人羞得滿臉通紅，不敢吱聲。
第二個人急忙說道：“他是我帶來的，散戶出身，洗碗掃地什麼的隨便安排個活就行。”
老板有些為難：“我這裏很高級的，要散戶作什麼？”
正說著，忽聽大堂裏傳來一片吵嚷聲。
老板急忙叫過一個服務員，問她出了什麼事。
服務員回道：“采購員今天忘了買肉，客人點的菜半天送不上去，正在發脾氣呢”。
老板頓時慌了神，這時，身旁的散戶猛地拔出一把尖刀，捋起褲腿，“噌”地一刀割下一大塊肉，血淋淋地丟給服務員：“先拿去應急。”
轉身對老板說道：“老子別的本事沒有 ，割肉是經常幹的，不信你問問他們二位。
“我做過操盤手。”
“手藝 怎麼樣？”
“也沒什麼，只不過能把股價從5 元炒到50元而已。”
“太好了，我這裏正需要一個大廚，就是你了”。
第二個人遞上了履曆表，老板翻了翻，說道：“噢，是股評家呀。這樣吧，你的工作就是每天站在門口，見人就給我往裏拉，這點事對你來說不難吧？”
轉頭問第三個人：“你是幹什麼的？”
那人羞得滿臉通紅，不敢吱聲。
第二個人急忙說道：“他是我帶來的，散戶出身，洗碗掃地什麼的隨便安排個活就行。”
老板有些為難：“我這裏很高級的，要散戶作什麼？”
正說著，忽聽大堂裏傳來一片吵嚷聲。
老板急忙叫過一個服務員，問她出了什麼事。
服務員回道：“采購員今天忘了買肉，客人點的菜半天送不上去，正在發脾氣呢”。
老板頓時慌了神，這時，身旁的散戶猛地拔出一把尖刀，捋起褲腿，“噌”地一刀割下一大塊肉，血淋淋地丟給服務員：“先拿去應急。”
轉身對老板說道：“老子別的本事沒有 ，割肉是經常幹的，不信你問問他們二位。
Big Boys unloading ?
US trying to buy time may or may not work........... eventually someone has to foot the sub-prime bill...........
lately, US lawmakers trying to push through $50 billions increase in rich taxes which timing is too coincidental............
boom and bust cycles are the natural order of things.............
Too many BBs still stuck in the markets.......... just check out the US banking stocks which have been hammered down from the highs............ compounded with China credit tightening before the Olympics 2008........... this recent rally may be the last waltz for BBs unloading............................. Really do not see any strong reason for Dow to break record highs.................. anyone disagree with this???........... but again stock markets are emotional driven................. bottom line is to push up to unload .............
lately, US lawmakers trying to push through $50 billions increase in rich taxes which timing is too coincidental............
boom and bust cycles are the natural order of things.............
Too many BBs still stuck in the markets.......... just check out the US banking stocks which have been hammered down from the highs............ compounded with China credit tightening before the Olympics 2008........... this recent rally may be the last waltz for BBs unloading............................. Really do not see any strong reason for Dow to break record highs.................. anyone disagree with this???........... but again stock markets are emotional driven................. bottom line is to push up to unload .............
Friday, December 7, 2007
What if US falls into a recession?
Preferred themes in times of global uncertainty.
While the idea of a recession is technically defined as a decline in a country’s gross domestic product (GDP) for two or more consecutive quarters in a year, the American National Bureau of Economic Research sees it simply as “a significant decline in economic activity across the country”.
With the US possibly flirting with a recession, what should Singapore investors do?
What are some stocks worth looking into?
Recession or not?
Recessions are generally thought to be recognizable only after they occur,which is why there is much ongoing debate about the present state of the US economy.
During March before the current sub-prime housing crisis had fully manifested itself, former Federal Reserve Chairman Alan Greenspan had mentioned that there is a one-third probability of a US recession in 2007, a distinct contrast to the outlook stated by the Fed officials back then.
However, according to the co-founder of the Quantum Fund Jim Rogers during October, he believes that the US has already entered into a recession.
A poll carried out by CNN during the same month also revealed that 46% of the American citizens hold that belief. While some may maintain that the US economy is not yet into a recession, many would argue that it is unquestionably on the brink of one. Listed below are the factors that have brought about this present economic uncertainty and may further serve as the tipping point.
Sub-prime housing concerns.
US sub-prime housing issues should be well-imbued into the minds of anyone who reads the morning papers by now. Its impact was not confined solely to the housing-related industries – numerous banks and hedge funds have registered astronomical losses as well due to defaults in mortgage payments and asset devaluation while in several cases, have even led to bankruptcy for some. Currently, those which have filed for Chapter 11 include sub-prime lenders New Century Financial and Ameriquest, mortgage lender American Home Mortgage, on-line bank NetBank and cash-management firm Sentinel Management Group.
As of Nov-07, it was also estimated that a total of US$30bn in sub-prime related losses had been recognized by banks, while an additional US$8-US$11bn is still pending from Citibank.
Actions undertaken by the Fed to mitigate this crisis has been the lowering of interest rates by 75 basis points so far, although it has also injected US$41bn into the money supply for banks to borrow at a lower rate. The size of this injection by the Fed has been the single largest amount prior to 19 Sep 2001 when US$50.35bn was poured in to response to the fallout from the Sep 11 terrorist attacks. Meanwhile, in October, a group of US banks (Citigroup, JPMorgan and Bank of America) backed by the US government introduced a “super fund” of US$100bn in hopes of restoring liquidity to the market through the purchase of mortgage backed securities whose mark-to-market value had nosedived in this sub-prime crisis.
Despite all the remedies that have been engaged thus far, however, the sub-prime housing issue looks set to worsen. It has been surmised that 16% of the estimated US$1.3 trillion(around US$200bn) in sub-prime mortgages were in default as of Oct 2007. Taking into account that higher refinancing rates are in store for US$500bn worth of sub-prime mortgages for the next 12 months, this would undoubtedly place additional pressure on the homeowners while the original US$200bn figure is set to balloon even further. Banks, funds and mortgage lenders holding on to their mortgage backed securities would undeniably receive another hit.
2
with their losses escalating.
Soaring crude oil prices. While the recent pullback in crude oil to US$90 from US$99 comes as a relief, higher prices are seemingly here to stay. Refinery constraints, geopolitical concerns, hurricanes and excessive speculation all look to contribute even further to oil’s rampant rise from its 2007 low of US$50.48. The International Energy Agency has also cautioned during October that the rapidly growing appetite for fossil fuels in China and India is likely to keep oil prices high for the foreseeable future and would threaten global economic growth. It noted that these two countries had accounted for more than two-thirds of global oil demand for the last 18 months and that demand for oil in China would eventually equal the entire supply from Saudi Arabia.
Appreciating fuel prices that consumers and businesses have absorbed earlier in the year could now be tipping the US economy into recession, according to the chief economist at Global Insight who was formerly a Federal Reserve economist. Fed Chairman Ben Bernanke seems to agree, as he told Congress during November that high oil prices places further restraint on growth while accelerating inflation. Coupled with concerns over the housing market, crude at US$120 could very well serve as the coup de grace for the US economy.
Declining US economic growth. According to the US Bureau of Economic Analysis (BEA), GDP had expanded at an annual rate of 4.9%in 3Q07 which was its fastest pace in four years.
This positive showing was attributed to higher contribution from exports and an increase in inventory investment. The devil is in the details, however, as growth was not balanced with nearly half of which came from the aforesaid two factors. The housing component recorded a seventh straight quarter of contraction and shaved off a full percentage point from the growth rate. Corporate profits also fell by US$19.3bn or 1.2% after a US$94.7bn increase in the second quarter.
Ever since hitting its peak at 3.6% in 2004, economic growth in the US has been on a downtrend. After the figures for 3Q07 were released, forecasts for full year growth in 2007 now range from 2.1% to 2.7% with the private sector (the Blue Chip Economic Indicators survey)being the most pessimistic. Government officials from the White House saw a better picture and pegged growth in 2007 and 2008 to be 2.7%. The FOMC, however, thought otherwise and expected a range of 1.8% – 2.5% GDP growth for next year. All three bodies concurred that economic expansion is set to fall even further.
Figure 1: US GDP growth and estimates
US GDP growth FOMC White House Blue Chip Economic Indicators
survey
2008 (F) 1.8% – 2.5% 2.70% 2.40%
2007 (F) 2.4% – 2.5% 2.70% 2.10%
3Q07 (A) 4.90%
2Q07 (A) 3.80%
1Q07 (A) 0.60%
2006 (A) 2.90%
2005 (A) 3.10%
2004 (A) 3.60%
Source: Reuters
A weakening US dollar. After rising approximately 500 bps from 119.00 to 124.00 in the first half of the year, the USD/JPY currency pair whose movement is highly correlated to the DJIA, has now fallen to around 110.00 as investors unwind from their carry trade positions.
The drop in the US dollar is also evident in the USD/CAD currency pair, where it nosedived from 1.1800 during the start of the year to hit parity on Sep-07. Commodity crosses told a similar story as the Aussie dollar rose 8 cents against the US dollar to 0.87 while the New Zealand kiwi jumped roughly 6 cents so far for the year. The rival currency of the US dollar, the Euro, also hit its alltime
high of 1.4960 during Nov-07.
As if to further exacerbate the situation, the Gulf Cooperation Council (consisting of Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates, Qatar and Oman) are to meet for the Doha
3
Summit in December to discuss breaking their respective currencies from the US dollar peg.
Meanwhile, Chinese officials have also expressed their intent to diversify the nation’s US$1.43 trillion reserves in response to the falling buck. Comments from Greenspan that the Euro will eventually be the world’s reserve currency also did not instill much confidence to the US dollar.
Consumer spending in the US accounts for around 70% of its economy. As such, if the purchasing power of the US consumer were to decline dramatically, this would inevitably raise concerns over the sustainability of the whole economy. The inclination by the Federal Reserve to cut interest rates for the foreseeable future that would further weaken the US dollar does not help.
WHAT TO DO
Given the uncertainty surrounding the US economy, what are investors to do?
The overallmarket may weaken, but we see strength in particular sectors. Companies riding on the domestic reflation story – banks, property and construction companies - should benefit. Banks have been hit particularly hard in recent months as a result of the US subprime crisis, but have stabilized in the last couple of weeks. Of the Big Three, UOB should be the biggest beneficiary of mortgage financing of residential projects due for completion in the next 2 years. Margins are also expected to head north as the macro climate improves.
Notwithstanding the high oil prices, transport companies also offer a good shelter for investors should the weather turn nasty in the US. We like SMRT for its organic growth and cost efficiencies. Ridership on its trains is expected to grow a healthy 6% in 2008 on the back of Singapore’s strong economy, which has bolstered employment and discretionary travel (eg
shopping on weekends). While 6% growth may not seem to be impressive, it actually is so due to cost efficiencies. For example, in its 2QFY08 results, revenue inched up 5%, but net profit actually jumped 25%.
StarHub, Singapore’s second largest telco, is another play into the domestic growth story. It has its tentacles in telco (mobile and fixed), Internet and cable services and is growing nicely through its “hubbing” strategy. With mobile number portability (MNP) coming on in the second quarter of 2008, StarHub is in a good position to improve its market share. At 5.2%, it has the best yield among the telcos.
Media giant SPH has a few positive drivers in 2008 – robust publishing business, higher retail property income and earnings coming through from its Sky@Eleven project, which was sold out shortly after its launch earlier this year. One of the biggest draws of SPH is its attractive prospective yield of over 7%, one of the best among the blue chips.
Offshore and Marine is another sector that is worth looking into. Order books running into billions of dollars are locked-in and run till 2011. The forex debacle at SembCorp Marine and Labroy Marine threw up some doubts on the industry’s internal controls and practices, but these cases seem to be the exception rather than the norm. We believe second-tier players like ASL Marine and Sinwa have the potential to outperform its industry peers in 2008.
ASL Marine is a fully integrated marine company with a strong focus in shipbuilding, shiprepair, shipchartering, and other marine related services, catering to customers mainly from Asia Pacific, South Asia, the Middle East, and Europe. The strong demand for offshore oil and gas exploration activities is driving up orders for new support vessels. As a result, it is sitting on record ship building orders of over S$600m. It is also riding on the back of booming infrastructure development in the Middle East.
Sinwa, a regional marine supply and logistics company, services the oil and gas industry and sea-going vessels in Singapore, United Arab Emirates (UAE), China and Australia. The ship chandler is expected to benefit from the buoyant shipping industry, especially from its 7 ports in China. Its fledgling Australia operations, which support the offshore marine activities, turned around in second quarter of 2007 and is expected to be profitable for the full year.
While the idea of a recession is technically defined as a decline in a country’s gross domestic product (GDP) for two or more consecutive quarters in a year, the American National Bureau of Economic Research sees it simply as “a significant decline in economic activity across the country”.
With the US possibly flirting with a recession, what should Singapore investors do?
What are some stocks worth looking into?
Recession or not?
Recessions are generally thought to be recognizable only after they occur,which is why there is much ongoing debate about the present state of the US economy.
During March before the current sub-prime housing crisis had fully manifested itself, former Federal Reserve Chairman Alan Greenspan had mentioned that there is a one-third probability of a US recession in 2007, a distinct contrast to the outlook stated by the Fed officials back then.
However, according to the co-founder of the Quantum Fund Jim Rogers during October, he believes that the US has already entered into a recession.
A poll carried out by CNN during the same month also revealed that 46% of the American citizens hold that belief. While some may maintain that the US economy is not yet into a recession, many would argue that it is unquestionably on the brink of one. Listed below are the factors that have brought about this present economic uncertainty and may further serve as the tipping point.
Sub-prime housing concerns.
US sub-prime housing issues should be well-imbued into the minds of anyone who reads the morning papers by now. Its impact was not confined solely to the housing-related industries – numerous banks and hedge funds have registered astronomical losses as well due to defaults in mortgage payments and asset devaluation while in several cases, have even led to bankruptcy for some. Currently, those which have filed for Chapter 11 include sub-prime lenders New Century Financial and Ameriquest, mortgage lender American Home Mortgage, on-line bank NetBank and cash-management firm Sentinel Management Group.
As of Nov-07, it was also estimated that a total of US$30bn in sub-prime related losses had been recognized by banks, while an additional US$8-US$11bn is still pending from Citibank.
Actions undertaken by the Fed to mitigate this crisis has been the lowering of interest rates by 75 basis points so far, although it has also injected US$41bn into the money supply for banks to borrow at a lower rate. The size of this injection by the Fed has been the single largest amount prior to 19 Sep 2001 when US$50.35bn was poured in to response to the fallout from the Sep 11 terrorist attacks. Meanwhile, in October, a group of US banks (Citigroup, JPMorgan and Bank of America) backed by the US government introduced a “super fund” of US$100bn in hopes of restoring liquidity to the market through the purchase of mortgage backed securities whose mark-to-market value had nosedived in this sub-prime crisis.
Despite all the remedies that have been engaged thus far, however, the sub-prime housing issue looks set to worsen. It has been surmised that 16% of the estimated US$1.3 trillion(around US$200bn) in sub-prime mortgages were in default as of Oct 2007. Taking into account that higher refinancing rates are in store for US$500bn worth of sub-prime mortgages for the next 12 months, this would undoubtedly place additional pressure on the homeowners while the original US$200bn figure is set to balloon even further. Banks, funds and mortgage lenders holding on to their mortgage backed securities would undeniably receive another hit.
2
with their losses escalating.
Soaring crude oil prices. While the recent pullback in crude oil to US$90 from US$99 comes as a relief, higher prices are seemingly here to stay. Refinery constraints, geopolitical concerns, hurricanes and excessive speculation all look to contribute even further to oil’s rampant rise from its 2007 low of US$50.48. The International Energy Agency has also cautioned during October that the rapidly growing appetite for fossil fuels in China and India is likely to keep oil prices high for the foreseeable future and would threaten global economic growth. It noted that these two countries had accounted for more than two-thirds of global oil demand for the last 18 months and that demand for oil in China would eventually equal the entire supply from Saudi Arabia.
Appreciating fuel prices that consumers and businesses have absorbed earlier in the year could now be tipping the US economy into recession, according to the chief economist at Global Insight who was formerly a Federal Reserve economist. Fed Chairman Ben Bernanke seems to agree, as he told Congress during November that high oil prices places further restraint on growth while accelerating inflation. Coupled with concerns over the housing market, crude at US$120 could very well serve as the coup de grace for the US economy.
Declining US economic growth. According to the US Bureau of Economic Analysis (BEA), GDP had expanded at an annual rate of 4.9%in 3Q07 which was its fastest pace in four years.
This positive showing was attributed to higher contribution from exports and an increase in inventory investment. The devil is in the details, however, as growth was not balanced with nearly half of which came from the aforesaid two factors. The housing component recorded a seventh straight quarter of contraction and shaved off a full percentage point from the growth rate. Corporate profits also fell by US$19.3bn or 1.2% after a US$94.7bn increase in the second quarter.
Ever since hitting its peak at 3.6% in 2004, economic growth in the US has been on a downtrend. After the figures for 3Q07 were released, forecasts for full year growth in 2007 now range from 2.1% to 2.7% with the private sector (the Blue Chip Economic Indicators survey)being the most pessimistic. Government officials from the White House saw a better picture and pegged growth in 2007 and 2008 to be 2.7%. The FOMC, however, thought otherwise and expected a range of 1.8% – 2.5% GDP growth for next year. All three bodies concurred that economic expansion is set to fall even further.
Figure 1: US GDP growth and estimates
US GDP growth FOMC White House Blue Chip Economic Indicators
survey
2008 (F) 1.8% – 2.5% 2.70% 2.40%
2007 (F) 2.4% – 2.5% 2.70% 2.10%
3Q07 (A) 4.90%
2Q07 (A) 3.80%
1Q07 (A) 0.60%
2006 (A) 2.90%
2005 (A) 3.10%
2004 (A) 3.60%
Source: Reuters
A weakening US dollar. After rising approximately 500 bps from 119.00 to 124.00 in the first half of the year, the USD/JPY currency pair whose movement is highly correlated to the DJIA, has now fallen to around 110.00 as investors unwind from their carry trade positions.
The drop in the US dollar is also evident in the USD/CAD currency pair, where it nosedived from 1.1800 during the start of the year to hit parity on Sep-07. Commodity crosses told a similar story as the Aussie dollar rose 8 cents against the US dollar to 0.87 while the New Zealand kiwi jumped roughly 6 cents so far for the year. The rival currency of the US dollar, the Euro, also hit its alltime
high of 1.4960 during Nov-07.
As if to further exacerbate the situation, the Gulf Cooperation Council (consisting of Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates, Qatar and Oman) are to meet for the Doha
3
Summit in December to discuss breaking their respective currencies from the US dollar peg.
Meanwhile, Chinese officials have also expressed their intent to diversify the nation’s US$1.43 trillion reserves in response to the falling buck. Comments from Greenspan that the Euro will eventually be the world’s reserve currency also did not instill much confidence to the US dollar.
Consumer spending in the US accounts for around 70% of its economy. As such, if the purchasing power of the US consumer were to decline dramatically, this would inevitably raise concerns over the sustainability of the whole economy. The inclination by the Federal Reserve to cut interest rates for the foreseeable future that would further weaken the US dollar does not help.
WHAT TO DO
Given the uncertainty surrounding the US economy, what are investors to do?
The overallmarket may weaken, but we see strength in particular sectors. Companies riding on the domestic reflation story – banks, property and construction companies - should benefit. Banks have been hit particularly hard in recent months as a result of the US subprime crisis, but have stabilized in the last couple of weeks. Of the Big Three, UOB should be the biggest beneficiary of mortgage financing of residential projects due for completion in the next 2 years. Margins are also expected to head north as the macro climate improves.
Notwithstanding the high oil prices, transport companies also offer a good shelter for investors should the weather turn nasty in the US. We like SMRT for its organic growth and cost efficiencies. Ridership on its trains is expected to grow a healthy 6% in 2008 on the back of Singapore’s strong economy, which has bolstered employment and discretionary travel (eg
shopping on weekends). While 6% growth may not seem to be impressive, it actually is so due to cost efficiencies. For example, in its 2QFY08 results, revenue inched up 5%, but net profit actually jumped 25%.
StarHub, Singapore’s second largest telco, is another play into the domestic growth story. It has its tentacles in telco (mobile and fixed), Internet and cable services and is growing nicely through its “hubbing” strategy. With mobile number portability (MNP) coming on in the second quarter of 2008, StarHub is in a good position to improve its market share. At 5.2%, it has the best yield among the telcos.
Media giant SPH has a few positive drivers in 2008 – robust publishing business, higher retail property income and earnings coming through from its Sky@Eleven project, which was sold out shortly after its launch earlier this year. One of the biggest draws of SPH is its attractive prospective yield of over 7%, one of the best among the blue chips.
Offshore and Marine is another sector that is worth looking into. Order books running into billions of dollars are locked-in and run till 2011. The forex debacle at SembCorp Marine and Labroy Marine threw up some doubts on the industry’s internal controls and practices, but these cases seem to be the exception rather than the norm. We believe second-tier players like ASL Marine and Sinwa have the potential to outperform its industry peers in 2008.
ASL Marine is a fully integrated marine company with a strong focus in shipbuilding, shiprepair, shipchartering, and other marine related services, catering to customers mainly from Asia Pacific, South Asia, the Middle East, and Europe. The strong demand for offshore oil and gas exploration activities is driving up orders for new support vessels. As a result, it is sitting on record ship building orders of over S$600m. It is also riding on the back of booming infrastructure development in the Middle East.
Sinwa, a regional marine supply and logistics company, services the oil and gas industry and sea-going vessels in Singapore, United Arab Emirates (UAE), China and Australia. The ship chandler is expected to benefit from the buoyant shipping industry, especially from its 7 ports in China. Its fledgling Australia operations, which support the offshore marine activities, turned around in second quarter of 2007 and is expected to be profitable for the full year.
Can you make a million $$$ in stock market???
That's the question I keep asking myself every time.
YOU don't need to be a rocket scientist to make it....that's my view.
Many people dare not take risk in stock market......I saw it as a Go0d investment......I know for a fact that china was a booming market....a company with good foresight..no matter how cheap will have the glory of becoming a gem. The top guy is a high flyer...who gave up his job & join the company. With his contacts he was able to get a share of the developments in china. This guy is being paid by shares...Simply means....if the company perform very well in the coming years....his shares in the company will also grow in time. Would you work double hard if you were him??? I would...I work triple hard.
A lot of people lost money because they punt & think the market will never crash....In reality....what GO up must come down....no point crying over spilled milk. Just learn your lesson & try not to make it twice..
IF YOU BELIEVE...YOU will make it...YOU really need to lose money first in order to earn money eventually...just like baby need to fall before learning to walk..before he can run.....THERE IS NO SHORT CUT.
SIMPLE??? NOT really...I learn the hard way.
There is never any poor or wrong decision when investing in stock market....I may be right or lucky sometime...doesn't mean I'm always right.....it take guts to invest in the unknown...
You just have to do some homework & study the movements of the charts & prices....IT'S HARD WORK
just hoping some will believe ..& don't give up....YOU really can earn money from stock market..just don't be over confident & greedy.
YOU don't need to be a rocket scientist to make it....that's my view.
Many people dare not take risk in stock market......I saw it as a Go0d investment......I know for a fact that china was a booming market....a company with good foresight..no matter how cheap will have the glory of becoming a gem. The top guy is a high flyer...who gave up his job & join the company. With his contacts he was able to get a share of the developments in china. This guy is being paid by shares...Simply means....if the company perform very well in the coming years....his shares in the company will also grow in time. Would you work double hard if you were him??? I would...I work triple hard.
A lot of people lost money because they punt & think the market will never crash....In reality....what GO up must come down....no point crying over spilled milk. Just learn your lesson & try not to make it twice..
IF YOU BELIEVE...YOU will make it...YOU really need to lose money first in order to earn money eventually...just like baby need to fall before learning to walk..before he can run.....THERE IS NO SHORT CUT.
SIMPLE??? NOT really...I learn the hard way.
There is never any poor or wrong decision when investing in stock market....I may be right or lucky sometime...doesn't mean I'm always right.....it take guts to invest in the unknown...
You just have to do some homework & study the movements of the charts & prices....IT'S HARD WORK
just hoping some will believe ..& don't give up....YOU really can earn money from stock market..just don't be over confident & greedy.
The Buy and Hold Fallacy
I notice one very distinctive trait of many investors, which is the flawed view of the "buy and hold" strategy.
Many investors believe that as long as the fundamentals of a company are sound and that the company is making profits, they can simply hold on o their shares forever until they are "above water" again (meaning they can break even or make a small profit).
A lot of traders and speculators also unwittingly become "long-term investors" when a stock they buy tanks below their cut-loss point, making it much too painful to realize the loss. They then hold on to dear life wishing for the stock price to rise to their buy price in the future.
Others simply buy and hold because they believe that one should go long-term for shares, irregardless of how the company's underlying business is doing.
Thus, they may end up with a dud company trading at 3 to 4x PER languishing in a commodity business and giving a paltry dividend yield of less than 2%.Let us not get this wrong: there is nothing fundamentally flawed with the principle of buy and hold, and this strategy has proven to be effective through market volatility and different economic conditions.
However, what I wish to clarify is that one should not buy and hold BLINDLY. There are several key points to note which make "buy and hold" different from value investing per se, and these involve a close look at the price you pay for an investment, as well as the quality of the underlying business.
Let's examine these factors more closely:-
1) Price Paid -
An investor must always examine the fundamentals of the company and its earnings, including future earnings and dividend prospects; in order to decide how much to pay for an investment. If the price paid is too high (refer to my posting on Investment Mistakes under "Asiapharm"), then it will take a long time for the value of the business to catch up with its price (if ever !).
Eventually, the buy and hold may turn in a very small gain if the original price paid was too high (like in the dot.com bull run which saw valuations reaching stratospheric levels).
2) Deteriorating Fundamentals -
No amount of buy and hold can save the investor from a permanent loss of capital if the company's fundamentals deteriorate. It may be anything from higher cost of goods sold, entrance of a powerful competitor, loss of monopolistic pricing or lower barriers to entry for the industry (e.g. liberalization of certain rules or laws); but the effect may be debilitating and permanent.
An investor has to constantly keep up with news on the industry which affects his investment, in order to be able to react accordingly and sell if he sees long-term trouble ahead. Admittedly, this takes some skill and foresight; but an investor cannot afford to be passive, otherwise if he checks back 10 years later he may end up with only a fraction of his original investment left !
3) Opportunity Costs -
Another demon associated with buy and hold which is often overlooked by investors is that of opportunity costs. This means your money is "locked up" in a useless investment generating sub-par returns which cannot even exceed the inflation rate (currently at 3.6% p.a.); while other opportunities whizz by you.
Opportunity costs are the single most insidious aspect of a flawed buy and hold strategy, as it deprives the investor of much needed funds to channel to a more promising investment with good growth potential. During the subsequent bear market after the dot.com bubble burst, many investors were saddled with useless investments in which they could not bear to divest, thus depriving them of much needed cash to buy when prices were depressed.
Thus, the above illustrates the dangers of "buy and hold" when applied wrongly, and this is frequently seen on stock forums where people claim that as long as they "buy and hold", they will eventually make money or recover their losses.
Remember that a stock does not know that you own it, thus there is no emotional or logical reason for a share price to move back to your BUY price, as it is totally unaware of you as a person.
The bottom line is not to get too emotional about your investments, and to view them objectively as investments which should give you an adequate rate of return.
Many investors believe that as long as the fundamentals of a company are sound and that the company is making profits, they can simply hold on o their shares forever until they are "above water" again (meaning they can break even or make a small profit).
A lot of traders and speculators also unwittingly become "long-term investors" when a stock they buy tanks below their cut-loss point, making it much too painful to realize the loss. They then hold on to dear life wishing for the stock price to rise to their buy price in the future.
Others simply buy and hold because they believe that one should go long-term for shares, irregardless of how the company's underlying business is doing.
Thus, they may end up with a dud company trading at 3 to 4x PER languishing in a commodity business and giving a paltry dividend yield of less than 2%.Let us not get this wrong: there is nothing fundamentally flawed with the principle of buy and hold, and this strategy has proven to be effective through market volatility and different economic conditions.
However, what I wish to clarify is that one should not buy and hold BLINDLY. There are several key points to note which make "buy and hold" different from value investing per se, and these involve a close look at the price you pay for an investment, as well as the quality of the underlying business.
Let's examine these factors more closely:-
1) Price Paid -
An investor must always examine the fundamentals of the company and its earnings, including future earnings and dividend prospects; in order to decide how much to pay for an investment. If the price paid is too high (refer to my posting on Investment Mistakes under "Asiapharm"), then it will take a long time for the value of the business to catch up with its price (if ever !).
Eventually, the buy and hold may turn in a very small gain if the original price paid was too high (like in the dot.com bull run which saw valuations reaching stratospheric levels).
2) Deteriorating Fundamentals -
No amount of buy and hold can save the investor from a permanent loss of capital if the company's fundamentals deteriorate. It may be anything from higher cost of goods sold, entrance of a powerful competitor, loss of monopolistic pricing or lower barriers to entry for the industry (e.g. liberalization of certain rules or laws); but the effect may be debilitating and permanent.
An investor has to constantly keep up with news on the industry which affects his investment, in order to be able to react accordingly and sell if he sees long-term trouble ahead. Admittedly, this takes some skill and foresight; but an investor cannot afford to be passive, otherwise if he checks back 10 years later he may end up with only a fraction of his original investment left !
3) Opportunity Costs -
Another demon associated with buy and hold which is often overlooked by investors is that of opportunity costs. This means your money is "locked up" in a useless investment generating sub-par returns which cannot even exceed the inflation rate (currently at 3.6% p.a.); while other opportunities whizz by you.
Opportunity costs are the single most insidious aspect of a flawed buy and hold strategy, as it deprives the investor of much needed funds to channel to a more promising investment with good growth potential. During the subsequent bear market after the dot.com bubble burst, many investors were saddled with useless investments in which they could not bear to divest, thus depriving them of much needed cash to buy when prices were depressed.
Thus, the above illustrates the dangers of "buy and hold" when applied wrongly, and this is frequently seen on stock forums where people claim that as long as they "buy and hold", they will eventually make money or recover their losses.
Remember that a stock does not know that you own it, thus there is no emotional or logical reason for a share price to move back to your BUY price, as it is totally unaware of you as a person.
The bottom line is not to get too emotional about your investments, and to view them objectively as investments which should give you an adequate rate of return.
Inter-Roller : insider trade 2
I am no Technical chartist. My key is FA and valuation, and very much Buffett style.
After researching into a stock, I will be happy to start buying when the price offers me a big enough margin of safety.
But it has happened many times before that the price falls after I have started buying, and my normal reaction is to buy more shares to bring down my cost further to achieve the lowest average cost if possible for my desired holdings.
As I buy to hold for a reasonable period, short term price volatility after I have bought into a stock does not affect me psychologically too much. I think if you choose a stock well and buy into it at a low enough price, the price risk naturally should be lower.
In addition to dydx's comment about insider buying.
I think insider buying is a good indicator, but only if the insider is savvy enough or truly aware of how the financial market works.
I believe that the top mgmt of Enron were still buying up their own shares even when they were pulling those tricks. There would also be some founders or inventor who are enamoured of the business they have built up and are therefore not reliable indicators.
What I found interesting about this particular insider (Lim Yong Wah) is that he has sold shares close to the peak around $1.20 (12th July 07) and is now buying back at what arguably could be the bottom.
I would therefore put much greater weight on his "trading" patterns because he seems to be expressing a nuanced view of the company's value.
After researching into a stock, I will be happy to start buying when the price offers me a big enough margin of safety.
But it has happened many times before that the price falls after I have started buying, and my normal reaction is to buy more shares to bring down my cost further to achieve the lowest average cost if possible for my desired holdings.
As I buy to hold for a reasonable period, short term price volatility after I have bought into a stock does not affect me psychologically too much. I think if you choose a stock well and buy into it at a low enough price, the price risk naturally should be lower.
In addition to dydx's comment about insider buying.
I think insider buying is a good indicator, but only if the insider is savvy enough or truly aware of how the financial market works.
I believe that the top mgmt of Enron were still buying up their own shares even when they were pulling those tricks. There would also be some founders or inventor who are enamoured of the business they have built up and are therefore not reliable indicators.
What I found interesting about this particular insider (Lim Yong Wah) is that he has sold shares close to the peak around $1.20 (12th July 07) and is now buying back at what arguably could be the bottom.
I would therefore put much greater weight on his "trading" patterns because he seems to be expressing a nuanced view of the company's value.
Market Update
Trading activity among 2nd and 3rd liner stocks started to pick up on Tuesday afternoon and continue yesterday.
The leader group was the S-chips, which attempted to and broke out of their 1-2 weeks long sideways consolidation band.US market's overnight rally should see follow through gains among small caps in early session trade but China's decision to shift its monetary policy from 'prudent' to 'tight' next year could be taken as a reason for short-term profit taking.
The Chinese government is concerned that inflation and the bubble in asset prices could threaten social stability. Bargain hunt only on pullback rather than momentum buying into strength is preferred for S-chips that have risen in the past two days.
STI should spurt above the Monday high of 3570 but upside should be capped at below 3640 as market awaits US employment data scheduled for release tomorrow. US markets rallied on positive economic news and after regulators and lenders agreed to freeze interest rates on subprime mortgages for a period of five years.
The ADP report showed that the private sector expanded at a faster pace in November, fueling optimism that Friday's job data may show that the US economy is not dipping into the brink of a recession.
However, the ADP report is noted to be highly volatile. In separate economic data releases, factor orders went up while the non-manufacturing sector continued to grow. Still, one day of positive data does not wash away concerns about a US economic slowdown.
Watch too, for oil price movement. OPEC has left production quotas unchanged.
Federal Reserve is looking for additional ways to increase credit to companies and consumers. It may lower the discount rate, which is what it charges banks for short-term direct loans, by a quarter-point more than the benchmark rate.
Such a move would narrow the gap between the two rates, normally one percentage point, to a quarter-point and may spur lending.
The leader group was the S-chips, which attempted to and broke out of their 1-2 weeks long sideways consolidation band.US market's overnight rally should see follow through gains among small caps in early session trade but China's decision to shift its monetary policy from 'prudent' to 'tight' next year could be taken as a reason for short-term profit taking.
The Chinese government is concerned that inflation and the bubble in asset prices could threaten social stability. Bargain hunt only on pullback rather than momentum buying into strength is preferred for S-chips that have risen in the past two days.
STI should spurt above the Monday high of 3570 but upside should be capped at below 3640 as market awaits US employment data scheduled for release tomorrow. US markets rallied on positive economic news and after regulators and lenders agreed to freeze interest rates on subprime mortgages for a period of five years.
The ADP report showed that the private sector expanded at a faster pace in November, fueling optimism that Friday's job data may show that the US economy is not dipping into the brink of a recession.
However, the ADP report is noted to be highly volatile. In separate economic data releases, factor orders went up while the non-manufacturing sector continued to grow. Still, one day of positive data does not wash away concerns about a US economic slowdown.
Watch too, for oil price movement. OPEC has left production quotas unchanged.
Federal Reserve is looking for additional ways to increase credit to companies and consumers. It may lower the discount rate, which is what it charges banks for short-term direct loans, by a quarter-point more than the benchmark rate.
Such a move would narrow the gap between the two rates, normally one percentage point, to a quarter-point and may spur lending.
Trading idea - GuangZhao IFB
GuangZhao IFB is on course to clear 36-37 cent resistance and move back to 40-45 cent highs.
Price :$0.35
Support 32 cents
Resistance 40 cents
TP 42 cents
The July and September/early October rallies to new peaks of 45-
46.5 cents were active periods while the August and last month’s
correction phases did not see widespread selling.
Since the last Nov 20 low of 27 cents, the stock has appreciated
gradually on quiet trading but turnover rose well to 6.15m shares
yesterday as it moved up from 33 to 35.5 cents at the low end of the
earlier 35-40 cent support area.
The 19 and 39 days MAs are signalling a likely golden crossover in
the days ahead and if volumes rise further, last year’s 36-37 cent
highs should be taken out and GIFB move quickly to 40 cents.
The MACD which has cut its signal line remains in oversold territory
and while the RSI is neutral, this should not hamper the stock’s
steady appreciation. It has already recovered to above the 62%
mark of 32.5 cents between 46.5 peak and 10 cent record low.
This should pave the way for a full upward retracement to 45-46.5
cents which may well come in the next month or 2 in view of the
average 10 week gap between the 45 cent peak towards end-July
and 46.5 cents in early October.
GIFB has put up a respectable showing this year climbing from 13
cents at end-2006 and when the August plunge set in, it still
managed to hold on to the 38% fibonacci mark of 24 cents. Last
month’s correction stopped at the half way mark of 27-28 cents.
Thus the medium term momentum is still strong enough to propel it
back to above 40 cents with support now strong at this month’s 32
cent low.
Price :$0.35
Support 32 cents
Resistance 40 cents
TP 42 cents
The July and September/early October rallies to new peaks of 45-
46.5 cents were active periods while the August and last month’s
correction phases did not see widespread selling.
Since the last Nov 20 low of 27 cents, the stock has appreciated
gradually on quiet trading but turnover rose well to 6.15m shares
yesterday as it moved up from 33 to 35.5 cents at the low end of the
earlier 35-40 cent support area.
The 19 and 39 days MAs are signalling a likely golden crossover in
the days ahead and if volumes rise further, last year’s 36-37 cent
highs should be taken out and GIFB move quickly to 40 cents.
The MACD which has cut its signal line remains in oversold territory
and while the RSI is neutral, this should not hamper the stock’s
steady appreciation. It has already recovered to above the 62%
mark of 32.5 cents between 46.5 peak and 10 cent record low.
This should pave the way for a full upward retracement to 45-46.5
cents which may well come in the next month or 2 in view of the
average 10 week gap between the 45 cent peak towards end-July
and 46.5 cents in early October.
GIFB has put up a respectable showing this year climbing from 13
cents at end-2006 and when the August plunge set in, it still
managed to hold on to the 38% fibonacci mark of 24 cents. Last
month’s correction stopped at the half way mark of 27-28 cents.
Thus the medium term momentum is still strong enough to propel it
back to above 40 cents with support now strong at this month’s 32
cent low.
Tuesday, December 4, 2007
Inter-Roller : insider trade
Chairman of Inter-Roller, Mr Lim Yong Wah, in his own name and through his wife, has taken advantage of the fallen share price and so far has bought a total of 301 lots in 3 occasions in the last 2 weeks.
As at 3 Dec 07, his total interest now stands at 2.89%, or 9.61m shares......The shares were bought dated 3 Dec, 30 Nov, and 16 Nov.
As at 3 Dec 07, his total interest now stands at 2.89%, or 9.61m shares......The shares were bought dated 3 Dec, 30 Nov, and 16 Nov.
Innovating Our Way to Financial Crisis
The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance.
How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.
This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.
Before I get to that, however, let’s talk about what’s happening right now.
Credit — lending between market players — is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about “liquidity,” is an essential lubricant for the markets, and for the economy as a whole.
But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets — like the London market, in which banks lend to each other — have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.
“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman
Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.
Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.
In a direct sense, this collapse of trust has been caused by the bursting of the housing bubble. The run-up of home prices made even less sense than the dot-com bubble — I mean, there wasn’t even a glamorous new technology to justify claims that old rules no longer applied — but somehow financial markets accepted crazy home prices as the new normal.
And when the bubble burst, a lot of investments that were labeled AAA turned out to be junk.
Thus, “super-senior” claims against subprime mortgages — that is, investments that have first dibs on whatever mortgage payments borrowers make, and were therefore supposed to pay off in full even if a sizable fraction of these borrowers defaulted on their debts — have lost a third of their market value since July.
But what has really undermined trust is the fact that nobody knows where the financial toxic waste is buried. Citigroup wasn’t supposed to have tens of billions of dollars in subprime exposure; it did. Florida’s Local Government Investment Pool, which acts as a bank for the state’s school districts, was supposed to be risk-free; it wasn’t (and now schools don’t have the money to pay teachers).
How did things get so opaque? The answer is “financial innovation” — two words that should, from now on, strike fear into investors’ hearts.
O.K., to be fair, some kinds of financial innovation are good. I don’t want to go back to the days when checking accounts didn’t pay interest and you couldn’t withdraw cash on weekends.
But the innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime crisis.
And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation — but added, “I don’t think we’d want it the other way around.” Is that your final answer, Mr. Secretary?
Now, Mr. Paulson’s new proposal to help borrowers renegotiate their mortgage payments and avoid foreclosure sounds in principle like a good idea (although we have yet to hear any details). Realistically, however, it won’t make more than a small dent in the subprime problem.
The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess.
How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.
This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.
Before I get to that, however, let’s talk about what’s happening right now.
Credit — lending between market players — is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about “liquidity,” is an essential lubricant for the markets, and for the economy as a whole.
But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets — like the London market, in which banks lend to each other — have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.
“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman
Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.
Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.
In a direct sense, this collapse of trust has been caused by the bursting of the housing bubble. The run-up of home prices made even less sense than the dot-com bubble — I mean, there wasn’t even a glamorous new technology to justify claims that old rules no longer applied — but somehow financial markets accepted crazy home prices as the new normal.
And when the bubble burst, a lot of investments that were labeled AAA turned out to be junk.
Thus, “super-senior” claims against subprime mortgages — that is, investments that have first dibs on whatever mortgage payments borrowers make, and were therefore supposed to pay off in full even if a sizable fraction of these borrowers defaulted on their debts — have lost a third of their market value since July.
But what has really undermined trust is the fact that nobody knows where the financial toxic waste is buried. Citigroup wasn’t supposed to have tens of billions of dollars in subprime exposure; it did. Florida’s Local Government Investment Pool, which acts as a bank for the state’s school districts, was supposed to be risk-free; it wasn’t (and now schools don’t have the money to pay teachers).
How did things get so opaque? The answer is “financial innovation” — two words that should, from now on, strike fear into investors’ hearts.
O.K., to be fair, some kinds of financial innovation are good. I don’t want to go back to the days when checking accounts didn’t pay interest and you couldn’t withdraw cash on weekends.
But the innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, who was a member of the Federal Reserve Board, about a potential subprime crisis.
And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation — but added, “I don’t think we’d want it the other way around.” Is that your final answer, Mr. Secretary?
Now, Mr. Paulson’s new proposal to help borrowers renegotiate their mortgage payments and avoid foreclosure sounds in principle like a good idea (although we have yet to hear any details). Realistically, however, it won’t make more than a small dent in the subprime problem.
The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess.
Tight credit could mean choppy markets ahead
WALL Street’s extraordinary moves in late November, with three consecutive shifts of more than 200 points in the Dow Jones Industrial Average, have been attributed to a host of factors. Among the most prominent were Abu Dhabi’s investment in Citigroup, the apparent willingness of the Federal Reserve to cut interest rates, and some disappointing profit numbers.
But market participants suggest that November saw a repeat of the turmoil experienced in August. That was when the credit crunch really hit home and the Fed was forced to change tack and cut the discount rate, only a week after indicating that monetary policy would stay on hold. And it was a month that many investors found to be extraordinarily difficult.
What made August so volatile was that investors were forced to unwind leveraged positions—in other words, investments they had financed with borrowed money. Leverage tends to be used in two circumstances.
The first is when trends are well established, and investors feel confident they will continue; the second is when the cost of borrowing is low, and leverage is thus a cheap way of enhancing returns. But in August, trends suddenly reversed and the credit crunch made it more difficult and expensive to use leverage. That created a whole bunch of forced sellers.
This time round, it seems that leveraged investors have been forced to cut again. Perhaps the strength of the market rebound in September and early October fooled investors into thinking all was rosy and that the markets were replaying the template of 1998-1999, when Fed rate-cuts after a financial crisis led to the final fling of the great equity bull-market.
But when it became clear in early November that the credit crunch was continuing, that more bad news was due from the financial sector, and that the American economy might be fragile in 2008, investors were forced to cut and run. The mechanics of this process may not be clear for a little while.
As in August, it may well be that a multi-strategy fund (a hedge fund that invests across a range of asset classes) decided to cut its positions. In such circumstances, investors often sell what they can, rather that what they might like to. That can lead to some unexpected market movements.
For example, Bloomberg says Treasury bonds had their best month for 12 years in November. It is not impossible that many investors shorted bonds (betting on yields to rise) at the start of the month on the grounds that inflationary expectations were rising. They would have had to switch tactics very quickly as investors flocked to the haven of government bonds.
Perhaps this will be the pattern for markets for some time: a breathtaking switchback ride as risk-seeking investors try to take advantage of short-term trends (and by their actions, make those trends more vicious). But that does raise the question of why volatility was so low in the period 2004-2006. After all, plenty of hedge funds were in existence during that period.
The answer may well be that credit was easy to obtain during that period. Markets were not only less volatile, they were also rising in unison; everything from the price of gold to emerging-market equities to junk bonds was going up. It is the withdrawal of credit that makes markets volatile, and if investors have become complacent about their ability to get access to credit, the volatility will be all the more extreme. Not until banks become more relaxed about lending money will markets return to their 2004-06 state again.
But market participants suggest that November saw a repeat of the turmoil experienced in August. That was when the credit crunch really hit home and the Fed was forced to change tack and cut the discount rate, only a week after indicating that monetary policy would stay on hold. And it was a month that many investors found to be extraordinarily difficult.
What made August so volatile was that investors were forced to unwind leveraged positions—in other words, investments they had financed with borrowed money. Leverage tends to be used in two circumstances.
The first is when trends are well established, and investors feel confident they will continue; the second is when the cost of borrowing is low, and leverage is thus a cheap way of enhancing returns. But in August, trends suddenly reversed and the credit crunch made it more difficult and expensive to use leverage. That created a whole bunch of forced sellers.
This time round, it seems that leveraged investors have been forced to cut again. Perhaps the strength of the market rebound in September and early October fooled investors into thinking all was rosy and that the markets were replaying the template of 1998-1999, when Fed rate-cuts after a financial crisis led to the final fling of the great equity bull-market.
But when it became clear in early November that the credit crunch was continuing, that more bad news was due from the financial sector, and that the American economy might be fragile in 2008, investors were forced to cut and run. The mechanics of this process may not be clear for a little while.
As in August, it may well be that a multi-strategy fund (a hedge fund that invests across a range of asset classes) decided to cut its positions. In such circumstances, investors often sell what they can, rather that what they might like to. That can lead to some unexpected market movements.
For example, Bloomberg says Treasury bonds had their best month for 12 years in November. It is not impossible that many investors shorted bonds (betting on yields to rise) at the start of the month on the grounds that inflationary expectations were rising. They would have had to switch tactics very quickly as investors flocked to the haven of government bonds.
Perhaps this will be the pattern for markets for some time: a breathtaking switchback ride as risk-seeking investors try to take advantage of short-term trends (and by their actions, make those trends more vicious). But that does raise the question of why volatility was so low in the period 2004-2006. After all, plenty of hedge funds were in existence during that period.
The answer may well be that credit was easy to obtain during that period. Markets were not only less volatile, they were also rising in unison; everything from the price of gold to emerging-market equities to junk bonds was going up. It is the withdrawal of credit that makes markets volatile, and if investors have become complacent about their ability to get access to credit, the volatility will be all the more extreme. Not until banks become more relaxed about lending money will markets return to their 2004-06 state again.
Scary signals - but long term global trend still bullish
Some bearish omens are starting to appear throughout the region.
Double top scenarios are starting to appear in most markets as previous highs are retested. Hongkong, Korea, Singapore, Japan, Malaysia, Philippines and Thailand and the US markets all fall within this category.
In Korea, a short term top has broken within a second top, making a six month top scenario that one often sees before a major reversal.
Should we be heading for the hills?
Not just yet. One of the limitations of this system of 'analysis' is that the crystal ball is, for the most part, hazy. Rarely does a clear signal appear.
When it does, there is usually confirmation from many sources. All markets that are correlated - in the case of Asia, nearly all markets except Japan and India - move together and many will give clear signals together.
We've seen that in previous major tops in 1997 and 2000 and, in the case of the major bottoms of 2003, when almost every market in the world broke out in March of that year. While many markets are exhibiting similar scenarios, there is not yet a clear bearish signal to be found in any market. Not in Asia, Europe nor America. Not even a major medium term support has broken for a major index.
Often, by the time a clear signal has emerged, much downside has already occurred. A clear short term or medium term signal is therefore usually of little value. The market often rebounds well before one can trade the reversal. However, in the case of a long term trend reversal, this system of tops and bottoms is often very useful. There is usually time to park a substantial amount of one's assets in cash and hunker down for months or a year or more. While you won't get out at the top, you'll get a sufficient advantage from a clear long term signal to miss out on a major portion of the long term bear. With luck, there will be a clear long entry signal, as occurred in March 2003. The long term trend is therefore what I am mainly interested. It is leisurely, tradable and more reliable.
There are many instances where a potential long term signal appears, only to disappear within a few weeks. The potential top in Korea could well turn into a continuation of the bullish trend. Viewed on a log scale, the volatility of recent months does not appear so menacing. It's important to keep volatility in perspective. The log charts assist in that end.
It is also important not to get carried away with all the fuss and panic in the media. So much short-sighted speculation can only lead to confusion. Keeping an eye on the charts, in particular, the long term charts, preserves your sanity.
The upshot is that one has to be patient and resist the temptation to judge the event before a clear signal emerges. You might want to lighten the load as bearish omens appear. But you will likely lose more by being left behind in a strong bull market, than you would save by making a premature bet on its impending reversal.
In summary, all of the markets in the world are in clear long term bullish trends commencing 2003. While there are some scary signals and much chatter in the press, there is no cause to presume that the four year global bull has run its course. It will happen one day and we will likely get a clear indication. But that hasn't happened yet.
With that sage pronouncement, I will leave you for a couple of weeks. (I'm heading off to India for my annual (or not-so-annual in recent years) pilgrimage to the ghats of Varanasi and the deserts of Rajasthan.)
Do take a look at the global ETFs in the 'other markets' page. They will give you an idea of the global trend as well as an idea of how to diversify globally.
Double top scenarios are starting to appear in most markets as previous highs are retested. Hongkong, Korea, Singapore, Japan, Malaysia, Philippines and Thailand and the US markets all fall within this category.
In Korea, a short term top has broken within a second top, making a six month top scenario that one often sees before a major reversal.
Should we be heading for the hills?
Not just yet. One of the limitations of this system of 'analysis' is that the crystal ball is, for the most part, hazy. Rarely does a clear signal appear.
When it does, there is usually confirmation from many sources. All markets that are correlated - in the case of Asia, nearly all markets except Japan and India - move together and many will give clear signals together.
We've seen that in previous major tops in 1997 and 2000 and, in the case of the major bottoms of 2003, when almost every market in the world broke out in March of that year. While many markets are exhibiting similar scenarios, there is not yet a clear bearish signal to be found in any market. Not in Asia, Europe nor America. Not even a major medium term support has broken for a major index.
Often, by the time a clear signal has emerged, much downside has already occurred. A clear short term or medium term signal is therefore usually of little value. The market often rebounds well before one can trade the reversal. However, in the case of a long term trend reversal, this system of tops and bottoms is often very useful. There is usually time to park a substantial amount of one's assets in cash and hunker down for months or a year or more. While you won't get out at the top, you'll get a sufficient advantage from a clear long term signal to miss out on a major portion of the long term bear. With luck, there will be a clear long entry signal, as occurred in March 2003. The long term trend is therefore what I am mainly interested. It is leisurely, tradable and more reliable.
There are many instances where a potential long term signal appears, only to disappear within a few weeks. The potential top in Korea could well turn into a continuation of the bullish trend. Viewed on a log scale, the volatility of recent months does not appear so menacing. It's important to keep volatility in perspective. The log charts assist in that end.
It is also important not to get carried away with all the fuss and panic in the media. So much short-sighted speculation can only lead to confusion. Keeping an eye on the charts, in particular, the long term charts, preserves your sanity.
The upshot is that one has to be patient and resist the temptation to judge the event before a clear signal emerges. You might want to lighten the load as bearish omens appear. But you will likely lose more by being left behind in a strong bull market, than you would save by making a premature bet on its impending reversal.
In summary, all of the markets in the world are in clear long term bullish trends commencing 2003. While there are some scary signals and much chatter in the press, there is no cause to presume that the four year global bull has run its course. It will happen one day and we will likely get a clear indication. But that hasn't happened yet.
With that sage pronouncement, I will leave you for a couple of weeks. (I'm heading off to India for my annual (or not-so-annual in recent years) pilgrimage to the ghats of Varanasi and the deserts of Rajasthan.)
Do take a look at the global ETFs in the 'other markets' page. They will give you an idea of the global trend as well as an idea of how to diversify globally.
Stock selection - value hunting
Here's what Warren Buffett look for :-
- monopoly businesses (or best of breed company in that industry)
- consistent yearly Return on Equity of 15% or better. (if you want to make 15%+ return on your investment, let's make sure the company can too)
- consistent yearly earnings growth- great management (thinks like a shareholder)
- understandable business with good future long term prospects
- selling at a discount (figuring out the compounded rate of return based on future earnings growth and the future p/e multiple)
Best advice according to Warren Buffett "investment is most intelligent when it is most businesslike".
- monopoly businesses (or best of breed company in that industry)
- consistent yearly Return on Equity of 15% or better. (if you want to make 15%+ return on your investment, let's make sure the company can too)
- consistent yearly earnings growth- great management (thinks like a shareholder)
- understandable business with good future long term prospects
- selling at a discount (figuring out the compounded rate of return based on future earnings growth and the future p/e multiple)
Best advice according to Warren Buffett "investment is most intelligent when it is most businesslike".
Credit Crisis Update
Why the Credit Crisis Shakes more than Banks
It's not just companies like Citibank and Merrill that have exposure to the credit markets.
A surprising number of manufacturers have drifted into financial services.
Harley-Davidson has a problem, and it's not only that people are becoming less inclined to spend $15,000 on a pair of wheels. It's that the ones who bought bikes a while ago are having trouble paying.
Harley itself finances half the hogs it sells. This year defaults on its loans have risen nearly half a percentage point to 1.65%.Harley's fortunes largely ride on its skill at selling bikes. But its ability to size up a good credit risk matters a lot, too. Last quarter 13% of its pretax earnings came from loans and leases.
Herein lies a hidden risk in corporate profitability: It's not just the financial sector that will suffer if the subprime crisis spreads to other kinds of lending.A lot of companies that are not classified as financial have financial arms and could suffer along with the banks and the brokers if borrowers stop paying their bills.
General Electric, for example, gets 34% of its pretax earnings from financial services. Deere & Co., Caterpillar and Pitney Bowes each get at least 12% of their earnings by financing things.Quite apart from the very obvious risk that U.S. consumers will throttle back next year is the risk that they won't be able to keep up payments for their past spending sprees.
Now signs are emerging that payback problems are spreading from mortgages to other kinds of loans. In November HSBC said that unsecured loans like credit cards were experiencing "early-stage delinquency." Last quarter Capital One wrote off 4.13% of its credit card receivables, up three-quarters of a percentage point, and warned it expects losses to jump this quarter again. Its auto loan business just slipped into the red, too.
Did you know that Sony owns 60% of a finance company, Sony Financial? The electronics maker sells health, life and car insurance and even runs a bank. With a few clicks on its Web site shoppers can buy a flat-screen TV or PlayStation 3 gaming system with no money down and no interest until 2009.Last year 82% of Sony's $1.1 billion in pretax earnings came from its financial unit--twice what its pictures division made producing films like The Da Vinci Code and Casino Royale. Sony's financial operations are in fine shape--for now. One area to watch: its $2.8 billion in mortgage loans, up 63% annually since 2004.
Businesses selling to other businesses on credit is big, too. That's more or less how GE veered away from lightbulbs and locomotives and into loans and leases. Now GE's financial operations are a business in their own right, largely unconnected with the products it sells. But the original motivation of non-financial companies getting into lending, to move goods off the shelves, remains important in many industries.
Boeing carries $8 billion of customer leases and interest-bearing receivables on its books. Paccar, a maker of tractor-trailer trucks, has $9 billion.
Frederick Hickey, author of newsletter High Tech Strategist, says:Companies tend to make loans to meet sales goals today, and worry about if they picked the right borrowers tomorrow.
During the tech bubble of the 1990s telecom gear makers like Cisco and Lucent extended billions of dollars of loans to phone companies to buy their products--then took billions in writeoffs when telecom crashed.
Circuit City ate losses early this decade when it exited the credit card business.
How big is financing in the economy? One way to measure it: 18% of the $13 trillion market value of S&P 500 companies is for the financial sector.
That bulge is a big part of why the market has been choppy since last summer: Credit problems are dragging down the banks, brokers and insurers.
Another measure is profits. The finance sector accounts for 28% of the index's combined $748 billion in earnings for 2006. Those earnings are likely to be down in 2007 when writeoffs are included. Neither of these percentages for financial services includes the financial activities of companies like Sony and GE.
Here's another way to look at how much is riding on the soundness of borrowers. Debt at U.S. households, governments (state and federal) and non-financial businesses now stands at 217% of gross domestic product, up from 141% a quarter of a century ago. So a small rise in interest rates or in defaults is likely to have a bigger impact than it once would have had on business bottom lines and consumers' ability to spend.
"The debt level is unprecedented, and the acceleration in the growth of the debt hasn't been seen since the 1920s," says Christopher Watling of Longview Economics in London. "Lots of businesses have profited off this, and they're vulnerable."
It's not just companies like Citibank and Merrill that have exposure to the credit markets.
A surprising number of manufacturers have drifted into financial services.
Harley-Davidson has a problem, and it's not only that people are becoming less inclined to spend $15,000 on a pair of wheels. It's that the ones who bought bikes a while ago are having trouble paying.
Harley itself finances half the hogs it sells. This year defaults on its loans have risen nearly half a percentage point to 1.65%.Harley's fortunes largely ride on its skill at selling bikes. But its ability to size up a good credit risk matters a lot, too. Last quarter 13% of its pretax earnings came from loans and leases.
Herein lies a hidden risk in corporate profitability: It's not just the financial sector that will suffer if the subprime crisis spreads to other kinds of lending.A lot of companies that are not classified as financial have financial arms and could suffer along with the banks and the brokers if borrowers stop paying their bills.
General Electric, for example, gets 34% of its pretax earnings from financial services. Deere & Co., Caterpillar and Pitney Bowes each get at least 12% of their earnings by financing things.Quite apart from the very obvious risk that U.S. consumers will throttle back next year is the risk that they won't be able to keep up payments for their past spending sprees.
Now signs are emerging that payback problems are spreading from mortgages to other kinds of loans. In November HSBC said that unsecured loans like credit cards were experiencing "early-stage delinquency." Last quarter Capital One wrote off 4.13% of its credit card receivables, up three-quarters of a percentage point, and warned it expects losses to jump this quarter again. Its auto loan business just slipped into the red, too.
Did you know that Sony owns 60% of a finance company, Sony Financial? The electronics maker sells health, life and car insurance and even runs a bank. With a few clicks on its Web site shoppers can buy a flat-screen TV or PlayStation 3 gaming system with no money down and no interest until 2009.Last year 82% of Sony's $1.1 billion in pretax earnings came from its financial unit--twice what its pictures division made producing films like The Da Vinci Code and Casino Royale. Sony's financial operations are in fine shape--for now. One area to watch: its $2.8 billion in mortgage loans, up 63% annually since 2004.
Businesses selling to other businesses on credit is big, too. That's more or less how GE veered away from lightbulbs and locomotives and into loans and leases. Now GE's financial operations are a business in their own right, largely unconnected with the products it sells. But the original motivation of non-financial companies getting into lending, to move goods off the shelves, remains important in many industries.
Boeing carries $8 billion of customer leases and interest-bearing receivables on its books. Paccar, a maker of tractor-trailer trucks, has $9 billion.
Frederick Hickey, author of newsletter High Tech Strategist, says:Companies tend to make loans to meet sales goals today, and worry about if they picked the right borrowers tomorrow.
During the tech bubble of the 1990s telecom gear makers like Cisco and Lucent extended billions of dollars of loans to phone companies to buy their products--then took billions in writeoffs when telecom crashed.
Circuit City ate losses early this decade when it exited the credit card business.
How big is financing in the economy? One way to measure it: 18% of the $13 trillion market value of S&P 500 companies is for the financial sector.
That bulge is a big part of why the market has been choppy since last summer: Credit problems are dragging down the banks, brokers and insurers.
Another measure is profits. The finance sector accounts for 28% of the index's combined $748 billion in earnings for 2006. Those earnings are likely to be down in 2007 when writeoffs are included. Neither of these percentages for financial services includes the financial activities of companies like Sony and GE.
Here's another way to look at how much is riding on the soundness of borrowers. Debt at U.S. households, governments (state and federal) and non-financial businesses now stands at 217% of gross domestic product, up from 141% a quarter of a century ago. So a small rise in interest rates or in defaults is likely to have a bigger impact than it once would have had on business bottom lines and consumers' ability to spend.
"The debt level is unprecedented, and the acceleration in the growth of the debt hasn't been seen since the 1920s," says Christopher Watling of Longview Economics in London. "Lots of businesses have profited off this, and they're vulnerable."
Monday, December 3, 2007
Envy
Investment Sins - Envy
To continue the series from the introduction where I had left off, I will be introducing the first "sin" of investing and elaborating more on it, as well as giving my personal views.
Envy is something which is familiar to most people, especially Singaporeans. In a rat-race society where the most kiasu (i.e. scared to die) fight for survival, comparisons are inevitable. Just look at the throngs of parents fluffing their peacock feathers while boasting about their sons' or daughters' achievements; it's enough to make one cringe. Many children have the competitive spirit ingrained in them from young, and along with it comes envy; as not everyone is blessed enough to have either good looks, money or big brains.
Thus, envy should be a part of everyday life unless one is either very blur, very ignorant or simply lives in his own world (hermit).So how does the concept of envy find its way into investing and behavioural finance ?
Envy occurs when an investor looks to another's portfolio or investment decisions, and always feels that the other person is better.
This envy causes resentment to build up, as well as jealousy and probably even impotent rage as to why the other investor consistently does better.
The envious investor does not bother to look inward and within himself to examine his own flaws and inadequacies; instead he attributes most of his failures to his object of envy, and starts to build resentment towards the person.
Being envious can severely cloud your objective thinking and judgement as it will make one so smitten with "beating" the other person that you can lose track of rationality.
To give an example, suppose Larry (all names are fictional) always sees John as a friend and they engage in friendly rivalry, whether on the soccer field or in school. Larry has always been the better one at sports as well as grades and feels proud that he does better than John in most things. However, when they grow up and go into the adult world, John's investing acumen and patience sees him scoring multi-baggers and earning him lots of money; while Larry has made significant losses by trading without basis and succumbing to bouts of emotional distress.
Increasingly, Larry feels that he is "losing out" to John even though he is thinks he is supposedly smarter than John, and as a result he feels more and more resentful. Eventually, he begins mimicking John's each and every move, buying when he buys and selling when he sells. As a result, he ends up losing even more money due to his indiscriminate behaviour. Envy has caused him to follow John's investment decisions blindly and he fails to understand that each individual should have his own unique method of investing.
For myself, when I first started out, I was also wondering why others seem to be making money while I was either making less, or losing money.
There was a tinge of envy present as I was always wondering what the rest had that I did not. Fortunately for me, I managed to analyze my mistakes and realize that I should not go down the path of envy as it is self-destructive and serves no good purpose.
Nowadays, if I hear someone doing better than me or having a higher % gain, I just shrug it off as I am satisfied with my own investment philosophy and pleased with my own personal progress.
Letting envy take control would unravel my carefully prepared plans for building wealth slowly but steadily, and I did not wish to let that happen.
To continue the series from the introduction where I had left off, I will be introducing the first "sin" of investing and elaborating more on it, as well as giving my personal views.
Envy is something which is familiar to most people, especially Singaporeans. In a rat-race society where the most kiasu (i.e. scared to die) fight for survival, comparisons are inevitable. Just look at the throngs of parents fluffing their peacock feathers while boasting about their sons' or daughters' achievements; it's enough to make one cringe. Many children have the competitive spirit ingrained in them from young, and along with it comes envy; as not everyone is blessed enough to have either good looks, money or big brains.
Thus, envy should be a part of everyday life unless one is either very blur, very ignorant or simply lives in his own world (hermit).So how does the concept of envy find its way into investing and behavioural finance ?
Envy occurs when an investor looks to another's portfolio or investment decisions, and always feels that the other person is better.
This envy causes resentment to build up, as well as jealousy and probably even impotent rage as to why the other investor consistently does better.
The envious investor does not bother to look inward and within himself to examine his own flaws and inadequacies; instead he attributes most of his failures to his object of envy, and starts to build resentment towards the person.
Being envious can severely cloud your objective thinking and judgement as it will make one so smitten with "beating" the other person that you can lose track of rationality.
To give an example, suppose Larry (all names are fictional) always sees John as a friend and they engage in friendly rivalry, whether on the soccer field or in school. Larry has always been the better one at sports as well as grades and feels proud that he does better than John in most things. However, when they grow up and go into the adult world, John's investing acumen and patience sees him scoring multi-baggers and earning him lots of money; while Larry has made significant losses by trading without basis and succumbing to bouts of emotional distress.
Increasingly, Larry feels that he is "losing out" to John even though he is thinks he is supposedly smarter than John, and as a result he feels more and more resentful. Eventually, he begins mimicking John's each and every move, buying when he buys and selling when he sells. As a result, he ends up losing even more money due to his indiscriminate behaviour. Envy has caused him to follow John's investment decisions blindly and he fails to understand that each individual should have his own unique method of investing.
For myself, when I first started out, I was also wondering why others seem to be making money while I was either making less, or losing money.
There was a tinge of envy present as I was always wondering what the rest had that I did not. Fortunately for me, I managed to analyze my mistakes and realize that I should not go down the path of envy as it is self-destructive and serves no good purpose.
Nowadays, if I hear someone doing better than me or having a higher % gain, I just shrug it off as I am satisfied with my own investment philosophy and pleased with my own personal progress.
Letting envy take control would unravel my carefully prepared plans for building wealth slowly but steadily, and I did not wish to let that happen.
Market Update
KEY POINTS
The rally ahead of FED meeting – Buy on rumor, sell on news
STI near-term upside capped at 3575 (50% retracement), a re-test of 3400 likely during DecemberWeekly CommentsEquity indices have rebounded off their November lows. Expect range bound trade as investors await the FED decision. The STI should be capped at 3575 in the week ahead.
Uncertainty about the impact of the credit crisis on the US economy and Asia’s growth remains. With equity indices yet to show a clear sign of a technical trend reversal to the upside, we are treating last week’s rise as a counter-trend rebound within a larger trend that is still in consolidation.
Small caps, which lagged behind the blue-chip led index rally last week could enjoy brief spurt of life ahead of the FED meeting on December 11 but until investors’ confidence makes a return, the rise may not sustain.
Our earlier technical view for traders to adopt a contrarian positive view in anticipation of a technical rebound in the STI to 3510 has panned out.
Oversold equity indices rose on increased expectations for a more aggressive 50 basis points rate cut during the December 11 FOMC meeting, a technical rebound in the USD and a retreat in oil price.
However, the basis behind last week’s rally coupled with technical factors currently suggests a mere technical rebound rather than a trend reversal to the upside -
Point 1:
The main drive behind last week’s rally was raised expectations that the FED may cut interest rates by up to 50 basis points.
However, a declining interest rate environment does not necessarily equate to rising equity prices. During the period from May 2000 to June 2003, FED funds rate were lowered from 6.5% to 1%. The Dow consolidated from 10,935 to 9,011 during the same period when the US economy faltered.While a 50 basis point cut in interest to 4% would be welcomed, it would also reveal that the FED is increasingly worried that the collapse of the housing market and credit crunch could have a larger negative impact on the economy. Investors are turning to this Friday’s November non-farm payrolls (consensus estimates 75,000) and unemployment rate (consensus estimates 4.7%) for signs of whether the FED will cut rates by 25 or 50 basis points.
A worse-than-expected non-farm payrolls and unemployment rate increases the chance for a 50 basis points cut and thus equity prices should continue to rally? This argument sounds fragile. A ‘buy on rumor, sell on news’ is the more likely scenario for US equities so long as the economic outlook remains uncertain.
Point 2:
Oil price fell to USD88.7pbl last week on speculation that OPEC may increase oil production.
The pullback in oil price may be halted and reversed if the anticipated production increase does not materialize during the Gulf Cooperation Council (GCC) meeting this week.Technically, we continue to see the likelihood of oil price heading above the psychological USD100pbl mark before peaking out at/before USD107pbl.
Conclusion:
Mere hopes of an aggressive cut in interest rates during the next FOMC meeting is not going to continue to power Asian bourses and the STI higher once the event is over.
The key to a sustainable rally may lay in the ability among Asian economies to withstand a slowdown in the US. In this matter, the signs are encouraging. GDP growth (% y-o-y) among the Asia 10 countries rose from 5.7% in 1Q05 to 6.7% in 2Q07 even as the US economy slowed down from 3.2% to 1.7% during the same period.
From a technical perspective, the 50% upward retracement level and the mid-Nov high offers a likely short-term resistance to the current rebound for equity indices. This puts short-term resistance at 3575 (50% retracement) for the STI.
The rally ahead of FED meeting – Buy on rumor, sell on news
STI near-term upside capped at 3575 (50% retracement), a re-test of 3400 likely during DecemberWeekly CommentsEquity indices have rebounded off their November lows. Expect range bound trade as investors await the FED decision. The STI should be capped at 3575 in the week ahead.
Uncertainty about the impact of the credit crisis on the US economy and Asia’s growth remains. With equity indices yet to show a clear sign of a technical trend reversal to the upside, we are treating last week’s rise as a counter-trend rebound within a larger trend that is still in consolidation.
Small caps, which lagged behind the blue-chip led index rally last week could enjoy brief spurt of life ahead of the FED meeting on December 11 but until investors’ confidence makes a return, the rise may not sustain.
Our earlier technical view for traders to adopt a contrarian positive view in anticipation of a technical rebound in the STI to 3510 has panned out.
Oversold equity indices rose on increased expectations for a more aggressive 50 basis points rate cut during the December 11 FOMC meeting, a technical rebound in the USD and a retreat in oil price.
However, the basis behind last week’s rally coupled with technical factors currently suggests a mere technical rebound rather than a trend reversal to the upside -
Point 1:
The main drive behind last week’s rally was raised expectations that the FED may cut interest rates by up to 50 basis points.
However, a declining interest rate environment does not necessarily equate to rising equity prices. During the period from May 2000 to June 2003, FED funds rate were lowered from 6.5% to 1%. The Dow consolidated from 10,935 to 9,011 during the same period when the US economy faltered.While a 50 basis point cut in interest to 4% would be welcomed, it would also reveal that the FED is increasingly worried that the collapse of the housing market and credit crunch could have a larger negative impact on the economy. Investors are turning to this Friday’s November non-farm payrolls (consensus estimates 75,000) and unemployment rate (consensus estimates 4.7%) for signs of whether the FED will cut rates by 25 or 50 basis points.
A worse-than-expected non-farm payrolls and unemployment rate increases the chance for a 50 basis points cut and thus equity prices should continue to rally? This argument sounds fragile. A ‘buy on rumor, sell on news’ is the more likely scenario for US equities so long as the economic outlook remains uncertain.
Point 2:
Oil price fell to USD88.7pbl last week on speculation that OPEC may increase oil production.
The pullback in oil price may be halted and reversed if the anticipated production increase does not materialize during the Gulf Cooperation Council (GCC) meeting this week.Technically, we continue to see the likelihood of oil price heading above the psychological USD100pbl mark before peaking out at/before USD107pbl.
Conclusion:
Mere hopes of an aggressive cut in interest rates during the next FOMC meeting is not going to continue to power Asian bourses and the STI higher once the event is over.
The key to a sustainable rally may lay in the ability among Asian economies to withstand a slowdown in the US. In this matter, the signs are encouraging. GDP growth (% y-o-y) among the Asia 10 countries rose from 5.7% in 1Q05 to 6.7% in 2Q07 even as the US economy slowed down from 3.2% to 1.7% during the same period.
From a technical perspective, the 50% upward retracement level and the mid-Nov high offers a likely short-term resistance to the current rebound for equity indices. This puts short-term resistance at 3575 (50% retracement) for the STI.
Sunday, December 2, 2007
INTER-ROLLER: Will good times roll around again soon?
“WE STRIVE to be a living company” - this vision of Inter-Roller Engineering captured my attention when I flipped throught its annual report 2006.
I wondered: What in the world is a living company? It’s not entirely alien to me as I had encountered this phrase in a book “The Dhandho Investor: The Low-Risk Value Method to High Returns.”I had also heard of the highly-rated book, “The Living Company”, and I decided to surf to eBay to buy it.It’s on how companies could be run for long-term success, and this would be my bed-time reading for the next few weeks.I suspect that for many companies having a vision
Book focuses on habits for suvival in a turbulent business environment. is not much of a deal. I wasn’t so sure about Inter-Roller, though.Its people are its key assets, as reflected by the staff costs (at S$29.6m for FY2006) being almost 20X more than the cost for depreciation for its tangible assets (S$1.5m for FY2006).Inter-Roller has a very profitable business and it has produced lots of free cash flow from 2002 to 2006.Based on the free cash flow over equity for the past five years, the return was approximately 15%. I thought that this was good considering that many companies are not able to produce any meaningful free cash flow in the first place.
Inter-Roller’s core business is mainly in developing airport logistics systems such as:* Airport Baggage Handling Systems;* In-flight Catering Systems;* Air Cargo Handling Systems; and* Express Courier Handling Systems.Inter-Roller has had a good track record arising from its success in Changi Airport, the latest being its installation of its baggage-handling systems in Terminal 3 and Budget Terminal. The company has expanded out of Singapore to become a global company.Over 89% of its revenue was generated outside of Singapore in FY2006 compared to 76% in the previous year. China contributed 46% of the Group’s turnover while Middle East, 27%. This seems like a truly internationalising SME.Creating lots of shareholder value
Revenue growth of Inter-RollerWith high ROE, free cash flow and a strong position in the industry, Inter-Roller has created lots of shareholder value by returning most of its unused cash back to shareholders.
Rare among Singapore-listed companies, it has been paying dividends every quarter from the start of FY 2006.This is fantastic as we have seen so many cases of companies destorying shareholders’ value by buying non-core businesses and eventually having to write the investments off. Inter-Roller, however, is a project-based company, getting one project at a time with no recurring income after the project is completed.This means that past success may not be repeated, especially the massive increase
Net profit growthin revenue from $52.9 million in FY2003 to $147.5 million in FY2006.Will this tripling of revenue within 4 years occur again? The only certainty is that revenue and profit could be lumpy as project awards are irregular.I surmised that this was the reason Inter-Roller’s share price plunged from over $1 to around $0.60 after it announced that its profit from its main business and net margins dropped in 1H2007.
Net profit was $19.8 million (+48%) but it included a a hefty $10.6 million net gain from the sale of investment properties.When I checked through its annual reports and research reports, I learnt how wonderful the business environment had favoured Inter-Roller over the past years.My observations:
Market capitalisation has also boomed
1) The key catalyst was the upgrading of security in airports post 9-11. Many airports began upgrading their systems after years of under-investment in this area. The Aviation and Transportation Security Act was established to ensure that all US airports screen baggage for explosives. New baggage systems would require 100% baggage screening (Explosive Detection System or EDS), which was unheard of in the 80s.
2) The impending launch of the Airbus A380 required upgrading of baggage handling systems. I was told by a fund manager that this type of massive flying machine requires a faster bag handling system to cope with the higher number of passengers and freight per flight.Inter-Roller’s system was chosen for the new Changi Airport Terminal 3, where there are 135 check-in positions, and over 6 km of belt conveyors. It can handle over 20 million passengers a year.
3) The recovery of Asian economies after the 1997 currency crisis, and the emergence of the Chinese and Indian economies have all resulted in higher passenger and cargo traffics in this part of the region.
4) The number of budget airlines is growing and this has led to second-tier airports being constructed to cater to them. The Singapore Budget Terminal and KL Sepang Low Cost Carrier terminal are examples.
5) Crude oil price has increased five-fold over the last five years, leading to a boom in the economy in the Middle East. With a gush of new wealth, countries there are investing in infrastructure.About US$30 billion is expected to be invested in airport infrastructure over the next 15 years as passenger traffic is set to grow from 29 million in 2004 to 78 million by 2010.
These are many of the factors that are in Inter-Roller’s favour. Amongst them, I would consider the emergence of Middle East and China as the key factor.Just look at the numerous world-class airports that they are building in each and every city. Inter-Roller has had a slice of the expanding cake: It did part of the design and construction of the baggage handling system for the new terminal in Beijing Capital International Airport.The system consists of more than 300 check-in counters, 13 km of transport conveyors and can support 60 million passengers a year.Before I knew it, they got another contract to support FKI Logistex in the Shanghai Pudong International Airport. That system has 392 check-in counters!Boom in airports in China
Demand for baggage systems is high in China where the number of airports will grow to 230 by 2020, compared to 142 now.The outlook is rosy: The civil aviation authority in China is forecasting the number of airports to grow to 230 by 2020, compared to 142 airports currently. It looks like there is going to be quite a bit of work for Inter-Roller. Most recently, Inter-Roller announced a S$58-million contract to support FKI again in Doha International Airport in Qatar. The system will handle 24 million passengers annually.
Aside from its core business, Inter-Roller has an investment division that buys and sells equities and properties. Its latest transaction in commercial offices has yielded a fabulous return.
But this is not its core business – and certainly not what investors are looking for.So what is going to be the next catalyst for this company?It is obvious that it has made little progress in the Europe and North America markets, even though there are over 18,000 airports (including commercial and military airports) in the United States alone.Not every airport is big enough to be a client of Inter-Roller. A good estimate would be around 400 (using the major cities as a guide) which can potentially offer work worth more than S$50 million.If a breakthrough in the US market materialises, it will enable the company to elevate its status to that of the main contractor and allow it to stand tall with industry leaders like Siemens, Vanderlande and FKI Logistex.Such a contract could bring recurring income as the US aviation industry tends to outsource maintaince works due to the higher labour costs. This would provide a strong potential recurring income stream for the company.
In an announcement in November, Inter-Roller said it has bid for a number of projects in different parts of the world and it was still busy preparing for new bids. "Some of these projects are promising and the Group is confident that it would secure more jobs in the coming months."
Now that Inter-Roller has established a track record and successfully put itself on the radar screens of major airport operators, the next step would be to beef up its financial muscles so that it can take on bigger projects.The company recorded revenue of $147.6 million in FY2006 and $105 million in the first nine months of 2007.Shareholders’ equity was $93 million as at 30 Sept 2007. Imagine a $50 million contract would account for 50% of Inter-Roller’s nine months’ sales. This would probably deter big airports from awarding the main contractor’s job to Inter-Roller.
Inter-Roller stock's 52-week range: $0.56-$1.36Inter-Roller is a company that generates very high ROE: 37.5% for 2006 and 20% for the previous 5 years (based on cashflow).At $0.60, it is currently trading at slightly over 2x book value, historical PE of about 7.7x (based on FY2006 EPS of 7.81 cents).Over the past 2 years, it has a payout ratio of 67% (FY2006) and 66% (FY2005), which gives a jolly decent dividend yield of over 8% at this price.Total shareholders’ return over a 5-year period is 93%, which ranks among the highest on the Singapore Exchange.
Inter-Roller was founded 38 years ago in 1979 and has established itself in its industry and won investors. Can it continue to grow and fulfil its vision of becoming a “living company” – one that will create a long-lasting business legacy?
I think it has more than an even chance of doing so.
I wondered: What in the world is a living company? It’s not entirely alien to me as I had encountered this phrase in a book “The Dhandho Investor: The Low-Risk Value Method to High Returns.”I had also heard of the highly-rated book, “The Living Company”, and I decided to surf to eBay to buy it.It’s on how companies could be run for long-term success, and this would be my bed-time reading for the next few weeks.I suspect that for many companies having a vision
Book focuses on habits for suvival in a turbulent business environment. is not much of a deal. I wasn’t so sure about Inter-Roller, though.Its people are its key assets, as reflected by the staff costs (at S$29.6m for FY2006) being almost 20X more than the cost for depreciation for its tangible assets (S$1.5m for FY2006).Inter-Roller has a very profitable business and it has produced lots of free cash flow from 2002 to 2006.Based on the free cash flow over equity for the past five years, the return was approximately 15%. I thought that this was good considering that many companies are not able to produce any meaningful free cash flow in the first place.
Inter-Roller’s core business is mainly in developing airport logistics systems such as:* Airport Baggage Handling Systems;* In-flight Catering Systems;* Air Cargo Handling Systems; and* Express Courier Handling Systems.Inter-Roller has had a good track record arising from its success in Changi Airport, the latest being its installation of its baggage-handling systems in Terminal 3 and Budget Terminal. The company has expanded out of Singapore to become a global company.Over 89% of its revenue was generated outside of Singapore in FY2006 compared to 76% in the previous year. China contributed 46% of the Group’s turnover while Middle East, 27%. This seems like a truly internationalising SME.Creating lots of shareholder value
Revenue growth of Inter-RollerWith high ROE, free cash flow and a strong position in the industry, Inter-Roller has created lots of shareholder value by returning most of its unused cash back to shareholders.
Rare among Singapore-listed companies, it has been paying dividends every quarter from the start of FY 2006.This is fantastic as we have seen so many cases of companies destorying shareholders’ value by buying non-core businesses and eventually having to write the investments off. Inter-Roller, however, is a project-based company, getting one project at a time with no recurring income after the project is completed.This means that past success may not be repeated, especially the massive increase
Net profit growthin revenue from $52.9 million in FY2003 to $147.5 million in FY2006.Will this tripling of revenue within 4 years occur again? The only certainty is that revenue and profit could be lumpy as project awards are irregular.I surmised that this was the reason Inter-Roller’s share price plunged from over $1 to around $0.60 after it announced that its profit from its main business and net margins dropped in 1H2007.
Net profit was $19.8 million (+48%) but it included a a hefty $10.6 million net gain from the sale of investment properties.When I checked through its annual reports and research reports, I learnt how wonderful the business environment had favoured Inter-Roller over the past years.My observations:
Market capitalisation has also boomed
1) The key catalyst was the upgrading of security in airports post 9-11. Many airports began upgrading their systems after years of under-investment in this area. The Aviation and Transportation Security Act was established to ensure that all US airports screen baggage for explosives. New baggage systems would require 100% baggage screening (Explosive Detection System or EDS), which was unheard of in the 80s.
2) The impending launch of the Airbus A380 required upgrading of baggage handling systems. I was told by a fund manager that this type of massive flying machine requires a faster bag handling system to cope with the higher number of passengers and freight per flight.Inter-Roller’s system was chosen for the new Changi Airport Terminal 3, where there are 135 check-in positions, and over 6 km of belt conveyors. It can handle over 20 million passengers a year.
3) The recovery of Asian economies after the 1997 currency crisis, and the emergence of the Chinese and Indian economies have all resulted in higher passenger and cargo traffics in this part of the region.
4) The number of budget airlines is growing and this has led to second-tier airports being constructed to cater to them. The Singapore Budget Terminal and KL Sepang Low Cost Carrier terminal are examples.
5) Crude oil price has increased five-fold over the last five years, leading to a boom in the economy in the Middle East. With a gush of new wealth, countries there are investing in infrastructure.About US$30 billion is expected to be invested in airport infrastructure over the next 15 years as passenger traffic is set to grow from 29 million in 2004 to 78 million by 2010.
These are many of the factors that are in Inter-Roller’s favour. Amongst them, I would consider the emergence of Middle East and China as the key factor.Just look at the numerous world-class airports that they are building in each and every city. Inter-Roller has had a slice of the expanding cake: It did part of the design and construction of the baggage handling system for the new terminal in Beijing Capital International Airport.The system consists of more than 300 check-in counters, 13 km of transport conveyors and can support 60 million passengers a year.Before I knew it, they got another contract to support FKI Logistex in the Shanghai Pudong International Airport. That system has 392 check-in counters!Boom in airports in China
Demand for baggage systems is high in China where the number of airports will grow to 230 by 2020, compared to 142 now.The outlook is rosy: The civil aviation authority in China is forecasting the number of airports to grow to 230 by 2020, compared to 142 airports currently. It looks like there is going to be quite a bit of work for Inter-Roller. Most recently, Inter-Roller announced a S$58-million contract to support FKI again in Doha International Airport in Qatar. The system will handle 24 million passengers annually.
Aside from its core business, Inter-Roller has an investment division that buys and sells equities and properties. Its latest transaction in commercial offices has yielded a fabulous return.
But this is not its core business – and certainly not what investors are looking for.So what is going to be the next catalyst for this company?It is obvious that it has made little progress in the Europe and North America markets, even though there are over 18,000 airports (including commercial and military airports) in the United States alone.Not every airport is big enough to be a client of Inter-Roller. A good estimate would be around 400 (using the major cities as a guide) which can potentially offer work worth more than S$50 million.If a breakthrough in the US market materialises, it will enable the company to elevate its status to that of the main contractor and allow it to stand tall with industry leaders like Siemens, Vanderlande and FKI Logistex.Such a contract could bring recurring income as the US aviation industry tends to outsource maintaince works due to the higher labour costs. This would provide a strong potential recurring income stream for the company.
In an announcement in November, Inter-Roller said it has bid for a number of projects in different parts of the world and it was still busy preparing for new bids. "Some of these projects are promising and the Group is confident that it would secure more jobs in the coming months."
Now that Inter-Roller has established a track record and successfully put itself on the radar screens of major airport operators, the next step would be to beef up its financial muscles so that it can take on bigger projects.The company recorded revenue of $147.6 million in FY2006 and $105 million in the first nine months of 2007.Shareholders’ equity was $93 million as at 30 Sept 2007. Imagine a $50 million contract would account for 50% of Inter-Roller’s nine months’ sales. This would probably deter big airports from awarding the main contractor’s job to Inter-Roller.
Inter-Roller stock's 52-week range: $0.56-$1.36Inter-Roller is a company that generates very high ROE: 37.5% for 2006 and 20% for the previous 5 years (based on cashflow).At $0.60, it is currently trading at slightly over 2x book value, historical PE of about 7.7x (based on FY2006 EPS of 7.81 cents).Over the past 2 years, it has a payout ratio of 67% (FY2006) and 66% (FY2005), which gives a jolly decent dividend yield of over 8% at this price.Total shareholders’ return over a 5-year period is 93%, which ranks among the highest on the Singapore Exchange.
Inter-Roller was founded 38 years ago in 1979 and has established itself in its industry and won investors. Can it continue to grow and fulfil its vision of becoming a “living company” – one that will create a long-lasting business legacy?
I think it has more than an even chance of doing so.
Preservation of Capital – A Central Tenet of Value Investing
With Mr. Market currently being so manic-depressive and seeing only bad days ahead, it is important to remember that he is there to serve you, not to instruct you.
The pervasiveness of his mood swings has the ability to affect all but those who inherently understand the true value of a business. Market watchers and pundits who are paid to say something about the market everyday will come up with a myriad of reasons why Mr. Market is pessimistic, and a dearth of bad news will continually stream in to reinforce this perception.
Thus, the resultant effect is a massive sell off by hedge funds and mutual funds because they too are affected by the fear and panic which is spread by Mr. Market. Oh, what mischief this man can do ! Sometimes, when I glance at the market, I can almost see Mr. Market’s evil face grinning at me as he waves his hands over the market, causing millions to panic and dump their holdings at the lowest possible price (no, I am not schizophrenic, I am just using a metaphor !). This hardens my resolve not to listen to him but to focus on the true worth of the companies I hold.A falling market is the ultimate test for a value investor. It is mentioned in value investing books that you never know if the companies you pick have the ability to survive Mr. Market’s manic mood swings, and there is no way to know if your portfolio is sound until it is tested by fire. Thus, when I view the current market situation, I see myself facing the “exam” which I have been “studying” for these past 18 months. All the research, reading, analysis and thinking has gone into identifying good companies selling at a fraction of their true worth; but now the time has come to see if the buy-and-hold strategy will ultimately win over the “fast profit” strategy of churning your portfolio.With this in mind, I would like to reiterate to readers that the goal of sound and intelligent investing is not for quick gains or huge profits. If you want those, please go to the nearest 4-D or Toto booth, put down a few dollars; then hope and pray for yourself to strike the lottery !
In fact, the most important tenet for value investing should be capital preservation. With this, I mean that one should invest with such a wide margin of safety that losses are largely minimized, while gains are almost certainly assured. Too many people throw their money into the market with only the upside in mind; they never think of the potential LOSS they may face, and always end up shocked and stunned when the market turns against them.It is also prudent to note that one can actually make a lot of money by avoiding losses. What do I mean by this ? It simply means you don’t go out there and take unnecessary risks, like buying into a company you don’t understand, subscribing for IPOs (which subsequently tank) or chasing a company’s share price just because it has just rallied. Please note that avoiding such mistakes can actually make you much richer even if you do NOT know a thing about value investing; as compared to people who keep chasing the next hot tip, or buy at the peak of a bull market, or simply buy indiscriminately. This may sound quite incredible, but one can actually compound their money better in a bank (earning a paltry 0.25% interest per annum for POSB) than letting the market eat up their money through poor judgement and bad decisions.To conclude, I would say that for one to really practice value investing or go down the path of value investing, one has to change one’s mindset radically.
Most investment professionals or fund managers will preach about how their fund has generated the highest returns or how a particular sector is “hot” or “growing at an exponential rate”.
Just try asking them about capital preservation and they will become evasive and uncomfortable, and tell you that “in investing, there are always risks, so we must assess if you are high, medium or low risk; so that we can tailor the portfolio to suit your needs”. What I say is: investing is only risky if you do not have capital preservation in mind, and fund managers who invest only thinking of gains are not doing their clients a favour. In order for an investor to do well in the long-run (yes, not short-term !), one has to make capital preservation the central concept in one’s investment philosophy.
The pervasiveness of his mood swings has the ability to affect all but those who inherently understand the true value of a business. Market watchers and pundits who are paid to say something about the market everyday will come up with a myriad of reasons why Mr. Market is pessimistic, and a dearth of bad news will continually stream in to reinforce this perception.
Thus, the resultant effect is a massive sell off by hedge funds and mutual funds because they too are affected by the fear and panic which is spread by Mr. Market. Oh, what mischief this man can do ! Sometimes, when I glance at the market, I can almost see Mr. Market’s evil face grinning at me as he waves his hands over the market, causing millions to panic and dump their holdings at the lowest possible price (no, I am not schizophrenic, I am just using a metaphor !). This hardens my resolve not to listen to him but to focus on the true worth of the companies I hold.A falling market is the ultimate test for a value investor. It is mentioned in value investing books that you never know if the companies you pick have the ability to survive Mr. Market’s manic mood swings, and there is no way to know if your portfolio is sound until it is tested by fire. Thus, when I view the current market situation, I see myself facing the “exam” which I have been “studying” for these past 18 months. All the research, reading, analysis and thinking has gone into identifying good companies selling at a fraction of their true worth; but now the time has come to see if the buy-and-hold strategy will ultimately win over the “fast profit” strategy of churning your portfolio.With this in mind, I would like to reiterate to readers that the goal of sound and intelligent investing is not for quick gains or huge profits. If you want those, please go to the nearest 4-D or Toto booth, put down a few dollars; then hope and pray for yourself to strike the lottery !
In fact, the most important tenet for value investing should be capital preservation. With this, I mean that one should invest with such a wide margin of safety that losses are largely minimized, while gains are almost certainly assured. Too many people throw their money into the market with only the upside in mind; they never think of the potential LOSS they may face, and always end up shocked and stunned when the market turns against them.It is also prudent to note that one can actually make a lot of money by avoiding losses. What do I mean by this ? It simply means you don’t go out there and take unnecessary risks, like buying into a company you don’t understand, subscribing for IPOs (which subsequently tank) or chasing a company’s share price just because it has just rallied. Please note that avoiding such mistakes can actually make you much richer even if you do NOT know a thing about value investing; as compared to people who keep chasing the next hot tip, or buy at the peak of a bull market, or simply buy indiscriminately. This may sound quite incredible, but one can actually compound their money better in a bank (earning a paltry 0.25% interest per annum for POSB) than letting the market eat up their money through poor judgement and bad decisions.To conclude, I would say that for one to really practice value investing or go down the path of value investing, one has to change one’s mindset radically.
Most investment professionals or fund managers will preach about how their fund has generated the highest returns or how a particular sector is “hot” or “growing at an exponential rate”.
Just try asking them about capital preservation and they will become evasive and uncomfortable, and tell you that “in investing, there are always risks, so we must assess if you are high, medium or low risk; so that we can tailor the portfolio to suit your needs”. What I say is: investing is only risky if you do not have capital preservation in mind, and fund managers who invest only thinking of gains are not doing their clients a favour. In order for an investor to do well in the long-run (yes, not short-term !), one has to make capital preservation the central concept in one’s investment philosophy.
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