How a RM 6 bil company falls into liquidation

 

Serba Dinamik seeking legal advice over winding-up order

https://www.theedgemarkets.com/node/651239

Insider purchases

Insider purchases and sales are noteworthy milestones but no road map to investing success.

You're building a mosaic to decide whether you want to be invested in a company, this is just one piece of the puzzle.

But be careful before you follow in a CEO's footsteps. Knowing how much stock to put into an insider's actions, literally and figuratively, is a tricky business.

The most important aspect that the lay investor should keep in mind is that it is a first screen. Despite that caveat, though, "it's the best one that I know of".

When you see an executive put large sums of money on the line, clearly that's a signal that he feels very confident, but that doesn't necessarily mean that the stock's going to go up.

Some insider buying maybe just simply window dressing or a statement to investors.

It's possible that smaller purchases could be aimed largely at drumming up more buying.

They may hope that the publicity of their having bought will have a positive effect on the direction of the market price.

UK credit card rates reach record in new blow to consumers. Average annual percentage rate for the products is now 30.4%.

Publish date: Tue, 10 Jan 2023

UK shoppers taking out new credit cards face record-high interest rates on their bills.

The average annual percentage rate for the products is now 30.4%, according to Moneyfacts Group Plc, which began compiling the data in June 2006. That includes fees and is up from 26% a year ago.

Shoppers in Britain are putting more money on their credit cards as the highest inflation in 40 years erodes savings built up during the pandemic. They splurged on their cards before Christmas, spending £1.2 billion in November, triple the amount of the previous month.

Holiday spending has so far helped retailers surprise to the upside in earnings, with shoppers paying out more than £12 billion on groceries alone for the festivities.

That expenditure was driven in part by food inflation, which has contributed to a cost of living crisis that’s expected to leave families £2,100 worse off.

As well as increasing rates, credit card providers have been making their terms less attractive on average. Over the past 12 months, balance transfer fees have risen and the interest-free balance transfer term has shrunk, the Moneyfacts data show.

  - Bloomberg

Over 800,000 UK households to see mortgage rates double in 2023

Publish date: Tue, 10 Jan 2023

Over 800,000 UK households will see their mortgage rates more than double this year as they come off low fixed-rate deals, adding to the pressure on living standards.

In total, more than 1.4 million fixed-rate borrowers will have to renew their mortgage in 2023, with 57% currently on deals of less than 2%, according to an Office for National Statistics (ONS) analysis of Bank of England (BOE) data. The average variable rate mortgage is currently 4.41% and fixed-rate deals start at around 5%.

A typical fixed-rate mortgagor faces a £250 increase in their monthly payments if their deal expires this year. The hit will squeeze incomes further for those already reeling from soaring prices of energy and other goods.

Including households on variable deals, a total of four million UK homeowners are exposed to rate rises this year, the BOE said in December.

Banks and building societies have raised their mortgage offers because the BOE raised interest rates from 0.1% in December 2021 to 3.5% last month to tame double-digit inflation. Rates are expected to reach between 4% and 4.5% this year.

The ONS warned that the living-standard squeeze may be even harder for private tenants as rents are currently rising at 4%, the fastest pace since records began in 2016 as landlords pass on higher mortgage costs.

Private renters spend on average £106.50 a week on rent, compared with £140.80 for mortgage holders. However, as homeowners tend to be wealthier, the sums amount to 24% of weekly spending for renters and just 16% for mortgagors. For low-income renters, housing accounts for 30% of spending, the ONS added.

The ONS’s opinions and lifestyle survey found that both renters and mortgage borrowers are finding their housing costs “increasingly difficult to service”.

Landlords are particularly exposed to rising rates because the majority are on interest-only deals. More than a third of deals expire in the next two years, at which point landlords will have to choose between increasing rents to cover their costs or selling.

 

  - Bloomberg

Additional notes:

Interest-only mortgage security (IO)—interest payments stripped from a pool of mortgages which, for a given change in interest rates, fluctuates in value inversely to conventional mortgages (see principal-only mortgage security) 

Principal-only mortgage security (PO)—principal payments stripped from a pool of mortgages which, in response to changes in interest rates, fluctuate in value in the same direction as conventional mortgages but with greater volatility 

Profits of Malaysian plantation companies are heavily influenced by external factors

December 30, 2022 

CPO expected to average at RM5,100 a tonne in 2022, seen at RM3,800 a tonne in 2023, says MPOB

KUALA LUMPUR (Dec 30): The Malaysian Palm Oil Board (MPOB) expects the price of crude palm oil (CPO) to average at RM5,100 a tonne in 2022, which is 15.7% higher compared to RM4,407 a tonne in 2021.

The government agency also foresees the price of CPO to stabilise at an average of RM3,800 a tonne in 2023 in anticipation of 

• higher palm oil production, 
• improved weather conditions in the second half of 2023 and 
• higher availability of supply of other major vegetable oils.

MPOB director general Datuk Dr Ahmad Parveez Ghulam Kadir said soybean oil prices, which are expected to be low due to the higher production in Brazil and the US, may impact the price of CPO.

He said in a statement on Friday (Dec 30) that the strengthening of the ringgit against the US dollar may also affect the price of CPO.

According to MPOB, the average CPO price for January to November 2022 was RM5,167 a tonne, up 18.4% compared to RM4,363 a tonne for the same period in 2021.

It said CPO prices had experienced a decline beginning the third quarter of 2022 due to the 

• high CPO production season, 
• rising palm oil stocks and 
• declining soybean oil prices.

Palm oil industry saw higher production, exports and revenue in 2022

MPOB expected the closing stocks of palm oil in 2022 to be at 1.85 million tonnes, up 14.9% compared to 1.61 million tonnes in December 2021 due to higher production.

Parveez said closing stocks of palm oil are projected at two million tonnes in 2023, higher than that in 2022, due to the expected higher supplies of other major vegetable oils including palm oil.

According to MPOB, CPO production for January to November 2022 stood at 16.83 million tonnes, an increase of 1% compared to 16.67 million tonnes achieved in the same period of 2021.

“This was attributed to an increase of 2.8% in processed fresh fruit bunches (FFBs) to 86.51 million tonnes in January to November 2022 compared to 84.17 million tonnes in the same period last year,” MPOB said.

Parveez said that CPO production is expected to increase slightly by 2.1% to 18.5 million tonnes in 2022 as compared to 18.12 million tonnes in 2021. He said the slow recovery is expected due to the issue of labour shortage in oil palm plantations' FFB harvesting and unloading activities.

Parveez projected CPO production to further increase to 19 million tonnes for 2023 due to the expected increase in the productive areas, especially in Peninsular Malaysia and Sarawak. He added that the workforce situation may stabilise next year as foreign worker applications are being approved in stages.

MPOB also provided data that the exports of palm oil and other palm-based products for January to November 2022 increased by 1.3% to 22.43 million tonnes compared to 22.14 million tonnes in the same period of 2021.

It said the higher price of palm oil in January to November 2022 has boosted total export revenue by 31.8% to RM120.43 billion from RM91.38 billion in January to November 2021.

Exports of palm oil alone itself rose slightly by 0.8% to 14.25 million tonnes in January to November 2022 compared to 14.14 million tonnes in the previous corresponding period, MPOB said.

“As such, palm oil export revenue surged 31% to RM80.22 billion from RM61.26 billion in the same period of 2021,” MPOB said.

Parveez said that Malaysia’s ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on Sept 30, 2022 will encourage demand for palm oil products as it broadens the country’s access to new markets such as Canada, Mexico and Peru, which are not covered by any existing free trade agreement.

“Based on cost benefit analysis on the potential impacts of the CPTPP, upon ratification and implementation of the CPTPP, tariffs for palm oil products are now reduced from a maximum of 6% for Canada, 5% for Mexico and 9% for Peru to lower tariffs based on the tariff elimination schedule,” he said.

“Apart from higher palm oil exports to the markets, the elimination of tariffs improves the Malaysian palm oil competitiveness in the CPTPP member countries.”

https://www.theedgemarkets.com/node/650017

Hailey Chung

theedgemarkets.com

Surin Murugiah

Conclusion:

Profits of plantation companies are affected by crude palm oil (commodity) prices which are heavily influenced by many external factors:

- seasonal fluctuation on palm oil production,
- weather conditions
- availability of supply of other major vegetable oils e.g. soya
- labour supply in oil palm plantations' FFB harvesting and unloading activities.
- strength of the ringgit
- increase in the oil palm productive areas
- tariffs for palm oil products

Structural problems impeding our Malaysian stock market

Malaysian stocks not performing because of serious structural impediments.

-  Increasingly market-dominating government linked companies and government-linked investment companies - with explicit and/or implicit unfair advantages - led to the crowding-out of the private sector.

-  The lower number of banks - after rounds of consolidation - resulted in less diversity in terms of lending strategies, practices and appetite for risks.

- Falling corporate profits and other factors, translated into chronic underinvestment in productive assets, technology, R&D and innovation.

- The quality of the local education system has been in a long-term decline.

-  Companies that relied heavily on cheap, low-skilled foreign labour and failed to move up the value chain were, increasingly, faced with pricing pressure from digitalisation and technology disruption.

- Those that has in the past flourished under government subsidies were by and large unable to fully pass on rising costs, leading to a narrowing of margins.  Unfortunately, many Malaysian companies remain simply rent-seekers.

-  The issue of corporate governance may be another reason.  If controlling shareholders can pay themselves half of the company's profit as annual compensation, which represents 4% to %% of the market capitalisation with no dividend paid to shareholders, surely it must be clear that this amounts to a blatant transfer of wealth of a public company to its controlling shareholders.

Summary

The above are some of the more obvious reasons for the chronic underperformance, in terms of corporate earnings and the stock market.  

They must be addressed urgently and within a holistic framework if we want to see a sustainable turnaround.

But despite all the gloom, investors can still profit by investing wisely and rationally.

Reference:  Tong's Portfolio Investing can be fun and profitable

Why had the Malaysian stock market done so badly from 2014 to 2018?

In June 2019, the FBM KLCI had fallen in four of the last five years (2014 to 2018).  Why had the Malaysian stock market done so badly?

One of the biggest reasons had to be underlying earnings, which were the main driver of stock prices over the longer term.

Period of 5 years (2014 to 2018)

855 companies were categorised into their respective sectors 

-  To determine the profit trend and the compound annual growth rates (CAGRs) for each sector.  

-  The sector net margin for each year was also tabulated.

Findings:

Total net profit for all companies fell in 2015, 2016 and 2018 - the CAGR of the decline was 6.8%.  

Net profit margin too had contracted sharply over those five years, from an average of 11.3% in 2014 to 7.7% in 2018.

The years in which total net profit fell were also the years in which the FBM KLCI and broader-based FBM EMAS Index ended in the red.

Share prices and P/E valuations

Notably, the share prices declined but the size of the drop was lower than that for earnings.  

The result was the price-to-earnings valuations were higher in 2018 than they were in 2014.  

And this was why the stock market was underperforming - valuations were not attractive even though share prices were lower.

It also meant a turnaround was unlikely until there is a broad-based earnings recovery.

Sector Analysis (2014 to 2018)

Energy (oil and gas) sector fared the worst in terms of profits, given the sharp fall in crude oil prices and resulting collapse in global exploration and production activities.  Brent crude fell from US$110 a barrel at its 2014 peak to below US30 during the lows in 2016.  Oil prices were hovering around US $60 a barrel in 2018.

Plantation companies' profits too were affected by commodity prices falling 15.6% annually, on average, since 2014.  Crude palm oil fell from an average price of RM 2,400 a tonne in 2014 to RM 2,170 a tonne in 2015.  CPO prices recovered to RM 2,630 and RM 2,800 in 2016 and 2017 respectively before dropping back to RM 2,240 a tonne in 2018.

Construction, consumer products and services, properties, transport and logistics, utilities, telecommunications and media and even real estate investment trusts reported negative profit growth between 2014 and 2018.

Healthcare (15 companies)  was the best performing sector with a CAGR of 5.7% in their profits.

Financial services (34 companies) grew at a CAGR of 4.3% in their profits.

Technology (81 companies) expanded just 2% in their profits.

Industrial products and services (239 companies) is the biggest sector by number of companies and its profits were up only 0.4% a year.

Consumer products and services (183 companies), their profits fell 2.3% annually on average.

Property companies' profits declined at an average of 3.1% annually for the past four years.

Summary:

The energy and plantation sectors are heavily influence by external factors.

Overall, the average Malaysian company had not fared well at all from 2014 to 2018.  

Net profit margin for all sectors declined throughout the five-year period from 2014 to 2018.

Underlying earnings were the main driver of stock prices over the longer term.

Is the yield curve inversion a signal to sell stocks?

Even if a yield curve inversion does precede recession, it can neither predict the timing, length nor depth of the recession - and, crucially, how stock markets react.

Historically, inversions have happened between six months and two years before a recession - during which stocks have traded flattish, up and down.

All this just means that trying to predict stock market movements is a fool's errand.  Narratives, it seems, do not move stock prices.  Rather, reasons are provided for stock movements, after the facts.

As value investors, we would be much better off looking at the underlying business, earnings, cash flows and balance sheet instead of trying to time the market.

In reality, most recessions are triggered by exogenous events - such as geopolitics, war, trade conflicts and asset bubbles - that are inherently unpredictable.

Additional notes:

Yields on the long-dated bonds are typically higher than those for shorter-duration ones, owing to the additional term premium - to compensate for inflation over the duration.

The difference in yields between the two- and 10-year bonds  is the most popular market yardstick for Treasury yield spread.

When this gap turns negative, we deem the yield curve as inverted.  

But a bear market isn't all bad news.

But a bear market isn't all bad news. Sure, it can hurt when your portfolio takes a hit when stock prices fall. But you'd still better be prepared for the inevitable downturns in the stock market, and remember that the situation is only temporary, after all. 

In every instance when the overall market dropped, it returned and then grew to greater heights. In fact, the stock market has a 100 percent success rate when it comes to recovering from a bear market! The only thing to remember is that sometimes it takes longer for the bounce-back to occur.

If you follow a long-term approach to investing, then you know that patience is a virtue whenever you're investing in the stock market. It also helps to keep your vision focused on your long-term horizon whenever the market hits some turbulence. 

By using dollar cost averaging and by investing regularly, you can even make the bear market work for you by taking advantage of generally lower prices with additional purchases. Knowing the market's infallible past record, you can sleep easy -- even when other investors are panicking.

Necessary Bears

Bear markets perform the necessary service of deflating values and sweeping the market clean of stocks that are weak and riding on fads alone. 

Your faith in solid fundamentals will usually pay off over time, but even a great company’s stock can get banged around in a tough market. 

The lesson here is that stocks, as illustrated by the Dow, are good long-term investments, but dangerous short-term bets.

Actions in an overvalued market

 When markets are overvalued, Graham recommends the following actions:

1)      Do not borrow to buy or hold securities. 

2)      Do not increase the proportion of stocks held in funds.

3)      Reduce common stock holdings to no more than 50% of the overall portfolio.

4)      Suspend contributions to any “dollar-cost averaging” stock contribution plan.       

Inflation and the Defensive Investor

Fixed income investments fare worse during inflationary periods than do common stocks.  During inflationary periods, firms can increase prices, profits, and dividends causing their share price to increase and offsetting declines in purchasing power. 

There is no underlying connection between inflation and the movement of common stock earnings and prices.  Appreciation does not result from inflation, but rather from the re-investment of profits.  The only way for inflation to increase common stock values is to raise the rate of earnings on capital investment, which it has not done historically.

Economic prosperity usually is accompanied by slight inflation, which does not affect returns.  Offsetting factors include rising wage rates that exceed productivity gains and additional capital needs that cause interest rates to increase.  

Graham describes alternatives to common stocks as a hedge against inflation.  These alternatives range from gold and diamonds to rare paintings, stamps, and coins.  Gold has performed poorly, far worse than returns from savings in a bank account.  The latter categories, such as paying thousands of dollars for a rare coin, can not qualify as an “investment operation.”  Real Estate is still another alternative; however, its value fluctuates widely, and serious errors may be made when purchasing individual locations.  

Again, the defensive investor is best served by purchasing a portfolio of carefully chosen common stocks and bonds.

Ref:  Intelligent Investor by Benjamin Graham

Investment Mistakes in a Bear Market

Successful investing is not magic, just keep things simple and maybe follow few investing and money rules of thumb and you’ll be fine in the long run.

Investment Mistakes in a Bear Market

1.  Selling without any logical reasoning or attention to long-term goals.  Often they all miss the fact that they are selling at the bottom to only repurchase them back at the top. Stop selling without a reason, only sell if the fundamentals have changed for the long term or the investment does not fit in your plan, not because everyone else is selling in the market.

2.  The only worse thing one can do than selling out in a bear market is stop investing during the bear market.  Would you stop shopping if retail prices dropped 30%? No.   When you stop investing during a bear market you will miss out on many undervalued investment opportunities which can have great returns in the long run.

3.  Some investors start to look at alternative investments, (e.g. gold) because they believe somehow these will perform better than the equity markets.  Although alternative investments have their place in a portfolio the excessive focus during bear markets makes them dangerous.

4.  Just stop wasting your time and money trying to time the markets. Investors are more likely to time the markets during a bear market, as there are often big swings, which are seen as opportunities by investors, this strategy will only hurt your portfolio.

I know bear markets hurt, but you trying to “improve” things will only make things worse.  

• What were your investment mistakes during this bear market? 
• What have you learned from them?  
• Do you know anyone who made these mistakes?

To win in the stock market over the long haul, be willing to lose over the short-term

In the short-term, market downturns feel like they will never end. 

In the long-term, all corrections look like buying opportunities.

Regardless of how long this correction lasts, to win in the stock market over the long haul you must be willing to lose over the short-term." -Ben Carlson (emphasis added)

Bear-Market Rally or New Bull?

How do investors tell the difference between a bear-market rally and the birth of a new bull market? .

Investment professionals look for certain technical signals to be in place before confirming a reversal is underway. What’s key is the number of stocks participating in a move, which is why these sorts of indicators are referred to in the parlance of market technicians as “breadth thrust” signals. The duration of the move and the price gains associated with it are also important. 

The indicators that most reliably confirm that there is a shift into a new bull market are:

• On the New York Stock Exchange, the NYSE American, and Nasdaq, 90% of the common stocks trade above their 10-day moving averages.
• Stocks advancing on the NYSE outpace those declining by nearly a 2-to-1 margin for at least 10 days.
• More than 55% of the stocks on the NYSE set new highs over a 20-day period.

These events only happen at bullish turns, says NDR’s Clissold. He highlights the end of the pandemic-induced bear market in March 2020, the shortest in history. That lasted 33 or 40 days, depending on whether you’re looking at the S&P 500 or the Dow Jones Industrial Average, where there were a series of powerful rallies that occurred through March and early April signaling a new upward move.

Faced with the worst first half for stocks and bonds in 50 years, the highest inflation in 40 years, and an endless barrage of bad economic data, investors might be excused for searching for bargains amid the rubble and assuming most of the damage is done.

Wall Street pros are at odds as to whether we are at an inflection point in the markets. Some see indications that we have likely hit the lows for stocks, while others warn of more pain ahead.

Representing the more bullish camp is James Paulsen, chief investment strategist at Leuthold Group in Minneapolis. He notes that the bottom may have already been made as the Fed is nearing the end of its tightening cycle, growth is slowing, and inflation is beginning to roll over. Moreover, he believes most of “the sellers are long gone.”

“Are there any nervous Nellies left?” he asks.  

Taking the opposite view is David Kotok, co-founder and chief investment officer of Cumberland Advisors, a registered investment advisory firm in Sarasota, Florida, with $3.5 billion under management.

“We haven’t reached extreme levels of fear yet,” Kotok says. “We haven’t made a bottom because we haven’t seen extreme selling.” He expects interest rates will continue to go higher as inflation proves harder to subdue, geopolitical tensions worsen, and “shocks” emerge. He’s also concerned about “contagion risk” emanating from slowdowns in global economies

https://www.morningstar.com/articles/1105388/how-do-you-tell-a-bear-market-rally-in-stocks-from-a-new-bull-run

The three bears scenario: how the bear market plays out if a recession occurs in 2022, 2023 or not at all.

In its “three bears” scenario, NDR lays out possibilities for how the bear market plays out if a recession occurs this year, next year, or not at all.

1.  If a recession occurs sometime in the second half of 2022, the stock market could drop another 10% or more. Bear markets that coincide with recessions tend to decline nearly 35% on average and last for 15.3 months. If this were to be the case, the sooner it would start, the sooner it would be over given that a bear market bottoms four months before a recession, setting the stage for a “shorter than average” recessionary bear market.

2.  If a recession occurs in 2023 that would make the current bear market twice as long as average, and likely lead to numerous bear-market rallies that eventually fail as they have in past instances. Clissold cites 1973, 1978, and 2000 as past bear markets that saw numerous rallies between their start and finish with a maximum gain of 15.9%, 14.3%, and 15.5%, respectively.

3.  The last and best scenario is if there is no recession at all. Stocks decline on average by 25% in a non-recessionary bear market over 9.1 months. In the past 50 years, the average decline has been 18% over 6.8 months.

If the Fed can achieve the delicate balance of taming inflation by slowing the economy without tipping the country into a recession, Clissold says, “the cyclical bear is likely close to being over.”

NDR = Ned Davis Research, an independent provider of global investment research based in Nokomis, Florida

How Do You Tell a Bear-Market Rally in Stocks From a New Bull Run? | Morningstar

Bed Bath & Beyond shares plummet after company warns of potential bankruptcy

Bed Bath & Beyond shares plummet after company warns of potential bankruptcy

PUBLISHED THU, JAN 5 

KEY POINTS

• Bed Bath & Beyond warned Thursday it’s running out of cash and is considering bankruptcy.
• The embattled home goods retailer is having trouble getting enough merchandise to fill its shelves and is drawing fewer customers to its stores and website.
• It anticipates a net loss of about $385.8 million for the third quarter, a nearly 40% jump in losses year over year.

In this article, Bed Bath & Beyond warned Thursday it’s running out of cash and is considering bankruptcy.

The retailer, citing worse-than-expected sales, issued a “going concern” warning that in the upcoming months it likely will not have the cash to cover expenses, such as lease agreements or payments to suppliers. Bed Bath said it is exploring financial options, such as restructuring, seeking additional capital or selling assets, in addition to a potential bankruptcy.

Shares of the company fell about 30% to close the day at $1.69 after Bed Bath issued the updates in a pair of financial filings. The stock earlier touched a 52-week low earlier in the day. Its market value has fallen to about $149 million as of Thursday’s close.

Still, CEO Sue Gove said the retailer is focused on rebuilding the business and making sure its brands, Bed Bath & Beyond, Buybuy Baby and Harmon, “remain destinations of choice for customers well into the future.”

Among its challenges, Bed Bath said it is having trouble getting enough merchandise to fill its shelves and is drawing fewer customers to its stores and website.

The retailer also said it wasn’t able to refinance a portion of its debt, less than a month after notifying investors it planned to borrow more in order to pay off chunks of existing obligations.

Bed Bath’s debt load has been weighing on the company. The retailer has nearly $1.2 billion in unsecured notes, which have maturity dates spread across 2024, 2034 and 2044. In recent quarters, Bed Bath has warned it’s been quickly burning through cash.

Bed Bath’s notes have all been trading below par, a sign of financial distress. 

Stalled turnaround

Bed Bath has been through an especially tumultuous stretch, with the departure of its CEO and other top executives, companywide layoffs, store closures and an overhaul of its merchandise strategy. As sales declined, its CEO Mark Tritton got pushed out in June. Gove, who stepped in as interim CEO, has assumed the role permanently.

She laid out a comeback strategy in late August. As part of the plan, she said the company would cut costs by shrinking its store footprint and workforce. Gove said it would add back more items from popular national brands, as it shifted away from an aggressive private label strategy. And she said it had secured more than $500 million in new financing to help steady the business.

The company said during its last earnings report it believed it had enough liquidity to forge ahead.

In a news release Thursday, Gove said recent sales results illustrate why that turnaround plan is so important.

“Transforming an organization of our size and scale requires time, and we anticipate that each coming quarter will build on our progress,” she said.

The company is also looking for a chief financial officer after executive Gustavo Arnal died by suicide in September.

Mounting losses

So far, Bed Bath has not seen its sales trends change. Net sales in the fiscal third quarter, which ended Nov. 26, are expected to be about $1.26 billion — a sharp drop from $1.88 billion in the year-ago period, the company said.

It anticipates a net loss of about $385.8 million for the third quarter, a nearly 40% jump in losses year over year. The quarterly losses include an approximately $100 million impairment charge, which was not specified.

The company is scheduled to deliver full quarterly results and hold an earnings call on Tuesday.

Signs of Bed Bath’s financial stress have shown up on store shelves, too. As the retailer’s cash hoards dwindle, some suppliers aren’t willing to ship large quantities of merchandise — or in some cases, any merchandise — to the company.

Gove said in a news release that reduced credit limits mean customers are seeing emptier shelves and less variety than they expect. She said the company is using the money it’s made over the holiday season to pay vendors and order more inventory.

“We have seen trends improve when in-stock levels have increased,” she said.

Bed Bath already has a history of strained relationships with key national brands, such as Dyson, Keurig and Cuisinart. During previous holiday seasons, Bed Bath didn’t have popular gift items, such as KitchenAid’s stand mixers. Meanwhile, those items were plentiful at competitors like Target.

https://www.cnbc.com/2023/01/05/bed-bath-beyond-shares-plummet-as-company-warns-of-deeper-financial-troubles.html  (video link)

Glossary:  

Bankruptcy—a legal state wherein a debtor (borrower) is temporarily protected from creditors (lenders); under Chapter 11 of the federal bankruptcy code, companies may continue to operate 

Chapter 11—a section of the federal bankruptcy code whereby a debtor is reorganized as a going concern rather than liquidated (see bankruptcy) 

Commercial paper—short-term loans from institutional investors to businesses 

Default—the status of a company that fails to make an interest or principal payment on a debt security on the required date 

Exchange offer—an offer made by a company to its security holders to exchange new, less-onerous securities for those outstanding 

Financial distress—the condition of a business experiencing a shortfall of cash to meet operating needs and scheduled debt-service requirements 

Hold-up value— benefits accruing to participants in a class of securities who are able to extract considerable nuisance value from the holders of other classes of securities 

Par—the face amount of a bond; the contractual amount of the bondholder’s claim 

Recapitalization—financial restructuring of a company whereby the company borrows against its assets and distributes the proceeds to shareholders 

Secured debt—debt backed by a security interest in specific assets 

Senior-debt security—security with the highest priority in the hierarchy of a company’s capital structure 

Shareholder’s (owner’s) equity—the residual after liabilities are subtracted from assets 

Subordinated-debt security - security with a secondary priority in the hierarchy of a company’s capital structure 

Working capital—current assets minus current liabilities 

UOB One Savings Account Raises Interest Rates to 7.8% - Should You Save Or Invest?

Enya Rodrigues

12 December 2022·

Earlier this week, UOB announced that they are raising the interest rate of their One Savings Account to up to 7.8% p.a interest. UOB is not alone in doing so. Across the board, we see banks in Singapore fighting to remain competitive by offering increasingly attractive interest rates to encourage people to deposit their money with them.

During the COVID-19 pandemic, many countries were cutting their federal interest rates in an effort to increase lending and spending in order to stimulate the economy. This led to record low levels of interest rates on savings accounts. Many individuals opted to expose themselves to some level of risk and invest their savings rather than leave them idle in low-interest savings accounts.

However, with the current upsized interest rates on savings accounts, is it still worthwhile to invest your money into various investment vehicles, such as fixed deposits, treasury bills or even ETFs, or are you better off saving your money in a high-interest savings account?

If You Have A Small Amount Of Savings

One major caveat to the current high-interest rate promotions banks are running on their savings accounts is that you need a large amount of money in your savings account to be able to reap the full advertised interest rate.

For example, with the UOB One savings account, you are only able to enjoy the full 7.8% interest on your savings if you have an account monthly average balance of over S$75,000.

If you have less than S$30,000 in your savings account, you will only enjoy an interest rate of 3.85% p.a. This is almost half of the advertised high-interest rate of 7.8% p.a.

This is in contrast to the six-month tenor for Singapore Treasury Bills, released on 8 December 2022, which has an interest rate of 4.30%. The minimum bid amount for a Treasury Bill is S$1,000. Hence, with a smaller amount of money, you can get a higher rate of return if you invest rather than place your money in a high-interest savings account.

Furthermore, if you do not have a large amount of capital right now but are able to budget a small amount of your monthly income towards investing, taking a dollar-cost averaging approach might also be more lucrative for you in the long run.

The S&P 500, an index that tracks the 500 largest companies in the United States, has averaged an annual rate of return of 11.88% from 1957 to 2021. Choosing to dollar-cost average into an ETF every month might be a better allocation of your money. Granted, this incurs more risk than a savings account as you are exposing yourself to market volatility. However, the risk-to-reward ratio might be easier to stomach when working with a smaller budget.

If You Have A Large Amount Of Savings

Conversely, if you have a large amount of capital, choosing to deposit it into a high-interest savings account like UOB One might be a good option. With Singapore’s inflation rate in 2022 sitting at around 6%, an interest rate of 7.8% is not only matching but slightly beating inflation.

There are currently very low hurdles to achieve the 7.8% p.a. interest rate on deposit accounts with more than S$75,000. All that is required is for you to credit your monthly salary of at least S$1,600 into your UOB One account and spend at least S$500 on any UOB credit or debit card. For the average working adult, it should not be too difficult to meet this requirement.

Savings accounts are seen as an extremely low-risk asset. The Singapore Deposit Insurance Corporation (SDIC) insures all member banks and financial companies for up to S$75,000. This means that in the very unlikely event that a bank goes bankrupt, all of your deposits, up to S$75,000, will be guaranteed and returned to you. Hence, there is very little risk of you losing your initial capital, unlike when you are invested in the stock market.

Furthermore, a savings account provides the most liquidity. There is no lock-up period like with a fixed deposit or Singapore treasury bill. Savings accounts are also not subject to market fluctuations the way ETFs are. If you need to dip into this pot of savings for emergencies or investing opportunities along the way, you can do so without facing any penalties or losses.

This prevents one from jumping into an investment that they do not have a full understanding of just because they do not want to let their idle cash get eroded by inflation. With a high-interest savings account, you are able to buy yourself time to wait on the sidelines for the perfect investment opportunity to arise.

Conclusion

Whether you choose to take advantage of the high-interest savings accounts now or to continue investing depends on both your personal financial situation and risk appetite.

While choosing to invest may not be as lucrative a decision if you have a smaller amount of savings, the peace of mind you get from knowing that your money is currently accruing interest in a rather risk-free vehicle could be good enough, even if you do not enjoy the full 7.8% p.a. interest rate.

For more information on different options available to you on the market right now, check out our round-up of the best savings accounts out there.

Reference:

https://sg.finance.yahoo.com/news/uob-one-savings-account-raises-022013039.html

Read Also: Best Savings Accounts in Singapore 2022

https://www.valuechampion.sg/bank-accounts/best-savings-accounts-singapore

"We Want to Be More Cautious." Goldman Sachs CEO on 2023's Global Financial Outlook

Main points:

We are definitely in an environment of higher rates.  

We witnessed the pandemic disrupts worldwide supply chains and meaningful fiscal stimulus employed.  

It is not surprising this led to inflation embedded in our economic system fairly consistently.

We are now in the process of unwinding this.  

Inflation is such a punitive tax on economic activities and naturally you see monetary policies shift rather quickly to a period of higher rates.

The treasury curve is inverted.  The market is making an assumption that we will reach the terminal rate sometimes soon, and the forward, will bring the rates back down.  After some time, looking at the interest rate cycle historically, we do see reversal of the rates.

Still early, still uncertain.  Economy is still strong.  Look at the tight labour market.  We still has a way to go before taming inflation.

"Anyone who tells you they know, they don't know."

2.30

Our economists are calling for a lower growth next year; 1.9% economic growth globally.

They are of the view that there is a reasonable chance of a soft landing.  Definition of soft landing means:  inflation back close to 4%,  5% terminal rate with 1% growth.   

There is also a very reasonable possibility of a recession.  Most CEOs are cautious in how they operate their businesses.  They are looking through the lenses, I don't know and I will rather prepare for that period of tough economic environment.   They are more cautious and that creates a negative cycle, slow down on planning, hold back their spending, start trimming excess labour in preparation for a more difficult environment.

Goldman Sach's business is very correlated to the world economic activities, thus in an environment that slows down quickly, this has an impact on our business.  We have record revenues and earnings in 2020, 2021 and even higher; our footprint grew not surprisingly, therefore we have to trim in some areas.  We have to narrow our footprint a little bit.

4.32

GS is a professional, human capital business.  50% in GS around the world are in their 20s.  They are in GS for the experience, to work in teams, to learn; these are at present fragmented.  We need a culture of bringing people back quickly to the office as we think this is hurting part of our competitive advantage in the business.  Bottom line, we are now operating closely to where we operated before the pandemic.  Working from home is an issue mainly in the US and not in the rest of the world.

6.00

Ukraine war.  China.

Deglobalization.   

Variety of global forces in place for a long time that are expanding and connecting economic activities around the world.  Inflation may have a negative effect on poverty especially in the developing world, example, the energy crisis.  We would rather be economically intertwined globally.  In a more complex geo-political environment, people started making different decisions.  

For the last few decades we operated with the ethos all over the world that we make it in the place where it is least expensive as possible and  sell it in the place where we can establish the highest margins.   

Now people are rethinking:  on energy, food, minerals, certain healthcare needs, microchips, people are saying, "I need security.  Although I consider the cost of frictions, but I need also access and stability."  These by themselves are inflationary.   These are by themselves maybe permanent shifts.  But this does not mean we are deglobalising.  In this globalised world, we are choosing more carefully and more thoughtfully, who our partners are on certain things.  These issues are being amplified at the moment because the geopolitical world has got more complex.

8.04 

Business in China

Deploying more capital into China.(?)

We are dealing mainly with global companies operating in China.  We are more cautious in our plans and our outlook.  Talking to those in Washington and the hill,  there is a risk of a more restricted capital allocation policies coming from either sides.  For capital allocation, we may have to have a tighter control of our resources so that you have less exposure to that given the uncertainty of the environment you are operating in.  

We are cautious, we need more clarity on how the policies will be in the coming years.  In 2019, our dialogue on China would have been different.  We have allocated a narrower footprint in China than we might have had 3 or 4 years ago.

10.16

Quick firing questions and answers

In a year's time, will this asset be up or down?

US Stocks - lower

Treasury yield - we are on the curve.

10 year Treasury yield - if we get the soft landing, this will be higher.  If not a soft landing, you will see reversal of policies, then the rates will be the same or lower.

US dollar - slightly stronger

Soft landing - 35% probability

Oil - higher

Residential real estate - lower

Commercial real estate - lower  Real estates at the end of the day is a financing trade, when interest is higher, real estate by definition, the cap rate, is going to be lower.  

Crypto - what about it?  11.46  Very focused on the underlying technology; the ability to innovate financial services and financial infrastructures.  Speed of transacting reduces risk and freeing capital from being tied up.  Hope going forward, regulatory measures will allow the big financial institutions to participate more broadly in its innovations.

Crpto tokens - Bitcoin - any value in 10 years? -  I don't know.  (I don't care.)  Value of bitcoin is a speculative thing.  I don't see any use case for Bitcoin.

FTX bankruptcy - will there be more cryptos falling too? -  stable coin, tokenization.  Stable coin is just any form of bank deposits.  Rules need to be set around them.  Central bank digital currency.  Cryptocurrency.  etc.  All these fall into a big basket we call crypto.   (14.00)

We still excluded from participating in a lot of these by regulatory perspectives.  We are spending a lot of time in trying to innovate using the blockchain technology.  Digital loan administrative platform.  How can this technology take risks out of the market system and strengthen the market system?

16.06

Scope of Goldman Sachs.  30 to 40 items to focus on.

Wreckage of the technology industry, any thing here to benefit Goldman Sachs?

Developer is a big part of Goldman Sachs.  Competition for engineering talents is fierce.  Puzzle of the digitalisation of the financial world.  Banking is a highly regulated industry.   Moving these into the clouds, connecting the clients on the platform.  Good opportunities for Goldman Sachs.

18.46

Twitter

How much do you think Twitter is worth?  I don't know.

A super interesting platform.  Can Elon get it right and turns it into a great business.

Leveraged finance and buyout market.   Buyout market is presently constrained.  Significant repricing on multiples and significant repricing on financing, and these quickly brought down the activities to significant lower levels (constrained very quickly).

Historically, leveraged lending on large bank balance sheet that is underwater, is at a historically low level.  When you think about other cycles when you have a pretty aggressive cycle and then something stops the cycle, the revaluation of the leveraged finance broadly, risk exposures are much much modest at that point  than at other points in a similar cycle.  

21.00  

What happens to due diligence?  Due diligence is an incredibly important part of the process of anything you do - whether you are going to invest, you are going to acquire, or you are going to be involved with a partner,  As a long term observer of the market for a long term, there are periods of ebullience in the market, where people are riding the momentum wave and making a lot of money on the momentum wave, and disappointing behaviour when it weakens.   We see this again and again.  People choose to do things with a velocity, speed and vigor; and when they choose to do it early in the momentum train, they get away with it.  Sometimes they get caught and get left off in a bad place.  However, this is not the way a good professional investor operates and I don't see much change in the behaviour of the investors.

22.22

Pensions near-explosion in UK (gilt-rates went up the roof).  Commercial real estates, challenges around liquidity.

Where do you see the greatest risk in the financial system?  Significant growth in government debt around the world.  In 2020, market functioning around government debts at time when governments are increasing borrowings.   A lot of activities of the banking system which are now outside the regulatory banking system the last 10 to 15 years.  Leverage of financing around that.  A lot of direct lending occurs outside the regulatory banking system;  this is good but needs to be watched especially people are using leverage to drive returns and capabilities around that.  

So far in this contraction and tightening of the economic conditions, we haven't really seen material moves in the credit spreads.  To the degree that something is moving the credit spreads in a material way, then I will be looking at lending activities.  How concern are you on liquidity risk?  Commercial estate and long term funds looking for liquidity. The problem of rising interest rates and people not coming into offices to work, is this a cause for concern?   Real estate is valued at how much it cost to finance it.  If the people are financed very long in the real estate, they can withstand all sorts of things for many cycles.  If you are financed short term,  if have not financed your assets to match your tenants and the rent flows, then you are obviously more  vulnerable to that.  I feel prime commercial real estate in prime cities are relatively protected.  Third class real estates in most cities are going to have a relatively  tough time. because of this debate whether people are going back to their work places or not. The expectation of what you get in a world class building and the evolution of space continues to make the older buildings require more capital to make it competitive in the market.  

25.57

Corporate responsibility

Diversity in the governance in listed companies, public and private.