Bubbles are fueled by speculators who are willing to pay even greater prices for already overvalued assets sold to them by the speculators who bought them in the preceding round.
Each financial bubble in history has been different, but they all involve a mix of fundamental business and psychological forces. In the beginning stages, an attractive return on a stock or commodity drives prices higher and higher. People make questionable investments with the assumption that they will be able to sell later at a higher price to a "greater fool." Unrealistic investor expectations take hold and become self-fulfilling until the bubble "pops" and prices fall back to a more reasonable underlying value.
Why do bubbles sometimes last so long? One reason is that nobody likes to be a "party pooper" and people ARE getting rich. In addition, there is nothing inherently illegal about profiting during a bubble. The only problem is getting out BEFORE the collapse. Whoever owns the overpriced asset when the bubble pops is the loser, just as the last person standing in a game of musical chairs.
17th century in Holland: Tulip Bulbs bubble (1630s)
1995 - 2001: Technology Stocks bubble
2007: U.S Housing Crisis bubble
Investing in bubbles can be quite profitable if you can get out before the bubble bursts. However, many people who did not get out before the 'pop' saw their market crashed and their wealth value evaporated.
Bubbles are not caused by fraudulent activity. However, swindles and accounting fraud often come to light just after bubbles pop. Nobody is looking and few care while the good times roll. Highly leveraged frauds often run out of cash and collapse when bubbles pop.
1963: Salad Oil Scandal
2001: Enron
2002: WorldCom
Comment:
Is the economy in a bubble? Is the present market a bubble? A definite not. However, some individual stocks had been speculated up to bubble proportions and some had already popped. Individual stock bubbles are a lot more common than whole market bubble.
Tuesday, 11 May 2010
Poly 'reject' off to Harvard
May 4, 2010
Poly 'reject' off to Harvard
Indonesian is the first S'pore Poly student to get into the elite varsity
Harvard-bound Singapore Polytechnic student Kuriakin Zeng with the TR-2010 robot he designed and built with teammates. It will be one of the robots competing in the RoboCup competition next month at Suntec City. Mr Zeng, who is passionate about robotics, has clinched a full scholarship to study liberal arts at Harvard College. -- ST PHOTO: DESMOND FOO
HE WAS once rejected by Singapore Polytechnic (SP), but Indonesian student Kuriakin Zeng, 24, subsequently went on to make history at the institution, not once but twice.
Last year, he became the first SP student to score straight distinctions for all of his 33 modules in his electronics, computer and communication engineer-ing diploma course.
Last week, he became the first student from the polytechnic to be accepted into Harvard College, where he will do a liberal arts course - with the bonus of having a full scholarship from the Ivy League university.
OSK Research raises Hartalega target price to RM9.89
OSK Research raises Hartalega target price to RM9.89
Written by OSK Investment Research
Tuesday, 11 May 2010 08:51
KUALA LUMPUR: OSK Investment Research has maintained its buy call on Hartalega Holdings at RM7.79 with a higher target price of RM9.89 (from RM8.92), and said the company's 4QFY10 results scheduled to be announced Tuesday, May 11 would be in line with its own and consensus expectations.
"We see a better quarter-on-quarter performance, mainly contributed by 1) its timeliness in passing on the cost of higher latex price; 2) higher sales as a result of bigger production capacity, and 3) growing demand for nitrile gloves as the price difference with natural rubber gloves narrows due to the increase in natural rubber price.
"There is also the possibility of a bonus issue, following in the steps taken by its peers," it said in a note on Tuesday.
Written by OSK Investment Research
Tuesday, 11 May 2010 08:51
KUALA LUMPUR: OSK Investment Research has maintained its buy call on Hartalega Holdings at RM7.79 with a higher target price of RM9.89 (from RM8.92), and said the company's 4QFY10 results scheduled to be announced Tuesday, May 11 would be in line with its own and consensus expectations.
"We see a better quarter-on-quarter performance, mainly contributed by 1) its timeliness in passing on the cost of higher latex price; 2) higher sales as a result of bigger production capacity, and 3) growing demand for nitrile gloves as the price difference with natural rubber gloves narrows due to the increase in natural rubber price.
"There is also the possibility of a bonus issue, following in the steps taken by its peers," it said in a note on Tuesday.
A few investing rules that will help you avoid financial frauds
"Those who cannot remember the past are condemned to repeat it."
American philosopher George Santayana
To save you from financial ruin, here are a few investing rules that will help you avoid financial frauds:
1. Do not invest in arcane schemes with promoters who will not explain the investments clearly. Make sure you understand exactly where the investment costs and returns will come from and at what risk.
2. Beware the "quick buck" or getting "something for nothing." Promises of "too good to be true" returns are just that.
3. Always do reference checking before investing. Charlatans spend much time, money and effort in trying to appear legitimate. Beware. Do not be fooled.
Unfortunately, just following these three rules doesn't guarantee you will never be fleeced. So do not 'put all your eggs in one basket.' That way, even if you are duped, not everything is lost. Diversify your investments.
American philosopher George Santayana
To save you from financial ruin, here are a few investing rules that will help you avoid financial frauds:
1. Do not invest in arcane schemes with promoters who will not explain the investments clearly. Make sure you understand exactly where the investment costs and returns will come from and at what risk.
2. Beware the "quick buck" or getting "something for nothing." Promises of "too good to be true" returns are just that.
3. Always do reference checking before investing. Charlatans spend much time, money and effort in trying to appear legitimate. Beware. Do not be fooled.
Unfortunately, just following these three rules doesn't guarantee you will never be fleeced. So do not 'put all your eggs in one basket.' That way, even if you are duped, not everything is lost. Diversify your investments.
Risk and Uncertainty
Risk
What is risk?
In financial terms, risk is the probability of an investment's actual return being lower than expected.
Can we understand risk and take actions to lower it?
We now have the two elements necessary to start us on a path of business risk management.
How can we:
(1) lower the potential downside of risk
and/or
(2) lower the probability of occurrences?
Related:
Risk and uncertainty in investing. Investing is serious business.
What is risk?
In financial terms, risk is the probability of an investment's actual return being lower than expected.
Can we understand risk and take actions to lower it?
We now have the two elements necessary to start us on a path of business risk management.
How can we:
(1) lower the potential downside of risk
and/or
(2) lower the probability of occurrences?
Risk can be both
- intrinsic (within ourselves) and
- extrinsic (from outside).
If risk is the potential for a business loss, when may a business project be deemed a high risk?
A business project may be deemed a high risk because either:
(1) there is a high likelihood of a loss of any size,
or
(2) there is even a very small likelihood of a large loss.
Almost every business action carries some degree of risk. High-risk actions require careful management because of their potential large negative consequences to the business.
Threat: A threat is a potential event with a very low probability but a high negative impact.
"Bet-your-company risk": Avoid taking a "bet-your-company risk." The potential negative consequences of such a risk are just too, too large. For example, a bet-your-company risk would be spending all your available resources on developing a risky new product. The company could fail if development were to be delayed or if sales were much lower than projected.
However, entrepreneurial companies usually must face bet-your-company risks as they start up and grow. Understanding and managing risk and uncertainty is especially important in these fledging enterprises. Startups must be focused, innovative, responsive and also very lucky to survive. Most often, they are not.
Uncertainty
"Uncertainty" is different from risk.
Uncertainty is not knowing what the future will bring. However, under the cloak of uncertainty, high risk can lurk. Thus, lowering uncertainty can lower risks too.
Uncertainty can be more dangerous than risk. Because we often know the elements of risks, we can plan for risk and take measures to mitigate the negative consequences of risk. However, with uncertainty we are often flying blind. It is hard to lower uncertainty if you do not know what it is and thus what to do to lower it.
Quotes:
"The consequences of our actions are so complicated, so diverse, that predicting the future is a very difficult business indeed."
"The best way to predict the future is to invent it."
"It's tough making predictions, especially about the future."
Related:
Risk and uncertainty in investing. Investing is serious business.
Investing Money in Plain English (Video)
Monday, 10 May 2010
Comeback of the Year? Try Corporate Profits
May 7, 2010
Comeback of the Year? Try Corporate Profits
By PAUL J. LIM
THE market remains worried about plenty of things — including a sharp decline late last week, and the spreading debt crisis in Europe. But, recently, it has appeared that investors are ready to strike one item off their list of concerns: corporate profits.
“To say that earnings so far have been off the charts would not be too much of an exaggeration,” said Robert C. Doll, global chief investment officer for equities at BlackRock, the investment management firm.
Of the companies in the Standard & Poor’s 500-stock index that have announced first-quarter results, 77 percent have beaten Wall Street earnings forecasts. And profits for the quarter are on track to grow 56 percent compared with the 2009 period.
These earnings reports, however, started to arrive just as the market has shifted from confidence to much uncertainty.
From Feb. 8 to April 26, the S.& P. 500 gained 15 percent, largely in anticipation of an improved earnings and economic outlook. But the downgrading of Greece’s debt and fears that the crisis may be spreading throughout the region and the world have taken center stage, sending the market tumbling more than 8 percent. Concerns about Europe notwithstanding, many analysts have already begun ratcheting up their forecasts for stocks for the rest of this year.
Still, it’s important to remember that earnings season isn’t over, so it’s premature to proclaim complete victory on the profit front.
Stuart A. Schweitzer, global market strategist at J.P. Morgan Private Bank, noted, “Where the jury is still out is on the sustainability of this upswing, because companies had been achieving improvements in profits largely by slashing costs.”
He added, “Without increased revenues, it would be hard to imagine companies moving from cost-reduction to spending mode and hiring mode.”
So far, sales for the S.& P. 500 have also been stronger than analysts anticipated. Of the 437 that have reported earnings, 66 percent had revenue growth exceeding analysts’ expectations, according to Thomson Reuters.
But the news isn’t all positive. For one thing, revenue surprises pale in comparison with profit surprises. Companies are beating Wall Street profit forecasts by 15 percent but beating revenue projections by just 0.8 percent.
And not all companies are reporting revenue growth. The casino operator MGM Mirage said revenue fell 4 percent in the first quarter versus the 2009 period. And Sara Lee, the food giant, said quarterly sales fell 2.5 percent.
David A. Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, the investment manager in Toronto, said that if figures from just one sector — financial services — were excluded, revenue of S.& P. 500 companies would be just about meeting expectations.
To be sure, analysts’ forecast for first-quarter sales growth is 11 percent — nothing to sneeze at.
“The interesting thing is how much of the good earnings news is coming from the banking and financial sector,” said David C. Wright, managing director of Sierra Investment Management.
He pointed out that this sector, which was hit hardest in the financial crisis, has been a big beneficiary of government stimulus. That ranges from mortgage relief efforts and the government purchase of “toxic” mortgage-backed securities to the recent Fed policy of near-zero short-term interest rates.
Because these efforts can’t continue forever, he said, “I can’t conclude that we’re seeing anything resembling a self-sustaining recovery.”
IF the improved outlook for the financial sector is indeed spreading to the broader economy, he said, an uptick could be expected in commercial and industrial loan activity.
But according to the Federal Reserve Bank of St. Louis, commercial and industrial bank loans nationwide have fallen every month between October 2008 and March 2010, the latest period for which data is available.
For now, at least, Mr. Schweitzer of J.P. Morgan says he is optimistic. “You know that saying that half a loaf is better than none? At this point,” he said, “I’m willing to take a quarter of a loaf.”
But such patience won’t last indefinitely. For evidence of a full recovery, investors will need to keep checking corporate reports through the end of this earnings season — and, quite likely, well into the second quarter.
Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.
http://www.nytimes.com/2010/05/09/business/09fund.html?ref=business
Comeback of the Year? Try Corporate Profits
By PAUL J. LIM
THE market remains worried about plenty of things — including a sharp decline late last week, and the spreading debt crisis in Europe. But, recently, it has appeared that investors are ready to strike one item off their list of concerns: corporate profits.
“To say that earnings so far have been off the charts would not be too much of an exaggeration,” said Robert C. Doll, global chief investment officer for equities at BlackRock, the investment management firm.
Of the companies in the Standard & Poor’s 500-stock index that have announced first-quarter results, 77 percent have beaten Wall Street earnings forecasts. And profits for the quarter are on track to grow 56 percent compared with the 2009 period.
These earnings reports, however, started to arrive just as the market has shifted from confidence to much uncertainty.
From Feb. 8 to April 26, the S.& P. 500 gained 15 percent, largely in anticipation of an improved earnings and economic outlook. But the downgrading of Greece’s debt and fears that the crisis may be spreading throughout the region and the world have taken center stage, sending the market tumbling more than 8 percent. Concerns about Europe notwithstanding, many analysts have already begun ratcheting up their forecasts for stocks for the rest of this year.
Still, it’s important to remember that earnings season isn’t over, so it’s premature to proclaim complete victory on the profit front.
Stuart A. Schweitzer, global market strategist at J.P. Morgan Private Bank, noted, “Where the jury is still out is on the sustainability of this upswing, because companies had been achieving improvements in profits largely by slashing costs.”
He added, “Without increased revenues, it would be hard to imagine companies moving from cost-reduction to spending mode and hiring mode.”
So far, sales for the S.& P. 500 have also been stronger than analysts anticipated. Of the 437 that have reported earnings, 66 percent had revenue growth exceeding analysts’ expectations, according to Thomson Reuters.
But the news isn’t all positive. For one thing, revenue surprises pale in comparison with profit surprises. Companies are beating Wall Street profit forecasts by 15 percent but beating revenue projections by just 0.8 percent.
And not all companies are reporting revenue growth. The casino operator MGM Mirage said revenue fell 4 percent in the first quarter versus the 2009 period. And Sara Lee, the food giant, said quarterly sales fell 2.5 percent.
David A. Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, the investment manager in Toronto, said that if figures from just one sector — financial services — were excluded, revenue of S.& P. 500 companies would be just about meeting expectations.
To be sure, analysts’ forecast for first-quarter sales growth is 11 percent — nothing to sneeze at.
“The interesting thing is how much of the good earnings news is coming from the banking and financial sector,” said David C. Wright, managing director of Sierra Investment Management.
He pointed out that this sector, which was hit hardest in the financial crisis, has been a big beneficiary of government stimulus. That ranges from mortgage relief efforts and the government purchase of “toxic” mortgage-backed securities to the recent Fed policy of near-zero short-term interest rates.
Because these efforts can’t continue forever, he said, “I can’t conclude that we’re seeing anything resembling a self-sustaining recovery.”
IF the improved outlook for the financial sector is indeed spreading to the broader economy, he said, an uptick could be expected in commercial and industrial loan activity.
But according to the Federal Reserve Bank of St. Louis, commercial and industrial bank loans nationwide have fallen every month between October 2008 and March 2010, the latest period for which data is available.
For now, at least, Mr. Schweitzer of J.P. Morgan says he is optimistic. “You know that saying that half a loaf is better than none? At this point,” he said, “I’m willing to take a quarter of a loaf.”
But such patience won’t last indefinitely. For evidence of a full recovery, investors will need to keep checking corporate reports through the end of this earnings season — and, quite likely, well into the second quarter.
Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.
http://www.nytimes.com/2010/05/09/business/09fund.html?ref=business
Greece, the Latest and Greatest Bubble
MARCH 11, 2010, 6:44 AM
Greece, the Latest and Greatest Bubble
By PETER BOONE AND SIMON JOHNSON
Bubbles are back as a topic of serious discussion, as they were before the financial crisis. The questions today are:
(1) Can you spot bubbles?
(2) Can policy makers do anything to deflate them gently?
(3) Can anyone make money when bubbles get out of control?
Our answers are:
(1) Spotting pure equity bubbles may sometimes be hard, but we can always see unsustainable finances supported by cheap credit.
(2) Policy makers will not act because all great (and dangerous) bubbles build their own political support; bubbles are invincible, until they collapse.
(3) A few investors can do well by betting against such bubbles, but it’s harder than you might think because you have to get the timing right — and that’s much more about luck than skill.
Bubbles are usually associated with runaway real estate prices or emerging market booms or just the stock market gone mad (remember Pets.com?). But they are a much more general phenomenon — any time the actual market value for any asset diverges from a reasonable estimate of its “fundamental” value.
To think about this more specifically, consider the case of Greece today. It might seem odd to suggest there is a bubble in a country so evidently under financial pressure, and working so hard to stave off collapse with the help of its neighbors.
But the important thing about bubbles is: Don’t listen to the “market color” (otherwise known as ex-post rationalization); just look at the numbers.
By the end of 2011 Greece’s debt will be around 150 percent of its gross domestic product. (The numbers here are based on the 2009 International Monetary Fund Article IV assessment.) About 80 percent of this debt is foreign-owned, and a large part of this is thought held by residents of France and Germany. Every 1 percentage point rise in interest rates means Greece needs to send an additional 1.2 percent of G.D.P. abroad to those bondholders.
Imagine if Greek interest rates rise to, say, 10 percent. This would be a modest premium for a country with the highest external public debt/G.D.P. ratio in the world, a country that continues (under the so-called austerity program) to refinance even the interest on that debt without actually paying a centime out of its own pocket, while struggling to establish any backing from the rest of Europe. At such interest rates, Greece would need to send at total of 12 percent of G.D.P. abroad per year, once it rolls over the existing stock of debt to these new rates (nearly half of Greek debt will roll over within three years).
This is simply impossible and unheard of for any long period of history.
German reparation payments were 2.4 percent of gross national product from 1925 to 1932, and in the years immediately after 1982 the net transfer of resources from Latin America was 3.5 percent of G.D.P. (a fifth of its export earnings). Neither of these were good experiences.
On top of all this, Greece’s debt, even under the International Monetary Fund’s mild assumptions, is on a non-convergent path even with the perceived “austerity” measures. Bubble math is easy. Hide all the names and just look at the numbers. If debt looks as if it will explode as a percent of G.D.P., then a spectacular collapse is in the cards.
Seen in this comparative perspective, Greece is still going bankrupt unless it gets a great deal more European assistance or puts a much more drastic austerity program in place. Probably it needs both.
Given that there’s a definite bubble in Greek debt, should we expect European politicians to help deflate this gradually?
Definitely not. In fact, it is their misleading statements, supported in recent days (astonishingly) by the head of the International Monetary Fund, that keep the debt bubble going and set us all up for a greater crash later.
The French and Germans are apparently actually encouraging banks, pension funds and individuals to buy these Greek bonds — despite the fact senior politicians must surely know this is a Ponzi scheme (i.e., people can get out of Greek bonds only to the extent that new investors come in).
At best, this does nothing more than postpone the crisis. In the business, it is known as “kicking the can down the road.” At worst, it encourages less informed people (including perhaps pension funds) to buy bonds as smarter people (and big banks, surely) take the opportunity to exit.
While French and German leaders make a great spectacle of wanting to end speculation, in fact they are encouraging it. The hypocrisy is horrifying. President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are helping realistic speculators make money on the backs of those who take misleading statements by European politicians seriously. This is irresponsible.
What should be done? In three steps:
1. The Greeks and the Europeans must decide: Do they want to maintain the euro as Greece’s currency, or not?
2. If they want to keep the euro in Greece, the Greeks need to come up with realistic plan to start repaying debt soon. Any Greek plan will not be credible for the first few years, so the Europeans must finance the Greeks fully. This does not mean spending 20 billion euros; rather, it means making available around 180 billion euros, that is, the full amount of refinancing that Greece needs during this period.
3. If they don’t want to keep the euro, then they should start working now on a plan for Greece’s withdrawal. The northern Europeans will need to bail out their own banks, because Greek debt must fall substantially in value. Euro-denominated debt will need to be written down substantially or converted to drachmas so it will be partially inflated away. The Greeks can convert local contracts, and deposits at banks, to drachmas. It will be a very messy, difficult transition, but the more the debt bubble persists, the more attractive this becomes as a “least awful” solution.
Regardless of the decision on whether Greece will keep the drachma or give it up, the I.M.F. should be brought in to conduct the monitoring and burden share.
The flagrant deception that we now observe — as the Europeans claim that the Greeks have taken a big step forward, and encourage people to buy Greek bonds — proves they do not have the political capacity to be realistic about this situation. Who can now be believed when it comes to discussing needs for Greek financial reform and formulating a credible response?
The only credible voice left with the capacity to act is the I.M.F. — and even that body risks being compromised by the indiscreet statements of its top leadership as the bubble continues.
If such measures are not taken, we are clearly heading for a train wreck. The European politicians have been tested, and now we know the results: They are not careful. They are reckless.
Peter Boone is chairman of the charity Effective Intervention and a research associate at the Center for Economic Performance at the London School of Economics. He is also a principal in Salute Capital Management Ltd. Simon Johnson, a senior fellow at the Peterson Institute for International Economics, is the former chief economist at the International Monetary Fund.
http://economix.blogs.nytimes.com/2010/03/11/greece-the-latest-and-greatest-bubble/
Greece, the Latest and Greatest Bubble
By PETER BOONE AND SIMON JOHNSON
Bubbles are back as a topic of serious discussion, as they were before the financial crisis. The questions today are:
(1) Can you spot bubbles?
(2) Can policy makers do anything to deflate them gently?
(3) Can anyone make money when bubbles get out of control?
Our answers are:
(1) Spotting pure equity bubbles may sometimes be hard, but we can always see unsustainable finances supported by cheap credit.
(2) Policy makers will not act because all great (and dangerous) bubbles build their own political support; bubbles are invincible, until they collapse.
(3) A few investors can do well by betting against such bubbles, but it’s harder than you might think because you have to get the timing right — and that’s much more about luck than skill.
Bubbles are usually associated with runaway real estate prices or emerging market booms or just the stock market gone mad (remember Pets.com?). But they are a much more general phenomenon — any time the actual market value for any asset diverges from a reasonable estimate of its “fundamental” value.
To think about this more specifically, consider the case of Greece today. It might seem odd to suggest there is a bubble in a country so evidently under financial pressure, and working so hard to stave off collapse with the help of its neighbors.
But the important thing about bubbles is: Don’t listen to the “market color” (otherwise known as ex-post rationalization); just look at the numbers.
By the end of 2011 Greece’s debt will be around 150 percent of its gross domestic product. (The numbers here are based on the 2009 International Monetary Fund Article IV assessment.) About 80 percent of this debt is foreign-owned, and a large part of this is thought held by residents of France and Germany. Every 1 percentage point rise in interest rates means Greece needs to send an additional 1.2 percent of G.D.P. abroad to those bondholders.
Imagine if Greek interest rates rise to, say, 10 percent. This would be a modest premium for a country with the highest external public debt/G.D.P. ratio in the world, a country that continues (under the so-called austerity program) to refinance even the interest on that debt without actually paying a centime out of its own pocket, while struggling to establish any backing from the rest of Europe. At such interest rates, Greece would need to send at total of 12 percent of G.D.P. abroad per year, once it rolls over the existing stock of debt to these new rates (nearly half of Greek debt will roll over within three years).
This is simply impossible and unheard of for any long period of history.
German reparation payments were 2.4 percent of gross national product from 1925 to 1932, and in the years immediately after 1982 the net transfer of resources from Latin America was 3.5 percent of G.D.P. (a fifth of its export earnings). Neither of these were good experiences.
On top of all this, Greece’s debt, even under the International Monetary Fund’s mild assumptions, is on a non-convergent path even with the perceived “austerity” measures. Bubble math is easy. Hide all the names and just look at the numbers. If debt looks as if it will explode as a percent of G.D.P., then a spectacular collapse is in the cards.
Seen in this comparative perspective, Greece is still going bankrupt unless it gets a great deal more European assistance or puts a much more drastic austerity program in place. Probably it needs both.
Given that there’s a definite bubble in Greek debt, should we expect European politicians to help deflate this gradually?
Definitely not. In fact, it is their misleading statements, supported in recent days (astonishingly) by the head of the International Monetary Fund, that keep the debt bubble going and set us all up for a greater crash later.
The French and Germans are apparently actually encouraging banks, pension funds and individuals to buy these Greek bonds — despite the fact senior politicians must surely know this is a Ponzi scheme (i.e., people can get out of Greek bonds only to the extent that new investors come in).
At best, this does nothing more than postpone the crisis. In the business, it is known as “kicking the can down the road.” At worst, it encourages less informed people (including perhaps pension funds) to buy bonds as smarter people (and big banks, surely) take the opportunity to exit.
While French and German leaders make a great spectacle of wanting to end speculation, in fact they are encouraging it. The hypocrisy is horrifying. President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are helping realistic speculators make money on the backs of those who take misleading statements by European politicians seriously. This is irresponsible.
What should be done? In three steps:
1. The Greeks and the Europeans must decide: Do they want to maintain the euro as Greece’s currency, or not?
2. If they want to keep the euro in Greece, the Greeks need to come up with realistic plan to start repaying debt soon. Any Greek plan will not be credible for the first few years, so the Europeans must finance the Greeks fully. This does not mean spending 20 billion euros; rather, it means making available around 180 billion euros, that is, the full amount of refinancing that Greece needs during this period.
3. If they don’t want to keep the euro, then they should start working now on a plan for Greece’s withdrawal. The northern Europeans will need to bail out their own banks, because Greek debt must fall substantially in value. Euro-denominated debt will need to be written down substantially or converted to drachmas so it will be partially inflated away. The Greeks can convert local contracts, and deposits at banks, to drachmas. It will be a very messy, difficult transition, but the more the debt bubble persists, the more attractive this becomes as a “least awful” solution.
Regardless of the decision on whether Greece will keep the drachma or give it up, the I.M.F. should be brought in to conduct the monitoring and burden share.
The flagrant deception that we now observe — as the Europeans claim that the Greeks have taken a big step forward, and encourage people to buy Greek bonds — proves they do not have the political capacity to be realistic about this situation. Who can now be believed when it comes to discussing needs for Greek financial reform and formulating a credible response?
The only credible voice left with the capacity to act is the I.M.F. — and even that body risks being compromised by the indiscreet statements of its top leadership as the bubble continues.
If such measures are not taken, we are clearly heading for a train wreck. The European politicians have been tested, and now we know the results: They are not careful. They are reckless.
Peter Boone is chairman of the charity Effective Intervention and a research associate at the Center for Economic Performance at the London School of Economics. He is also a principal in Salute Capital Management Ltd. Simon Johnson, a senior fellow at the Peterson Institute for International Economics, is the former chief economist at the International Monetary Fund.
http://economix.blogs.nytimes.com/2010/03/11/greece-the-latest-and-greatest-bubble/
Greek Debt Woes Ripple Outward, From Asia to U.S.
The fear that began in Athens, raced through Europe and finally shook the stock market in the United States is now affecting the broader global economy, from the ability of Asian corporations to raise money to the outlook for money-market funds where American savers park their cash.
“Greece may just be an early warning signal,” said Byron Wien, a Wall Street strategist. Above, the Acropolis in Athens.
What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008.
The increased global anxiety threatens to slow the recovery in the United States, where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.
“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” said Ian Kelson, a bond fund manager in London with T. Rowe Price. “It’s across the board.”
The crisis is so perilous for Europe that the leaders of the 16 countries that use the euro worked into the early morning Saturday on a proposal to create a so-called stabilization mechanism intended to reassure the markets. On Sunday, finance ministers from all 27 European Union states are expected to gather in Brussels to discuss and possibly approve the proposal.
The mechanism would probably be a way for the states to guarantee loans taken out by the European Commission, the bloc’s executive body, to support ailing economies. European leaders including the French president, Nicolas Sarkozy, said Saturday morning that the union should be ready to activate the mechanism by Monday morning if needed.
In Spain Saturday, Vice President Joseph R. Biden Jr. underscored the importance of the issue after meeting with Prime Minister José Luis RodrÃguez Zapatero. “We agreed on the importance of a resolute European action to strengthen the European economy and to build confidence in the markets,” Mr. Biden said. “And I conveyed the support of the United States of America toward those efforts.”
Beyond Europe, the crisis has sent waves of fear through global stock exchanges.
A decade ago, it took more than a year for the chain reaction that began with the devaluation of the Thai currency to spread beyond Asia to Russia, which defaulted on its debt, and eventually caused the near-collapse of a giant American hedge fund, Long-Term Capital Management.
This crisis, by contrast, seemed to ricochet from country to country in seconds, as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market briefly plunged nearly 1,000 points.
“Up until last week there was this confidence that nothing could upset the apple cart as long as the economy and jobs growth was positive,” said William H. Gross, managing director of Pimco, the bond manager. “Now, fear is back in play.”
While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable.
“Greece may just be an early warning signal,” said Byron Wien, a prominent Wall Street strategist who is vice chairman of Blackstone Advisory Partners. “The U.S. is a long way from being where Greece is, but the developed world has been living beyond its means and is now being called to account.”
If the anxiety spreads, American banks could return to the posture they adopted after the collapse of Lehman Brothers in the fall of 2008, when they cut back sharply on mortgages, auto financing, credit card lending and small business loans. That could stymie job growth and halt the recovery now gaining traction.
Some American companies are facing higher costs to finance their debt, while big exporters are seeing their edge over European rivals shrink as the dollar strengthens. Riskier assets, like stocks, are suddenly out of favor, while cash has streamed into the safest of all investments, gold.
Just as Greece is being forced to pay more to borrow, more risky American companies are being forced to pay up, too. Some issuers of new junk bonds in the consumer sector are likely to have to pay roughly 9 percent on new bonds, up from about 8.5 percent before this week’s volatility, said Kevin Cassidy, senior credit officer with Moody’s.
To be sure, not all of the consequences are negative. Though the situation is perilous for Europe, the United States economy does still enjoy some favorable tailwinds. Interest rates have dropped, benefiting homebuyers seeking mortgages and other borrowers. New data released Friday showed the economy added 290,000 jobs in April, the best monthly showing in four years.
Further, crude oil prices fell last week on fears of a slowdown, which should bring lower prices at the pump within weeks. Meanwhile, the dollar gained ground against the euro, reaching its highest level in 14 months.
While that makes European vacations more affordable for American tourists and could improve the fortunes of European companies, it could hurt profits at their American rivals. A stronger dollar makes American goods less affordable for buyers overseas, a one-two punch for American exporters if Europe falls back into recession. Excluding oil, the 16 countries that make up the euro zone buy about 14 percent of American exports.
For the largest American companies, which have benefited from the weak dollar in recent years, the pain could be more acute. More than a quarter of the profits of companies in the Standard & Poor’s 500-stock index come from abroad, with Europe forming the largest component, according to Tobias Levkovich, Citigroup’s chief United States equity strategist. All this could mean the difference between an economy that grows fast enough to bring down unemployment, and one that is more stagnant.
The direct exposure of American banks to Greece is small, but below the surface, there are signs of other fissures. Even the strongest banks in Germany and France have heavy exposure to more troubled economies on the periphery of the Continent, and these big banks in turn are closely intertwined with their American counterparts.
Over all, United States banks have $3.6 trillion in exposure to European banks, according to the Bank for International Settlements. That includes more than a trillion dollars in loans to France and Germany, and nearly $200 billion to Spain.
What is more, American money-market investors are already feeling nervous about hundreds of billions of dollars in short-term loans to big European banks and other financial institutions. “Apparently systemic risk is still alive and well,” wrote Alex Roever, a J.P. Morgan credit analyst in a research note published Friday. With so much uncertainty about Europe and the euro, managers of these ultra-safe investment vehicles are demanding that European borrowers pay higher rates.
These funds provide the lifeblood of the international banking system. If worries about the safety of European banks intensify, they could push up their borrowing costs and push down the value of more than $500 billion in short-term debt held by American money-market funds.
Uncertainty about the stability of assets in money market funds signaled a tipping point that accelerated the downward spiral of the credit crisis in 2008, and ultimately prompted banks to briefly halt lending to one other.
Now, as Europe teeters, the dangers to the American economy — and the broader financial system — are becoming increasingly evident. “It seems like only yesterday that European policy makers were gleefully watching the U.S. get its economic comeuppance, not appreciating the massive tidal wave coming at them across the Atlantic,” said Kenneth Rogoff, a Harvard professor of international finance who also served as the chief economist of the International Monetary Fund. “We should not make the same mistake.”
James Kanter contributed from Brussels.
http://www.nytimes.com/2010/05/09/business/global/09ripple.html?src=me&ref=business
“Greece may just be an early warning signal,” said Byron Wien, a Wall Street strategist. Above, the Acropolis in Athens.
What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008.
The increased global anxiety threatens to slow the recovery in the United States, where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.
“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” said Ian Kelson, a bond fund manager in London with T. Rowe Price. “It’s across the board.”
The crisis is so perilous for Europe that the leaders of the 16 countries that use the euro worked into the early morning Saturday on a proposal to create a so-called stabilization mechanism intended to reassure the markets. On Sunday, finance ministers from all 27 European Union states are expected to gather in Brussels to discuss and possibly approve the proposal.
The mechanism would probably be a way for the states to guarantee loans taken out by the European Commission, the bloc’s executive body, to support ailing economies. European leaders including the French president, Nicolas Sarkozy, said Saturday morning that the union should be ready to activate the mechanism by Monday morning if needed.
In Spain Saturday, Vice President Joseph R. Biden Jr. underscored the importance of the issue after meeting with Prime Minister José Luis RodrÃguez Zapatero. “We agreed on the importance of a resolute European action to strengthen the European economy and to build confidence in the markets,” Mr. Biden said. “And I conveyed the support of the United States of America toward those efforts.”
Beyond Europe, the crisis has sent waves of fear through global stock exchanges.
A decade ago, it took more than a year for the chain reaction that began with the devaluation of the Thai currency to spread beyond Asia to Russia, which defaulted on its debt, and eventually caused the near-collapse of a giant American hedge fund, Long-Term Capital Management.
This crisis, by contrast, seemed to ricochet from country to country in seconds, as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market briefly plunged nearly 1,000 points.
“Up until last week there was this confidence that nothing could upset the apple cart as long as the economy and jobs growth was positive,” said William H. Gross, managing director of Pimco, the bond manager. “Now, fear is back in play.”
While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable.
“Greece may just be an early warning signal,” said Byron Wien, a prominent Wall Street strategist who is vice chairman of Blackstone Advisory Partners. “The U.S. is a long way from being where Greece is, but the developed world has been living beyond its means and is now being called to account.”
If the anxiety spreads, American banks could return to the posture they adopted after the collapse of Lehman Brothers in the fall of 2008, when they cut back sharply on mortgages, auto financing, credit card lending and small business loans. That could stymie job growth and halt the recovery now gaining traction.
Some American companies are facing higher costs to finance their debt, while big exporters are seeing their edge over European rivals shrink as the dollar strengthens. Riskier assets, like stocks, are suddenly out of favor, while cash has streamed into the safest of all investments, gold.
Just as Greece is being forced to pay more to borrow, more risky American companies are being forced to pay up, too. Some issuers of new junk bonds in the consumer sector are likely to have to pay roughly 9 percent on new bonds, up from about 8.5 percent before this week’s volatility, said Kevin Cassidy, senior credit officer with Moody’s.
To be sure, not all of the consequences are negative. Though the situation is perilous for Europe, the United States economy does still enjoy some favorable tailwinds. Interest rates have dropped, benefiting homebuyers seeking mortgages and other borrowers. New data released Friday showed the economy added 290,000 jobs in April, the best monthly showing in four years.
Further, crude oil prices fell last week on fears of a slowdown, which should bring lower prices at the pump within weeks. Meanwhile, the dollar gained ground against the euro, reaching its highest level in 14 months.
While that makes European vacations more affordable for American tourists and could improve the fortunes of European companies, it could hurt profits at their American rivals. A stronger dollar makes American goods less affordable for buyers overseas, a one-two punch for American exporters if Europe falls back into recession. Excluding oil, the 16 countries that make up the euro zone buy about 14 percent of American exports.
For the largest American companies, which have benefited from the weak dollar in recent years, the pain could be more acute. More than a quarter of the profits of companies in the Standard & Poor’s 500-stock index come from abroad, with Europe forming the largest component, according to Tobias Levkovich, Citigroup’s chief United States equity strategist. All this could mean the difference between an economy that grows fast enough to bring down unemployment, and one that is more stagnant.
The direct exposure of American banks to Greece is small, but below the surface, there are signs of other fissures. Even the strongest banks in Germany and France have heavy exposure to more troubled economies on the periphery of the Continent, and these big banks in turn are closely intertwined with their American counterparts.
Over all, United States banks have $3.6 trillion in exposure to European banks, according to the Bank for International Settlements. That includes more than a trillion dollars in loans to France and Germany, and nearly $200 billion to Spain.
What is more, American money-market investors are already feeling nervous about hundreds of billions of dollars in short-term loans to big European banks and other financial institutions. “Apparently systemic risk is still alive and well,” wrote Alex Roever, a J.P. Morgan credit analyst in a research note published Friday. With so much uncertainty about Europe and the euro, managers of these ultra-safe investment vehicles are demanding that European borrowers pay higher rates.
These funds provide the lifeblood of the international banking system. If worries about the safety of European banks intensify, they could push up their borrowing costs and push down the value of more than $500 billion in short-term debt held by American money-market funds.
Uncertainty about the stability of assets in money market funds signaled a tipping point that accelerated the downward spiral of the credit crisis in 2008, and ultimately prompted banks to briefly halt lending to one other.
Now, as Europe teeters, the dangers to the American economy — and the broader financial system — are becoming increasingly evident. “It seems like only yesterday that European policy makers were gleefully watching the U.S. get its economic comeuppance, not appreciating the massive tidal wave coming at them across the Atlantic,” said Kenneth Rogoff, a Harvard professor of international finance who also served as the chief economist of the International Monetary Fund. “We should not make the same mistake.”
James Kanter contributed from Brussels.
http://www.nytimes.com/2010/05/09/business/global/09ripple.html?src=me&ref=business
Global Financial Crisis II
Fears that the Greek debt crisis could drag down the world economy
More market turmoil looms
PHILIP WEN
May 10, 2010
AFTER a horror week during which $90 billion was wiped off the Australian sharemarket, investors are bracing themselves for more financial market turmoil over the mounting debt crisis in Europe.
Australian stocks fell 7 per cent last week, the worst weekly loss since November 2008. And the worst may not be over, with the SPI futures index pointing to further losses today, following more losses across all major global indices.
With markets worldwide taking a battering, European leaders have scrambled into action as fears intensify that the spread of the region's debt woes could pitch the world back into a recession.
''The problem now is contagion risk and where will it stop,'' said credit markets expert Philip Bayley, of ADCM Services. ''The markets fear that we are now entering the second leg of the global financial crisis - GFC II.''
Fears that a debt default by Greece could paralyse the world's financial system - just as the collapse of Lehman Brothers did two years ago - sparked another wave of heavy selling on European and US markets on Friday.
Treasurer Wayne Swan said Australia was better placed than any other advanced economy to deal with any global slowdown caused by the sovereign debt crisis in Greece. Mr Swan will hand down his third budget tomorrow.
His comments followed the Reserve Bank of Australia last week cautioning that the economy could be buffeted by global fallout.
The market plunge could have serious ripple effects through its impact on confidence.
Some of the nation's major banks were believed to be looking over the weekend at measures to keep holdings of liquid assets topped up given increased risk on European credit markets.
Even home buyers appeared to be responding to global jitters. Melbourne's property market recorded its second lowest auction clearance rate so far this year, the figure dropping to 78 per cent on the weekend.
REIV chief executive Enzo Raimondo said the six rate rises, affordability concerns and the unseasonably high stock levels were all having an impact on demand. On Friday, euro zone governments approved the $A160 billion Greek bailout package, in a last-ditch effort to keep the nation afloat.
But markets were unconvinced. The Dow Jones shrugged off stronger than expected US jobs data to close 1.3 per cent lower.
In Britain, shares fell 2.6 per cent - a result exacerbated by uncertainty over the British general election.
The cost of protecting European bank debt against default has reached levels not seen since the height of the global financial crisis. Bond yields soared in Portugal and Spain, while the failure to constrain the debt crisis led to the euro plunging 4.3 per cent last week. Portugal, Ireland, Italy, Greece and Spain collectively owe $US3.9 trillion ($A4.39 trillion) to other countries.
Apart from Australian banks' $A56.4 billion in exposure to Europe at the end of December, most analysts say the economy has few other direct links to the troubled region.
US President Barack Obama admitted he was ''very concerned'' about the debt crisis. Understandably so, given the extreme volatility in US markets last week, including an extraordinary 10 per cent intra-day plunge on Thursday. The Dow Jones index retreated 6.4 per cent last week, the heaviest decline since March 2009. Wall Street's so-called ''fear gauge'', the CBOE volatility index, jumped 25 per cent in the same period.
ADCM's Mr Bayley said markets were pointing to a Greek debt default as an ''all but foregone conclusion'', with the rescue package likely to have little impact.
With NATALIE PUCHALSKI
Source: The Age
http://www.smh.com.au/business/more-market-turmoil-looms-20100509-ulse.html
More market turmoil looms
PHILIP WEN
May 10, 2010
AFTER a horror week during which $90 billion was wiped off the Australian sharemarket, investors are bracing themselves for more financial market turmoil over the mounting debt crisis in Europe.
Australian stocks fell 7 per cent last week, the worst weekly loss since November 2008. And the worst may not be over, with the SPI futures index pointing to further losses today, following more losses across all major global indices.
With markets worldwide taking a battering, European leaders have scrambled into action as fears intensify that the spread of the region's debt woes could pitch the world back into a recession.
''The problem now is contagion risk and where will it stop,'' said credit markets expert Philip Bayley, of ADCM Services. ''The markets fear that we are now entering the second leg of the global financial crisis - GFC II.''
Fears that a debt default by Greece could paralyse the world's financial system - just as the collapse of Lehman Brothers did two years ago - sparked another wave of heavy selling on European and US markets on Friday.
Treasurer Wayne Swan said Australia was better placed than any other advanced economy to deal with any global slowdown caused by the sovereign debt crisis in Greece. Mr Swan will hand down his third budget tomorrow.
His comments followed the Reserve Bank of Australia last week cautioning that the economy could be buffeted by global fallout.
The market plunge could have serious ripple effects through its impact on confidence.
Some of the nation's major banks were believed to be looking over the weekend at measures to keep holdings of liquid assets topped up given increased risk on European credit markets.
Even home buyers appeared to be responding to global jitters. Melbourne's property market recorded its second lowest auction clearance rate so far this year, the figure dropping to 78 per cent on the weekend.
REIV chief executive Enzo Raimondo said the six rate rises, affordability concerns and the unseasonably high stock levels were all having an impact on demand. On Friday, euro zone governments approved the $A160 billion Greek bailout package, in a last-ditch effort to keep the nation afloat.
But markets were unconvinced. The Dow Jones shrugged off stronger than expected US jobs data to close 1.3 per cent lower.
In Britain, shares fell 2.6 per cent - a result exacerbated by uncertainty over the British general election.
The cost of protecting European bank debt against default has reached levels not seen since the height of the global financial crisis. Bond yields soared in Portugal and Spain, while the failure to constrain the debt crisis led to the euro plunging 4.3 per cent last week. Portugal, Ireland, Italy, Greece and Spain collectively owe $US3.9 trillion ($A4.39 trillion) to other countries.
Apart from Australian banks' $A56.4 billion in exposure to Europe at the end of December, most analysts say the economy has few other direct links to the troubled region.
US President Barack Obama admitted he was ''very concerned'' about the debt crisis. Understandably so, given the extreme volatility in US markets last week, including an extraordinary 10 per cent intra-day plunge on Thursday. The Dow Jones index retreated 6.4 per cent last week, the heaviest decline since March 2009. Wall Street's so-called ''fear gauge'', the CBOE volatility index, jumped 25 per cent in the same period.
ADCM's Mr Bayley said markets were pointing to a Greek debt default as an ''all but foregone conclusion'', with the rescue package likely to have little impact.
With NATALIE PUCHALSKI
Source: The Age
http://www.smh.com.au/business/more-market-turmoil-looms-20100509-ulse.html
Sunday, 9 May 2010
The FAT FINGER Incident. Why the market crashed on 6th May 2010?
So what happened? Details were still fuzzy last night as of this writing, but it looks like the event will become known as the fat finger event. A trader at Citi entered an order to sell 15 million shares of a security (not an outrageous amount), but accidental typed billion. Traders all over the globe saw the huge sell order and followed suit assuming Citi knew something. A massive selloff ensued. Part of the issue is because a lot of sophisticated traders use stop-loss order to limit themselves from losing too much in a massive selloff. Say I owned stock in Google and wanted to protect myself from losing too much money if the stock lost value. Earlier this week Google was trading around $530. So maybe I decided if the price dropped to $500 I’d sell my position. When the massive selloff occurred Google dropped to $500 so my stop loss order was triggered. All over the world millions of stop-loss orders like this were triggered so the market was flooded with sell orders and the price of everything tanked. Though it was fantasy trading, I had quite a few stop loss orders triggered as well.
In the high paced world of trading, with lightning fast computers, and herd mentalities, in a matter of minutes almost 10% of the value of the US stock market was wiped out. This 2.5 minute video shows how quickly it happened, and makes Jim Cramer look like the savior of the market. He literally calls the selloff ridiculous, and then people just started buying.
The FAT FINGER Incident
In the high paced world of trading, with lightning fast computers, and herd mentalities, in a matter of minutes almost 10% of the value of the US stock market was wiped out. This 2.5 minute video shows how quickly it happened, and makes Jim Cramer look like the savior of the market. He literally calls the selloff ridiculous, and then people just started buying.
The FAT FINGER Incident
Technology to fatten Latexx profit margin
By Lynn Omar and Ooi Tee Ching
Published: 2010/05/08
Business Times
LATEXX Partners Bhd (7064) is set to see fatter profit margin next year, after securing a technology to make natural rubber gloves for medical practitioners with hypersensitive skin.
These gloves will be priced more than an ordinary pair of gloves but Latexx declined to say by how much.
Latexx's net profit margin stood at 16 per cent for 2009, which is better than its bigger rival Top Glove Corp Bhd which is below 14 per cent now.
Hartalega Holdings Bhd has the best margin at 24 per cent.
In the last decade, glovemakers produced more synthetic gloves after a small number of the developed world's doctors and nurses complained of their allergy to natural rubber and deemed it unsafe.
Basically, their skin is hypersensitive to the protein residue in natural rubber gloves.
Famous hospitals like the Johns Hopkins Hospital and Shriner's Hospital in the US went to such extent of viewing such allergic reaction as serious threats that they banned natural rubber medical devices and switched to synthetic gloves and catheters.
But the fact remains that natural rubber gloves are more comfortable to wear and far more elastic.
With this MPXX(TM) technology from Budev BV that "washes off' protein content in natural rubber", Latexx chief executive officer (CEO) Low Bok Tek anticipates some hospitals and dental clinics in North America and Europe to switch back to natural rubber gloves.
"When our clients see the MPXX technology logo, they'll know they are using virtually protein-free natural rubber gloves," said Low.
He was speaking to reporters after a briefing for analysts in Kuala Lumpur yesterday. Also present were Latexx head of corporate services Dr Liew Lai Lai and Budev CEO Michiel Paping.
"We recently imported the sample machine here to wash off the protein residue from the natural rubber gloves. Our initial estimate is to 'wash' 500 million pieces a year," said Paping.
Latexx is also hopeful of dishing out more dividends to shareholders this year on prospects of robust glove sales. The group declared dividends of 2.5 sen a share for the first quarter of this year.
Read more: Technology to fatten Latexx profit margin http://www.btimes.com.my/Current_News/BTIMES/articles/laytexx-2/Article/index_html#ixzz0nPEv7b4O
Published: 2010/05/08
Business Times
These gloves will be priced more than an ordinary pair of gloves but Latexx declined to say by how much.
Latexx's net profit margin stood at 16 per cent for 2009, which is better than its bigger rival Top Glove Corp Bhd which is below 14 per cent now.
Hartalega Holdings Bhd has the best margin at 24 per cent.
In the last decade, glovemakers produced more synthetic gloves after a small number of the developed world's doctors and nurses complained of their allergy to natural rubber and deemed it unsafe.
Basically, their skin is hypersensitive to the protein residue in natural rubber gloves.
Famous hospitals like the Johns Hopkins Hospital and Shriner's Hospital in the US went to such extent of viewing such allergic reaction as serious threats that they banned natural rubber medical devices and switched to synthetic gloves and catheters.
But the fact remains that natural rubber gloves are more comfortable to wear and far more elastic.
With this MPXX(TM) technology from Budev BV that "washes off' protein content in natural rubber", Latexx chief executive officer (CEO) Low Bok Tek anticipates some hospitals and dental clinics in North America and Europe to switch back to natural rubber gloves.
"When our clients see the MPXX technology logo, they'll know they are using virtually protein-free natural rubber gloves," said Low.
He was speaking to reporters after a briefing for analysts in Kuala Lumpur yesterday. Also present were Latexx head of corporate services Dr Liew Lai Lai and Budev CEO Michiel Paping.
"We recently imported the sample machine here to wash off the protein residue from the natural rubber gloves. Our initial estimate is to 'wash' 500 million pieces a year," said Paping.
Latexx is also hopeful of dishing out more dividends to shareholders this year on prospects of robust glove sales. The group declared dividends of 2.5 sen a share for the first quarter of this year.
Read more: Technology to fatten Latexx profit margin http://www.btimes.com.my/Current_News/BTIMES/articles/laytexx-2/Article/index_html#ixzz0nPEv7b4O
How To Build A Fortune In The Stock Market
How To Build A Fortune In The Stock Market: 5 Questions Every Investor Needs To Ask Of Their Investment Strategy
Posted in stock market
May 08
Every investor’s investment strategy should adequately address the following five questions:
(1) What specific stocks will I buy?
(2) When should I buy these stocks?
(3) How should I buy these stocks?
(4) When should I sell these stocks?
(5) How should I sell these stocks?
In addition, the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio. If the answers for questions #2 , #3. #4, and #5 exhibit no variance, then the risk profile for all stocks in the portfolio will be the same, an undesirable trait.
There is a very good reason why people that try to mimic the portfolios of very wealthy successful investors never can achieve nearly the same success as the investors they mimic. The reason is that they can only answer one piece of the above 5-part investment puzzle- the question of what to buy. In fact, I could open up my portfolio to investment novices, show them all the stocks I own now, and out of 1,000 novices, all of them would have an extremely difficult time duplicating my future returns. In fact, it’s entirely plausible that investors would lose significant amounts of money on the very same stocks that would produce my largest gains.
Why?
Again, understanding a complete investment system will determine portfolio returns, not just knowing what to buy.
Why Most Investment Firms’ Strategies Fail to Adequately Address the 5 Questions
The evolution of job titles for investment professionals from broker to financial consultant to financial advisor is ironic, because the original title, for the great majority of employees in this industry, is by far the most accurate. Most financial consultants are nothing more than brokers that broker the money you give to them. They serve as middlemen between you and the money managers hired by the firm, and are so interchangeable with one another that a retail investor’s portfolio returns are not likely to vary significantly from one consultant to another at the same firm.
Back when I worked as a “broker” at a Wall Street firm, I remember hearing a story about a very successful (meaning high-income earner) financial consultant that bought nothing but exchange traded funds (ETFs) for his clients. His rational for doing so was four-fold.
(1) Mutual fund expenses were too high (true);
(2) Expenses on ETFs were low (true);
(3) The overwhelming majority of money managers can’t beat the performance of the major domestic indexes (true); and
(4) Therefore, ETFs were the best way to invest for his client (false).
Global investment firms never train their brokers how to be superior stock pickers. They train them how to be superior salespeople. So in concluding that allocating entire portfolios solely to ETFs was the absolute best possible strategy for his clients, this particular consultant’s logic was erroneous. The consultant drew this conclusion solely based upon his foundation of investment knowledge, one primarily filled with investment sales strategies. In fact, though I was never able confirm this, I heard many anecdotal stories that this particular financial consultant was able to outperform the vast majority of financial consultants at the firm with his “I will only buy ETFs” strategy.
Though I wouldn’t be surprised if this were true, the fact that this particular consultant was able to gather so many clients based on such a faulty strategy was a remarkable statement about the average investor’s knowledge of how to build wealth. To me, as unknowledgeable as financial consultants are about proper wealth building strategies (given their constant diet of investment sales strategies), this proves that the average retail investor, even those with millions of investable assets, are far less knowledgeable.
In conclusion, every retail investor should thus utilize the 5 questions of building wealth to determine if his or her investment strategy is faulty or strong. With any strong investment strategy, all 5 questions will be relevant. Own a faulty investment strategy and most likely, one or more of the 5 questions will be irrelevant. And the faultiness of the strategy no doubt will be manifested in weak returns. To illustrate how the 5 questions of building wealth will “out” any poor investment strategy, let’s take a look at a couple of examples. Let’s start with two different portfolios, one primarily built around ETFs; the other primarily built around Mutual Funds.
(1)What Specific Stocks Should I Buy?
Neither the Mutual Fund or ETF strategy can answer this question, so you don’t even need to ask the final four questions to know that neither of these strategies will help you build wealth.
How about a portfolio that consists of all individual Chinese stocks? This portfolio passes question #1, the question of what specific stocks to buy. Next, if we drill down to see how this portfolio was constructed, the portfolio manager’s answers to questions #2 and #3 – “When were these stocks bought and why?” and “How were these stocks bought and why?” – will reveal whether or not the portfolio was indeed constructed solidly.
Finally the portfolio manager’s answers to questions #4 and #5 – “How will these stocks be sold and why?” and “When will these stocks be sold and why?” will reveal if strategies are in place to lock in profits or minimize potential losses. However, remember the earlier point I made in this article: “the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio.” Most likely for a portfolio built on stocks that trade in a frothy, emerging market, there will be little variance in the answers for questions #2, #3, #4 and #5. This lack of variance again would expose the weakness of this investment strategy.
Although just a rough guide, the 5 questions should provide you a quick way to establish the intelligence and strength of your current investment strategy.
J.S. Kim is the founder and managing director of SmartKnowledgeU
http://stock-market.amoblog.com/how-to-build-a-fortune-in-the-stock-market-5-questions-every-investor-needs-to-ask-of-their-investment-strategy.html
Posted in stock market
May 08
Every investor’s investment strategy should adequately address the following five questions:
(1) What specific stocks will I buy?
(2) When should I buy these stocks?
(3) How should I buy these stocks?
(4) When should I sell these stocks?
(5) How should I sell these stocks?
In addition, the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio. If the answers for questions #2 , #3. #4, and #5 exhibit no variance, then the risk profile for all stocks in the portfolio will be the same, an undesirable trait.
There is a very good reason why people that try to mimic the portfolios of very wealthy successful investors never can achieve nearly the same success as the investors they mimic. The reason is that they can only answer one piece of the above 5-part investment puzzle- the question of what to buy. In fact, I could open up my portfolio to investment novices, show them all the stocks I own now, and out of 1,000 novices, all of them would have an extremely difficult time duplicating my future returns. In fact, it’s entirely plausible that investors would lose significant amounts of money on the very same stocks that would produce my largest gains.
Why?
Again, understanding a complete investment system will determine portfolio returns, not just knowing what to buy.
Why Most Investment Firms’ Strategies Fail to Adequately Address the 5 Questions
The evolution of job titles for investment professionals from broker to financial consultant to financial advisor is ironic, because the original title, for the great majority of employees in this industry, is by far the most accurate. Most financial consultants are nothing more than brokers that broker the money you give to them. They serve as middlemen between you and the money managers hired by the firm, and are so interchangeable with one another that a retail investor’s portfolio returns are not likely to vary significantly from one consultant to another at the same firm.
Back when I worked as a “broker” at a Wall Street firm, I remember hearing a story about a very successful (meaning high-income earner) financial consultant that bought nothing but exchange traded funds (ETFs) for his clients. His rational for doing so was four-fold.
(1) Mutual fund expenses were too high (true);
(2) Expenses on ETFs were low (true);
(3) The overwhelming majority of money managers can’t beat the performance of the major domestic indexes (true); and
(4) Therefore, ETFs were the best way to invest for his client (false).
Global investment firms never train their brokers how to be superior stock pickers. They train them how to be superior salespeople. So in concluding that allocating entire portfolios solely to ETFs was the absolute best possible strategy for his clients, this particular consultant’s logic was erroneous. The consultant drew this conclusion solely based upon his foundation of investment knowledge, one primarily filled with investment sales strategies. In fact, though I was never able confirm this, I heard many anecdotal stories that this particular financial consultant was able to outperform the vast majority of financial consultants at the firm with his “I will only buy ETFs” strategy.
Though I wouldn’t be surprised if this were true, the fact that this particular consultant was able to gather so many clients based on such a faulty strategy was a remarkable statement about the average investor’s knowledge of how to build wealth. To me, as unknowledgeable as financial consultants are about proper wealth building strategies (given their constant diet of investment sales strategies), this proves that the average retail investor, even those with millions of investable assets, are far less knowledgeable.
In conclusion, every retail investor should thus utilize the 5 questions of building wealth to determine if his or her investment strategy is faulty or strong. With any strong investment strategy, all 5 questions will be relevant. Own a faulty investment strategy and most likely, one or more of the 5 questions will be irrelevant. And the faultiness of the strategy no doubt will be manifested in weak returns. To illustrate how the 5 questions of building wealth will “out” any poor investment strategy, let’s take a look at a couple of examples. Let’s start with two different portfolios, one primarily built around ETFs; the other primarily built around Mutual Funds.
(1)What Specific Stocks Should I Buy?
Neither the Mutual Fund or ETF strategy can answer this question, so you don’t even need to ask the final four questions to know that neither of these strategies will help you build wealth.
How about a portfolio that consists of all individual Chinese stocks? This portfolio passes question #1, the question of what specific stocks to buy. Next, if we drill down to see how this portfolio was constructed, the portfolio manager’s answers to questions #2 and #3 – “When were these stocks bought and why?” and “How were these stocks bought and why?” – will reveal whether or not the portfolio was indeed constructed solidly.
Finally the portfolio manager’s answers to questions #4 and #5 – “How will these stocks be sold and why?” and “When will these stocks be sold and why?” will reveal if strategies are in place to lock in profits or minimize potential losses. However, remember the earlier point I made in this article: “the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio.” Most likely for a portfolio built on stocks that trade in a frothy, emerging market, there will be little variance in the answers for questions #2, #3, #4 and #5. This lack of variance again would expose the weakness of this investment strategy.
Although just a rough guide, the 5 questions should provide you a quick way to establish the intelligence and strength of your current investment strategy.
J.S. Kim is the founder and managing director of SmartKnowledgeU
http://stock-market.amoblog.com/how-to-build-a-fortune-in-the-stock-market-5-questions-every-investor-needs-to-ask-of-their-investment-strategy.html
Comparative analysis of Glove companies (9.5.2010)
Comparative analysis of Glove companies (9.5.2010)
http://spreadsheets.google.com/pub?key=thG2gqUrXjSrcpL3LAlPbRg&output=html
The whole sector has been re-priced since last year. The average PE for the sector is around 15.
Topglove trades at a slight premium. It is debt free and has net cash. It should continue to generate a lot of free cash flows in years to come.
Hartalega has done extremely well. It enjoys the biggest profit margin amongst the glove companies. This is due to its use of automation to increase productivity. It has overtaken the other more established companies and ranks 3rd in the earnings table.
Latexx has made a remarkable turnaround. It has good earnings and should continue to grow. Due to its smaller size, its growth is anticipated to be the fastest amongst all the glove companies.
Supermax is the most indebted of all the glove companies. Given the better glove business environment, perhaps, its management may surprise the investors in the next year or two. Meantime, its not as attractive as the above three companies in term of fundamentals.
Kossan has been disappointing. Kossan continues to carry a lot of debt despite having been a long player in the market when many other players have benefited from the strong revenue and margin growths to pare down their borrowings. Its profit margin is below the average of the industry.
Adventa gets good press. However, when comparing its fundamentals with its peers, it is not such an attractive stock. Its dividend payout is the highest in the industry compared to the industry average of nearer 20%. Moreover, its PE is the highest among the glove companies, but this does not appear to reflect its growth potential.
Rubberex is a disappointment and stood up quite apart from the fast moving players in this industry.
There are also significant risks in this industry, best summarised here:
Solid earnings growth as supplanted by
Key risks include
http://spreadsheets.google.com/pub?key=thG2gqUrXjSrcpL3LAlPbRg&output=html
The whole sector has been re-priced since last year. The average PE for the sector is around 15.
Topglove trades at a slight premium. It is debt free and has net cash. It should continue to generate a lot of free cash flows in years to come.
Hartalega has done extremely well. It enjoys the biggest profit margin amongst the glove companies. This is due to its use of automation to increase productivity. It has overtaken the other more established companies and ranks 3rd in the earnings table.
Latexx has made a remarkable turnaround. It has good earnings and should continue to grow. Due to its smaller size, its growth is anticipated to be the fastest amongst all the glove companies.
Supermax is the most indebted of all the glove companies. Given the better glove business environment, perhaps, its management may surprise the investors in the next year or two. Meantime, its not as attractive as the above three companies in term of fundamentals.
Kossan has been disappointing. Kossan continues to carry a lot of debt despite having been a long player in the market when many other players have benefited from the strong revenue and margin growths to pare down their borrowings. Its profit margin is below the average of the industry.
Adventa gets good press. However, when comparing its fundamentals with its peers, it is not such an attractive stock. Its dividend payout is the highest in the industry compared to the industry average of nearer 20%. Moreover, its PE is the highest among the glove companies, but this does not appear to reflect its growth potential.
Rubberex is a disappointment and stood up quite apart from the fast moving players in this industry.
There are also significant risks in this industry, best summarised here:
Solid earnings growth as supplanted by
- capacity expansion, and
- positive newsflow
Key risks include
- a sudden surge in latex price,
- energy input costs or
- an unfavourable ringgit/US$ foregin exchange rate movement.
Saturday, 8 May 2010
A quick look at Latexx (8.5.2010)
A quick look at Latexx (8.5.2010)
http://spreadsheets.google.com/pub?key=tMGIE1j8l7f8e27I8inQUig&output=html
http://spreadsheets.google.com/pub?key=tMGIE1j8l7f8e27I8inQUig&output=html
A quick look at Kossan (8.5.2010)
A quick look at Kossan (8.5.2010)
http://spreadsheets.google.com/pub?key=ttaoTf7WwIlRuWyNhWEz7xg&output=html
http://spreadsheets.google.com/pub?key=ttaoTf7WwIlRuWyNhWEz7xg&output=html
A quick look at Adventa (8.5.2010)
A quick look at Adventa (8.5.2010)
http://spreadsheets.google.com/pub?key=tpg78jjich_9vs6GZN8r5KA&output=html
http://spreadsheets.google.com/pub?key=tpg78jjich_9vs6GZN8r5KA&output=html
A quick look at Hartalega (8.5.2010)
A quick look at Hartalega (8.5.2010)
http://spreadsheets.google.com/pub?key=tT2IXHGPpvc86Obf9tr25aQ&output=html
http://spreadsheets.google.com/pub?key=tT2IXHGPpvc86Obf9tr25aQ&output=html
A quick look at Top Glove (8.5.2010)
A quick look at Top Glove (8.5.2010)
http://spreadsheets.google.com/pub?key=tZlHVEhyDcVlmKxE5_V4reQ&output=html
http://spreadsheets.google.com/pub?key=tZlHVEhyDcVlmKxE5_V4reQ&output=html
Friday, 7 May 2010
A quick look at CSC Steel (7.5.2010)
A quick look at CSC Steel (7.5.2010)
http://spreadsheets.google.com/pub?key=tdSgsmFJYX6roa6GAAjnlBg&output=html
http://spreadsheets.google.com/pub?key=tdSgsmFJYX6roa6GAAjnlBg&output=html
A quick look at Pintaras Jaya (7.5.2010)
A quick look at Pintaras Jaya (7.5.2010)
http://spreadsheets.google.com/pub?key=tuEWCudGrYd-gYKpjeFknvg&output=html
http://spreadsheets.google.com/pub?key=tuEWCudGrYd-gYKpjeFknvg&output=html
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