US faces one of biggest budget crunches in world – IMF

US faces one of biggest budget crunches in world – IMF

By Edmund Conway Business Last updated: May 14th, 2010
98 Comments Comment on this article

Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem -“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with – the IMF analysis is fascinating.

Read the details here:
http://blogs.telegraph.co.uk/finance/edmundconway/100005702/us-faces-one-of-biggest-budget-crunches-in-western-world-imf/


So does all of this mean the US is Greece? The answer, you might be surprised to hear, is no. Now, it is true that the US has some similar issues to Greece – the high debt, the need to roll over quite a lot of debt each year, the rising healthcare costs and so on. But it has two secret (or not so secret) weapons.

• The first is that unlike Greece it is not trapped in a monetary union. The US, like Britain and Japan, can independently control its monetary policy; it can devalue its currency. These are hardly solutions in and of themselves, but they do help make the adjustment a lot easier and more gradual. 
• Second, the US has growth. It remains one of, if not the, world’s most dynamic economies. It is growing at a snappy pace this year (in comparison to other countries). And a few percentage points of GDP make an immense difference, since they make those debts much easier to repay.

Finally, some might be tempted at this point to cite the fact that the US has the world’s reserve currency in the dollar as another bonus. I am less sure. There is no doubt that this has made the US a safe haven destination (people buy US bonds when freaked out about more or less anything), and has meant that America has been able to keep borrowing at low levels throughout the crisis. However, the flip side of this is that because it has yet to feel the market strain, the US also has yet to face up properly to the public finance disaster that could befall it if it does not do anything about the problem. America is not Greece, but if it does not start making efforts to cut the deficit within a few years, it will head in that direction. The upshot wouldn’t be an IMF bail-out, but a collapse in the dollar and possible hyperinflation in the US, but it would be horrific all the same. America has time, but not forever.

UK economy is stuffed – but not as badly as Greece

UK economy is stuffed – but not as badly as Greece

You can hardly blame George Osborne for over-egging the point. Gordon Brown was still trying to blame the Tories for all the ills of the world 13 years after they were swept from power, as if his own mismanagement of the economy in the meantime might not have had a little something to do with it.

By Jeremy Warner, Assistant Editor
Published: 10:22PM BST 17 May 2010

So it seems reasonable enough that still less than a week into office, Mr Osborne should use the opportunity of his first Treasury press conference to blame the last lot for all the pain he's about to inflict. It's what incoming governments do.

But it's rare indeed that an incoming governments gets such manna from the last lot.

"Dear chief secretary, I am afraid to have to tell you the money has run out, yours, Liam." This single-line letter from the outgoing Chief Secretary, Liam Byrne, to his successor at the Treasury, David Laws, was apparently meant as a joke, but it serves equally well as New Labour's final epitaph. Had Mr Byrne said: "we've spent the lot, and frankly, you're stuffed", he could scarcely have been more blunt about the true horror of Labour's legacy.

Things are much worse than you think, Mr Osborne said on Monday in an attempt to soften us up for the blows to come. In an interview, he said: "By the end, the previous government had become completely irresponsible and has left this country with terrible public finances, worse as a proportion of our economy than Greece."

Mr Osborne is hardly the first to say it, and strictly speaking he is right on both counts. I've written myself at length about the pork barrel spending that took place in the run up to the election, with ministers showering money on the regions as if it was confetti. It is also true that the UK has one of the biggest Budget deficits in Europe. But Britain is not yet Greece, and the new Chancellor should take care not to frighten the markets into believing it is.

The public finances are possibly in worse shape than the previous Government was letting on, and obviously there are a whole range of public liabilities that should properly be brought back on balance sheet. Public Finance Initiative liabilities alone have rocketed from £60.5bn in 2000 to £206.8bn (nearly 15 per cent of GDP).

But I would be astonished if Mr Brown had actually lied, a la Greque, about the true state of the books. Much of the smoke and mirrors that took place under Labour were almost childishly transparent. The real problem lies rather in the use of overly optimistic assumptions about growth and tax receipts. These may be unrealistic, but Britain is hardly alone in assuming a possibly unrealistic rebound to above trend growth.

There are a number of reasons why comparisons with Greece are ill-founded and possibly quite dangerous. Greece, too, it will be recalled showed no lack of enthusiasm for tackling the deficit. It was only after the Papandreou government announced its first austerity programme that the real damage to confidence occurred. This was primarily because the markets fast realised that the scale of the consolidation was so extreme that it was likely to condemn the country to years of economic contraction, thus making the medium term debt burden worse, not better. Greece would thus be incapable of repaying its debts without help.

This doesn't have to be the case in Britain, which in any case has a much larger and more robust tax base. What's more, the UK mercifully still has control of its own currency and interest rates, so can counter the fiscal medicine with accommodative monetary policy. The eurozone's reluctance to apply any kind of inflationary counterweight condemns much of the Club Med to extreme deflationary contraction over the years ahead.

Mr Osborne's task is similar to that of applying chemotherapy; in seeking to kill off the cancer of the deficit he must be careful not to lose the confidence of markets and end up killing off the patient too. It's a balancing act between too little and too much. On Monday, he said a little too much.

Even so, the new Chancellor's first day at school was on the whole an encouraging one. The establishment of an Office for Budget Responsibility under Professor Sir Alan Budd is an important innovation which promises to restore credibility, destroyed under Mr Brown, in the Government's handling of the public finances.

Sir Alan is right to view his task as more important than the establishment of the Monetary Policy Committee by the incoming Labour Government in 1997. Inflation was yesterday's enemy by the time Labour came to power. To me, it seems unlikely the Government's judgments on interest rates would have been significantly different from the Bank of England's.

Indeed, the idea that economic policy was somehow safe in the Bank of England's hands lulled everyone into a false sense of security, thereby allowing Mr Brown a degree of leeway on tax and spend he might not otherwise have enjoyed. Rather than pump-priming the feel-good factor with interest rate therapy, the Government did it instead with debt and public spending.

Mr Brown cynically manipulated the "golden rule" to the point of laughable irrelevance. By the end, Britain was running the sort of deficit you would normally expect from a recession, not an economy in the midst of a consumer boom.

Mr Brown was not just judge and jury, he was prosecution and defence too. By calibrating the Government's tax and spending plans against genuinely independent forecasts for growth and the economic cycle, the OBR should do for management of the public finances what the Bank of England did for monetary policy.

Sir Alan was a key player at the birth of independent inflation targeting. He rightly regards his latest task as an altogether bigger challenge. The scale of it is laid bare in the International Monetary Fund's latest "Fiscal Monitor". Across advanced economies there needs to be an adjustment amounting to 8.75pc of GDP on average to primary Budget balances to get overall debt down to pre-crisis levels of around 60pc.

More work still needs to be done to deal with projected increases of 4 to 5pc of GDP in health and pensions spending over the next 20 years. Those countries that fail to achieve fiscal sustainability will see their growth potential permanently and seriously impaired.

But Mr Osborne shouldn't be too downhearted. Things could be worse. The ruinous deflation that Britain might be facing now if it were in the euro hardly bears thinking about. On this level at least, comparisons with Greece are justified. Whatever Mr Byrne says, we are not as badly stuffed as they are.

http://www.telegraph.co.uk/finance/economics/7734494/UK-economy-is-stuffed-but-not-as-badly-as-Greece.html

Defend your investments from the eurocrisis

Defend your investments from the eurocrisis
Most investors couldn't be blamed for feeling nervous. We consult the experts on where they should turn.

By Emma Wall
Published: 12:30PM BST 14 May 2010


Investors needed nerves of steel over the past week. Uncertainty over who would take over at No 10 and a euro crisis have given the British and global stock markets the jitters.

The FTSE 100 lost more than 10pc of its value, down to 5,123 last Friday, only to pile the points back on again on Monday morning, even though many expected shares to fall in value.

Markets continued to hold steady, but fund managers are warning investors not to be complacent in light of the coalition Government – uncertainty prevails in Europe and a sovereignty crisis looms, and that's where danger lies.

The European Central Bank is steadying itself for further contagion effects of the Greek crash, Italy's banks are looking unstable and Germany is suffering a crisis of confidence as a recent regional vote undermined Angela Merkel's government.

"Eurozone uncertainty is having a much greater impact on the markets than British politics," said Tom Ewing, manager of Fidelity's UK Growth fund.

To avoid the ramifications of the Eurozone difficulties you do not have to flee the country for opportunities overseas – simply pick domestic stocks or British funds with global exposure.

"The UK market is a global market," Mr Ewing said. "Two thirds of the FTSE 100's earnings come from outside of the UK and the 20 biggest companies, the megacaps, have the minority of their business here.

"Very few of these larger-cap companies are UK focused, Tesco and Centrica remain Britain-centric but the FTSE is not UK plc"

Public perception may be influenced by the businesses that we are aware of in our everyday lives, such as Punch Taverns and M & S, but many British businesses generate the lion's share of their earnings from outside the country.

What's more, the prospect for dividend growth on British companies is looking brighter. According to Capita Registrars, more companies are paying out. Some 186 companies paid a dividend between January and March, up from 161 a year ago. Furthermore, the number of companies increasing payouts outnumbered those who cut. While 56 companies cut or cancelled their dividends, 30 held them unchanged and 102 increased or reinstated their payments.

Cash is doing nothing and gilts are paying 1pc or 2pc, but traditionally defensive stocks, such as Vodafone, Imperial Tobacco and BP are paying at least 5pc.

As you can see from our graphic, only 13pc of Vodafone's 2009 revenue came from Britain. British American Tobacco gained 23pc of its earnings from the Asia-Pacific region, nearly half of AstraZeneca's earnings are from North America and 100pc of Antofagasta's revenue is from three mines in Chile.

The FTSE megacaps seem to offer the best of both worlds. Mr Ewing said: "I am bearish on the UK, but UK stocks offer better corporate governance, better accounting and I can more easily engage with the management. At the same time I can easily tilt my UK stock picks to get exposure to China, India and the rest of Asia."

The British market has shown significant recovery from the low of 3,460 in March last year. Despite setbacks recently and in February this year, we are now nearly 2,000 points higher a year on.

Nigel Thomas, the UK Select Opportunities manager at AXA Framlington, believes this has been an industrial recovery, rather than a consumer one.

"The recovery in the market is due to urbanisation, the introduction of infrastructure and developments in the transport and energy sectors. The VAT increase was helped too, but I don't think consumers are spending over here."

In emerging markets, however, both phenomenons are occurring. As the middle classes expand, consumers are buying more – white goods, electricals and branded food and drinks. GlaxoSmithKline, for example, has moved its focus from the Western world to the developing one, selling toothbrushes, vaccines and Lucozade to India, China and Brazil.

Mr Thomas cites Andrew Whittington, at Glaxo, as prominent in this move and also notes competitor Unilever is doing the same.

There are some areas to avoid when picking megacap stocks. Commodities, in particular, draw criticism from Mr Ewing. "I would stay out of commodities, they are very volatile," he said.

Utilities come under scrutiny from Mr Thomas – he fears that Bank Rate might soon start to tick up and is concerned about the consequences.

"If interest rates go up, utilities, which are linked to gilts, will be hit," he said. "The sector is heavily regulated and, apart from National Grid and maybe some water companies, I would give them a wide berth for a while."

Of course, individual stock picking is always tricky unless you are a hardened day trader. Rather than building up a portfolio of megacaps yourself, why not leave it to the experts? There are plenty of funds that specialise in this sector – both for British and US companies that draw earnings from less-developed economies, and they spread the risk within their holdings, so you don't have to.

Brian Dennehy, of independent advisers DWC, said: "The UK economy and most developed economies have some years of pain ahead as sovereign debt and persistent deficits are tackled. The obvious call to avoid this is to focus on funds invested into UK companies with the bulk of earnings overseas, Newton Higher Income and Psigma Income both have this kind of focus."

Mick Gilligan, of Killik & Co, tips Invesco Perpetual Income, which holds Tesco, Imperial Tobacco, and AstraZeneca, among others. He also highlights Mr Thomas's Axa Framlington UK Select Opportunities fund and Artemis Income, which has stakes in HSBC, Vodafone and GlaxoSmithKline. BlackRock UK Dynamic is also on his list, with holdings in Compass Group, British American Tobacco, and Rio Tinto.
If there are particular stocks you want exposure to, check funds' holdings lists. A fund's fact sheet showing its 10 largest holdings is available from websites such as www.trustnet.co.uk and www.citywire.co.uk

http://www.telegraph.co.uk/finance/personalfinance/investing/shares-and-stock-tips/7722489/Defend-your-investments-from

But the original problem - too much debt - hasn't gone away. It has just been transferred to government balance sheets.

Time to give up debt addiction

GREG HOFFMAN
May 17, 2010 - 2:12PM

The first week of May's panicked trading on world financial markets was eerily reminiscent of the post-Lehman chaos of September 2008. Equity markets plummeted, debt markets froze and inter-bank lending rates skyrocketed.

The question is not whether Greece can or cannot pay its debts (without dramatic cuts to government spending, it looks nigh on impossible), but which country is next.

With Spain, Portugal and Ireland in the firing line, it's no wonder banks are reluctant to lend to each other. It's also no surprise that the European Union (EU) and International Monetary Fund (IMF) have orchestrated a 750 billion euros ($1 trillion) rescue package.

The Europeans, being European, took their time. But, not surprisingly for students of human nature or politics, they've taken the easy option and kicked the can down the road. For now, another crisis has been avoided.

In hock

For more than a decade, Western consumers borrowed too much money, ably assisted by financial institutions creating financial products they themselves didn't understand. When the consumers couldn't pay and the banks were about to collapse, governments bailed them out. Remember the calls for a "global stimulus package"'?

Well, it worked in as far as we're not looking down the barrel of another Great Depression. Amongst the recent chaos, statisticians announced that the US economy generated an astonishing 290,000 jobs in April.

But the original problem - too much debt - hasn't gone away. It has just been transferred to government balance sheets. Now, one of those governments can't meet its obligations. So what do we do? We just transfer the problem onto bigger balance sheets. In this case, they're the ones owned by the EU and the IMF.

The buck, however, can't get passed any further. Europe and the US are not too big to fail, but they are too big to bail. It is going to hurt but eventually, eventually, the Western world needs to reduce the overall leverage in the system. And what form might that take?

How to deleverage

McKinsey and Co, a consulting company, recently produced an insightful analysis of 45 prior episodes of deleveraging, 32 of which followed financial crises. The authors conclude that there are four ways to deleverage an economy, and only two of those options are available to the West today.

The two options are inflation and "belt tightening". The latter has been the most common tonic to a bout of indebtedness (16 of the 32 post-crisis deleveraging episodes).

This means cutting back on government spending in order to bring spiralling foreign debt balances under control and the result, in all cases, was a substantial reduction in economic growth.

Inflation might seem like a far more palatable solution and, for creditors, there's no doubt it is. Perhaps best described as "default by stealth", inflation erodes the value of debts and, if you're the supposed recipient of those debts, the value of your assets.

Inflation also reduces the value of all other assets in an economy, creates substantial frictional costs and destroys a country's ability to borrow in its own currency again.

It might be the most palatable option for a leveraged electorate, but for the owners of capital, inflation is a disaster. And once the inflation genie is out of the bottle it can be very difficult to get it back in.

As investors, we should be preparing for one or both of these factors to have a substantial impact on our portfolios over the coming decade. In many ways, however, we should welcome it. It's in everyone's interests to unwind imbalances in global trade and fiscal budgets and so begin the process of Western deleveraging. Otherwise we run the risk of a crisis so big it might portend another Great Depression. From my perspective, the sooner the better.

This article contains general investment advice only (under AFSL 282288).

Greg Hoffman is research director of The Intelligent Investor

http://www.smh.com.au/business/time-to-give-up-debt-addiction-20100517-v84t.html

Financial success? Debt-free

Many Americans have redefined the meaning of financial success in the post recession era, to be debt-free.

Big returns come from small caps

Big returns come from small caps


John Collett asks the experts for their top investment tips among our smaller companies.

The accounts of our biggest listed companies are pored over endlessly by an army of analysts, which makes it unlikely that investors are going to come across hidden value among these giants.

Smaller medium-sized companies, on the other hand, are usually less visible so they provide potential to uncover hidden value and big capital gains. For investors who are patient and prepared to invest over the long term, smaller companies can add some zing to share portfolios.

Money asked leading small-cap fund managers and analysts for their tips from among those market minnows with well-established track records and a history of paying reliable dividends. Like any sharemarket investments, there are always risks. And smaller companies come with more risks than large companies. Their earnings tend to be the most responsive to economic conditions - both good and bad.

Shares should never be held in isolation but in a diversified portfolio. Many investors may find a better way to get exposure to smaller companies is to invest with a specialist smaller companies fund manager. Professional fund managers run portfolios holding dozens of smaller companies, providing small investors with instant diversification.

The stocks nominated by fund managers and analysts cover the spectrum of the Australian economy - retailers, financial services, technology - but there are no resources stocks. Smaller resources stocks may be terrific investments but are too speculative for novice investors.

TURNAROUND STORY

The managing director of Perennial Value Management, John Murray, nominates OrotonGroup, which designs and makes luxury handbags, leather goods and accessories. Murray is a fan of the managing director, Sally Macdonald, who since her appointment in 2006 has turned the struggling retailer around. The company has expanded product lines and refocused on key brands including Polo Ralph Lauren and Oroton. Murray still has the Oroton briefcase he bought in 1991 and says the brand is "classic value fashion" - quality fashion that is not too expensive.

"We are believers in Oroton and growth will be driven by new stores and product lines like lingerie and menswear," Murray says. Perennial first bought Oroton shares for $3 each in 2007. The shares are now trading at about $7. As a luxury fashion retailer, the company's sales are vulnerable to down-turns in the economy. A little over a year ago, towards the tail-end of the GFC, Oroton shares dipped to $2.80 and in the year since, Oroton's share price has increased 250 per cent.

Before it will invest, Perennial has to be convinced of the strength of a company's balance sheet. And Oroton has good financial strength with low debt, Murray says. On a share price-to-earnings multiple of 11 times, Oroton shares are not cheap but they are still reasonable value, he says.

PIPING HOT

Reece Australia, a plumbing supplier, has many of the attributes the small companies fund manager and chief investment officer of Celeste Funds Management, Frank Villante, likes to see. House prices are rising and spending on renovation is healthy, which means Reece is "fantastically positioned" to take advantage of the trend.

Reece is a conservatively managed company, owned by the same family since the 1930s, and family interests own about 70 per cent of Reece shares. Australian corporate history is littered with examples of majority owners treating minority shareholders shabbily. However Villante says the Reece family has a long history of treating such investors well.

The company has a market capitalisation of about $2.5 billion, which puts it just inside top-100 companies. The company owns about $250 million of land and buildings and Reece's management takes the view that property in the right areas can be an attractive long-term investment. Reece is No.1 in terms of revenue, number of stores and on just about every measure Villante can find. Reece has no debt on its balance sheet; it is carrying about $60 million in cash. Villante is expecting earnings to grow at more than 15 per cent a year between 2011 and 2014.

WEB WONDER

The co-founder of Smallco Investment Manager, Rob Hopkins, is excited about the prospects of the internet sector.

Hopkins particularly likes the well-established internet employment website, Seek, which he says has a "very impressive" management team led by the Bassat brothers who, together with Matthew Rockman, founded Seek in 1997. Rockman left the company in 2006.

Seek expanded into New Zealand and has investments in employment websites in China, Brazil and Malaysia. It owns more than 40 per cent in Zhaopin, one of China's three leading online employment sites.

Seek shares have had a big run. A couple of years ago the stock was $2; it is now $8 and is on a price-to-earnings multiple of 23 times, which is expensive, Hopkins says. With a market capitalisation of $2.8 billion, it is not a market minnow and is just inside the top-100 companies but still has plenty of growth potential. "We expect earnings-per-share growth of more than 40 per cent over the next year," Hopkins says. In internet commerce there is not much room for No.2 and No.3 players. "People looking for a job go to a site where they know all of the jobs are advertised," Hopkins says, adding that the internet sector has plenty of examples where the No.1 player makes very good returns, while the No.2 player is just profitable and the third-placed player loses money.

GRIM REAPER

Fortune favours the grave with InvoCare Limited, which provides funeral homes, burial services, cemeteries and crematoria around Australia and in Singapore. Invocare operates two national brands, White Lady Funerals and Simplicity, and is the only funeral services provider that has a national reach.

InvoCare listed in 2003, having been built up during the 1990s under the ownership of a US funeral services operator and private equity investors that have since sold their shares in the company.

"It's amazing, what we call the death-care industry," says Brian Eley, co-founder of Eley Griffiths Group.

"The number of deaths is rising as the population increases and ages. You have that demographic trend, which is positive for the stock."

InvoCare has been a very good performer, Eley says: The stock is not "super cheap" and it never will be because people know that it's such as good business. The fragmented nature of the market presents plenty of opportunities for the company to grow through acquisitions, he says.

As people become wealthier they tend to spend more on their relatives' funerals, Eley says, and a growing part of the business is pre-paid funerals. He also says the funeral care industry has a lot of pricing power, which means the industry can increase prices by a bit more than inflation with little resistance from customers.

InvoCare has prices that are in the mid-range, which benefits the company as the mid-range is where most of the market is, Eley says.

TICKET CLIPPER

Funds management is a wonderful business because it is so scalable. Taking a percentage of funds under management - clipping the ticket, as it is known - has been the source of riches for banks and insurances.

IOOF, a funds management and investment platform administrator, is a very well-managed company, says Steve Black, a fund manager at Pengana Capital. It has a market capitalisation of about $1.3 billion, which puts it at the larger end of the small-cap companies. It pays out about 80 per cent of its profits as dividends and is yielding about 5.5 per cent, fully franked. "It has done very well but we still see very strong upside in it," Black says. "It is a stock that has not been well understood by analysts, which is why it is starting to perform now as more analysts start to recognise that these guys are delivering really good results."

IOOF, led by managing director Chris Kelaher, is one of the big-five platform providers. These are the administration platforms used by financial planners, which provide their clients with consolidated reports on portfolio performances and taxes and enable easy switching between investments. The platform owner levies a fee that is a percentage based on the assets. IOOF has been acquiring platforms and has its own financial planning network. IOOF is considered a possible takeover target by one of the big banks or insurers.

HEALTHY PERFORMER

Blackmores, the natural health remedies company, has very high returns on equity, which analysts say is a good thing because it shows a company is making good use of shareholder funds.

Whether it's arthritis, joint, bone and muscle pain or "brain health", Blackmores, which was started in 1938 by Maurice Blackmore, has a pill for everything.

Greg Canavan, a sharemarket analyst and editor of Sound Money. Sound Investments, a weekly report on the sharemarket, says Blackmores is a "nice little smaller cap" that is tapping into a growing market for natural remedies. It has a strong business in Australia and has established a presence in Thailand and Malaysia. The company distributes its products mainly through pharmacies and supermarkets.

Canavan says $23 a share is a little expensive and would prefer to buy at $20. "In 10 years' time, I think Blackmores will be a lot bigger company than it is now," he says.

http://www.smh.com.au/news/business/money/investment/big-returns-come-from-small-caps/2010/05/11/1273343328362.html?page=fullpage#contentSwap1

Credit Suisse says HLB's offer price for EON Cap too low

Tuesday May 18, 2010

Credit Suisse says HLB's offer price for EON Cap too low
By RISEN JAYASEELAN


PETALING JAYA: Credit Suisse Securities (M) Sdn Bhd has deemed Hong Leong Bank Bhd's (HLB) offer price for the assets and liabilities of EON Capital Bhd (EON Cap) too low.

This has put the board of directors of EON Cap in a quandary, sources said. EON Cap's board met yesterday to discuss Credit Suisse's opinion on the offer.

The board had requested for its shares to be suspended from trading, pending an announcement related to the offer.

EON Cap said late yesterday evening that its board meeting had been adjourned “pending further clarification from independent financial adviser Credit Suisse.”

But a party familiar with the deal said with Credit Suisse telling the board that the offer was too low, the board has been put in a tough spot as to what to tell shareholders.

“The board had already said it was going to present the offer to shareholders. Does it now also tell shareholders not to accept the offer?” Sources say the situation is tenuous because HLB has no intention of raising its bid.

From its due diligence of EON Cap, HLB may be inclined to ask EON Cap to make some additional provisioning as a condition to the deal, stemming from what it (HLB) deems as unrecoverable loans.

This could mean that the price HLB is willing to pay for EON Cap may be lower than the RM7.20 per share it last made.

EON Cap is said to be disappointed that HLB has not recognised certain deferred tax assets in its valuation of the former, sources say.

HLB's offer is also priced at around 1.4 times the book value of EON Bank, which some analysts deem as low in light of other banking merger and acquisitions done at higher multiples.

The bottom line is that at present, HLB's offer is the only one on the table for EON Cap's shareholders.

Current market conditions are likely to make it difficult for other bidders, such as Affin Bank Bhd, to raise funds to acquire EON Cap.

If this deal falls through, the next bidder for EON Cap may no longer have the luxury of having a lower threshold of shareholder approval for the deal to go through.

http://biz.thestar.com.my/news/story.asp?file=/2010/5/18/business/6282935&sec=business

Related:
Comparative analysis of Malaysian Banking Stocks (16.5.2010)

Comparative Industry and Company Financial Ratios

Just looking at a single ratio does not really tell you much about a company.  You also need a standard of comparison, a benchmark.   There are three principal benchmarks used in ratio analysis.

Financial ratios can be compared to the:

1. ratios of the company in prior years, 
2. ratios of another company, and
3. industry average ratios.

1.  Historical comparison.

The first useful benchmark is history.

• How has the ratio changed over time?
• Are things getting better or worse for the company?
• Is gross margin going down, indicating that costs are rising faster than prices can be increased?
• Are receivable days lengthening, indicating there are payment problems?

2.  Competitor comparison.

The second useful ratio benchmark is comparing a specific company ratio with that of a competitor.

• For example, if a company has a significantly higher return on assets than a competitor, it strongly suggests that the company manages its resources better.

3.  Industry comparison.

The third type of benchmark is an industry-wide comparison.

• Industry-wide average ratios are published and can give an analyst a good starting point in assessing a particular company's financial performance.  Click here for a chart showing various ratios for a variety of companies in different industries:

  Comparative Industry and Company Financial Ratios

Note that there can be large differences in ratio values between industries and companies.

Review the chart.  What do the ratios tell us about companies and industries?

Comparative analysis of Malaysian Banking Stocks (16.5.2010)

Comparative analysis of Malaysian Banking Stocks
A quick look at Malaysian Banking Stocks (16.5.2010)
http://spreadsheets.google.com/pub?key=t3v2VY0rD9DcGSjmVkAV-gQ&output=html

A quick look at BIMB (15.5.2010)

A quick look at BIMB (15.5.2010)
http://spreadsheets.google.com/pub?key=t3svj1f7qc6pJcqKn-FNG6A&output=html

A quick look at Affin Holdings (15.5.2010)

A quick look at Affin Holdings (15.5.2010)
http://spreadsheets.google.com/pub?key=thaNOxyHlsOChhginG8Bq2Q&output=html

A quick look at Alliance Financial Group (15.5.2010)

A quick look at Alliance Financial Group (15.5.2010)
http://spreadsheets.google.com/pub?key=txT0pF1TSK-OQtTDi3QdDdw&output=html

A quick look at Hong Leong Bank (15.5.2010)

A quick look at Hong Leong Bank (15.5.2010)
http://spreadsheets.google.com/pub?key=tycFD1BTkA-RNW-zclpXrIw&output=html

Investor's Checklist: Banks

1.  The business model of banks can be summed up as the management of three types of risk:  

• credit, 
• liquidity and 
• interest rate.

2.  Investors should focus on conservatively run institutions.  They should seek out firms that hold large equity bases relative to competitors and provision conservatively for future loan losses.

3.  Different components of banks' income statements can show volatile swings depending on a number of factors such as the interest rate and credit environment.  However, well-run banks should generally show steady net income growth through varying environments.  Investors are well served to seek out firms with a good track record.

4.  Well-run banks focus heavily on matching the duration of assets with the duration of liabilities.  For instance, banks should fund long-term loans with liabilities such as long-term debt or deposits, not short-term funding.  Avoid lenders that don't.

5.  Banks have numerous competitive advantages.  They can borrow money at rates lower than even the federal government.  There are large economies of scale in this business derived from having an established distribution network.  The capital-intensive nature of banking deters new competitors.  Customer-switching costs are high, and there are limited barriers to exit money-losing endeavors.

6.  Investors should seek out banks with 

• a strong equity base, 
• consistently solid ROEs and ROAs, and 
• an ability to grow revenues at a steady pace.

7.  Comparing similar banks on a price-to-book measure can be a good way to make sure you're not overpaying for a bank stock.


The Five Rules for Successful Stock Investing
by Pat Dorsey

Market status of countries 'fall' into three categories: Frontier, Emerging and Developed

Received this interesting globe map in my email. TQ

If we let the market status of countries 'fall' into three categories i.e. Frontier, Emerging and Developed, it would look exactly like the one on the left. According to FTSE Group a provider of economic and financial data, this is done on the basis of their economic size, wealth, quality of markets, depth and breadth of markets.

What we are interested in and would like to discover for ourselves are the Frontier Markets. Vietnam, Sri Lanka and Croatia to name a few. Let's discover Vietnam!

A quick look at Eon Capital (15.5.2010)

A quick look at Eon Capital (15.5.2010)
http://spreadsheets.google.com/pub?key=tSgfLNvcIzSMhLmOD_nYDcQ&output=html

Understanding Leverage

Leverage is easily expressed as a ratio:  assets/equity

Most banks equity:asset ratio is around 8% to 9%.  Thus, the average bank has a leverage ratio in the range of 12 to 1 or so, compared to 2 to 1 or 3 to 1 for the average company.

Given the size of the average bank's asset base relative to equity, it's not difficult to imagine a doomsday scenario.

• Earnings serve as the first layer of protection against credit losses.  
• If losses in a given period exceed earnings, a reserve account on the balance sheet serves as a second layer of protection.  Banks must have a pool of reserves to protect shareholders, who hold only a small stake in the company because of the leverage employed.
• If losses in a period exceed reserves, the difference comes directly from shareholders' equity.  When losses at a bank start destroying equity, turn out the lights.

Leverage isn't evil.  It can enhance returns, but there are inherent dangers.

For example, if you buy a $100,000 home with $8,000 down, your equity is 8%.  In other words, you're leveraged 12.5 to 1, which is pretty typical for a bank.  Now, if something atypical happens and the value of your home suddenly drops to $90,000 (just 10%), your equity is gone.  You still owe the lender $92,000 but the house isn't worth that much.  You could walk away from the house $8,000 poorer and still owe $2,000.  Highly leveraged businesses put themselves in a similar situation.

This doesn't mean all leverage is bad.  As a rule, the more liquid a company's balance sheet, the more the company can be leveraged because its assets can be quickly converted to cash at a fair price.

What should investors look for when investing in banks and other financiers?

What should investors look for when investing in banks and other financiers?

Because their entire business - their strengths and their opportunities - is built on risk, it's a good idea to focus on conservatively managed institutions that consistently deliver solid - but not knockout - profits.  Here's a list of some major metrics to consider.

Strong Capital Base

A strong capital base is the number one issue to consider before investing in a lender.  Investors can look at several metrics.

• The simplest is the equity to assets ratio; the higher, the better.  The level of capital should vary with each institution based on a number of factors including the riskiness of its loans.  Most of the bigger banks have capital ratios in the 8% to 9% range.  
• Also look for a high level of loan loss reserve relative to nonperforming assets.

These ratios vary depending on the type of lending an institution does, as well as the point of the business cycle in which they are taken.

Return on Equity and Return on Assets

These metrics are the de facto standards for gauging bank profitability.  

Investors should look for banks that can consistently generate mid- to high- teen returns on equity.  

Ironically, investors should be concerned if a bank earns a level not only too far below this industry benchmark, but also too far above it.  After all, many fast-growing lenders have thrown off 30% or more ROEs, just by provisioning too little for loan losses.  Remember, it can be very easy to boost bank's earnings in the short term by under-provisioning or leveraging up the balance sheet, but this can be unduly risky over the long term.  For this reason, it's good to see a high level of return on assets, as well.

For banks, a top ROA would be in the 1.2 % to 1.4% range.

Efficiency Ratios

The efficiency ratio measures non-interest expense, or operating costs, as a percentage of net revenues.  

Basically, it tells you how efficiently the bank is managed.  Many good banks have efficiency ratios under 55% (lower is better).

Look for banks with strong efficiency ratios as evidence that costs are being kept in check.

Net Interest Margins

Net interest margin looks at net interest income as a percentage of average earning assets.

Virtually all banks report net interest margins because it measures lending profitability.  

You'll see a wide variety of net interest margins depending on the type of lending a bank engages in, but most banks' margins fall into the 3% to 4% range.  

Track margins over time to get a feel for the trend - if margins are rising, check to see what's been happening with interest rates.  (Falling rates generally push up net interest margins.)

In addition, examine the bank's loan categories to see whether the bank has been moving into different lending areas. For example, credit card loans typically carry much higher interest rates than residential mortgages, but credit card lending is also riskier than lending money secured by a house.

Strong Revenues

Historically, many of the best-performing bank investments have been those that have proven capable of above-average revenue growth.  Wide margins have generally been elusive in a commodity industry that competes on service quality.  But, some of the most successful banks have been able to cross-sell new services, which adds to fee income, or pay a slightly lower rate on deposits and charge a slightly higher rate on loans.

Keep an eye on three major metrics:
(1) net interest margin,
(2) fee income as a percent of total revenues, and
(3) fee income growth.

The net interest margin can vary widely depending on economic factors, the interest rate environment, and the type of business the lender focuses on, so it's best to compare the bank you're interested in to other similar institutions.  Fee income made up 42% of bank industry revenue in 2001 and has grown at an 11.6% compound annual rate over the past two decades.  As always, examine the number over a  period of time to get a sense of the trend.

Price to Book 

Because banks' balance sheets consist mostly of financial assets with varying degrees of liquidity, book value is a good proxy for the value of a banking stock.

Typically, big banks have traded in the two or three times book range over the past decade; regionals have often traded for less than that.

A solid bank trading at less than two times book value is often worth a closer look.  Remember, there is almost always a reason the bank is selling at a discount, so be sure you understand the risks.  On the other hand, some banks are worth three times book value or more, but we would exercise caution before paying that much.


The Five Rules for Successful Stock Investing
by Pat Dorsey


Summary:

Equity to assets ratio (capital ratio):  8% to 9% or greater
Loan loss reserve:  High level of loan loss reserve relative to nonperforming assets.
ROE: mid- to high- teen ROE
ROA:  1.2% to 1.4% or higher
Efficiency ratios = (noninterest expense or operating costs)/(net revenues):  < 55% (lower is better)
Net Interest Margins = net interest income / average earning assets:  3% to 4% range
Strong above-average Revenue growth: Look at net interest margin + fee income as percentage of total revenue + fee income growth
Price-to-Book:   Big banks often trade at P/B 2 x  to 3 x range.

Book value is a good proxy for the value of a banking stock.

Because banks' balance sheets consist mostly of financial assets with varying degrees of liquidity, book value is a good proxy for the value of a banking stock.  Assuming the assets and liabilities closely approximate their reported value, the base value for a bank should be book value.  

• For any premium above the book value, investors are paying for future growth and excess earnings.  
• Seldom do banks trade for less than book, but if they do, the bank's assets could be distressed.  
• Typically, big banks have traded in the two or three times book range over the past decades; regionals have often traded for less than that.

A solid bank trading at less than two times book value is often worth a closer look.

• Remember, there is almost always a reason the bank is selling at a discount, so be sure you understand the risks.  
• On the other hand, some banks are worth three times book value or more, but we would exercise caution before paying that much.  

Bank stocks are volatile creatures, and you can find good values if you're patient - especially because even the best banks will generally be hit hard when any high-profile blowup occurs in the financial services sector.  Lining up several banks for a relative P/B valuation isn't as good as putting together a discounted cash flow model, but for this industry, it can be a reasonable approximation of the value of the business.

These metrics should serve as a starting point for seeking out quality bank stocks.  Overall, we think the best defense for investors who want to pick their own financial services stocks is

• patience and 
• a healthy sense of skepticism.  

Build a paper portfolio of core companies that look promising and learn the businesses over time.  Get a feel for

• the kind of lending they do, 
• the way that risk is managed, 
• the quality of management, and 
• the amount of equity capital the bank holds.  

When an opportunity presents itself - and one always does - you'll be in a much better position to act.

A quick look at CIMB (15.5.2010)

A quick look at CIMB (15.5.2010)
http://spreadsheets.google.com/pub?key=tKdR1ezq71j9tVJQn-ldfKw&output=html

A quick look at Public Bank Berhad (15.5.2010)

A quick look at Public Bank Berhad (15.5.2010)
http://spreadsheets.google.com/pub?key=t9xRo-1yCJCfmo6KL-IIg3Q&output=html

A quick look at AMMB (14.5.2010)

A quick look at AMMB (14.5.2010)
http://spreadsheets.google.com/pub?key=tXOX1kGVsK5WyU4E0z2xZdg&output=html

A quick look at IOI Corp (14.5.2010)

A quick look at IOI Corp (14.5.2010)
http://spreadsheets.google.com/pub?key=tb5g_wc85QNAyl7rEqUx7Ng&output=html

Investor's Checklist: Hard-Asset-Based Businesses

Companies in the hard asset based subsector depend on big investments in fixed assets to grow their businesses.  Airlines, waste haulers and expedited delivery companies all fall into this subsector.  In general, these companies aren't as attractive as technology-based businesses, but investors can still find some wide-moat stocks and good investments in this area.

Industry Structure

Growth for hard asset based businesses inevitably requires large incremental outlays for fixed assets.  After all, once an airline is flying full planes, the only way to get more passengers from point A to point B is to acquire an additional aircraft, which can cost US $35 million or more.

Because the incremental fixed investment occurs before asset deployment, companies in this sector generally finance their growth with external funding.  Debt can be used to finance almost all of the asset's cost, so lenders generally require the asset to provide collateral against the loan.  With this model, high leverage is not necessarily a bad thing, provided that the company can make enough money deploying the asset to cover the cost of debt financing and earn a reasonable return for shareholders.

Subsector:  Airlines


(With this in mind, airlines are generally the least attractive investment of all the companies in this subsector.  Airlines must bear enormous fixed costs to maintain their fleets and meet the demands of expensive labour contracts, yet they sell a commodity service that's difficult to differentiate.  As a result, price competition is intense, profit margins are razor-thin - and often non-existent - and operating leverage is so high that the firms can swing from being wildly profitable to nearly bankrupt in a short time.  If you don't think this sounds like a recipe for good long-term investments, you're right - airlines have lost a collective $11 billion (excluding the impact of recent government handouts) between deregulation in 1978 and 2002.  Over the same time period, 125 airlines had filed for Chapter 11 bankruptcy protection and 12 of them filed for Chapter 7 liquidation.)

Hallmarks of Success for Hard-Asset-Based Businesses

Cost leadership:  Because hard-asset based companies have large fixed costs, those that deliver their products most efficiently have a strong advantage and can achieve superior financial performance, such as Southwest in the airline industry.  To get an idea about how efficiently a company operates, look at its fixed asset turnover, operating margins and ROIC - and compare its numbers to industry peers.

Prudent financing:  Remember, having a load of debt is not itself a bad thing.  Having a load of debt that cannot be easily financed by the cash flow of the business is a recipe for disaster.  When analysing companies with high debt, always be sure that the debt can be serviced from free cash flow, even under a downside scenario.

Investor's Checklist:  Hard-Asset-Based Businesses

• Understand the business model.  Knowing a company leverages on hard assets will provide insight as to the kind of financial results the company may produce.
• Look for scale and operating leverage.  These characteristics can provide significant barriers to entry and lead to impressive financial performance.
• Look for recurring revenue.  Long-term customer contracts can guarantee certain levels of revenue for years into the future.  This can provide a degree of stability in financial results.
• Focus on cash flow.  Investors ultimately earn returns based on a company's cash-generating ability.  Avoid investments that aren't expected to generate adequate cash flow.
• Size the market opportunity.  Industries with big, untapped market opportunities provide an attractive environment for high growth.  In addition, companies chasing markets perceived to be big enough to accommodate growth for all industry participants are less likely to compete on price alone.
• Examine growth expectations.  Understand what kind of growth rates are incorporated into the share price.  If the rates of growth are unrealistic, avoid the stock.

The Five Rules for Successful Stock Investing

by Pat Dorsey

Investor's Checklist: Telecom Sector

The telecommunication sector is filled with the kinds of companies we love to hate:

• They earn mediocre (and declining) returns on capital, 
• economic moats are nonexistent or deteriorating, 
• their future depends on the whims of regulators, and 
• they constantly spend boatloads of money just to stay in place.  

Even companies that once boasted wide moats, such as those that control the local phone network, face increasing competition from newer players, such as cable and wireless networks.  Because telecom is fraught with risk, we typically look for a large margin of safety before considering any telecom stock.

Telecom Economics

Building and maintaining a telecom network, whether fixed line or wireless, is an extremely expensive endeavor that requires truckloads of upfront capital.  This requirement provides a substantial barrier to entry and usually protects the established players.  To raise capital, a new entrant must have a great story to tell investors.  The emergence of the Internet, the opening of local networks to competition, and rapid wireless growth during the 1990s gave numerous new players the yarns they needed, which is why the usual barrier provided by huge capital requirements came crumbling down as investors lined up to grab a piece of the action.

While the effects of this massive infusion of capital are still being felt in the industry, ongoing capital needs have sunk many new entrants.  Even a mature telecom firm will need to invest significant capital to maintain its network, meet changing customer demands, and respond to competitive pressures.

Because of the enormous cost to build a network, carriers typically have very low ratios of sales to assets (asset turnover ratios).  Even a mature carrier typically generates only around $1 per year in sales for each $1 of assets invested.  But building a business of ample size to support interest payments and ongoing capital needs is very important.  Because fixed costs are so high, it's imperative for carriers to have enough customers over which to spread the costs.

Squeezing as much profit from the sale as possible is also crucial.  While size again plays a role here, a telecom company must be able to send bills, provide customer service, maintain the network, and market services efficiently.  A mature company, either fixed line or wireless, should expect to earn operating margins between 20 percent and 30 percent.  Short of this level, it is extremely difficult to earn an attractive return on invested capital, given the slow pace at which assets turn over.

With so many companies raising money and building networks in the late 1990s, the volume of business needed to support all these huge investments never materialised.

Conclusion:

The telecom sector of tomorrow will look nothing like the sector of the past.  Competition is far greater throughout the industry and economic moats exceedingly difficult to come by.  The future of the industry will be shaped by regulatory and technological changes, which means that financial strength and flexibility are likely to be what separate successful firms from unsuccessful ones over the next few years.

Investor's Checklist:  Telecom

• Shifting regulations and new technologies have made the telecom industry far more competitive.  Though some areas are more stable than others, look for a wide margin of safety to any estimate of value before investing.
• Telecom is a capital-intensive business.  Having the resources to maintain and improve the network is critical to success.
• Telecom is high fixed-cost business.  Keeping an eye on margins is very important.
• Watching debt is also important.  Firms can easily overextend themselves as they build networks.
• The price of wireless airtime is plummeting. Carriers continue to compete primarily on price.

The Five Rules for Successful Stock Investing
by Pat Dorsey

A quick look at Green Packet (14.5.2010)

A quick look at Green Packet (14.5.2010)
http://spreadsheets.google.com/pub?key=tV-54uu4_jzVGfNlURI6rhg&output=html

Business Prospects (Extracted from its Quarterly Report)
The Group's main revenue contributor, the broadband and voice business segment is projected to be competitive even with all the major service providers challenging for better market share by way of intensive awareness events and aggressive marketing campaigns. The broadband market in Malaysia is however projected to see further strong growth in demand over the next few years. The Group projects to achieve better market traction with focus on improving service quality. The Group also expects improvement in the software and application business in line with the growth of more WiMAX Networks globally. Accordingly, the Board expects the performance of the Group to improve for the financial year ending 31 December 2010.

Financial Crisis, Round II: Is it coming soon?

Financial Crisis, Round II: Is it coming soon?
March 26, 2010

Several successful entrepreneurs have recently told me they're keeping their investments locked up in cash, fearful the financial crisis is set to return very soon, only this time it'll be worse. Much worse. And with banking reform in the US almost non-existent and countries like Greece keeping the world on edge, they might be right. So, I asked seven financial thinkers for their forecasts.

Harry S. Dent, Jr. is the author of The Great Depression Ahead. He believes the US government's debt of $12 trillion is just the tip of the iceberg. When private debt and unfunded liabilities are added, "the total US debt is more like $102 trillion or seven times GDP, more than triple that at the top of the Roaring 20s which led to the Great Depression." He's expecting stocks to crash sometime between July and September - only this time China will not be immune. He's convinced it'll "collapse when the Western world falls again," and predicts a global depression that will last well into 2012.

Investment expert, Noel Whittaker, is optimistic. He told me he's spent 50 years in the finance industry, "and there wasn't once in that period that some 'guru' wasn't forecasting financial Armageddon. Obviously, there is concern about the level of debt around the world but the economies of many countries are starting to pick up and the private sector is taking over the spending that was done by governments as part of their stimulus packages. Furthermore, the rise of the Asian countries is continuing and will continue to do so."

But Canadian economic commentator, Sheldon Filger, disagrees. He predicted the global financial crisis two years before it occurred. "Policymakers in major advanced economies have made a gamble; absorbing massive levels of public debt to backstop insolvent banks and fund stimulus spending... They will lose this gamble, I am convinced, sparking a massive sovereign debt crisis in these economies, especially the US and UK, unleashing a synchronised global depression. What is unfolding now in Greece and the other PIIGS is but a harbinger of what is to come. I predict that round two will unfold by 2012."

Phil Ruthven is an economic forecaster and Chairman of IBISWorld. He's not really worried. "There's no doubt there's a second dip coming, but not a second crisis. Governments around the world have pumped $9 trillion into the finance system. That's roughly 3 per cent of the world's finances, which is what we lost during the GFC. Also, the PIIGS group is a small part of Europe and I really cannot see that being a great danger. There is a risk there will be another decline as distinct from a recession, but that's likely to be in two to three years' time rather than in the foreseeable future."

Professor Todd Knoop from the Department of Economics and Business at Cornell College concurs. "I am not worried that another financial crisis is around the corner. History has shown us that crashes are always proceeded by booms, and while leverage ratios and lending are above where they were a year ago, they are not at the historic levels they were at before the 2009 crisis."

Margaret Lomas, the head of Destiny Financial Services and the Property Investment Professionals of Australia, has a different view. "I am of the definite opinion that the US has only just felt the beginning of what is to become a more major crisis for them. Confidence in the President is low and the sheer amount of national debt is simply a bigger version of the subprime crisis - there is little hope of them being able to even meet the interest bill on such a debt and the fallout may well be similar to that of Argentina - formerly an economically strong country now in the grips of severe financial depression."

Economist Professor Ian Harper said that deleveraging across the economy could result in a second dip or delay the recovery from the first one. There's a similar risk involved with excessive government debt but he cautioned that, "Whether the second round is more severe than the first is more difficult to predict. Governments tend to have more room to move compared with the private sector, given their powers to tax and print money. So while rising public indebtedness is certainly an issue, it need not precipitate a deeper crisis, even though it will slow recovery from the first dip, especially in the most affected countries."

Well, that's what the economic gurus foresee. What do you think? Is the global financial crisis set to return, only with more ferocity than before?

-------------------------------
http://blogs.theage.com.au/small-business/workinprogress/2010/03/26/financialcrisi.html

Uni degrees: who needs 'em?

Uni degrees: who needs 'em?
May 14, 2010

A lot of fellows nowadays have a B.A., M.D., or Ph.D. Unfortunately, they don't have a J.O.B." So said American singer-songwriter, Fats Domino. He had a point. Putting aside professions such as medicine and law where a degree is essential, much of what is taught at university today isn't useful in the workplace.

A British survey conducted in March by the Chartered Institute of Personnel and Development revealed 60 per cent of graduates are working in a field unrelated to the degree they studied. And roughly one-in-four said their degree didn't equip them with the skills they needed to thrive at work. The results in Australia would probably be similar, with thousands of people thinking the completion of a degree is the finish line, when in reality it only entitles them to stand at the starting blocks. The real work starts at work.

The most talented senior manager I've ever had was a lady who hadn't spent a day on a university campus. The most hopelessly incompetent executives were those who'd completed not only a degree but also an MBA.

This doesn't imply a degree leads to poor performance. Rather, it just doesn't guarantee success. Not all masterful trainers have a degree in Adult Education. Many of the finest journalists don't have a degree in Communication. And some of the best musicians haven't studied at the Conservatorium.

People will argue the value lies not necessarily in the curriculum but with what a person becomes as a result of completing the degree. It'll prove they can solve problems! It'll show they can work under pressure! It'll demonstrate they can organise and prioritise! All of that may be true (or not), but those same attributes can be gleaned from other areas, such as the candidates' work experience, the adversities they've overcome, and their character in general.

I asked Shayne Herriott, the president of the National Association of Australian University Colleges, for his thoughts. "Obtaining a university degree is a lot more than what is learnt within a classroom or lecture theatre," he said. "A university degree is a series of challenges testing our ability to learn new and challenging subjects in a new environment surrounded by many distractions that are greatly different from school."

Admittedly, I'm a uni drop out. I had one year left of a Business degree when I realised it was no longer beneficial. I started it when I was in the corporate world. Eager to progress up the career ladder, I was very aware of the preference decision-makers had for resumes that contained a pithy reference to the applicant's degree. Despite being a student with a distinction average, I didn't learn a thing I could apply at work. Instead, I was forced to remember a bunch of management theories developed in the 1970s, all of which I've since forgotten.

These days, many job advertisements list a degree as a prerequisite. Check out the graduate section of the MyCareer site and you'll find job vacancies for a Recruitment Assistant, a Junior Marketing Coordinator, and another in Media Sales. It's uncertain why the lack of a degree is such a deal-breaker for roles where all the learning would presumably be on the job. It seems a degree merely qualifies you for the interview. It gets you in the door. Actually being able to do the job is an altogether separate and unrelated matter.

Rising in prominence is the Mickey Mouse degree, which is a term that disparagingly refers to qualifications of little relevance in the working world. Golf management and surf science are two such obscure examples, as are more common ones such as English Literature and History. How many job vacancies do you see advertised for a historian? Currently on MyCareer: none.

And then there's the aspirational MBA. There was a time when it was regarded as a unique accomplishment. But currently it seems like every ambitious worker's got one, or is at least contemplating the endeavour. A few years ago, I was recruiting for entry-level call centre positions and was floored by the flood of resumes from MBA graduates. It used to guarantee you a job in middle management. Now it guarantees you a period of muddle management.

People who undertake a degree should be applauded. It's a huge commitment, and the intention here isn't to denigrate their achievement. It's more a reflection on the perception of degrees and their supposed relevance in the workplace. Are they really supporting business? I don't think so. Not to a large degree.

http://blogs.theage.com.au/small-business/workinprogress/2010/05/14/unidegreeswho.html

A quick look at Transmile (14.5.2010)

A quick look at Transmile (14.5.2010)
http://spreadsheets.google.com/pub?key=t3UYetvUUuc1vbXWvCaAOTw&output=html

AVOID!!!
The company is still losing money.  It has a lot of debts.  


It's cash and cash equivalent is declining, presently at MR 86.43 million.  It is struggling using cash generated from working capital (account receivables' day decreased from 73 days to 27.5 days, and account payables' days increased from 22.3 days to 37.9 days).


At 50c per share, its market capitalisation is MR 135.06 million.  Its total equity in its balance sheet at 31.12.2009 was MR 22.26 million.  It's assets are in the planes.



Click also:
Lessons From Transmile

Cooking the Books: Investors, be warned.

This discussion should make you better able to see the clues of fraud and remind you to be vigilant.

Managers most often cook the books for personal financial gain - to justify a bonus, to keep stock prices high and options valuable or to hide a business's poor performance.  Companies most likely to cook their books have weak internal controls and have a management of questionable character facing extreme pressure to perform.

All fast-growing companies must eventually slow down.  Managers may be tempted to use accounting gimmicks to give the appearances of continued growth.  Managers at weak companies may want to mask how bad things really are.  Managers may want that last bonus before bailing out.  Maybe there are unpleasant loan covenants that would be triggered but can be avoided by cooking the books.  A company can just be sloppy and have poor internal controls.

One key to watch for is management changing from a conservative accounting policy to a less-conservative one, for example, changing from LIFO to FIFO methods of inventory valuation or from expensing to capitalizing certain marketing expenses, easing of revenue recognition rules, lengthening amortization or depreciation periods.

Changes like these should be a red flag.  There may be valid reasons for these accounting policy changes, but not many.  Be warned.

Related:

• Cooking the Books: Why do managers cook the books?
• Cooking the Books: This is very different from "Creative Accounting"
• Cooking the Books: Puffing up the Income Statement
• Cooking the Books: Techniques to Puff Up the Income Statement
• Cooking the Books: Sweetening the Balance Sheet
• Cooking the Books: Techniques to Sweeten the Balance Sheet
• Cooking the Books: The Auditor's Job
• Cooking the Books: Investors, be warned.