Airtime: Thurs. Nov. 11 2010
In an extended interview, Jeremy Grantham, chairman of Grantham Mayo Van Otterloo (GMO), talks to Maria Bartiromo about the markets, the economy, and his investment strategy.
http://www.gmo.com/America/
Friday, 12 November 2010
Jeremy Grantham Interview
Airtime: Thurs. Nov. 11 2010
In an extended interview, Jeremy Grantham, chairman of Grantham Mayo Van Otterloo (GMO), talks to Maria Bartiromo about the markets, the economy, and his investment strategy.
http://www.gmo.com/America/
Thursday, 11 November 2010
Malayan Banking Berhad
Date announced 20/08/2010
Quarter 30/06/2010 Qtr 4
FYE 30/06/2010
STOCK Maybank
C0DE 1155
Price $ 9.1 Curr. PE (ttm-Eps) 16.87 Curr. DY 6.04%
LFY Div 55.00 DPO ratio 102%
ROE 13.7% PBT Margin 28.7% PAT Margin 19.3%
Rec. qRev 4737314 q-q % chg 3% y-y% chq -3%
Rec qPbt 1359094 q-q % chg -7% y-y% chq -265%
Rec. qEps 12.89 q-q % chg -11% y-y% chq -173%
ttm-Eps 53.95 q-q % chg 130% y-y% chq 384%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 15.00 Avg. L PE 10.00
Forecast High Pr 10.33 Forecast Low Pr 6.71 Recent Severe Low Pr 6.71
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 34% Downside 66%
One Year Appreciation Potential 3% Avg. yield 8%
Avg. Total Annual Potential Return (over next 5 years) 10%
CPE/SPE 1.35 P/NTA 2.31 NTA 3.94 SPE 12.50 Rational Pr 6.74
Decision:
Already Owned: Buy Hold Sell Filed; Review (future acq): Filed; Discard: Filed
Guide: Valuation zones Lower 1/3 Buy; Mid. 1/3 Maybe; Upper 1/3 Sell
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
Hong Leong Bank Berhad
Date announced 19/08/2010
Quarter 30/06/2010 Qtr 4
FYE 30/06/2010
STOCK HLBank
C0DE 5819
Price $ 9.55 Curr. PE (ttm-Eps) 14.01 Curr. DY 2.51%
LFY Div 24.00 DPO ratio 35%
ROE 15.4% PBT Margin 66.7% PAT Margin 58.2%
Rec. qRev 517802 q-q % chg 2% y-y% chq 5%
Rec qPbt 345131 q-q % chg 33% y-y% chq 66%
Rec. qEps 20.77 q-q % chg 32% y-y% chq 51%
ttm-Eps 68.17 q-q % chg 11% y-y% chq 9%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 12.00 Avg. L PE 10.00
Forecast High Pr 10.44 Forecast Low Pr 7.83 Recent Severe Low Pr 7.83
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 34% Downside 66%
One Year Appreciation Potential 2% Avg. yield 3%
Avg. Total Annual Potential Return (over next 5 years) 5%
CPE/SPE 1.27 P/NTA 2.16 NTA 4.43 SPE 11.00 Rational Pr 7.50
Decision:
Already Owned: Buy Hold Sell Filed; Review (future acq): Filed; Discard: Filed
Guide: Valuation zones Lower 1/3 Buy; Mid. 1/3 Maybe; Upper 1/3 Sell
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
PPB Group Berhad
Date announced 25/08/2010
Quarter 30/06/2010 Qtr 2
FYE 31/12/2010
STOCK PPB
C0DE 4065
Price $ 18.5 Curr. PE (ttm-Eps) 9.18 Curr. DY 3.95%
LFY Div 73.00 DPO ratio 54%
ROE 16.9% PBT Margin 56.1% PAT Margin 54.7%
Rec. qRev 581092 q-q % chg 15% y-y% chq -30%
Rec qPbt 325903 q-q % chg 8% y-y% chq -25%
Rec. qEps 26.80 q-q % chg -72% y-y% chq -20%
ttm-Eps 201.58 q-q % chg -3% y-y% chq 93%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 10.00 Avg. L PE 7.00
Forecast High Pr 25.73 Forecast Low Pr 15.68 Recent Severe Low Pr 15.68
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 72% Downside 28%
One Year Appreciation Potential 8% Avg. yield 7%
Avg. Total Annual Potential Return (over next 5 years) 15%
CPE/SPE 1.08 P/NTA 1.55 NTA 11.93 SPE 8.50 Rational Pr 17.13
Decision:
Already Owned: Buy Hold Sell Filed; Review (future acq): Filed; Discard: Filed
Guide: Valuation zones Lower 1/3 Buy; Mid. 1/3 Maybe; Upper 1/3 Sell
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
Carlsberg
Date announced 11-Nov-10
Quarter 30/09/2010 Qtr 3
FYE 31/12/2010
STOCK CARLSBG
C0DE 2836
Price $ 5.85
Curr. PE (ttm-Eps) 14.56 Curr. DY 3.09%
LFY Div 18.10 DPO ratio 73%
ROE 21.4% PBT Margin 14.2% PAT Margin 10.3%
Rec. qRev 329492 q-q % chg -1% y-y% chq 36%
Rec qPbt 46825 q-q % chg 15% y-y% chq 60%
Rec. qEps 11.15 q-q % chg 11% y-y% chq 57%
ttm-Eps 40.18 q-q % chg 11% y-y% chq 87%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 14.00 Avg. L PE 12.00
Forecast High Pr 7.18 Forecast Low Pr 4.69 Recent Severe Low Pr 4.69
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 53% Downside 47%
One Year Appreciation Potential 5% Avg. yield 6%
Avg. Total Annual Potential Return (over next 5 years) 11%
CPE/SPE 1.12 P/NTA 3.11 NTA 1.88 SPE 13.00 Rational Pr 5.22
Decision:
Already Owned: Buy Hold Sell Filed Review (future acq): Filed Discard: Filed
Guide: Valuation zones Lower 1/3 Buy Mid. 1/3 Maybe Upper 1/3 Sell
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
Coastal
Date announced 24/08/2010
Quarter 30/06/2010 Qtr 2
FYE 31/12/2010
STOCK COASTAL
C0DE 5071
Price $ 2.35
Curr. PE (ttm-Eps) 4.39 Curr. DY 1.28%
LFY Div 3.00 DPO ratio 7%
ROE 36.4% PBT Margin 35.0% PAT Margin 34.8%
Rec. qRev 138619 q-q % chg -2% y-y% chq 46%
Rec qPbt 48583 q-q % chg 13% y-y% chq 44%
Rec. qEps 13.32 q-q % chg 11% y-y% chq 43%
ttm-Eps 53.55 q-q % chg 8% y-y% chq 65%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 2% Avg.H PE 5.00 Avg. L PE 4.00
Forecast High Pr 2.96 Forecast Low Pr 1.90 Recent Severe Low Pr 1.90
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 57% Downside 43%
One Year Appreciation Potential 5% Avg. yield 2%
Avg. Total Annual Potential Return (over next 5 years) 7%
CPE/SPE 0.98 P/NTA 1.60 NTA 1.47 SPE 4.50 Rational Pr 2.41
Decision:
Already Owned: Buy Hold Sell Filed; Review (future acq): Filed; Discard: Filed
Guide: Valuation zones Lower 1/3 Buy; Mid. 1/3 Maybe; Upper 1/3 Sell
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
Unknown consequences of QE2
Unknown consequences of QE2
2010-11-09 14:11
With oil hitting a two-year high, gold rallying to an all-time peak, and most global stock and commodities markets in a sharp upswing, the US Federal Reserve (Fed) has proved its capability to drive up the world's inflation expectations.
Yet, unfortunately, it remains unknown if the Fed's announcement last Wednesday to purchase $600 billion of Treasuries has any chance of succeeding in effectively reviving the sluggish US economy. Moreover, the second round of quantitative easing, or QE2, has given rise to international concerns that the move will only increase global economic uncertainty.
Last Friday, Zhou Xiaochuan, governor of China's central bank, pointed out that the Fed's move was "not likely" to benefit the global economy, because there may be a conflict between the international role and the domestic role of the US dollar.
The Fed's move to print more money may help boost employment and maintain a low inflation rate domestically, but it will bring a flood of liquidity to the global economy, especially to emerging economies, and drive inflation expectations to dangerous levels.
Last week, German Finance Minister Wolfgang Schaeuble criticized the Fed's capital-injection for its potential to "create extra problems for the world" and cause "long-term damage".
Equally worried was Robert Zoellick, president of the World Bank, who even suggested a modified global gold standard to guide currency movements.
Admittedly, a return to using gold as an anchor for currency values is probably premature, even though gold prices are more solid than ever. But it is now quite obvious that the current international system cannot afford doing nothing about the latest US attempt to revive its economy with the help of the central bank's printing press.
If US policymakers turn a deaf ear to such international criticism over its latest attempt to stimulate its economy's slow recovery, they will risk undermining other countries' efforts to normalize their monetary and fiscal policies for a lasting recovery.
Worse, the phenomenal inflationary impact that QE2 has so far exerted on the global market could be just the tip of the iceberg. There will undoubtedly be unknown consequences of printing such a large amount of US dollars, a key international reserve currency that is widely used in international commodity trade, capital circulation and financial transactions.
The international community should make it an issue for serious discussion at the G20 summit in South Korea later this week. It is necessary to drive home the message that neither a country, nor the world as a whole, can reflate its way out of a crisis as wide and deep as the one that we are all still suffering from.
Monetary policies divide world into two camps: QE camp and non-QE camp
Monetary policies divide world into two camps
Updated: 2010-11-09 06:50
The US Federal Reserve acted last week on its much-anticipated second round of quantitative easing (QE2) by buying an additional $600 billion of Treasuries through June 2011. This expands on its record stimulus package and is an effort to reduce unemployment and avert deflation. Originally, it was reported that purchases might be higher but after a series of encouraging economic data and earnings reports, the case for a one-off large scale QE no longer seemed appropriate. Since December 2008, interest rates have remained low at 0 percent to 0.25 percent with core inflation at almost zero.
The impact of QE2 provides a welcome level of support for the US economy. Effectively, the US Fed has repaired its own balance sheet through purchases of treasuries in exchange for its mortgage-backed securities (MBS) and agency debt. By exporting its own inflationary pressures overseas through excess liquidity, corporate balance sheets may also improve on the back of higher asset prices. With the ability to change and act accordingly through securities purchases, the Fed has given itself the option to wait and see how the US economy will recover and to what extent assistance will be needed.
QE2 will increase inflationary pressures for some emerging countries and their asset prices will remain at high levels. The US Fed is using QE2 to increase the money supply in order to reduce the debt burden. US policymakers have accepted some levels of inflation in hopes of boosting domestic consumption and reducing the country's level of unemployment.
We believe the world falls in two camps: the first being the "QE Camp" including the US, UK, and Japan; the second being the "non QE camp" consisting of emerging market economies which is led by China.
In the "non QE camp", China has recently raised interest rates by 0.25 percentage point for both lending & deposit rates on the back of renewed inflationary concerns. In its third quarter macroeconomic report, the People's Bank of China raised warnings of rising food prices, wages and commodity prices. China's consumer price index (CPI) climbed to 3.6 percent year-on-year in September and is expected to rise to 4 percent year-on-year in October. This exceeded the Central Government's goal of keeping inflation below 3.5 percent - it was at 3 percent at the beginning of the year. The rising CPI is eroding the purchasing power of the people and the higher price of food, energy, rent, and wages, could weaken China's competitiveness.
Additionally, gasoline prices are at high levels and adverse weather conditions have created a shortage in soft commodities leading to further price increases in that segment. In 2010, China suffered from a series of droughts and dust storms. Moreover, floods in China began in early May 2010. Consequently, most soft commodities including agricultural goods such as corns, experienced record high prices.
China will be carefully watching the inflation level as it deals with other important issues such as the inflow of hot money, and yuan revaluation. The so-called "hot money" inflow has been a prolonged issue for China as this will directly inflate asset prices. As previously discussed, the yuan is also another major concern and China will have to gradually appreciate its currency according to the relationship between exports and domestic demand.
As we are approaching the year's end, central bankers around the world will watch carefully the impacts of QE from the "QE Camp" and monetary tightening from the "non QE camp". A measured pace of intervention by central banks and other regulators is what we have seen this year and expect to continue until year-end.
The author is a visiting professor at the Asian International Open University, an international financial commentator at NOW business news channel and founder of www.wongsir.com.hk.
http://www.chinadaily.com.cn/hkedition/2010-11/09/content_11519088.htm
Updated: 2010-11-09 06:50
The US Federal Reserve acted last week on its much-anticipated second round of quantitative easing (QE2) by buying an additional $600 billion of Treasuries through June 2011. This expands on its record stimulus package and is an effort to reduce unemployment and avert deflation. Originally, it was reported that purchases might be higher but after a series of encouraging economic data and earnings reports, the case for a one-off large scale QE no longer seemed appropriate. Since December 2008, interest rates have remained low at 0 percent to 0.25 percent with core inflation at almost zero.
The impact of QE2 provides a welcome level of support for the US economy. Effectively, the US Fed has repaired its own balance sheet through purchases of treasuries in exchange for its mortgage-backed securities (MBS) and agency debt. By exporting its own inflationary pressures overseas through excess liquidity, corporate balance sheets may also improve on the back of higher asset prices. With the ability to change and act accordingly through securities purchases, the Fed has given itself the option to wait and see how the US economy will recover and to what extent assistance will be needed.
QE2 will increase inflationary pressures for some emerging countries and their asset prices will remain at high levels. The US Fed is using QE2 to increase the money supply in order to reduce the debt burden. US policymakers have accepted some levels of inflation in hopes of boosting domestic consumption and reducing the country's level of unemployment.
We believe the world falls in two camps: the first being the "QE Camp" including the US, UK, and Japan; the second being the "non QE camp" consisting of emerging market economies which is led by China.
- The former has and will continue to loosen its monetary policy in efforts to revive economies, devalue currencies and inflate asset prices.
- The "non QE camp" is focused on containing inflationary pressures through tighter monetary policies.
In the "non QE camp", China has recently raised interest rates by 0.25 percentage point for both lending & deposit rates on the back of renewed inflationary concerns. In its third quarter macroeconomic report, the People's Bank of China raised warnings of rising food prices, wages and commodity prices. China's consumer price index (CPI) climbed to 3.6 percent year-on-year in September and is expected to rise to 4 percent year-on-year in October. This exceeded the Central Government's goal of keeping inflation below 3.5 percent - it was at 3 percent at the beginning of the year. The rising CPI is eroding the purchasing power of the people and the higher price of food, energy, rent, and wages, could weaken China's competitiveness.
Additionally, gasoline prices are at high levels and adverse weather conditions have created a shortage in soft commodities leading to further price increases in that segment. In 2010, China suffered from a series of droughts and dust storms. Moreover, floods in China began in early May 2010. Consequently, most soft commodities including agricultural goods such as corns, experienced record high prices.
China will be carefully watching the inflation level as it deals with other important issues such as the inflow of hot money, and yuan revaluation. The so-called "hot money" inflow has been a prolonged issue for China as this will directly inflate asset prices. As previously discussed, the yuan is also another major concern and China will have to gradually appreciate its currency according to the relationship between exports and domestic demand.
As we are approaching the year's end, central bankers around the world will watch carefully the impacts of QE from the "QE Camp" and monetary tightening from the "non QE camp". A measured pace of intervention by central banks and other regulators is what we have seen this year and expect to continue until year-end.
The author is a visiting professor at the Asian International Open University, an international financial commentator at NOW business news channel and founder of www.wongsir.com.hk.
http://www.chinadaily.com.cn/hkedition/2010-11/09/content_11519088.htm
Can you picture China in five years (2011-2015)?
Can you picture China in five years (2011-2015)?
Will it still be difficult to buy a house in big cities like Beijing? Will the income gap between the rich and poor narrow or widen? Is the growth model relying on exports or domestic consumption? How about the investment environment in China? In what areas will the government provide policy support? Are we prepared for an aging Chinese society? Is China ready to shoulder its global responsibilities？
There are no easy answers to these questions, which nonetheless need prudent analysis and well-informed strategies, to realize the ultimate goal of development, reform and opening up.
What goal? “To give all Chinese people a happy life,” in the words of Chinese Premier Wen Jiabao.
The Communist Party of China (CPC) Central Committee's Proposal on Formulating the Twelfth Five-year Program (2011-2015) on National Economic and Social Development was adopted at the Fifth Plenary Session of the 17th CPC Central Committee, which ended Oct 18. The draft is subject to approval by the National People's Congress, China's top legislature, when it convenes its annual session next year.
This special coverage focuses on the proposal and the extensive issues that will shape the country's development over the next five years.
http://www.chinadaily.com.cn/china/2010-11/08/content_11513304.htm
Will it still be difficult to buy a house in big cities like Beijing? Will the income gap between the rich and poor narrow or widen? Is the growth model relying on exports or domestic consumption? How about the investment environment in China? In what areas will the government provide policy support? Are we prepared for an aging Chinese society? Is China ready to shoulder its global responsibilities？
There are no easy answers to these questions, which nonetheless need prudent analysis and well-informed strategies, to realize the ultimate goal of development, reform and opening up.
What goal? “To give all Chinese people a happy life,” in the words of Chinese Premier Wen Jiabao.
The Communist Party of China (CPC) Central Committee's Proposal on Formulating the Twelfth Five-year Program (2011-2015) on National Economic and Social Development was adopted at the Fifth Plenary Session of the 17th CPC Central Committee, which ended Oct 18. The draft is subject to approval by the National People's Congress, China's top legislature, when it convenes its annual session next year.
This special coverage focuses on the proposal and the extensive issues that will shape the country's development over the next five years.
http://www.chinadaily.com.cn/china/2010-11/08/content_11513304.htm
Latexx Partners 3Q net profit up 23.5% to RM17.62m
Latexx Partners 3Q net profit up 23.5% to RM17.62m
Written by Joseph Chin
Wednesday, 10 November 2010 13:45
KUALA LUMPUR: LATEXX PARTNERS BHD [] reported a set of stronger earnings at RM17.62 million in the third quarter ended Sept 30, an increase of 23.5% from RM14.27 million a year ago.
It said on Wednesday, Nov 10 revenue rose 60.7% to RM129.87 million from RM80.84 million. Profit before tax rose 41.3% to RM20.16 million from RM14.27 million. Earnings per share were 8.19 sen compared with 7.33 sen. It declared an interim dividend of 2.5 sen per share.
For the nine-month period, revenue increased 73.1% to RM390.53 million from RM225.59 million from the previous corresponding period. Profit before tax and profit after tax increased by 93.9% and 72.0% respectively to RM67.53 million and RM59.89 million.
“The increase in the group’s revenue and improvement in the net profit of the current year was mainly due to the increase in overall sales volume, driven by the strong demand of gloves and the group’s expanded capacity from 4.5 billion pieces per annum to 7.0 billion pieces per annum.
“The stronger performance was also attributed by measures taken to improve the effectiveness and efficiency in operation control; as well as intensified and aggressive marketing strategy,” it said.
http://www.theedgemalaysia.com/business-news/176830-latexx-partners-3q-net-profit-up-235-to-rm1762m.html
Written by Joseph Chin
Wednesday, 10 November 2010 13:45
KUALA LUMPUR: LATEXX PARTNERS BHD [] reported a set of stronger earnings at RM17.62 million in the third quarter ended Sept 30, an increase of 23.5% from RM14.27 million a year ago.
It said on Wednesday, Nov 10 revenue rose 60.7% to RM129.87 million from RM80.84 million. Profit before tax rose 41.3% to RM20.16 million from RM14.27 million. Earnings per share were 8.19 sen compared with 7.33 sen. It declared an interim dividend of 2.5 sen per share.
For the nine-month period, revenue increased 73.1% to RM390.53 million from RM225.59 million from the previous corresponding period. Profit before tax and profit after tax increased by 93.9% and 72.0% respectively to RM67.53 million and RM59.89 million.
“The increase in the group’s revenue and improvement in the net profit of the current year was mainly due to the increase in overall sales volume, driven by the strong demand of gloves and the group’s expanded capacity from 4.5 billion pieces per annum to 7.0 billion pieces per annum.
“The stronger performance was also attributed by measures taken to improve the effectiveness and efficiency in operation control; as well as intensified and aggressive marketing strategy,” it said.
http://www.theedgemalaysia.com/business-news/176830-latexx-partners-3q-net-profit-up-235-to-rm1762m.html
FTSE Bursa Malaysia KLCI Index Market PE is now at 16.3.
Morgan: Cut stock holdings in SE Asia (BT)
Wednesday, November 10, 2010
Morgan Stanley recommended “cheap” stocks in South Korea and China and advised reducing holdings in Southeast Asia after rallies drove indexes in Indonesia, the Philippines and Malaysia to record highs.
“Korea and China are examples of markets that are not in any way expensive,” Jonathan Garner, Morgan Stanley’s Hong Kong-based chief Asian and emerging-market strategist, said in an interview in Singapore yesterday. “We don’t find it difficult to find large-cap Chinese stocks which are attractive and we are quite happy to recommend.”
China’s low earnings volatility and “relatively contained” inflation make it more “attractive,” Garner said. Oil driller Cnooc Ltd and coal producer China Shenhua Energy Co are on the brokerage’s focus list of companies. In contrast, high earnings growth expectations are embedded in valuations for some Southeast Asian markets, leaving them “no margin of error” for unexpected interest rate increases, he said.
The Shanghai Composite Index has climbed 33 per cent from its July 5 low as fund flows to emerging markets surged. Stocks in the gauge are valued at 17.7 times estimated earnings, less than half the multiple of 43 when the market peaked in 2007. South Korea’s Kospi Index has risen 16 per cent this year, adding to last year’s 50 per cent jump. The gauge is at 11 times estimated earnings, the lowest in Asia after Pakistan and Vietnam.
In Southeast Asia, benchmark indexes in Indonesia, the Philippines and Malaysia are among Asia’s best performers this year. The rally drove the Jakarta Composite Index to 18.4 times earnings, the Philippine Stock Exchange Index to a multiple of 15 and the FTSE Bursa Malaysia KLCI Index to 16.3.
Wednesday, November 10, 2010
Morgan Stanley recommended “cheap” stocks in South Korea and China and advised reducing holdings in Southeast Asia after rallies drove indexes in Indonesia, the Philippines and Malaysia to record highs.
“Korea and China are examples of markets that are not in any way expensive,” Jonathan Garner, Morgan Stanley’s Hong Kong-based chief Asian and emerging-market strategist, said in an interview in Singapore yesterday. “We don’t find it difficult to find large-cap Chinese stocks which are attractive and we are quite happy to recommend.”
China’s low earnings volatility and “relatively contained” inflation make it more “attractive,” Garner said. Oil driller Cnooc Ltd and coal producer China Shenhua Energy Co are on the brokerage’s focus list of companies. In contrast, high earnings growth expectations are embedded in valuations for some Southeast Asian markets, leaving them “no margin of error” for unexpected interest rate increases, he said.
The Shanghai Composite Index has climbed 33 per cent from its July 5 low as fund flows to emerging markets surged. Stocks in the gauge are valued at 17.7 times estimated earnings, less than half the multiple of 43 when the market peaked in 2007. South Korea’s Kospi Index has risen 16 per cent this year, adding to last year’s 50 per cent jump. The gauge is at 11 times estimated earnings, the lowest in Asia after Pakistan and Vietnam.
In Southeast Asia, benchmark indexes in Indonesia, the Philippines and Malaysia are among Asia’s best performers this year. The rally drove the Jakarta Composite Index to 18.4 times earnings, the Philippine Stock Exchange Index to a multiple of 15 and the FTSE Bursa Malaysia KLCI Index to 16.3.
Foreign, retail buys spur Bursa trading
Main points:
- Last month, foreign funds bought RM10.6 billion worth of stocks and sold some RM8.8 billion of them.
- In contrast, domestic funds bought RM12.8 billion worth of stocks and sold some RM14.2 billion worth of stocks.
- Last month, retail players bought RM7.6 billion worth of stocks and sold RM7.7 billion worth of stocks.
- Retailers accounted for 48.04 per cent of the 25.2 billion shares traded in October.
- Apart from sentiment, cheap credit has also helped stir the layman's interest in equities.
- According to Bank Negara Malaysia, up to September this year, some RM35.6 billion, which is an increase of 8.1 per cent over the same period a year ago, was lent by banks for purchase of securities.
By Francis Fernandez
Published: 2010/11/11
The momentum is in the larger capitalised stock, and the buying has been steady, says Jupiter Securities' head of research
Malaysia's stock market drew more buyers than sellers among foreign investors in October while small or retail investors made up almost half of the trading volume, data from Bursa Malaysia showed.
Jupiter Securities head of research Pong Teng Siew expects the trend to continue this month, as local institutions like the Employees Provident Fund need to sell to raise income for dividends.
"They need to sell to pay dividends. But, because the market is strong the local institutions will also be buying stocks," Pong told Business Times in a telephone interview.
It is also clear that foreign funds are buying although they have yet to do so in large quantities.
"The momentum is in the larger capitalised stock, and the buying has been steady," said Pong.
Last month, foreign funds bought RM10.6 billion worth of stocks and sold some RM8.8 billion of them.
In contrast, domestic funds bought RM12.8 billion worth of stocks and sold some RM14.2 billion worth of stocks.
Meanwhile, Lee Cheng Hooi, Maybank Investment Bank's head of retail research for equity markets, said that retailers were also strongly back in the market.
Lee added that opportunities are abundant in the market, and retailers should focus on laggards and lower-priced stocks.
Last month, retail players bought RM7.6 billion worth of stocks and sold RM7.7 billion worth of stocks.
Retailers accounted for 48.04 per cent of the 25.2 billion shares traded in October.
Yet another indicator of retailers coming back to the market is the rise in volume on Bursa Malaysia's FBM Small cap index, which measures the performance of stocks with smaller market values.
This has led to a surge in demand for stocks below RM1. Over the past three months, from the 17 stocks that have gained more than 100 per cent, 13 of them are priced below RM1.
Among the penny stocks that have notched gains of 200 per cent or more are Scope Industries Bhd, Karambunai Bhd, Petaling Tin Bhd, Majuperak Holdings Bhd, Ho Wah Genting Bhd and Cuscapi Bhd.
Apart from sentiment, cheap credit has also helped stir the layman's interest in equities.
According to Bank Negara Malaysia, up to September this year, some RM35.6 billion, which is an increase of 8.1 per cent over the same period a year ago, was lent by banks for purchase of securities.
Pong says the bulk of the money went to large corporations to fund takeovers, and retailers are getting their purchasing power from loans provided by stockbroking firms.
Read more: Foreign, retail buys spur Bursa trading http://www.btimes.com.my/Current_News/BTIMES/articles/forexx-2/Article/index_html#ixzz14vh6GpgX
Wednesday, 10 November 2010
Taking more than their fair share
Small business owner Brian Taylor learnt a costly lesson on asset-based fees.Photo: Tamara Dean
Percentage fees charged by fund managers can be a lazy way to riches - for fund managers that is, not investors.
The percentage fees charged by fund managers keep coming out of investors' capital regardless of the direction of markets. What's worse for investors is that it keeps coming out even if the fund manager loses more money during market downturns than the market itself.
According to a report from the Australian Institute of Superannuation Trustees, percentage fees end up rewarding fund managers for accumulating funds under management, not necessarily for producing good returns. The study, which mostly concerned Australian shares, recommended super funds move to a fixed dollar fee plus a performance fee when negotiating fees with active managers of share funds.
Advertisement: Story continues below
At the time of the release of the report in September, the institute's chief executive, Fiona Reynolds, said: ''We need a fee model that does more than reward fund managers for managing an ever-expanding pool of assets, even when they have not contributed to that growth. In a compulsory system where you have legislated growth of 9 per cent, this is a licence to print money.
''If we are serious about reducing costs across the super sector, we can't ignore investment fees.''
Investment markets rise and fall and fund managers cannot be held responsible for that. But the way they are paid has a big bearing on how well investors will do. Generally, investors will be better off with managers who are paid for performance, provided the performance fee is well structured.
Asset-based fees compound over time, just like interest on an investment. It's what the managing director of managed funds discount broker 2020 Directinvest, Michael Lannon, calls the ''reverse miracle of compound fees''.
Take fairly typical total fees of 2 per cent a year for a small investor and assume an investment return of 7 per cent a year. Lannon says that over five years, 7.3 per cent of the investment return will be paid in fees; over 10 years it's 17.2 per cent and 31.5 per cent over 20 years.
TAX EFFICIENCY
The tax efficiency of fund managers is also receiving attention from superannuation fund trustees. Fund managers who ''churn'' their portfolio increase taxes for investors compared with those managers who buy and sell shares with less frequency.
The returns and fees of managed funds are mostly reported on a pre-tax basis rather than after-tax returns. Two managed funds with the same gross return could have very different after-tax returns - the returns that investors actually receive in their hands.
Last year, the health and community services industry fund, HESTA, required the Australian share-fund managers it hires to manage the money in a way that maximises after-tax returns. Simple steps can be taken by managers to increase the tax efficiency of their funds, such as making better use of franking credits, holding on to shares for longer to take advantage of discounted capital gains tax and decreasing the frequency of share trades.
HESTA expected the move would add tens of millions of dollars to the value of its Australian share portfolio by measuring and paying fund managers on their after-tax performance.
More managed funds have performance fees but they tend to be boutique managers who believe they can outperform the market. Performance fees are also found among managers investing in market sectors, such as small companies, where there is the potential for large ''excess'' returns over and above market returns.
Typically, funds that have a performance fee will also have a ''base'' fee - the usual asset-based fee. Usually, the performance fee will be a percentage of the returns above the market returns. Investors should be paying a base fee that is less than the base fee charged by funds without performance fees. A performance fee should not be triggered until a fund manager has recovered earlier losses.
Key points
* Asset-based fees eat into returns because of the compounding effect.
* Asset-based fees can be ''lazy'' income for fund managers.
* Performance fees may be better for investors.
* Fund managers who ''churn'' their portfolios increase tax costs for their unit holders.
Anger over asset fees
Brian Taylor runs a successful small business and had about $1 million that he wanted to perform better than it could as cash.
Five years ago, on the advice of an IPAC Securities financial planner, he invested the money mostly in two balanced funds that would increase the capital by more than inflation without taking on too much risk. He enjoyed almost a year of good returns before the global financial crisis hit. He is naturally disappointed in the performance of his investment and understands the role of the GFC in most of the poor returns but says the investments did not perform as well as he was led to believe.
What infuriates him is the amount he has paid in fees and tax. He redeemed his money and ended his relationship with IPAC in July.
Based on the fees stated in his original statement of advice, Taylor estimates that he has paid about $86,000 in fees - about 10 per cent of his original capital - during the five years that he was with IPAC. He also had to pay a tax bill on his investments of $35,000 in one year.
Taylor has been in repeated contact with IPAC Securities and its parent, AXA, asking for a refund of fees and for a return of the capital that he started with and the tax bill he paid.
Both IPAC Securities and AXA reviewed his complaint and have written to him to say that they are satisfied that he was not misled. They say the advice was sound and relatively conservative; that all fees and charges were clearly disclosed and the investment risks explained.
Taylor says it has been a costly lesson of how asset-based fees compound over time and take capital away.
''These percentage-fees-on-assets for no performance have been the real killer for me,'' Taylor says.
And rather than paying asset-based fees, he says, in retrospect, he should have paid fees that were based on performance.
Related:
Another look at AhYap's concern over the performance fees of i Capital Global Fund & i Capital International Value Fund
Prices set to rise as glove makers protect profit margin
Prices set to rise as glove makers protect profit margin
By Ooi Tee Ching
Published: 2010/11/10
THE average selling price of rubber gloves, at US$30 (RM93) per 1,000 pieces, is set to trend higher because manufacturers need to protect profit margin, Supermax Corp said.
"We are quoting selling prices more frequently. We do it on a weekly basis to better match the volatile currency movement and rising raw material costs. We need to preserve our profit margin," said executive chairman and group managing director Datuk Seri Stanley Thai.
In the recent quarterly reporting season of March to June, many rubber glove manufacturers suffered lower earnings from slower than expected cost pass-through of rising latex prices and weakening US dollar.
Yesterday, latex-in-bulk rose 12 sen to close at RM8.42 a kg at the Malaysian Rubber Exchange.
Rising rubber prices bode well for rubber tappers.
Rural and Regional Development Minister Datuk Seri Shafie Apdal had reportedly said that with rubber prices at an all-time high, smallholders were reaping a monthly gross income of RM4,000.
Thai acknowledged rubber tappers' good fortune and noted manufacturers' extra security measures in securing latex supply.
"At current pricing, our daily supply of four tankers of latex is worth RM1 million on the road. Latex is very precious. These tankers are fully-insured against hijacks," he told reporters in Kuala Lumpur yesterday.
Asked if latex supply is somewhat hampered by floods in southern Thailand, he said: "The flood might have affected dry rubber supply at low-lying warehouses but there's no supply disruption for wet latex as these are stored in raised tankers."
Thai revealed that costlier natural rubber latex had prompted many rubber glovemakers to switch a bigger portion of their production lines to make synthetic rubber gloves.
Thai said Supermax will churn out more powder-free nitrile gloves.
"Nitrile gloves used to make up a quarter of our total output. We're raising it to be a third," he said.
On fuel supply, Thai said rubber glovemakers had, again, appealed to the government to allocate more natural gas quota to them.
"We recently met with Pemandu (Performance Management & Delivery Unit) for the National Key Economic Area on rubber sector and highlighted some infrastructure gaps. The industry needs another 100 million mmBtu/hourof natural gas," he added.
Read more: Prices set to rise as glove makers protect profit margin http://www.btimes.com.my/Current_News/BTIMES/articles/rub09/Article/#ixzz14tQpZDua
----
Hartalega gains on Q2 net income jump
Published: 2010/11/10
Hartalega Holdings Bhd, a Malaysian rubber-glove maker, rose to its highest level in more than three months in Kuala Lumpur trading after posting a 49 per cent jump in second-quarter net income.
Its shares gained 1.3 per cent to RM5.60 at 9:10 a.m. local time, set for their highest close since July 19. -- Bloomberg
Read more: Hartalega gains on Q2 net income jump http://www.btimes.com.my/Current_News/BTIMES/articles/20101110092520/Article/index_html#ixzz14tRxFudG
----
Latexx Q3 profit rises 41.3pc
Published: 2010/11/10
Latexx Partners Bhd's pre-tax profit rose 41.3 per cent to RM20.17 million for the third quarter ended Sept 30, 2010 from RM14.28 million in the same quarter last year.
Its revenue jumped 60.7 per cent to RM129.88 million from RM80.84 million previously.
For the first nine months ended Sept 30, 2010, Latexx''s pre-tax profit surged 93.9 per cent to RM67.53 million from RM34.83 million in the same period of 2009.
The company's revenue increased 73.1 per cent to RM390.53 million from RM225.59 million previously. - Bernama
Read more: Latexx Q3 profit rises 41.3pc http://www.btimes.com.my/Current_News/BTIMES/articles/20101110170400/Article/index_html#ixzz14tSABzaC
By Ooi Tee Ching
Published: 2010/11/10
THE average selling price of rubber gloves, at US$30 (RM93) per 1,000 pieces, is set to trend higher because manufacturers need to protect profit margin, Supermax Corp said.
"We are quoting selling prices more frequently. We do it on a weekly basis to better match the volatile currency movement and rising raw material costs. We need to preserve our profit margin," said executive chairman and group managing director Datuk Seri Stanley Thai.
In the recent quarterly reporting season of March to June, many rubber glove manufacturers suffered lower earnings from slower than expected cost pass-through of rising latex prices and weakening US dollar.
Yesterday, latex-in-bulk rose 12 sen to close at RM8.42 a kg at the Malaysian Rubber Exchange.
Rising rubber prices bode well for rubber tappers.
Rural and Regional Development Minister Datuk Seri Shafie Apdal had reportedly said that with rubber prices at an all-time high, smallholders were reaping a monthly gross income of RM4,000.
Thai acknowledged rubber tappers' good fortune and noted manufacturers' extra security measures in securing latex supply.
"At current pricing, our daily supply of four tankers of latex is worth RM1 million on the road. Latex is very precious. These tankers are fully-insured against hijacks," he told reporters in Kuala Lumpur yesterday.
Asked if latex supply is somewhat hampered by floods in southern Thailand, he said: "The flood might have affected dry rubber supply at low-lying warehouses but there's no supply disruption for wet latex as these are stored in raised tankers."
Thai revealed that costlier natural rubber latex had prompted many rubber glovemakers to switch a bigger portion of their production lines to make synthetic rubber gloves.
Thai said Supermax will churn out more powder-free nitrile gloves.
"Nitrile gloves used to make up a quarter of our total output. We're raising it to be a third," he said.
On fuel supply, Thai said rubber glovemakers had, again, appealed to the government to allocate more natural gas quota to them.
"We recently met with Pemandu (Performance Management & Delivery Unit) for the National Key Economic Area on rubber sector and highlighted some infrastructure gaps. The industry needs another 100 million mmBtu/hourof natural gas," he added.
Read more: Prices set to rise as glove makers protect profit margin http://www.btimes.com.my/Current_News/BTIMES/articles/rub09/Article/#ixzz14tQpZDua
----
Hartalega gains on Q2 net income jump
Published: 2010/11/10
Hartalega Holdings Bhd, a Malaysian rubber-glove maker, rose to its highest level in more than three months in Kuala Lumpur trading after posting a 49 per cent jump in second-quarter net income.
Its shares gained 1.3 per cent to RM5.60 at 9:10 a.m. local time, set for their highest close since July 19. -- Bloomberg
Read more: Hartalega gains on Q2 net income jump http://www.btimes.com.my/Current_News/BTIMES/articles/20101110092520/Article/index_html#ixzz14tRxFudG
----
Latexx Q3 profit rises 41.3pc
Published: 2010/11/10
Latexx Partners Bhd's pre-tax profit rose 41.3 per cent to RM20.17 million for the third quarter ended Sept 30, 2010 from RM14.28 million in the same quarter last year.
Its revenue jumped 60.7 per cent to RM129.88 million from RM80.84 million previously.
For the first nine months ended Sept 30, 2010, Latexx''s pre-tax profit surged 93.9 per cent to RM67.53 million from RM34.83 million in the same period of 2009.
The company's revenue increased 73.1 per cent to RM390.53 million from RM225.59 million previously. - Bernama
Read more: Latexx Q3 profit rises 41.3pc http://www.btimes.com.my/Current_News/BTIMES/articles/20101110170400/Article/index_html#ixzz14tSABzaC
Latexx
Date announced 10-Nov-10
Quarter 30/09/2010 Qtr 3
FYE 31/12/2010
STOCK LATEXX
C0DE 7064
Price $ 2.78
Curr. PE (ttm-Eps) 7.32 Curr. DY 0.72%
LFY Div 2.00 DPO ratio 7%
ROE 35.5% PBT Margin 15.5% PAT Margin 13.6%
Rec. qRev 129878 q-q % chg -3% y-y% chq 61%
Rec qPbt 20168 q-q % chg -16% y-y% chq 41%
Rec. qEps 8.19 q-q % chg -21% y-y% chq 12%
ttm-Eps 37.96 q-q % chg 2% y-y% chq 76%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5%
Avg.H PE 8.00
Avg. L PE 6.00
Forecast High Pr 3.88 Forecast Low Pr 2.40 Recent Severe Low Pr 2.40
Current price is at Lower 1/3 of valuation zone.
RISK: Upside 74% Downside 26%
One Year Appreciation Potential 8% Avg. yield 1%
Avg. Total Annual Potential Return (over next 5 years) 9%
CPE/SPE 1.05
P/NTA 2.60
NTA 1.07
SPE 7.00
Rational Pr 2.66
Decision:
Already Owned: Buy Hold Sell Filed Review (future acq): Filed Discard: Filed
Guide: Valuation zones Lower 1/3 Buy Mid. 1/3 Maybe Upper 1/3 Sell
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
The FBM KLCI has risen more than 20% since the beginning of the year.
Year-to-date, several Asian markets including Indonesia and the Philippines have broken passed their record levels while the FBM KLCI has risen more than 20% since the beginning of the year.
Tuesday, 9 November 2010
Oops, has the Fed done it again?
The Fed contributed mightily to 2 financial bubbles over the past decade. Now it seems bent on a course that will create another in the world's emerging economies.
By Jim Jubak
Who really 'owns' the Fed?
Is the Federal Reserve about to do it again? Is the Fed about to preside over the creation of another financial bubble?
Asset prices in the world's emerging economies are climbing on the crest of a flood of dollars from the Federal Reserve. Central bankers in the world's emerging economies have started to worry about what will happen if all the hot money flowing into their economies and markets suddenly starts flowing out.
"As long as the world exercises no restraint in issuing global currencies such as the dollar," Xia Bin, an adviser to the People's Bank of China, said, "then the occurrence of another crisis is inevitable."
Mr. Bernanke, call off the helicopters
(For more about reaction to the Fed's latest decision to push money into the economy, see my blog post "Everybody loves Ben's $600 billion -- at least in the short term.")
I think some degree of worry -- less than full panic but more than polite concern -- is appropriate at this stage. And that worry should play a role in shaping your investment strategy as the decade advances. In today's column, I'm going to lay out the "Oops, the Fed's done it again" scenario. Later this week, on MSN Money and my website, I'll tell you what I think you can do about that danger.
Just talking about exuberance
In 2000, I'd say the sin was one of omission. The Fed sat on the sidelines, aware that a stock market bubble was building but doing nothing to head it off.
Remember how then-Fed Chairman Alan Greenspan talked about "irrational exuberance"? Well, it was all just talk. The Fed, which had the power to try to moderate the bubble by tightening credit on Wall Street, believed that trying to manage bubbles was futile. All a central bank could do was watch from the sidelines and then help clean up the wreckage.
And quite a bit of wreckage there was and still is. The Nasdaq Composite Index ($COMPX) peaked at 5,048.62 on March 10, 2000, and bottomed at 1,114.11 on Oct. 9, 2002. That was a loss, top to bottom, of 77%.
Eight years after the October 2002 bottom, the Nasdaq composite is up handsomely -- 131% as of Nov. 5.
But 10 years after the bear market began in March 2000, the Nasdaq has barely recovered half its losses. From a high of 5,048.62, the market had clawed back to 2,578.98 at the close Nov. 5. That means the Nasdaq Composite Index is still down 49%.
Making a mess
I'd put the Federal Reserve's role in the financial and economic crises set off by the U.S. mortgage mess in a different class. The sin here was one of commission. The Fed played an active role in creating this global meltdown and in making it as bad as it was. (Or should that be "is"?)
To clean up the wreckage from 2000, the Federal Reserve lowered short-term interest rates. At the Nasdaq Composite's height in March 2000, the Fed's benchmark rate was 5.73%. The central bank kept rates above 5% for an additional year -- the benchmark rate was at 5.47% on March 7, 2001 -- but then it began to cut, and fast. By March 6, 2002, short-term rates were at 1.74%, and by the end of 2002 they were just 1.23%. By July 2003 the Federal Reserve had cut them to 0.96%.
And there they stayed. For too long, the Fed now concedes. A year later, through most of June, short-term interest rates were just 1.11%. That marked the turn in the cycle. Finally, on June 30, the Federal Reserve began to raise interest rates, though very slowly. By the end of the year they were at 2.27%. By November 2005, they had finally reached 4% again. And by June 2006, short-term rates crossed the 5% barrier.
But by that time, the low interest rates that had been intended to help clean up the wreckage of the bear market of 2000-02 had set off their own bubble, in real estate and lending.
In the fourth quarter of 2002, when short-term interest rates were 1.23%, the real median price of a U.S. house was $197,219. (All these prices are corrected for inflation.) By the fourth quarter of 2005, the real median price was up to $262,634. That's a 33% increase in the median price of a house in just three years -- without inflation. That's extraordinary appreciation for an asset like a family home in the United States.
And cheap money made it possible. It was possible to buy and flip for a quick profit. Possible to refinance and take money out to buy more stuff. Possible to buy more house than you could afford. Possible to find a lender who would lend you more than the house was worth. Possible to find a lender who wouldn't ask questions about your income or credit record.
By 2006, this price appreciation had peaked. The median real price of a house that year ranged from $250,000 to $263,000. But by the second quarter of 2007, it had dropped below $250,000. And it kept on dropping. By the bottom, which nationally may have been the first quarter of 2010, the real median price of a house was down to $169,158.
That's a drop of 36% from the 2005 quarterly peak to what may be the bottom in 2010. (And because the house they live in is by far the most valuable asset most families own, and because home ownership rates in the United States are much higher than stock ownership rates, that 36% drop in housing prices was more devastating for most families than a 77% drop in stock prices.)
Trust the Fed again?
That track record suggests that "What, me worry?" isn't a reasonable response to the Federal Reserve's two rounds of quantitative easing, a strategy that pumps money into the economy to try to get it moving more quickly. The first round, which ended only this spring, saw the Fed buy $1.7 trillion in Treasurys and mortgage-backed securities. The new round announced last week would add $600 billion of Treasury buying to the total.
The dangers of these two programs to the U.S. economy are scary enough. The Federal Reserve is buying all these debt instruments on the cuff. The Fed doesn't actually have the money to pay for these purchases.
Instead, it is creating dollars out of thin air -- printing them, figuratively at least -- and at the same time creating a huge liability on the Fed's own balance sheet. Of course, the Fed may be able to pay off that liability by selling the bonds back to the market someday, but you're entitled to wonder where the buyers for $2.3 trillion in U.S. debt and mortgage-backed debt are going to come from.
If you're the kind of person who worries when you see a big debt and no obvious way to pay it off, then the Federal Reserve's current balance sheet undoubtedly worries you.
But even if you shrug off the Fed's balance sheet, the Fed's current course presents -- what shall we call them? -- challenges for the U.S. economy. That $2.3 trillion in quantitative easing is potentially inflationary: Pumping that much money into the U.S. economy will, eventually, push up the prices of all sorts of things. (Which in the short run is what the Fed wants, as long as the gain in prices is no more than 2% annually. Good luck fine-tuning that one.)
Putting 2.3 trillion new dollars into the world weakens the U.S. dollar, making imports more expensive and driving down the U.S. standard of living. At some point, that $2.3 trillion also drives up U.S. interest rates, because you're got to pay people (mostly overseas people who are already holding a lot of U.S. dollars) more to take all those dollars, and those higher interest rates will reduce the growth rate of the U.S. economy.
Go overseas, young dollars
But those aren't the possibilities that worry me most or that have overseas central bankers screaming in protest. The big problem is what will happen to that $2.3 trillion created by the Fed. The dollars certainly don't all stay in the United States.
Would you, if you were a self-respecting dollar, stay here earning 0.13% (the yield on the three-month Treasury bill) or even 2.58% (the yield on a 10-year Treasury bond) when you could go overseas and earn 10.75% on Brazilian debt, 6.5% in Turkey or 4.75% in Australia? Would you stay home buying real estate in a market that's barely begun to show a quiver of life, or instead plunk yourself down in Hong Kong or Mumbai or Rio? Would you stay loyal to U.S. stocks, knowing that the U.S. economy is growing at 2% a year, or go cavorting off to join the fast company in China or India or Brazil?
Yes, indeedy, the really big asset bubbles that the U.S. Federal Reserve may be creating now aren't at home but overseas -- in the stock markets of Indonesia, in the real-estate markets of India, in commodity prices in Australia. Everywhere the flood of dollars created by the Fed might wash up.
And because many of these asset markets aren't anywhere near as liquid as those in developed economies, $2.3 trillion can create a huge problem. India is thinking of slapping on currency controls, because so far in 2010, the country has seen a record inflow of $25 billion in overseas cash as stock funds buy Indian equities.
Twenty-five billion dollars is a problem? When the Fed is talking about $2.3 trillion?
Part of the reason that overseas central banks are squawking is that it's unclear what they can do about the problem. The flood of dollars is creating dangerous inflation -- India's annual rate was reported at 8.5% in September -- so the Reserve Bank of India raises interest rates to slow the Indian economy? Besides the hardship that visits on the poor of India who need the jobs that faster economic growth provides, raising interest rates just makes that country a more attractive destination for all those dollars looking for a home.
The nightmare, of course, is that those dollars flow out as quickly as they flowed in. That's exactly what happened in the Asian currency crisis of 1997. Most of the world's developing economies are in better shape and less dependent on external cash flows than in 1997, but these economies certainly aren't immune to disruption.
And even if they don't go the way of Thailand in the 1997 crisis, a huge outflow of hot dollars would send asset prices plunging, with who knows what effects on national financial systems and capital markets. Look what the mortgage crisis did to Lehman Brothers. (Remember it?) The mortgage crisis caused what were comparatively liquid and large markets to freeze tight. Financial and nonfinancial companies couldn't raise even overnight operating capital.
No wonder Brazil's finance minister, Guido Mantega, said with resigned anger: "Everybody wants the U.S. economy to recover, but it does no good at all to just throw dollars from a helicopter. You have to combine that with fiscal policy. You have to stimulate consumption."
Fiscal policy? From a U.S. Congress? I wouldn't hold my breath. Congress punted on fiscal policy decades ago. Even the Clinton administration's vaunted (and real) budget surplus was achieved by a deal between the secretary of the Treasury and the chairman of the Federal Reserve. If the politicians in Washington were capable of conducting fiscal policy, the Federal Reserve wouldn't be implementing policies like quantitative easing. Ben Bernanke and company know exactly how dangerous this course is. But what's the choice?
Get the latest from Jim Jubak. Sign up to receive his free weekly newsletter.
Jim Jubak has been writing Jubak's Journal and tracking the performance of his market-beating Jubak's Picks portfolio since 1997 on MSN Money. He is the author of the 2008 book "The Jubak Picks" and the writer of the Jubak Picks blog. He's also the senior markets editor at MoneyShow.com.
http://articles.moneycentral.msn.com/Investing/JubaksJournal/oops-has-the-fed-done-it-again.aspx
By Jim Jubak
Who really 'owns' the Fed?
Is the Federal Reserve about to do it again? Is the Fed about to preside over the creation of another financial bubble?
Asset prices in the world's emerging economies are climbing on the crest of a flood of dollars from the Federal Reserve. Central bankers in the world's emerging economies have started to worry about what will happen if all the hot money flowing into their economies and markets suddenly starts flowing out.
"As long as the world exercises no restraint in issuing global currencies such as the dollar," Xia Bin, an adviser to the People's Bank of China, said, "then the occurrence of another crisis is inevitable."
Mr. Bernanke, call off the helicopters
(For more about reaction to the Fed's latest decision to push money into the economy, see my blog post "Everybody loves Ben's $600 billion -- at least in the short term.")
I think some degree of worry -- less than full panic but more than polite concern -- is appropriate at this stage. And that worry should play a role in shaping your investment strategy as the decade advances. In today's column, I'm going to lay out the "Oops, the Fed's done it again" scenario. Later this week, on MSN Money and my website, I'll tell you what I think you can do about that danger.
Just talking about exuberance
In 2000, I'd say the sin was one of omission. The Fed sat on the sidelines, aware that a stock market bubble was building but doing nothing to head it off.
Remember how then-Fed Chairman Alan Greenspan talked about "irrational exuberance"? Well, it was all just talk. The Fed, which had the power to try to moderate the bubble by tightening credit on Wall Street, believed that trying to manage bubbles was futile. All a central bank could do was watch from the sidelines and then help clean up the wreckage.
And quite a bit of wreckage there was and still is. The Nasdaq Composite Index ($COMPX) peaked at 5,048.62 on March 10, 2000, and bottomed at 1,114.11 on Oct. 9, 2002. That was a loss, top to bottom, of 77%.
Eight years after the October 2002 bottom, the Nasdaq composite is up handsomely -- 131% as of Nov. 5.
But 10 years after the bear market began in March 2000, the Nasdaq has barely recovered half its losses. From a high of 5,048.62, the market had clawed back to 2,578.98 at the close Nov. 5. That means the Nasdaq Composite Index is still down 49%.
Making a mess
I'd put the Federal Reserve's role in the financial and economic crises set off by the U.S. mortgage mess in a different class. The sin here was one of commission. The Fed played an active role in creating this global meltdown and in making it as bad as it was. (Or should that be "is"?)
To clean up the wreckage from 2000, the Federal Reserve lowered short-term interest rates. At the Nasdaq Composite's height in March 2000, the Fed's benchmark rate was 5.73%. The central bank kept rates above 5% for an additional year -- the benchmark rate was at 5.47% on March 7, 2001 -- but then it began to cut, and fast. By March 6, 2002, short-term rates were at 1.74%, and by the end of 2002 they were just 1.23%. By July 2003 the Federal Reserve had cut them to 0.96%.
And there they stayed. For too long, the Fed now concedes. A year later, through most of June, short-term interest rates were just 1.11%. That marked the turn in the cycle. Finally, on June 30, the Federal Reserve began to raise interest rates, though very slowly. By the end of the year they were at 2.27%. By November 2005, they had finally reached 4% again. And by June 2006, short-term rates crossed the 5% barrier.
But by that time, the low interest rates that had been intended to help clean up the wreckage of the bear market of 2000-02 had set off their own bubble, in real estate and lending.
In the fourth quarter of 2002, when short-term interest rates were 1.23%, the real median price of a U.S. house was $197,219. (All these prices are corrected for inflation.) By the fourth quarter of 2005, the real median price was up to $262,634. That's a 33% increase in the median price of a house in just three years -- without inflation. That's extraordinary appreciation for an asset like a family home in the United States.
And cheap money made it possible. It was possible to buy and flip for a quick profit. Possible to refinance and take money out to buy more stuff. Possible to buy more house than you could afford. Possible to find a lender who would lend you more than the house was worth. Possible to find a lender who wouldn't ask questions about your income or credit record.
By 2006, this price appreciation had peaked. The median real price of a house that year ranged from $250,000 to $263,000. But by the second quarter of 2007, it had dropped below $250,000. And it kept on dropping. By the bottom, which nationally may have been the first quarter of 2010, the real median price of a house was down to $169,158.
That's a drop of 36% from the 2005 quarterly peak to what may be the bottom in 2010. (And because the house they live in is by far the most valuable asset most families own, and because home ownership rates in the United States are much higher than stock ownership rates, that 36% drop in housing prices was more devastating for most families than a 77% drop in stock prices.)
Trust the Fed again?
That track record suggests that "What, me worry?" isn't a reasonable response to the Federal Reserve's two rounds of quantitative easing, a strategy that pumps money into the economy to try to get it moving more quickly. The first round, which ended only this spring, saw the Fed buy $1.7 trillion in Treasurys and mortgage-backed securities. The new round announced last week would add $600 billion of Treasury buying to the total.
The dangers of these two programs to the U.S. economy are scary enough. The Federal Reserve is buying all these debt instruments on the cuff. The Fed doesn't actually have the money to pay for these purchases.
Instead, it is creating dollars out of thin air -- printing them, figuratively at least -- and at the same time creating a huge liability on the Fed's own balance sheet. Of course, the Fed may be able to pay off that liability by selling the bonds back to the market someday, but you're entitled to wonder where the buyers for $2.3 trillion in U.S. debt and mortgage-backed debt are going to come from.
If you're the kind of person who worries when you see a big debt and no obvious way to pay it off, then the Federal Reserve's current balance sheet undoubtedly worries you.
But even if you shrug off the Fed's balance sheet, the Fed's current course presents -- what shall we call them? -- challenges for the U.S. economy. That $2.3 trillion in quantitative easing is potentially inflationary: Pumping that much money into the U.S. economy will, eventually, push up the prices of all sorts of things. (Which in the short run is what the Fed wants, as long as the gain in prices is no more than 2% annually. Good luck fine-tuning that one.)
Putting 2.3 trillion new dollars into the world weakens the U.S. dollar, making imports more expensive and driving down the U.S. standard of living. At some point, that $2.3 trillion also drives up U.S. interest rates, because you're got to pay people (mostly overseas people who are already holding a lot of U.S. dollars) more to take all those dollars, and those higher interest rates will reduce the growth rate of the U.S. economy.
Go overseas, young dollars
But those aren't the possibilities that worry me most or that have overseas central bankers screaming in protest. The big problem is what will happen to that $2.3 trillion created by the Fed. The dollars certainly don't all stay in the United States.
Would you, if you were a self-respecting dollar, stay here earning 0.13% (the yield on the three-month Treasury bill) or even 2.58% (the yield on a 10-year Treasury bond) when you could go overseas and earn 10.75% on Brazilian debt, 6.5% in Turkey or 4.75% in Australia? Would you stay home buying real estate in a market that's barely begun to show a quiver of life, or instead plunk yourself down in Hong Kong or Mumbai or Rio? Would you stay loyal to U.S. stocks, knowing that the U.S. economy is growing at 2% a year, or go cavorting off to join the fast company in China or India or Brazil?
Yes, indeedy, the really big asset bubbles that the U.S. Federal Reserve may be creating now aren't at home but overseas -- in the stock markets of Indonesia, in the real-estate markets of India, in commodity prices in Australia. Everywhere the flood of dollars created by the Fed might wash up.
And because many of these asset markets aren't anywhere near as liquid as those in developed economies, $2.3 trillion can create a huge problem. India is thinking of slapping on currency controls, because so far in 2010, the country has seen a record inflow of $25 billion in overseas cash as stock funds buy Indian equities.
Twenty-five billion dollars is a problem? When the Fed is talking about $2.3 trillion?
Part of the reason that overseas central banks are squawking is that it's unclear what they can do about the problem. The flood of dollars is creating dangerous inflation -- India's annual rate was reported at 8.5% in September -- so the Reserve Bank of India raises interest rates to slow the Indian economy? Besides the hardship that visits on the poor of India who need the jobs that faster economic growth provides, raising interest rates just makes that country a more attractive destination for all those dollars looking for a home.
The nightmare, of course, is that those dollars flow out as quickly as they flowed in. That's exactly what happened in the Asian currency crisis of 1997. Most of the world's developing economies are in better shape and less dependent on external cash flows than in 1997, but these economies certainly aren't immune to disruption.
And even if they don't go the way of Thailand in the 1997 crisis, a huge outflow of hot dollars would send asset prices plunging, with who knows what effects on national financial systems and capital markets. Look what the mortgage crisis did to Lehman Brothers. (Remember it?) The mortgage crisis caused what were comparatively liquid and large markets to freeze tight. Financial and nonfinancial companies couldn't raise even overnight operating capital.
No wonder Brazil's finance minister, Guido Mantega, said with resigned anger: "Everybody wants the U.S. economy to recover, but it does no good at all to just throw dollars from a helicopter. You have to combine that with fiscal policy. You have to stimulate consumption."
Fiscal policy? From a U.S. Congress? I wouldn't hold my breath. Congress punted on fiscal policy decades ago. Even the Clinton administration's vaunted (and real) budget surplus was achieved by a deal between the secretary of the Treasury and the chairman of the Federal Reserve. If the politicians in Washington were capable of conducting fiscal policy, the Federal Reserve wouldn't be implementing policies like quantitative easing. Ben Bernanke and company know exactly how dangerous this course is. But what's the choice?
Get the latest from Jim Jubak. Sign up to receive his free weekly newsletter.
Jim Jubak has been writing Jubak's Journal and tracking the performance of his market-beating Jubak's Picks portfolio since 1997 on MSN Money. He is the author of the 2008 book "The Jubak Picks" and the writer of the Jubak Picks blog. He's also the senior markets editor at MoneyShow.com.
http://articles.moneycentral.msn.com/Investing/JubaksJournal/oops-has-the-fed-done-it-again.aspx
Coping with information overload
Coping with information overload
By Leon Gettler
SMH
One of the big issues now is information overload. It’s coming in from everywhere, thanks to multi tasking and email.
It’s just an avalanche of information, whether it’s from phone calls, attachments, Power Point presentations, instant messages and newsletters or social media.
In case you missed it, last week was Information Overload Awareness Day. It was suggested that people put their smart phone on mute and not check their email every time the pop up appears on the screen.
But that’s not really a solution. People might be able to do that for an hour or so, some even a day, but in the end they will go back to what they have always done. Information overload is now a permanent part of our lives. So what should we do about it?
According to a study from LexisNexis, reported here, half the Australian workforce of professionals is feeling demoralised and totally overwhelmed by the amount of information pouring in and, according to Marc Peter, Director of Technology and Business Development at LexisNexis Pacific, that’s leading to “information rage”.
Significantly, the study found that 50% of Australian professionals say that on average, only about half of the information that comes their way every day at work is actually important to them getting their job done.
Furthermore, only 40% of email that lands in their inbox helps them do their job (in my case, it's about 20%), 88% of Australian workers say they want to spend less time organising, and more time using the information that comes their way, Only one in five Australian professionals says the company has bothered training them on information management.
These figures tell us one thing: white-collar workers right around the world, from New York to Sydney, say they spend as much time wading through information as they do using it to get on with their jobs. And in every market, most employees say that the amount of information they have to manage at work has significantly increased since the economic downturn.
So what’s causing it? Many would say the Internet, but management consultant James Adonis begs to differ. He says the problem is not the amount of information. It's more about our inability to handle the onslaught.
"We can’t blame the Internet for it all,’’ Adonis says.“Whilst it’s undoubtedly exacerbating the issue, information overload has been around for decades. It’s just that today it’s instantaneous. With transmission of data from one person to another so effortless, we’re oblivious to the potential anxiety of the person who may not need (or care about) the information we’re conveying."
"Contrary to the theory of too much information is a contrary theory dubbed ‘organisation underload’. Proponents of this philosophy suggest it’s not an abundance of information that’s the problem; what’s really causing the angst is our inability to deal with it.”
Clay Shirky, one of the most prominent and best read commentators on the internet and new media, expands on this point. He says there is nothing new about information overload, it has always been with us. The problem, he says, is we haven’t yet learned how to filter stuff from the Internet in the same way as, say, a library card system.
Management consultant Tom Davenport makes an interesting point in the Harvard Business Review. He says we don’t deal with information overload because we actually like it.
“Our work and home lives can be pretty boring, and we're always hoping that something will come across the ether that will liven things up. If I turn up the filtering on the spam filter or turn off the smartphone, I might miss out on an email promising a new job, a text message offering a new relationship, an RSS feed with a new news item, and so forth. Every new communication offers the frisson of a possible life-changing information event, though it seldom delivers on the promise.”
Still, the LexisNexis study suggests it’s a problem, whether we want the information or not.
Published: 03 November 2010
http://content.mycareer.com.au/advice-research/workplace/information-overload.aspx?s_rid=smh:rainbowstrip:box2:campaign2:content2:09-11:02-04_howtodealwithworkplac:howtocopewithinformationoverload
By Leon Gettler
SMH
One of the big issues now is information overload. It’s coming in from everywhere, thanks to multi tasking and email.
It’s just an avalanche of information, whether it’s from phone calls, attachments, Power Point presentations, instant messages and newsletters or social media.
In case you missed it, last week was Information Overload Awareness Day. It was suggested that people put their smart phone on mute and not check their email every time the pop up appears on the screen.
But that’s not really a solution. People might be able to do that for an hour or so, some even a day, but in the end they will go back to what they have always done. Information overload is now a permanent part of our lives. So what should we do about it?
According to a study from LexisNexis, reported here, half the Australian workforce of professionals is feeling demoralised and totally overwhelmed by the amount of information pouring in and, according to Marc Peter, Director of Technology and Business Development at LexisNexis Pacific, that’s leading to “information rage”.
Significantly, the study found that 50% of Australian professionals say that on average, only about half of the information that comes their way every day at work is actually important to them getting their job done.
Furthermore, only 40% of email that lands in their inbox helps them do their job (in my case, it's about 20%), 88% of Australian workers say they want to spend less time organising, and more time using the information that comes their way, Only one in five Australian professionals says the company has bothered training them on information management.
These figures tell us one thing: white-collar workers right around the world, from New York to Sydney, say they spend as much time wading through information as they do using it to get on with their jobs. And in every market, most employees say that the amount of information they have to manage at work has significantly increased since the economic downturn.
So what’s causing it? Many would say the Internet, but management consultant James Adonis begs to differ. He says the problem is not the amount of information. It's more about our inability to handle the onslaught.
"We can’t blame the Internet for it all,’’ Adonis says.“Whilst it’s undoubtedly exacerbating the issue, information overload has been around for decades. It’s just that today it’s instantaneous. With transmission of data from one person to another so effortless, we’re oblivious to the potential anxiety of the person who may not need (or care about) the information we’re conveying."
"Contrary to the theory of too much information is a contrary theory dubbed ‘organisation underload’. Proponents of this philosophy suggest it’s not an abundance of information that’s the problem; what’s really causing the angst is our inability to deal with it.”
Clay Shirky, one of the most prominent and best read commentators on the internet and new media, expands on this point. He says there is nothing new about information overload, it has always been with us. The problem, he says, is we haven’t yet learned how to filter stuff from the Internet in the same way as, say, a library card system.
Management consultant Tom Davenport makes an interesting point in the Harvard Business Review. He says we don’t deal with information overload because we actually like it.
“Our work and home lives can be pretty boring, and we're always hoping that something will come across the ether that will liven things up. If I turn up the filtering on the spam filter or turn off the smartphone, I might miss out on an email promising a new job, a text message offering a new relationship, an RSS feed with a new news item, and so forth. Every new communication offers the frisson of a possible life-changing information event, though it seldom delivers on the promise.”
Still, the LexisNexis study suggests it’s a problem, whether we want the information or not.
Published: 03 November 2010
http://content.mycareer.com.au/advice-research/workplace/information-overload.aspx?s_rid=smh:rainbowstrip:box2:campaign2:content2:09-11:02-04_howtodealwithworkplac:howtocopewithinformationoverload
Subscribe to:
Posts (Atom)