Public Bank issues RM50m debt notes
Tags: Public Bank | subordinated notes
Written by Joseph Chin
Thursday, 31 December 2009 18:01
KUALA LUMPUR: PUBLIC BANK BHD [] has issued the fourth tranche of its subordinated notes amounting to RM50 million, which is due on Dec 31, 2019 and callable on Dec 31, 2014.
The bank said on Thursday, Dec 31, the issuance of the RM50 million notes was part of the RM5 billion nominal value subordinated medium term note programme.
"The proceeds raised from the issuance of the fourth tranche of subordinated notes under the subordinated MTN programme shall be used to finance the working capital, general banking and other corporate purposes of Public bank," it said.
Public Bank said the interest payable on each subordinated note issued under the fourth tranche is 4.60% per annum from Dec 31, 2009 up to Dec 31, 2014. Thereafter, the interest on each subordinated note is 5.60% per annum from Dec 31, 2014.
It added the subordinated notes are eligible to be included as Tier 2 capital of the bank.
http://www.theedgemalaysia.com/business-news/156643-public-bank-issues-rm50m-debt-notes.html
Friday, 1 January 2010
Thursday, 31 December 2009
Year to Date KLSE Performance (31.12.2009)
KLSE 1 Year Chart
http://finance.yahoo.com/echarts?s=%5EKLSE#chart1:symbol=^klse;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Important lessons learned from the last 2 years.
1. Always buy good quality stocks.
2. Do not over-diversify.
3. Monitor the business.
4. Do not be influenced by the market price.
5. Do not follow or be influenced by the crowd. The crowd is often wrong.
6. Volatility in the market is a friend, take advantage of it.
7. Always buy at bargain price. Always buy with a margin of safety, at a discount to the fundamental intrinsic value.
8. Do not lose your capital. Even in March 2009, the portfolio still showed a gain.
9. Develop a good investing philosophy and strategy. Stick to them.
10. Invest for the long term.
11. Understand your emotions to greed and fear. Challenge them before reacting. Are these rational or appropriate given the facts?
12. It is often alright to do nothing.
Happy New Year to all.
http://finance.yahoo.com/echarts?s=%5EKLSE#chart1:symbol=^klse;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Important lessons learned from the last 2 years.
1. Always buy good quality stocks.
2. Do not over-diversify.
3. Monitor the business.
4. Do not be influenced by the market price.
5. Do not follow or be influenced by the crowd. The crowd is often wrong.
6. Volatility in the market is a friend, take advantage of it.
7. Always buy at bargain price. Always buy with a margin of safety, at a discount to the fundamental intrinsic value.
8. Do not lose your capital. Even in March 2009, the portfolio still showed a gain.
9. Develop a good investing philosophy and strategy. Stick to them.
10. Invest for the long term.
11. Understand your emotions to greed and fear. Challenge them before reacting. Are these rational or appropriate given the facts?
12. It is often alright to do nothing.
Happy New Year to all.
Wednesday, 30 December 2009
Stock markets flirt with full bubble territory
Stock markets flirt with full bubble territory
With the FTSE 100 back at levels last seen before the collapse of Lehman Brothers, Martin Hutchinson asks whether there is a bubble brewing in asset prices.
Published: 11:36AM GMT 29 Dec 2009
Rapid increases in the prices of financial assets can be a healthy sign. Markets are doing their job when prices jump because of sudden economic strength or a disruption of supply. But when the causes are more monetary than real, a market bubble is forming. Are markets healthy or unhealthy now?
Observers from the Bank of International Settlements to the Hong Kong central bank are asking the question. And quite right, too. The MSCI World stock price index is up 70pc since March and many commodity prices are rocketing. The Reuters-CRB Metals Index is up 74pc over the past year.
Some portion of those increases is probably healthy. Prices were lowest when the financial and economic worlds were undergoing a near-death experience. Banking systems and the economy are not exactly up and running, but the trends are more positive.
Still, some markets seem to have moved past recovery into excess. The jump in commodities, probably the most "financialised" markets in the world, comes despite ample current inventories and limited recovery in demand.
Global stock markets are in danger of hitting full bubble territory. Analysts expect global market earnings to increase by 30pc in 2010, and investors are already paying a fairly generous 14 times those expected earnings, according to Societe Generale calculations.
The case for a bubble is supported by day-to-day market behaviour -- prices often fall on good economic news. Investors seem to care less about the prospect of stronger demand than about the possibility that the authorities will tighten up financial conditions.
If past practice is any guide, the tightening will be slow in coming. Central bankers have not yet fully cast off their long-established belief that asset prices aren't relevant to their task of keeping inflation at bay, while governments find it hard to abandon the many pleasures of deficit spending.
Recent experience should teach another lesson. Financial excess leads to destabilising market crashes. More distant history suggests that monetary excess frequently leads to retail price inflation. Tighter money might make the recovery less robust over the next year or two, but would make the world safer for the next decade.
http://www.telegraph.co.uk/finance/markets/6905092/Stock-markets-flirt-with-full-bubble-territory.html
With the FTSE 100 back at levels last seen before the collapse of Lehman Brothers, Martin Hutchinson asks whether there is a bubble brewing in asset prices.
Published: 11:36AM GMT 29 Dec 2009
Rapid increases in the prices of financial assets can be a healthy sign. Markets are doing their job when prices jump because of sudden economic strength or a disruption of supply. But when the causes are more monetary than real, a market bubble is forming. Are markets healthy or unhealthy now?
Observers from the Bank of International Settlements to the Hong Kong central bank are asking the question. And quite right, too. The MSCI World stock price index is up 70pc since March and many commodity prices are rocketing. The Reuters-CRB Metals Index is up 74pc over the past year.
Some portion of those increases is probably healthy. Prices were lowest when the financial and economic worlds were undergoing a near-death experience. Banking systems and the economy are not exactly up and running, but the trends are more positive.
Still, some markets seem to have moved past recovery into excess. The jump in commodities, probably the most "financialised" markets in the world, comes despite ample current inventories and limited recovery in demand.
Global stock markets are in danger of hitting full bubble territory. Analysts expect global market earnings to increase by 30pc in 2010, and investors are already paying a fairly generous 14 times those expected earnings, according to Societe Generale calculations.
The case for a bubble is supported by day-to-day market behaviour -- prices often fall on good economic news. Investors seem to care less about the prospect of stronger demand than about the possibility that the authorities will tighten up financial conditions.
If past practice is any guide, the tightening will be slow in coming. Central bankers have not yet fully cast off their long-established belief that asset prices aren't relevant to their task of keeping inflation at bay, while governments find it hard to abandon the many pleasures of deficit spending.
Recent experience should teach another lesson. Financial excess leads to destabilising market crashes. More distant history suggests that monetary excess frequently leads to retail price inflation. Tighter money might make the recovery less robust over the next year or two, but would make the world safer for the next decade.
http://www.telegraph.co.uk/finance/markets/6905092/Stock-markets-flirt-with-full-bubble-territory.html
Why shares beat property
Why shares beat property
How many realise that shares remain ahead of property over the past quarter century?
By Ian Cowie
Published: 7:42AM GMT 18 Dec 2009
Short of a miraculous surge in the stock market, the end of this month will mark the close of a dismal decade for shares.
Most investors know that the FTSE 100 has never revisited the peak of 6,930 it briefly hit on December 30 1999. But how many realise that shares remain ahead of property over the past quarter century?
Yes, you may very well stretch your eyes. I did, too, when Andrew Bell, head of research at Rensburg Sheppards Investment Managers, first told me.
I was almost as surprised when his graceful consultant, Jain Castiau, talked me into taking a dawn dip with her in the near-freezing waters of the Serpentine this week. At least it wasn't snowing at the time but, hey, that's another story.
Back to the statistics. The comparison, as you can see from the graph on this page, is based on the Halifax house price index and the FTSE 100 total returns index; both being the best-known benchmarks for their respective assets.
Or nearly. Because, as sharp-eyed readers will already have noticed, this version of the Footsie is the "total returns" version. In other words, it includes dividend income.
That is an important difference from the most widely quoted form of the Footsie which, for the purposes of simplicity, only measures changes in capital value or share prices, excluding dividends.
That goes a long way toward explaining why so many people underestimate the value of shares and share-based funds as a means of storing wealth.
Dividends are an important part of the total returns from most shares, but they are completely excluded from the simple snapshots of changes in capital values that form the basis of most television and tabloid stock market analysis.
No wonder the figures look so bad because they are so wrong.
Even after this year's splendid stock market rally, the Footsie is still yielding a shade under 3.4pc. That is, dividends expressed as a percentage of share prices averaged across the 100 stocks in this benchmark index.
So, for example, even if share prices remained frozen for 20 years, you would double your money in less than that time simply by reinvesting dividend income.
Bear in mind that income paid by equities is quoted net of basic rate tax – so most investors would need gross returns of 4.25pc and high earners would need 5.6pc to match the yield on the Footsie.
Few bank or building society deposits pay that much income – although, unlike shares, they do provide a capital guarantee. Bonds and bond funds often pay more – although, unlike shares, fixed interest securities are very vulnerable to inflation.
All things considered, it is daft to ignore dividend income when measuring returns from shares. For starters, the full picture demolishes the cliche of a ''lost decade for shareholders''.
What's that I hear you say? When comparing housing and shares it would be totally unfair to include income from one asset, but not the other. Too true. Mr Bell was scrupulously fair and has factored into his calculation a 5pc rental yield on property, less 1pc maintenance costs.
That's even fairer to bricks and mortar than it sounds because the Investment Property Databank UK Residential Index is currently yielding only 3.2pc gross and, of course, it is much easier to reinvest relatively small sums of income in shares than it is to buy tiny bits of houses.
Needless to say, the total returns from any asset would be much lower if you failed to promptly reinvest income because the compounding effect, so marked over long periods of time, would be absent.
Against all that, it just doesn't feel right to say shares have proved a better bet than bricks and mortar over the past quarter century.
Most shareholders are also homeowners and, while equities have delivered higher returns than most media coverage would suggest, I would hazard the guess that bricks and mortar have contributed more to the total wealth of the majority of homeowners than equities did.
The explanation is gearing. Until recently, almost anyone could fill in a few forms and borrow 100pc of their investment in housing. Such easy credit has never been available for shares.
And, of course, stock-market profits are generally subject to capital gains tax – unless you obtain them via an individual savings account or pension – whereas gains on your home are always CGT-free.
Even so, Mr Bell's comparison remains surprising and encouraging at a time when so much analysis of the stock market is merely depressing.
And it is always true – as I recalled while splashing through the gelid lake in Hyde Park this week – that the more you look, the more you see.
http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/6836526/Why-shares-beat-property.html
How many realise that shares remain ahead of property over the past quarter century?
By Ian Cowie
Published: 7:42AM GMT 18 Dec 2009
Short of a miraculous surge in the stock market, the end of this month will mark the close of a dismal decade for shares.
Most investors know that the FTSE 100 has never revisited the peak of 6,930 it briefly hit on December 30 1999. But how many realise that shares remain ahead of property over the past quarter century?
Yes, you may very well stretch your eyes. I did, too, when Andrew Bell, head of research at Rensburg Sheppards Investment Managers, first told me.
I was almost as surprised when his graceful consultant, Jain Castiau, talked me into taking a dawn dip with her in the near-freezing waters of the Serpentine this week. At least it wasn't snowing at the time but, hey, that's another story.
Back to the statistics. The comparison, as you can see from the graph on this page, is based on the Halifax house price index and the FTSE 100 total returns index; both being the best-known benchmarks for their respective assets.
Or nearly. Because, as sharp-eyed readers will already have noticed, this version of the Footsie is the "total returns" version. In other words, it includes dividend income.
That is an important difference from the most widely quoted form of the Footsie which, for the purposes of simplicity, only measures changes in capital value or share prices, excluding dividends.
That goes a long way toward explaining why so many people underestimate the value of shares and share-based funds as a means of storing wealth.
Dividends are an important part of the total returns from most shares, but they are completely excluded from the simple snapshots of changes in capital values that form the basis of most television and tabloid stock market analysis.
No wonder the figures look so bad because they are so wrong.
Even after this year's splendid stock market rally, the Footsie is still yielding a shade under 3.4pc. That is, dividends expressed as a percentage of share prices averaged across the 100 stocks in this benchmark index.
So, for example, even if share prices remained frozen for 20 years, you would double your money in less than that time simply by reinvesting dividend income.
Bear in mind that income paid by equities is quoted net of basic rate tax – so most investors would need gross returns of 4.25pc and high earners would need 5.6pc to match the yield on the Footsie.
Few bank or building society deposits pay that much income – although, unlike shares, they do provide a capital guarantee. Bonds and bond funds often pay more – although, unlike shares, fixed interest securities are very vulnerable to inflation.
All things considered, it is daft to ignore dividend income when measuring returns from shares. For starters, the full picture demolishes the cliche of a ''lost decade for shareholders''.
What's that I hear you say? When comparing housing and shares it would be totally unfair to include income from one asset, but not the other. Too true. Mr Bell was scrupulously fair and has factored into his calculation a 5pc rental yield on property, less 1pc maintenance costs.
That's even fairer to bricks and mortar than it sounds because the Investment Property Databank UK Residential Index is currently yielding only 3.2pc gross and, of course, it is much easier to reinvest relatively small sums of income in shares than it is to buy tiny bits of houses.
Needless to say, the total returns from any asset would be much lower if you failed to promptly reinvest income because the compounding effect, so marked over long periods of time, would be absent.
Against all that, it just doesn't feel right to say shares have proved a better bet than bricks and mortar over the past quarter century.
Most shareholders are also homeowners and, while equities have delivered higher returns than most media coverage would suggest, I would hazard the guess that bricks and mortar have contributed more to the total wealth of the majority of homeowners than equities did.
The explanation is gearing. Until recently, almost anyone could fill in a few forms and borrow 100pc of their investment in housing. Such easy credit has never been available for shares.
And, of course, stock-market profits are generally subject to capital gains tax – unless you obtain them via an individual savings account or pension – whereas gains on your home are always CGT-free.
Even so, Mr Bell's comparison remains surprising and encouraging at a time when so much analysis of the stock market is merely depressing.
And it is always true – as I recalled while splashing through the gelid lake in Hyde Park this week – that the more you look, the more you see.
http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/6836526/Why-shares-beat-property.html
Lessons to be learned from the decade that shocked the stock market
Lessons to be learned from the decade that shocked the stock market
It has been a decade that many investors would rather forget.
On December 31, 1999 the FTSE100 closed at 6,930 and 10 years on it still has some distance to go before it regains this peak, sitting at around just 5,300 last week.
By Emma Simon
Published: 7:00AM GMT 28 Dec 2009
1. A guarantee is only as good as the guarantor
Structured products may have been guaranteed by Wall Street investment banks. But once Lehman's went bust, people realised that many of their guaranteed investments weren't as guaranteed as they thought.
2. Don't buy something you don't understand
Financial advisers often point out that many people drive a car without fully understanding how the internal combustion engines works. But those who got lost money in split-capital trusts and precipice bonds will no doubt now think twice before being reassured by such twaddle. If a car breaks down there is always the AA; there isn't any equivalent rescue service when it's your life savings.
3. Higher returns come with higher risks
If you want to better returns than a building society account you need to take more risk with your money. This almost always means you could lose capital.
4. Don't pay more than you have to
The advent of the internet and price comparison sites mean people can now shop around for financial deals and compare prices and products more effectively.
5. Long-term investments don't always mean long-term gains
Just because an investment should be held for a minimum if five years, doesn't mean you will get a positive return at the end of this period, as the "lost decade" for equities demonstrates.
6. Ask how your adviser earns his money
Commission skews judgements; it pays to inquire why comparable products aren't being recommended.
7. Read the small print
What will you be charged if you exceed your overdraft limit? What penalties will be applied if you cash the investment in early? When can the insurer turn down your claim? Such vital information is almost always in the small print.
8. Don't rely on easy credit
Many assumed cheap loans, remortgages and interest-free credit cards would bail them out of any financial difficulty. But these credit lines disappear when times get tough.
9. Don't rely on others to provide a pension
If you want a decent retirement, start saving. Employers have watered down pension schemes while the value of the state pension has declined. Even generous public sector pension look under threat.
10. What goes up also comes down
Shares prices can plummet, house price can fall, and interest rates can tumble – as well as rise sharply too. It's best to plan for such eventualities. They almost always happen.
http://www.telegraph.co.uk/finance/personalfinance/investing/6867372/Lessons-to-be-learned-from-the-decade-that-shocked-the-stock-market.html
It has been a decade that many investors would rather forget.
On December 31, 1999 the FTSE100 closed at 6,930 and 10 years on it still has some distance to go before it regains this peak, sitting at around just 5,300 last week.
By Emma Simon
Published: 7:00AM GMT 28 Dec 2009
1. A guarantee is only as good as the guarantor
Structured products may have been guaranteed by Wall Street investment banks. But once Lehman's went bust, people realised that many of their guaranteed investments weren't as guaranteed as they thought.
2. Don't buy something you don't understand
Financial advisers often point out that many people drive a car without fully understanding how the internal combustion engines works. But those who got lost money in split-capital trusts and precipice bonds will no doubt now think twice before being reassured by such twaddle. If a car breaks down there is always the AA; there isn't any equivalent rescue service when it's your life savings.
3. Higher returns come with higher risks
If you want to better returns than a building society account you need to take more risk with your money. This almost always means you could lose capital.
4. Don't pay more than you have to
The advent of the internet and price comparison sites mean people can now shop around for financial deals and compare prices and products more effectively.
5. Long-term investments don't always mean long-term gains
Just because an investment should be held for a minimum if five years, doesn't mean you will get a positive return at the end of this period, as the "lost decade" for equities demonstrates.
6. Ask how your adviser earns his money
Commission skews judgements; it pays to inquire why comparable products aren't being recommended.
7. Read the small print
What will you be charged if you exceed your overdraft limit? What penalties will be applied if you cash the investment in early? When can the insurer turn down your claim? Such vital information is almost always in the small print.
8. Don't rely on easy credit
Many assumed cheap loans, remortgages and interest-free credit cards would bail them out of any financial difficulty. But these credit lines disappear when times get tough.
9. Don't rely on others to provide a pension
If you want a decent retirement, start saving. Employers have watered down pension schemes while the value of the state pension has declined. Even generous public sector pension look under threat.
10. What goes up also comes down
Shares prices can plummet, house price can fall, and interest rates can tumble – as well as rise sharply too. It's best to plan for such eventualities. They almost always happen.
http://www.telegraph.co.uk/finance/personalfinance/investing/6867372/Lessons-to-be-learned-from-the-decade-that-shocked-the-stock-market.html
Window dressing aka dressing up a portfolio
Definition
The deceptive practice of some mutual funds, in which recently weak stocks are sold and recently strong stocks are bought just before the fund's holdings are made public, in order to give the appearance that they've been holding good stocks all along. also called window-dressing.
The deceptive practice of some mutual funds, in which recently weak stocks are sold and recently strong stocks are bought just before the fund's holdings are made public, in order to give the appearance that they've been holding good stocks all along. also called window-dressing.
Stock market crash is triggered by drastic change in sentiment of market players
A stock market boom can be described as a bubble if there is high probability of a large scale fall in share prices.
Stock market crash is not triggered
Instead, it happens because of
This is why the necessary and sufficient conditions for the bursting of a given asset price bubble, applicable in practice, cannot be provided with the tools of mathematical economics.
A market crash will ensue with a high likelihood if noise trading becomes dominant, the signals of which are to be found in the following stochastic factors:
• Increasing effect of leverage.
• Increasing activity on part of the economic policy.
• Increasing number of corporate scandals, fraud and corruption.
• Fundamentally unjustifiable co-movement of share prices.
http://myinvestingnotes.blogspot.com/2009/11/how-to-distinguish-stock-market-bubbles.html
- by fundamental news or
- by a certain level of share overvaluation.
Instead, it happens because of
- a drastic change in the behavior of market players.
A Decade of Bubbles 2000-2009
"S&P 500 has fallen 23% from 1469.25 in 2000 to its current 1,126.20"
Published: Wednesday December 30, 2009 MYT 10:46:00 AM
String of investment bubbles marked 2000-09
NEW YORK (AP): A string of exploding investment bubbles that started with the dot-coms and ended with mortgages and oil dominated the years from 2000 to 2009. And it looks like the next decade will be no different.
It doesn't seem to matter to many hedge fund traders and other professional investors that the Standard & Poor's 500 index has turned in its first losing performance over the course of a decade, having fallen 23 percent from 1,469.25 at the start of 2000 to its current 1,126.20.
Or that they or other investors helped create and then destroy the bubbles that left stocks worth $2.5 trillion less today than when the decade began - and that's before adding in the effects of inflation.
A mix of investor hubris, ignorance and piles of easy money created the bubbles.
New ideas about where to invest seemed foolproof and greed crowded out doubts.
Many investors looking for the best returns failed to see the potential problems with an Internet business that had no sales plan, or that thousands of expensive homes bought with no down payment might end up in foreclosure.
Now, these investors who fled the last blowups risk running smack into others. The Federal Reserve is keeping borrowing costs low to help revive the economy, and that means there's still plenty of easy money around, helping traders to inflate the price of everything from stocks to commodities such as gold.
"They've put out the biggest punch bowl in U.S. history and people are guzzling from it," said Haag Sherman, chief investment officer at Salient Partners in Houston. It begs several questions: What will be the next bubble? Or is it already here? And, how do individual investors protect their savings?
Some analysts have already been asking if the stock market formed a bubble with its huge rebound this year. The S&P 500 is up 68.9 percent from the 12-year trading low of 666.79, its best performance since the 1930s.
Gold is also suspect. It's above $1,098 an ounce and up 24 percent in 2009. Other possible sources of bubbles include stocks in emerging markets such as China, where the Shanghai index is up 76.4 percent this year.
Analysts say it's in the DNA of markets to let ambition cloud good judgment and that even when investors learn or relearn a lesson about excess, many still forget it.
Moreover, investors still have $3.2 trillion in money market mutual funds that's waiting to be invested, according to iMoneyNet Inc. With so much cash available and investors hankering after big returns, analysts warn that bubbles may be inevitable.
The signs of effervescence can be hard to spot.
"Pets.com was going to have a market cap larger than Exxon Mobil," said David Darst, chief investment strategist for Morgan Stanley Smith Barney in New York, referring to the Web site that collapsed in November 2000, nine months after raising $82.5 million from investors.
He says investors will keep getting tripped up as they find new ways to invest. "Human nature doesn't change," Darst said. "Market mechanisms change but human fear, human greed will be like this decades and centuries hence."
The numbers from this decade tell a stunning story:
>The Nasdaq composite index, powered by the dot-com buying that began in the late 1990s, went all the way up to 5,048.62 in March 2000, then crashed down to 1,114.11 at the depths of the 2002 bear market. It rose as high as 2,859.12 in October 2007, but no one expects it to return to its loftiest levels.
And the indexes don't reflect inflation, taxes and fees, which take the value of an investment down further. Thornburg Investment Management, which analyzed the value of investments beyond the decade, said $100 invested in 1978 would have been worth only $376 thirty years later after accounting for inflation, expenses and taxes.
>Crude oil, sparked by a weaker dollar and worries that oil producers would soon be unable to meet global demand, rose 71 percent in just six months to a high of $147.27 in July 2008. Prices then crashed down to $33.87 in just five months. The plunge was so precipitous that it destroyed several hedge funds that had bet oil would just keep soaring.
>Low borrowing rates and insatiable demand for mortgage debt by investors made it easy to get loans. That helped prop up housing prices and fuel speculation on securities based on those risky mortgages. The peak came in April 2006; after that, home prices fell 31.9 percent to a low in May 2009, according to the S&P/Case-Shiller 20-city index. Along the way, two investment banks that bought mortgage-backed securities collapsed and the government spent hundreds of billions of dollars to prop up many commercial banks.
>Prices for soybeans and corn hit record levels in the summer of 2008 as floods swept the Midwest and damaged key growing regions. In the first six months of the year, corn shot up more than 60 percent and soybeans rose more than 30 percent. The jump in prices was a boon to many traders, but led to food riots in Africa, Asia and the West Indies. By December of last year, both grains had lost half their value.
Analysts say the best way to avoid being caught by other bubbles is to remain vigilant about diversifying, the practice of investing in a variety of assets. It could also mean shedding some of the stronger performers to avoid some of the risks that the winners will falter.
"When something grows too big in the portfolio you have to force yourself to scale it back a little bit," Darst said. "There's no substitute for doing your homework, there's no substitute for asking questions."
By spreading their holdings around and saving more, investors can buffer against what many analysts worry will be the fallout from the low interest rates and easy money that are being used to help revive the economy.
Policymakers also have concerns. Fed Chairman Ben Bernanke said last month a policy favoring cheap borrowing risked setting more traps for investors. He said he didn't see any signs that a bubble is emerging but also acknowledged that it is "extraordinarily difficult" to detect one forming.
Some analysts see bubbles right now. Quincy Krosby, market strategist for Prudential Financial is skeptical of gold's recent surge.
It's easy to see why gold could be in a bubble. Many investors who have bought gold are speculating that inflation will start rising because of all of the money coursing through the financial system. One of gold's greatest appeals is as a hedge against inflation.
"It will move up, but the music always stops," Krosby said of gold.
Simon Laing, a director at Newton Investment Management Ltd. in London, notes that investors are using money borrowed at low rates in the U.S. and Europe to buy stocks in other markets - raising the prospect of new bubbles.
This comes as causes of past bubbles still present obstacles.
"I don't think we've taken the medicine yet," he said. "We've had a decade of bubbles and I still think we're in the same scenario."
Krosby said individuals shouldn't be fooled into thinking that regulators have been able to curtail risk-taking in the past two years since the collapse of the market for securities based on iffy mortgages.
"They're playing in a world where professional traders dominate even though we think we've gone through this tremendous regulatory revolution," she said.
http://biz.thestar.com.my/news/story.asp?file=/2009/12/30/business/20091230104944&sec=business
Published: Wednesday December 30, 2009 MYT 10:46:00 AM
String of investment bubbles marked 2000-09
NEW YORK (AP): A string of exploding investment bubbles that started with the dot-coms and ended with mortgages and oil dominated the years from 2000 to 2009. And it looks like the next decade will be no different.
It doesn't seem to matter to many hedge fund traders and other professional investors that the Standard & Poor's 500 index has turned in its first losing performance over the course of a decade, having fallen 23 percent from 1,469.25 at the start of 2000 to its current 1,126.20.
Or that they or other investors helped create and then destroy the bubbles that left stocks worth $2.5 trillion less today than when the decade began - and that's before adding in the effects of inflation.
A mix of investor hubris, ignorance and piles of easy money created the bubbles.
New ideas about where to invest seemed foolproof and greed crowded out doubts.
Many investors looking for the best returns failed to see the potential problems with an Internet business that had no sales plan, or that thousands of expensive homes bought with no down payment might end up in foreclosure.
Now, these investors who fled the last blowups risk running smack into others. The Federal Reserve is keeping borrowing costs low to help revive the economy, and that means there's still plenty of easy money around, helping traders to inflate the price of everything from stocks to commodities such as gold.
"They've put out the biggest punch bowl in U.S. history and people are guzzling from it," said Haag Sherman, chief investment officer at Salient Partners in Houston. It begs several questions: What will be the next bubble? Or is it already here? And, how do individual investors protect their savings?
Some analysts have already been asking if the stock market formed a bubble with its huge rebound this year. The S&P 500 is up 68.9 percent from the 12-year trading low of 666.79, its best performance since the 1930s.
Gold is also suspect. It's above $1,098 an ounce and up 24 percent in 2009. Other possible sources of bubbles include stocks in emerging markets such as China, where the Shanghai index is up 76.4 percent this year.
Analysts say it's in the DNA of markets to let ambition cloud good judgment and that even when investors learn or relearn a lesson about excess, many still forget it.
Moreover, investors still have $3.2 trillion in money market mutual funds that's waiting to be invested, according to iMoneyNet Inc. With so much cash available and investors hankering after big returns, analysts warn that bubbles may be inevitable.
The signs of effervescence can be hard to spot.
"Pets.com was going to have a market cap larger than Exxon Mobil," said David Darst, chief investment strategist for Morgan Stanley Smith Barney in New York, referring to the Web site that collapsed in November 2000, nine months after raising $82.5 million from investors.
He says investors will keep getting tripped up as they find new ways to invest. "Human nature doesn't change," Darst said. "Market mechanisms change but human fear, human greed will be like this decades and centuries hence."
The numbers from this decade tell a stunning story:
>The Nasdaq composite index, powered by the dot-com buying that began in the late 1990s, went all the way up to 5,048.62 in March 2000, then crashed down to 1,114.11 at the depths of the 2002 bear market. It rose as high as 2,859.12 in October 2007, but no one expects it to return to its loftiest levels.
And the indexes don't reflect inflation, taxes and fees, which take the value of an investment down further. Thornburg Investment Management, which analyzed the value of investments beyond the decade, said $100 invested in 1978 would have been worth only $376 thirty years later after accounting for inflation, expenses and taxes.
>Crude oil, sparked by a weaker dollar and worries that oil producers would soon be unable to meet global demand, rose 71 percent in just six months to a high of $147.27 in July 2008. Prices then crashed down to $33.87 in just five months. The plunge was so precipitous that it destroyed several hedge funds that had bet oil would just keep soaring.
>Low borrowing rates and insatiable demand for mortgage debt by investors made it easy to get loans. That helped prop up housing prices and fuel speculation on securities based on those risky mortgages. The peak came in April 2006; after that, home prices fell 31.9 percent to a low in May 2009, according to the S&P/Case-Shiller 20-city index. Along the way, two investment banks that bought mortgage-backed securities collapsed and the government spent hundreds of billions of dollars to prop up many commercial banks.
>Prices for soybeans and corn hit record levels in the summer of 2008 as floods swept the Midwest and damaged key growing regions. In the first six months of the year, corn shot up more than 60 percent and soybeans rose more than 30 percent. The jump in prices was a boon to many traders, but led to food riots in Africa, Asia and the West Indies. By December of last year, both grains had lost half their value.
Analysts say the best way to avoid being caught by other bubbles is to remain vigilant about diversifying, the practice of investing in a variety of assets. It could also mean shedding some of the stronger performers to avoid some of the risks that the winners will falter.
"When something grows too big in the portfolio you have to force yourself to scale it back a little bit," Darst said. "There's no substitute for doing your homework, there's no substitute for asking questions."
By spreading their holdings around and saving more, investors can buffer against what many analysts worry will be the fallout from the low interest rates and easy money that are being used to help revive the economy.
Policymakers also have concerns. Fed Chairman Ben Bernanke said last month a policy favoring cheap borrowing risked setting more traps for investors. He said he didn't see any signs that a bubble is emerging but also acknowledged that it is "extraordinarily difficult" to detect one forming.
Some analysts see bubbles right now. Quincy Krosby, market strategist for Prudential Financial is skeptical of gold's recent surge.
It's easy to see why gold could be in a bubble. Many investors who have bought gold are speculating that inflation will start rising because of all of the money coursing through the financial system. One of gold's greatest appeals is as a hedge against inflation.
"It will move up, but the music always stops," Krosby said of gold.
Simon Laing, a director at Newton Investment Management Ltd. in London, notes that investors are using money borrowed at low rates in the U.S. and Europe to buy stocks in other markets - raising the prospect of new bubbles.
This comes as causes of past bubbles still present obstacles.
"I don't think we've taken the medicine yet," he said. "We've had a decade of bubbles and I still think we're in the same scenario."
Krosby said individuals shouldn't be fooled into thinking that regulators have been able to curtail risk-taking in the past two years since the collapse of the market for securities based on iffy mortgages.
"They're playing in a world where professional traders dominate even though we think we've gone through this tremendous regulatory revolution," she said.
http://biz.thestar.com.my/news/story.asp?file=/2009/12/30/business/20091230104944&sec=business
Favor modest valuations and big, safe dividends.
The recent rally has favored economically sensitive companies—ones whose profits rise quickly as the economy grows. Investors who expect the rally to fizzle ought to swap these for shares of companies whose products sell steadily no matter what. Favor modest valuations and big, safe dividends. Both are still abundant, fortunately. Also, keep ready a generous stash of cash.
http://bx.businessweek.com/investment-banking/view?url=http%3A%2F%2Fwww.smartmoney.com%2Finvesting%2Fstocks%2Fare-we-headed-for-a-third-bubble%2F%3Fcid%3D1122
http://bx.businessweek.com/investment-banking/view?url=http%3A%2F%2Fwww.smartmoney.com%2Finvesting%2Fstocks%2Fare-we-headed-for-a-third-bubble%2F%3Fcid%3D1122
BELIEVING A BULL MARKET
We are in the midst of a bull market. The market fell off the cliff in 2008. Its nadir was in March 2009. Many stocks were trading below their intrinsic value: intrinsic P/E and intrinsic P/B were much higher than the market P/E and market P/B then.
When market confidence and sentiment turned, the investors rushed in and picked up huge bargains. Many stocks were trading at huge discounts to their intrinsic values. The initial price rise from March to June 2009 was particularly fast and steep. Those who stayed invested throughout the deep recession and/or invested in the early phase of the steep rise are sitting on big gains. Since June/July 2009, many stocks are trading at fair values. Accordingly, these stocks are trading at higher prices within a narrow range.
Still many "glamour" stocks' prices continue the climb. These are the "growth" stocks. At a certain price, these stocks are fairly valued. As the prices climb, beware that the market price may be expensive compared to their fundamentally derived intrinsic values. Momentum trading and various market strategies used by 'investors' in the market tend to create bubbles. Valuation is a skill and is also subjective. Those without this skill (and this would be the majority) may not be anchored on the intrinsic value of the stock as their guide.
The present bull market is about 9 months old. Driven the poor yield from fixed income investments (FDs), the liquidity due to the low interest rates and the low market prices in March 2009, the index has risen fast. The KLSE has risen from the low of around 800 to the present of 1250. Those who rode the rise would have in general obtained an average of 40% to 50% gain since March 2009. During the last bull run in 2007, the KLSE peaked around 1350. From 1250 to 1350, this 100 point rise will translate to a gain of about 8%. It is unlikely for the market to go down to the low of March 2009. However, there hasn't been any significant correction in the present bull run. Some investors would welcome a significant correction to to consolidate the market for the next phase. A correction of 10% to 20% maybe welcomed by various players in the market.
Though the market has risen, particularly the index-linked stocks, opportunities exist for the value stock pickers still. The year is ending on a good note, it is also a good time to rebalance one's portfolio.
----
http://myinvestingnotes.blogspot.com/2009/01/believing-bull-market.html
BELIEVING A BULL MARKET
When markets are rapidly rising, value investing invariably falls out of favor with the investing public. In an upward racing market, value stocks appear dull and stodgy as the more speculative issues rush toward new market highs. But come the correction, it all looks different. Stable value stocks seem like trusted friends.
Most bull markets have well-defined characteristics. These include:
Though the market has risen, particularly the index-linked stocks, opportunities exist for the value stock pickers still. The year is ending on a good note, it is also a good time to rebalance one's portfolio.
BELIEVING A BULL MARKET
- Price levels are historically high.
- Price to earnings ratios are high.
- Dividend yields are low compared with bond yields (or compared with a stock’s particular dividend yield pattern).
- Margin buying becomes excessive as investors are driven to borrow to buy more of the high-priced stocks that look attractive to them.
- There is a swarm of new stock offerings, especially initial public offerings (IPOs) of questionable quality. This bull market is what investment bankers and stock promoters call the “window of opportunity.” Because IPOs so often occur when Wall Street is primed to pay top dollar, seasoned investors joke that IPO stands for “it’s probably overpriced.”
Be patient: Wait for opportunities during correction or panic during a bull market
Great Opportunities to buy companies with durable competitive advantage
a) Correction or panic during a bull market:
Any company with a durable competitive advantage will eventually recover after a market correction or panic during a bull market.
b) Bubble-bursting situation:
But beware. In a bubble-bursting situation,during which stock prices trade in excess of 40 times earnings and then fall to single-digit PEs, it may take years for them to fully recover.
After the crash of 1997, it took until 2007 to match the 1990s bull market highs. There are still companies trading today at below their last decade high price. On the other hand, if you bought during the crash, as Warren Buffett often did, it didn't take you long to make a fortune.
http://myinvestingnotes.blogspot.com/2009/10/opportunities-to-buy-companies-with.html
a) Correction or panic during a bull market:
Any company with a durable competitive advantage will eventually recover after a market correction or panic during a bull market.
b) Bubble-bursting situation:
But beware. In a bubble-bursting situation,during which stock prices trade in excess of 40 times earnings and then fall to single-digit PEs, it may take years for them to fully recover.
After the crash of 1997, it took until 2007 to match the 1990s bull market highs. There are still companies trading today at below their last decade high price. On the other hand, if you bought during the crash, as Warren Buffett often did, it didn't take you long to make a fortune.
http://myinvestingnotes.blogspot.com/2009/10/opportunities-to-buy-companies-with.html
In the aftermath of the bursting of the bubble
The Aftermath
In the aftermath of the bursting of the bubble, you initially find investors in complete denial. In fact, one of the amazing features of post-bubble markets is the difficulty of finding investors who lost money in the bubble. Investors either claim that they were one of the prudent ones who never invested in the bubble in the first place or that they were one of the smart ones who saw the correction coming and got out in time.
As time passes and the investment losses from the bursting of the bubble become too large to ignore, the search for scapegoats begins. Investors point fingers at brokers, investment banks and the intellectuals who nurtured the bubble, arguing that they were mislead.
Finally, investors draw lessons that they swear they will adhere to from this point on. �I will never invest in a tulip bulb again� or �I will never invest in a dot.com company again� becomes the refrain you hear. Given these resolutions, you may wonder why price bubbles show up over and over. The reason is simple. No two bubbles look alike. Thus, investors, wary about repeating past mistakes, make new ones, which in turn create new bubbles in new asset classes.
http://myinvestingnotes.blogspot.com/search/label/phases%20of%20bubble
In the aftermath of the bursting of the bubble, you initially find investors in complete denial. In fact, one of the amazing features of post-bubble markets is the difficulty of finding investors who lost money in the bubble. Investors either claim that they were one of the prudent ones who never invested in the bubble in the first place or that they were one of the smart ones who saw the correction coming and got out in time.
As time passes and the investment losses from the bursting of the bubble become too large to ignore, the search for scapegoats begins. Investors point fingers at brokers, investment banks and the intellectuals who nurtured the bubble, arguing that they were mislead.
Finally, investors draw lessons that they swear they will adhere to from this point on. �I will never invest in a tulip bulb again� or �I will never invest in a dot.com company again� becomes the refrain you hear. Given these resolutions, you may wonder why price bubbles show up over and over. The reason is simple. No two bubbles look alike. Thus, investors, wary about repeating past mistakes, make new ones, which in turn create new bubbles in new asset classes.
http://myinvestingnotes.blogspot.com/search/label/phases%20of%20bubble
Can investors take advantage of bubbles to make money?
Whether investors can take advantage of bubbles to make money seems to be a more difficult question to answer. Part of the reason for the failure to exploit bubbles seems to stem from greed �even investors who believe that assets are over priced want to make money of the bubble � and part of the reason is the difficulty of determining when a bubble will burst.
Over valued assets may get even more over valued and these overvaluations can stretch over years, thus imperiling the financial well being of any investor who has bet against the bubble.
There is also an institutional interest on the part of investment banks, the media and portfolio managers, all of whom feed of the bubble, to perpetuate the bubble.
Over valued assets may get even more over valued and these overvaluations can stretch over years, thus imperiling the financial well being of any investor who has bet against the bubble.
There is also an institutional interest on the part of investment banks, the media and portfolio managers, all of whom feed of the bubble, to perpetuate the bubble.
THE PAUSE AT THE TOP OF THE ROLLER COASTER
There is only one strategy that works for value investors when the market is high – patience. The investor can do one of two things, both of which require steady nerves.
· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.
· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.
But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.
-----
http://myinvestingnotes.blogspot.com/2009/01/pause-at-top-of-roller-coaster.html
The portfolio of one value investor shows what can happen when markets stumble off a cliff. In early September 1987, Walter Schloss’s portfolio was up 53%. The market as a whole had risen 42%, after a DJIA peak of 2722.42. Then in October the market fell off the mountain and the Dow lost 504 points in a single day. The market struggled back and Schloss finished 1987 with a 26% gain while the overall market made only a 5% advance. Schloss followed one of the first rules of investing – don’t lose money. Making up for lost ground puts an investor at a serious disadvantage when calculating long-term average returns.
Schloss is an experienced investor, and not all value investors will do as well in a rising market. It takes patience, “At a guess I’d say that (the value investor) should do a good 20% better than the market over a long period – although not during the most dynamic period of a bull market – if he is rigorous about applying the method,” says author John Train.
As for the hot stocks, when they take a hard hit the investor is cornered. If the stock is sold, the loss becomes permanent. The lost money cannot grow. If the investor hangs on to the deflated stock, the long trail back to the original purchase price will deeply erode the overall return.
· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.
· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.
But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.
-----
http://myinvestingnotes.blogspot.com/2009/01/pause-at-top-of-roller-coaster.html
The portfolio of one value investor shows what can happen when markets stumble off a cliff. In early September 1987, Walter Schloss’s portfolio was up 53%. The market as a whole had risen 42%, after a DJIA peak of 2722.42. Then in October the market fell off the mountain and the Dow lost 504 points in a single day. The market struggled back and Schloss finished 1987 with a 26% gain while the overall market made only a 5% advance. Schloss followed one of the first rules of investing – don’t lose money. Making up for lost ground puts an investor at a serious disadvantage when calculating long-term average returns.
Schloss is an experienced investor, and not all value investors will do as well in a rising market. It takes patience, “At a guess I’d say that (the value investor) should do a good 20% better than the market over a long period – although not during the most dynamic period of a bull market – if he is rigorous about applying the method,” says author John Train.
As for the hot stocks, when they take a hard hit the investor is cornered. If the stock is sold, the loss becomes permanent. The lost money cannot grow. If the investor hangs on to the deflated stock, the long trail back to the original purchase price will deeply erode the overall return.
Tuesday, 29 December 2009
The Process of Fundamental Analysis
http://spreadsheets.google.com/pub?key=thrIJu34ZkHzDDZwDLtNIHw&output=html
The figure outlines the 5-Step process of fundamental analysis that produces an estimate of the value.
In the last step in the diagram, Step 5, this value is compared with the price of investing. This step is the investment decision.
The figure outlines the 5-Step process of fundamental analysis that produces an estimate of the value.
In the last step in the diagram, Step 5, this value is compared with the price of investing. This step is the investment decision.
The man in charge of US$1tril assets warns about stocks
Updated: Monday December 28, 2009 MYT 1:20:42 PM
The man in charge of US$1tril assets warns about stocks
NEW YORK: Homes are selling at their fastest clip in nearly three years, the unemployment rate is falling and stocks are up 66 percent since their March lows - the best performance since the 1930s. What's not to like?
Plenty, according to Mohamed El-Erian, chief executive of giant bond manager Pimco.
The investor says the recovery may be gaining steam but is no different than a kid who eats too much candy at one of the birthday parties his 6-year-old daughter attends.
FILE PIX - In this Feb. 12, 2008 file photo, Mohamed El-Erian, Co-Chief Executive Officer and Co-Chief Investment Officer of PIMCO, talks about sovereign wealth funds in New York. - AP
"We're on a sugar high," El-Erian says.
"It feels good for a while but is unsustainable."
His point: This burst of economic activity fed by government spending and near-zero interest rates will soon peter out.
As CEO at Newport Beach, Calif.-based Pimco, El-Erian, 51, oversees nearly $1 trillion in assets, more than the gross domestic product of most countries.
So when he talks, people listen.
What he's saying now:
-Stocks will drop 10 percent in the space of three or four weeks, bringing the Standard & Poor's 500 index below 1,000 - though he's not predicting when.
-The unemployment rate will be hovering above 8 percent a year from now.
-U.S. gross domestic product will grow at an average 2 percent or so for years to come - a third slower than we're used to.
El-Erian and his famous partner, Pimco founder Bill Gross, are watched closely because they've made investors a lot of money over the years.
The Pimco Total Return Fund, which at $203 billion is the world's largest mutual fund, has returned an average 7.6 percent annually over 10 years, after fees, versus 6.3 percent for Barclays Capital U.S. Aggregate fixed income index fund.
The hotshots at Pimco have made money by anticipating big moves in the economy and interest rates way before other investors.
In the depths of the financial crisis last year, for instance, Pimco sold some of its Treasury bonds to panicked investors looking for a safe haven and put the proceeds into government-backed mortgages and bank debt - in time to catch the big upswing in prices of those and other riskier securities this year.
Now Pimco is once again changing tack. El-Erian says people are fooling themselves if they think all the bullish data of late means a strong recovery is in the offing.
So he's buying Treasurys and selling riskier stuff.
His bet: Investors will get scared again and want U.S.-guaranteed debt so they know they'll get repaid.
At Total Return, government-related securities, including Treasurys and corporate debt backed by Washington, comprised 48 percent of the fund's holdings in September.
That was up from 9 percent at the beginning of the year.
One of Pimco's newest funds, the Global Multi-Asset Fund, a hybrid stock-bond offering, is 35 percent in equities now, down from 60 percent earlier this year.
Investors betting on stocks or high-yield bonds are likely to be disappointed, El-Erian says.
Markets for those securities are rallying not because people like them but because they hate the puny yields of safer investments like money markets and feel they have no choice but to buy, he says.
He quips that that makes the bull market as likely to last as a forced marriage.
The danger: If stock and junk bond prices start falling, lots of investors are likely to bail, feeding the drop.
Of course, there are plenty of true believers in the bull who are not buying the El-Erian line.
James Paulsen, chief strategist at Wells Capital Management in Minneapolis, with $355 billion under management, has been pounding the table for months to buy stocks.
Just like in the early 1980s, the recovery will take the form of a "V," he says. The reason: Companies have cut inventories and payrolls to the bone, so just a little revenue growth could translate into a bumper crop of profits.
El-Erian says many of the bulls don't appreciate just how much the government props still under the economy are masking its weakness.
Instead of focusing on the fundamentals today, he says, they're looking to the past, expecting a quick economic rebound because that's what's happened before.
We're trained to think the "farther you fall, the higher you'll bounce back," El-Erian says. "We're hostage to the V."
El-Erian says he learned to be open to many different views on the world (and markets) from his father, an Egyptian diplomat who insisted on reading several newspapers everyday, both on the right and the left.
El-Erian had hoped to become a college professor.
But when his father died, he took a job at the International Monetary Fund to support the family.
He rose through the ranks, eventually becoming deputy director.
In 1999 he joined Pimco, where he quickly made a name for himself with some prescient bets on emerging markets.
One of his biggest wins: selling Argentine bonds in 2000 while they were still popular with investors.
When the country defaulted the next year, the emerging markets fund that El-Erian managed returned 28 percent versus negative 1 percent for the Emerging Market Bond Index.
He eventually left to head the group that manages Harvard University's massive endowment, returning to Pimco in January 2008 in time catch the depths of the financial crisis.
El-Erian says we've probably seen the worst of the crisis but consumers, and not just Washington, need to start spending again for the recovery to really take hold.
He doesn't expect that to happen soon. Like in the Great Depression, Americans are saving more and borrowing less - a shift in attitudes toward family finances that Pimco thinks will last a generation.
That, plus the impact of more regulation and higher taxes, El-Erian says, will crimp growth for years to come.
Whatever the merits of that view, Pimco is not exactly knocking the lights out right now. So far this year, the Total Return Fund has returned 14 percent, impressive in normal times but no better than average for similar funds during the rally, according to Morningstar.
The 19.1 percent return for Global Multi-Asset, which El-Erian co-manages, lags two-thirds of its peers.
El-Erian says he sold equities "too early" but is convinced his view on the market will prove correct - even if it strikes many as a tad too pessimistic.
"I'm calling it as I see it," he says. "I'm not optimistic or pessimistic - I'm realistic." - AP
http://biz.thestar.com.my/news/story.asp?file=/2009/12/28/business/20091228081257&sec=business
The man in charge of US$1tril assets warns about stocks
NEW YORK: Homes are selling at their fastest clip in nearly three years, the unemployment rate is falling and stocks are up 66 percent since their March lows - the best performance since the 1930s. What's not to like?
Plenty, according to Mohamed El-Erian, chief executive of giant bond manager Pimco.
The investor says the recovery may be gaining steam but is no different than a kid who eats too much candy at one of the birthday parties his 6-year-old daughter attends.
FILE PIX - In this Feb. 12, 2008 file photo, Mohamed El-Erian, Co-Chief Executive Officer and Co-Chief Investment Officer of PIMCO, talks about sovereign wealth funds in New York. - AP
"We're on a sugar high," El-Erian says.
"It feels good for a while but is unsustainable."
His point: This burst of economic activity fed by government spending and near-zero interest rates will soon peter out.
As CEO at Newport Beach, Calif.-based Pimco, El-Erian, 51, oversees nearly $1 trillion in assets, more than the gross domestic product of most countries.
So when he talks, people listen.
What he's saying now:
-Stocks will drop 10 percent in the space of three or four weeks, bringing the Standard & Poor's 500 index below 1,000 - though he's not predicting when.
-The unemployment rate will be hovering above 8 percent a year from now.
-U.S. gross domestic product will grow at an average 2 percent or so for years to come - a third slower than we're used to.
El-Erian and his famous partner, Pimco founder Bill Gross, are watched closely because they've made investors a lot of money over the years.
The Pimco Total Return Fund, which at $203 billion is the world's largest mutual fund, has returned an average 7.6 percent annually over 10 years, after fees, versus 6.3 percent for Barclays Capital U.S. Aggregate fixed income index fund.
The hotshots at Pimco have made money by anticipating big moves in the economy and interest rates way before other investors.
In the depths of the financial crisis last year, for instance, Pimco sold some of its Treasury bonds to panicked investors looking for a safe haven and put the proceeds into government-backed mortgages and bank debt - in time to catch the big upswing in prices of those and other riskier securities this year.
Now Pimco is once again changing tack. El-Erian says people are fooling themselves if they think all the bullish data of late means a strong recovery is in the offing.
So he's buying Treasurys and selling riskier stuff.
His bet: Investors will get scared again and want U.S.-guaranteed debt so they know they'll get repaid.
At Total Return, government-related securities, including Treasurys and corporate debt backed by Washington, comprised 48 percent of the fund's holdings in September.
That was up from 9 percent at the beginning of the year.
One of Pimco's newest funds, the Global Multi-Asset Fund, a hybrid stock-bond offering, is 35 percent in equities now, down from 60 percent earlier this year.
Investors betting on stocks or high-yield bonds are likely to be disappointed, El-Erian says.
Markets for those securities are rallying not because people like them but because they hate the puny yields of safer investments like money markets and feel they have no choice but to buy, he says.
He quips that that makes the bull market as likely to last as a forced marriage.
The danger: If stock and junk bond prices start falling, lots of investors are likely to bail, feeding the drop.
Of course, there are plenty of true believers in the bull who are not buying the El-Erian line.
James Paulsen, chief strategist at Wells Capital Management in Minneapolis, with $355 billion under management, has been pounding the table for months to buy stocks.
Just like in the early 1980s, the recovery will take the form of a "V," he says. The reason: Companies have cut inventories and payrolls to the bone, so just a little revenue growth could translate into a bumper crop of profits.
El-Erian says many of the bulls don't appreciate just how much the government props still under the economy are masking its weakness.
Instead of focusing on the fundamentals today, he says, they're looking to the past, expecting a quick economic rebound because that's what's happened before.
We're trained to think the "farther you fall, the higher you'll bounce back," El-Erian says. "We're hostage to the V."
El-Erian says he learned to be open to many different views on the world (and markets) from his father, an Egyptian diplomat who insisted on reading several newspapers everyday, both on the right and the left.
El-Erian had hoped to become a college professor.
But when his father died, he took a job at the International Monetary Fund to support the family.
He rose through the ranks, eventually becoming deputy director.
In 1999 he joined Pimco, where he quickly made a name for himself with some prescient bets on emerging markets.
One of his biggest wins: selling Argentine bonds in 2000 while they were still popular with investors.
When the country defaulted the next year, the emerging markets fund that El-Erian managed returned 28 percent versus negative 1 percent for the Emerging Market Bond Index.
He eventually left to head the group that manages Harvard University's massive endowment, returning to Pimco in January 2008 in time catch the depths of the financial crisis.
El-Erian says we've probably seen the worst of the crisis but consumers, and not just Washington, need to start spending again for the recovery to really take hold.
He doesn't expect that to happen soon. Like in the Great Depression, Americans are saving more and borrowing less - a shift in attitudes toward family finances that Pimco thinks will last a generation.
That, plus the impact of more regulation and higher taxes, El-Erian says, will crimp growth for years to come.
Whatever the merits of that view, Pimco is not exactly knocking the lights out right now. So far this year, the Total Return Fund has returned 14 percent, impressive in normal times but no better than average for similar funds during the rally, according to Morningstar.
The 19.1 percent return for Global Multi-Asset, which El-Erian co-manages, lags two-thirds of its peers.
El-Erian says he sold equities "too early" but is convinced his view on the market will prove correct - even if it strikes many as a tad too pessimistic.
"I'm calling it as I see it," he says. "I'm not optimistic or pessimistic - I'm realistic." - AP
http://biz.thestar.com.my/news/story.asp?file=/2009/12/28/business/20091228081257&sec=business
Monday, 28 December 2009
Chart wise: These stocks continue to climb
Will these stocks continue to climb further uncorrected?
Adventa, Petdag, PBB, LPI, Latexx, GAB, HaiO, HLBank, QL, KPJ, JobSt, KLK, IOICorp, Sime
Adventa, Petdag, PBB, LPI, Latexx, GAB, HaiO, HLBank, QL, KPJ, JobSt, KLK, IOICorp, Sime
Chart wise: These stocks settled lower than their recent peaks
The prices of these stocks rose from March 09 and peaked in June 09. The prices subsequently settled below their peaks.
BStead, LionDiv, KNM, PohKong, POS
BStead, LionDiv, KNM, PohKong, POS
Chart wise: These stocks rose and plateau at their peaks
The prices of these stocks started the climb in March over variable periods and all subsequently flatten out at higher prices.
iCap, Coastal, DLady, GenM, Genting, Integra, Maybank, Nestle, Parkson, Tenaga, UMW, Maybulk, UtdPlt, UMCCA, SOP, KMLoong
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