When Good Customers Become Bad Bill Payers

When Good Customers Become Bad Bill Payers

By CAITLIN KELLY
Published: December 16, 2009

When credit markets seized up more than a year ago, many small businesses were caught flat-footed. Their clients were not paying, or were paying more slowly, and the owners were left emotionally stressed and financially damaged.

Cindy White, whose ribbon knitted jackets sell for upward of $800 in fashion boutiques, says she’s reluctant to press nonpayers too hard. “They’re my bread and butter,” she said.

But after the initial shock wore off, those owners have come up with a variety of ways to make sure they do get paid.

The National Federation of Independent Business, which has 350,000 members, signed up 200 members for a Web seminar on collections, said Karen Harned, executive director for the organization’s small-business legal center. “This is always a big issue for small-business owners.”

Arne Salkin, an account executive with Transworld Systems, a 39-year-old national collections agency, said the problem was felt by owners in an array of businesses. “Our clients include cigarette wholesalers, pest management companies, nursing homes and private day schools,” he said

With 150 offices and 75,000 customers across the United States, Transworld sends out customized demand letters, he said. Its customers, most of them small businesses, pay $750 for a series of five letters asking for payment, each escalating in intensity. Typically, they are sent out every two weeks, matching a standard pay period.

This system worked, in one instance, for David Neal, assistant corporate controller for Hoover Treated Wood Products, a lumber wholesaler in Thomson, Ga., when a client owing $15,000 paid the entire amount after receiving two letters. “I was shocked,” Mr. Neal said. “We were very surprised that it worked.”

But another client — a longtime customer, Mr. Neal said — was in arrears for $45,000, ignored all five letters and then went out of business in late October. “It will have to be written off,” he said.

That is painful for a low-margin industry like his, which typically bills within 15 days and in which 95 percent of clients pay promptly, Mr. Neal said. His firm typically has $4.5 million a week in receivables, he said, and payments started slowing in November 2008.

Geoffrey Wilson, owner of 352 Media, a 10-year-old Web development firm in Gainesville, Fla., lost $165,000 in early 2008 when three clients did not pay. The three firms were start-ups, he said, two in Florida, one in Michigan.

“It was devastating,” he said. “It damaged our cash flow and really hurt us.” The company, with major companies like Microsoft and American Express, did not have to lay off any of its 40 employees, but the experience left scars, Mr. Wilson said.

“It makes you really angry,” he said. “These were clients we had extensive interactions with over several months, sometimes with as many as 50 meetings. It felt very personal. Suddenly you have to threaten them, sue them.”

Today, Mr. Wilson is much more cautious about accepting new clients and is clear from the outset about payment terms — 33 percent upfront, raised from 25 percent in August 2008. Clients are now classified as standard or preferred, the latter being firms with 15 employees and at least two years in business. Standard clients must pay in full before material is delivered, and the business owner will be asked for a personal guarantee, he said.

Some customers are newly candid about their own financial woes, “which we’d never seen before,” he said. “They’ve become very truthful. As a business owner, I really appreciate their honesty. It allows us to better plan our situation. I need an accurate understanding of what’s coming in instead of having a client simply go silent.”

Lisa Brock, head of Brock Communications in Tampa, Fla., is taking a personal approach to managing late payers, recently visiting the chief executives of two local clients to negotiate payment. Now, more than ever, Ms. Brock said, she wants to know whom she is dealing with before entering into any business deal. A free consultation allows her to decide if a client’s values match hers. If so, she delves deeply into their references. “We’ve done more of this recently than in the 14 years we’ve been in business,” she said. “There are a number of ways to check people out: annual reports, a Dun & Bradstreet report, ask for personal and professional references.”

Cindy White, whose 11-year-old company manufactures knitted ribbon jackets that are sold in 40 high-end boutiques nationwide for $800 to $1,000, has been owed $5,000 for six months from several clients, forcing her to lay off employees. She has also fallen behind in the rent on her Phoenix design studio. “I have a lot of stores out there who owe me money, but they’re my bread and butter. You don’t want to upset them by suing or sending out collection letters.”

The decision whether to hold back or escalate demands for payment was made for her recently after a seven-year client, a store that closed, refused to communicate with her and did not pay for the jackets she had shipped. “I was furious,” Ms. White said. “This was a store I had a longstanding relationship with.”

Ever since, she said, “I have been on the phone every few days with all the stores that owe me money, just keeping tabs and making sure they are still viable.” She said she is hopeful that the economy will come back, and “I am willing to work with them because they are my lifeblood.”

Such attentiveness is necessary, agreed Ms. Brock. “I look at our profit and loss statements biweekly.” She advises scrutinizing client lists to predict potential trouble spots. “Even having two slow payers is significant.”

When a client refuses to pay, last-ditch options include

• hiring a collections agency — which typically recoup in full only 11 percent of the time —
• hiring a collections lawyer, who may claim one-third of what they recover, or
• filing a case in small-claims court. Joshua Friedman, a collections lawyer in Beverly Hills, Calif., said his business had been booming since last fall, with clients coming to him “in every field you can imagine.”

“Sometimes people can’t pay. Sometimes it’s a matter of straight-out fraud, where buyers are not doing enough due diligence. People are desperate to do the deal,” he said. Mr. Friedman takes on only cases worth more than $10,000.

“I try to resolve everything without filing a suit,” he said. His success rate is still only 20 percent, he warned. “My clients know better than I do if the client is really likely to settle.”

http://www.nytimes.com/2009/12/17/business/17markets.html?ref=business

Outlook 2010: Emerging Markets to lead the recovery

Outlook 2010: Emerging Markets to lead the recovery
Investors who held their nerve have seen great returns as emerging economies continue to out-perform their developed counterparts. We ask those in the know whether 2010 offers the same investment opportunties?

Compiled by Emma Wall
Published: 3:58PM GMT 15 Dec 2009

India's vibrant economy has produced a 250m-strong middle class Photo: HEATHCLIFF O'MALLEY

When The Association of Investment Companies (AIC) asked investment company fund managers to tip their top performing region for 2010, emerging markets came top with 35pc of the vote. Second and third were also sectors that can be included in the emerging markets umbrella- Latin America and the Far East excluding Japan respectively with 22pc and 18pc of the vote.

Dr Slim Feriani, chief executive of Advance Emerging Capital and manager of Advance Developing Markets said: “The performance of emerging market equities has handsomely outpaced that of developing markets in the past five years and we expect that outperformance to continue over the next five years.


Emerging countries have emerged as the “relative winners” from the subprime crisis and resulting recession for two prime reasons: the quality of their sovereign and household balance sheets has never looked so strong compared with developed countries as it does currently; and their economic and corporate earnings growth is and will continue to easily outstrip that of the developed world in both real and nominal terms for the foreseeable future."

Following Schroders’ annual outlook for 2010 media presentation, Alan Brown and Keith Wade predicted that the current global rally is likely to continue into 2010 with emerging markets leading the economic recovery. However, they warned that there are a number of potential monetary and economic factors that could derail the global recovery.

To protect against these, Schroders recommended a more dynamic approach to asset management involving greater diversification and flexibility in order to protect clients’ portfolios.

Close Asset Management believe that emerging markets here to stay. "The growing strain on Western consumers and government finances are likely to be reflected in weaker macroeconomic data and pressure on revenues for many years to come," said Stuart Dyer, head of distribution for Close. "Equity market valuations do not look well underpinned in an environment of low or faltering growth.

For investors seeking long-term growth emerging markets are likely to look increasingly attractive and we are already seeing a sea-change in risk attitudes to investment in these markets; expect this to continue and exposure to these markets to increase."

Fidelity International's Mr Teera Chanpongsang, portfolio manager for their India Focus Fund and Emerging Markets Fund agreed. He said that emerging markets would continue to offer strong long term investment opportunities and stable governments and developing industry will fuel growth.

He said: “Early signs of a recovery are visible in recent economic indicators and earnings upgrades. The region has one of the strongest GDP growth rates in the world, driven by favourable demographics and healthy population growth, which means more people are added to the region’s work force."

http://www.telegraph.co.uk/finance/personalfinance/investing/6817246/Outlook-2010-Emerging-Markets-to-lead-the-recovery.html

Outlook 2010: UK Equities

Outlook 2010: UK Equities
The past year will be remembered for extreme market volatility- few predicted the crash of March when the FTSE hit 3,512, but those who held their nerve would have greatly gained from the subsequent rise to 5,383 in November. We ask the experts- will the UK continue to grow in 2010?

Compiled by Emma Wall
Published: 12:34PM GMT 16 Dec 2009


"The outlook for 2010 is far from certain. The Government has to walk a tightrope between ongoing fiscal and monetary support for the economy and handing over to the private sector again as growth resurfaces.

Too much support could cause inflation to spike upwards and too little could cause the economy to fall back into recession.

Government intervention in markets and the economy has prevented the huge deflation feared at the start of the year. Sentiment has turned positive following an improvement in key leading economic indicators and corporate earnings.

Market direction for 2010 will be determined ultimately by a return of volume growth feeding through into corporate earning. The focus of the portfolio will be upon finding companies capable of growing their profits in an uncertain environment

David Stevenson, founding partner of Cartesian Capital Partners
“Stock selection from here should, therefore, focus on companies that can exhibit sustained sales and earnings growth in a post-stimulus environment.

Although the UK market has been hitting new highs in 2009, there have been recent signs of a change in mix within the overall index. Mid and small cap companies have lost some momentum after significantly outperforming large cap companies for most of 2009.

Having been the focus for risk and recovery appetite amongst investors, the underperformance of mid and small caps may mark the beginning of a broader market dynamic for 2010.

The recent preference for large cap includes many non-cyclical growth companies which have lagged the 2009 rally, and also internationally exposed companies, which are proving more attractive as domestic sentiment struggles under the prospective tightening of government policy.

We will continue to focus on an investment theme of visible earnings, spread across genuine recovery companies and durable growth companies where both are undervalued. The range of sectors involved is likely to be diverse, but with a leaning towards international plays until the UK economic picture becomes clearer.”

David Jane, head of multi-asset M&G
“Sterling and US dollar based assets are likely to suffer due to the risk of further quantitative easing, the indebted state of public finances and the poor economic outlook.

A long period of low UK interest rates and continued money printing from the Bank of England is unlikely to help the pound.

However, my negative view on sterling does not include UK equities, which I am positive on owing to their status as a real asset offering attractive long-term returns as well as the very international nature of the UK stockmarket.

Most FTSE 100 companies are large global blue-chips which generate significant revenue outside the UK and are not dependent on the UK consumer, nor are they overly exposed to the pound’s value falling.”

http://www.telegraph.co.uk/finance/personalfinance/investing/6817247/Outlook-2010-UK-Equities.html

Where was the smart money in 2009?

Where was the smart money in 2009?
Smart investors have managed to make money regardless of the recession and economic doom and gloom.

Emma Simon
Published: 6:44AM GMT 15 Dec 2009

For many families 2009 has been a tough year: unemployment is rising, pay packets have been squeezed and easy credit is hard to find, despite the fact that interest rates fell to a historic low.

But smart investors have managed to make money regardless of the prevailing recession and economic doom and gloom.

Gold has long proved to be the ultimate safe haven in times of global turbulence. And those who invested in this precious metal have enjoyed sparkling returns, with the gold price rising by almost a third.

It isn't just cautious investors who have profited. Those bold enough to stick with the stock market have, on the whole, enjoyed bumper returns.

The figures speak for themselves. On January 2, the FTSE100 stood at 4,434. For the first three months of 2009, share prices continued to fall, with the stock market hitting a low of 3,460 in March.

However, since then the market has enjoyed a sustained, and largely unexpected, recovery. Last week the FTSE100 closed at 5,261 – a return of almost 20 per cent on the whole of the year.

Those who have kept their money in cash have not fared so well. According to Moneyfacts, the financial information group, the average savings account is paying just 0.67 per cent after tax.

But beleaguered property owners have enjoyed a turnaround in fortunes. The slump in house prices bottomed out this year, with prices slowly starting to inch upwards again.

Property speculators may not be seeing the stellar gains that fuelled dinner party conversation a few years ago, but at least the home owner can end the year knowing the roof over their head is worth more than it was 12 months ago.

Below we take a closer look at where the smart money was invested this year, and examine the outlook for 2010.

Gold

Gold prices started rising in 2003 and did not lose their lustre this year. At the start of the year, gold prices stood at $869 per ounce and now hover about the $1,142 mark – a rise of 31 per cent.

But British investors have not seen such substantial gains. This is because gold is priced in dollars, and a weak dollar means that we lose out.

The prevailing exchange rate at the start of the year meant an ounce of gold cost £599; at the end of last week, this same ounce could be sold for £700 – a more modest rise of 17 per cent.

It is not hard to understand why gold prices have risen. It is seen as a safe asset in times of economic upheaval. Those spooked by recession, financial crisis and volatile stock markets not surprisingly prefer to invest in solid gold bars rather than paper share certificates.

Those concerned about inflation have also turned to gold: there are concerns that that "quantitative easing" measure adopted by central banks to kick-start the economy may causes prices to rise in future. In times of inflation, gold tends to keep its value far better than money simply saved in a bank account.

The price of gold has also been buoyed by strong demand from the emerging economic powerhouses of China, India and Russia.

Will it continue to perform well next year?

Analysts are split. Few assets deliver consistently over such sustained periods and many suggest that gold prices may be due a fall. However, others point out that while China keeps buying gold, the economy continues to falter and fears of inflation remains, gold will continue to shine as an investment.

British investors can either buy gold bars or coins through bullion dealers such as Baird & Co. Prices will be higher than the "spot" market price, due to investor demand. Coins currently attract a higher premium than bars, particularly larger ones where there are storage costs to consider.

Alternatively, investors can buy funds that invest in gold-related shares, such as mining companies, or exchange traded funds, which are securities traded on the stock market whose price closely follows the gold "spot" rate.

Equities

The stock market bounced back this year, and investors in the best-performing funds managed to triple their money. A look at the best-performing funds of the year reveals that it is those with their money in specialist high-risk areas that have raked in the biggest gains.

Top of the tree is the Special Situations fund run by Close Asset Management. This fund, which invests in smaller companies, rose in value by almost 250 per cent over the past year. So someone investing £,1000 at the beginning of January would now be sitting on a nest egg of £3,464, according to Morningstar UK, the fund analysts.

Aside from smaller company funds, those who invested in gold and oil have also done well. JP Morgan's Natural Resources fund and CF Ruffer Baker Steel Gold fund have both risen by about 100 per cent this year.

Rising commodity prices have also benefited funds focused on Russian markets, while other emerging market funds have also performed well.

Neptune Russia & Greater Russia fund is up 105 per cent, for example, and JP Morgan's New Europe fund has posted a 93 per cent rise.

Justin Modray, the director of candidmoney.com says: "2009 has been a good year for investors who have had exposure to oil and gold. It's therefore little surprise that funds with exposure to these commodities have performed well.

"Good opportunistic UK fund managers have also done well by seizing the lucrative investment opportunities thrown up by volatile markets.

"Deryck Noble-Nesbitt, manager of Close Special Situations has delivered exceptional returns by investing in small, unloved companies that bounced back into favour this year, and exposing about a third of his fund to commodities."

Jackie Beard, the director of fund research at Morningstar UK, added that the returns on such niche funds tended to be exaggerated. Those with money in Russia may have made spectacular gains this year, but twice in the last decade, investors could have lost 85 per cent of their money.

Will such sectors prove as profitable in 2010? Ms Beard urges caution: "The top-performing funds in one year rarely do so well in the next," she says. "And there is a danger you could simply be buying near the top.

"We aren't strong advocates of niche funds. Investors should only have a small portion of their portfolio in such funds. Investors should be taking a long-term view and opt for diversified investments."

Mr Modray says the outlook for 2010 is very uncertain. "The initial stock-market bounce, once investors realised the global banking system wouldn't collapse, has been and gone. Future returns will depend more heavily on economic fundamentals, which are all rather depressing in most Western markets.

"Emerging markets and commodities still offer some appeal, but the high potential risk involved means investors should only view them as a long-term play. If you want to invest in the UK stock market, I'd look for funds that offer some protection."

He recommends the Invesco Perpetual High Income fund, managed by Neil Woodford and the Cazenove UK Absolute Target fund.

http://www.telegraph.co.uk/finance/personalfinance/investing/6812083/Where-was-the-smart-money-in-2009.html

Moody’s warns of 'social unrest’ as sovereign debt spirals

Moody’s warns of 'social unrest’ as sovereign debt spirals
Britain and other countries with fast-rising government debts must steel themselves for a year in which “social and political cohesiveness” is tested, Moody’s warned.

By Edmund Conway
Published: 7:35PM GMT 15 Dec 2009

Riot police clash with protestors during an anti G20 demonstration near the Bank of England. Moody's has warned future tax rises and spending cuts could trigger more social unrest.
In a sombre report on the outlook for next year, the credit rating agency raised the prospect that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world.

It said that in the coming years, evidence of social unrest and public tension may become just as important signs of whether a country will be able to adapt as traditional economic metrics. Signalling that a fiscal crisis remains a possibility for a leading economy, it said that 2010 would be a “tumultuous year for sovereign debt issuers”.

It added that the sheer quantity of debt to be raised by Britain and other leading nations would increase the risk of investor fright.

Strikingly, however, it added that even if countries reached agreement on the depth of the cuts necessary to their budgets, they could face difficulties in carrying out the cuts. The report, which comes amid growing worries about Britain’s credit rating, said: “In those countries whose debt has increased significantly, and especially those whose debt has become unaffordable, the need to rein in deficits will test social cohesiveness. The test will be starker as growth disappoints and interest rates rise.”

It said the main obstacle for fiscal consolidation plans would be signs not necessarily of economic strength but of “political and social tension”.

Greece, where the government has committed to drastic cuts in public expenditure, has suffered a series of riots over the past year which are thought to have been fuelled by economic pressures.

http://www.telegraph.co.uk/finance/economics/6819470/Moodys-warns-of-social-unrest-as-sovereign-debt-spirals.html

Excellent corporate governance essential to good results

Excellent corporate governance essential to good results, says Teh

Tags: Bursa Malaysia Bhd | Excellent corporate governance | Good business performance | NUBS | Overall Excellence Award | Public Bank Bhd | TanSri Dr Teh Hong Piow | Transparency Index Award

Written by Financial Daily
Monday, 14 December 2009 11:21

KUALA LUMPUR: Excellent corporate governance is essential to good business performance as well as in ensuring that the interests of investors and all other stakeholders are well taken care of, said Tan Sri Dr Teh Hong Piow, the founder and chairman of one of Malaysia’s most renowned banking groups.

Teh and his management team should know about the correlation between good corporate governance and strong financial results given that PUBLIC BANK BHD [] has had an unbroken profit track record for over 40 years. The banking group has won numerous awards locally and overseas for its exemplary corporate governance.

“The board, management and staff of Public Bank will remain steadfast and committed in ensuring the highest level of corporate governance at Public Bank so that the interests of investors and all other stakeholders are well taken care of,” he said in a statement last Friday.

He said this after the banking group on Thursday yet again grabbed the top awards for excellence in corporate governance.

Teh lauded the Minority Shareholder Watchdog Group (MSWG) for launching the Malaysian Corporate Governance (MCG) Index, a premier index for investors to gauge corporate governance levels of public-listed companies in Malaysia.
Teh

The MCG Index is an extension of MSWG’s corporate governance survey collaboration with Nottingham University Business School (NUBS) in 2004 – 2008.

Teh expressed pride that Public Bank had won the Overall Excellence Award and the Best AGM Conducted in 2009 Award under the MCG Index 2009, especially as Public Bank had been ranked No 1 for four consecutive years in the MSWG–NUBS corporate governance surveys conducted in 2004–2008.

He said the Overall Excellence Award was a testimony to Public Bank’s strong corporate culture inculcated in the staff with everyone delivering as a team. Apart from Public Bank, BURSA MALAYSIA BHD [] was jointly awarded the Overall Excellence Award. Bursa also won the Best Governance and Transparency Index Award.


This article appeared in The Edge Financial Daily, December 14, 2009.

LCL at historic low, more bad news ahead?

LCL at historic low, more bad news ahead?

Tags: Affin Bank Bhd | Bank Islam Malaysia Bhd | CIMB Research | Dubai debacle | Historic low | LCL Corporation Bhd | LCL Furniture Sdn Bhd

Written by Joy Lee
Monday, 14 December 2009 11:26

KUALA LUMPUR: LCL Corp Bhd, which saw its share price drop to a historic low of 21 sen in intra-day trade last Friday on loan defaults, may get more bad news ahead as the Dubai debacle seems unlikely to abate any time soon.

LCL said it had been severely affected by the financial turmoil in Dubai and plunging property prices had resulted in delay and non-payment of its receivables. “Hence, LCL and its subsidiaries have been unable to meet its repayment obligations,” it said in a recent announcement.

The interior fit-out (IFO) company’s share price tumbled 10 sen or 31.25% to close at 22 sen last week, after wholly owned subsidiary LCL Furniture Sdn Bhd defaulted on loans worth RM72 million to two banks, Affin Bank Bhd and Bank Islam Malaysia Bhd.

The stock rose to a 52-week high of 95 sen on Aug 13, 2009.

Analysts were not surprised by the defaults given its high debt and slow collection problems in Dubai since the fourth quarter of last year. As at end-September 2009, its net debt totalled RM376 million and net gearing was 4.7 times.

CIMB Research expects the company to default on more loans in the coming months unless Dubai’s financial position turned around, which it said was a less likely scenario.

LCL had said the defaulted bank borrowings with Affin Bank and Bank Islam would have a consequence on the group’s other ongoing bank borrowings, which would also be declared in default under the cross default clause.

It cautioned that legal proceedings may be initiated by the lenders against LCL group of companies.

LCL’s borrowings are mainly short-term loans. CIMB Research said more than 75% or a total of RM293 million of the group’s loans as at end-December 2008 matured in less than a year.

“This is because almost all of the group’s borrowings are used for working capital. LCL’s interior fit-out business has close to six months funding for working capital.

“The group purchases raw materials like plywood and steel and undertakes the necessary fabrication, which takes three to four months to complete. LCL only gets to collect most of its outstanding receivables two to three months later assuming no delays in its collection.

“Clients have delayed payments to LCL for more than four to five months and this is having an adverse impact on its operational cash flows,” the research house said in a recent report.

News flow out of Dubai has not been positive and may remain that way for some time which may prove to be detrimental to LCL over the next few months.

“It is unfortunate that LCL has reached this stage. The company offered so much potential two to three years back but its operations and balance sheet were hit hard after working conditions in Dubai deteriorated rapidly in the aftermath of the 4Q08 property crash.

“The challenges are not just hitting LCL but also hitting hard on the main contractors in Dubai, including the Korean and Japanese contractors,” CIMB Research added.

It maintained its earnings forecasts and target price of 25 sen with an unchanged 75% discount to its 1.8 times target of price-to-book value for the CONSTRUCTION [] sector.

Meanwhile, LCL said the board was deliberating the group’s solvency status and would make the necessary announcement within the required time frame.


This article appeared in The Edge Financial Daily, December 14, 2009.


http://www.theedgemalaysia.com/business-news/155576-lcl-at-historic-low-more-bad-news-ahead.html

The Future of Gold, the Dollar, and More

The Future of Gold, the Dollar, and More
By Jennifer Schonberger
December 11, 2009

The dollar has had a huge effect on the stock market's moves this year. As the dollar has depreciated, many stocks have climbed higher; the logic is that a weaker dollar will boost the bottom lines of companies such as McDonald's (NYSE: MCD), Aflac (NYSE: AFL), and Coca-Cola (NYSE: KO), all of which derive a substantial portion of their revenues from abroad. The depreciating dollar has also boosted commodity prices and associated commodity stocks such as Freeport-McMoRan (NYSE: FCX) or Newmont Mining (NYSE: NEM), serving to lift the market.

As we approach 2010, what is the future of the dollar, and what are the implications for the asset prices that move inversely to it? What does it all mean when it comes to rebalancing the global economy and our economic relationship with China?

For some insight on all this, I spoke with the man who had the foresight to call the financial meltdown in 2006: Peter Schiff, president and chief global strategist of Euro Pacific Capital and author of the newly updated book Crash Proof 2.0.

Schiff believes the dollar is on a long-term downward trajectory, and that it could collapse if the government continues its current policies. That has implications for the stock market and gold, which he thinks could go to $5,000 an ounce.

Here's an edited transcript of our conversation:

Jennifer Schonberger: You've been bearish on the dollar for some time. Do you still stand by your bearish call for the greenback?

Peter Schiff: Yes. I think the dollar is going to fall for years. It's not going to fall every day, or every week. There are going to be periods of time where the dollar rallies -- that's how markets work. Like a bull market climbs a wall of worry, a bear market follows a slope of hope. And there's always going to be hope that the dollar is going to recover, based on "maybe the Fed will raise interest rates," "maybe the U.S. economy will improve." But none of that is going to help the dollar. I think the dollar's fate has been sealed by the policies being pursued by the government and the Federal Reserve, and unfortunately it's a grim fate.

Schonberger: If the dollar does remain weak, as you expect, what are the implications in terms of rebalancing the global economy?

Schiff: Part of rebalancing the global economy is going to necessitate a lower dollar. The reason the global economy is so out of balance is because the dollar is artificially strong. It's been propped up by foreign central banks, and this enables Americans to import products they really can't afford. So if we want the global imbalances to be solved, it's going to require a lower dollar -- and that's what's going to happen. The longer foreign central banks artificially prop up the dollar, enabling Americans to keep spending borrowed money, the worse the global imbalances are going to get.

Schonberger: You recently wrote, "While [China's] peg [to the U.S. dollar] certainly is responsible for much of the world's problems, its abandonment would cause severe hardship in the United States." Why?

Schiff: It would cause hardship in the U.S., but it's something that we have to deal with sooner rather than later. By propping up the U.S. dollar and by carrying U.S.-dollar-denominated debt -- U.S. Treasuries, mortgage-backed securities -- the Chinese have kept interest rates and consumer prices artificially low. Americans have been able to benefit from that in the short run because their mortgages, car payments, and credit card payments are lower. They can go to stores like Wal-Mart (NYSE: WMT) and get those everyday low prices. But those prices aren't because of Wal-Mart, they're because of China.

When the Chinese government removes all those subsidies, there's going to be an immediate benefit to the Chinese people, because they're suddenly going to see lower prices and more access to capital. In America, we're going to have the rug pulled out from under us ...

Schonberger: The dollar is central to the relationships of other assets' prices. There is an inverse relationship between the dollar and equities. Do you expect that linkage (between the dollar and equities) to continue into next year?

Schiff: Remember, there's an inverse relationship between the dollar and the price of everything, because as the dollar loses value, you need more dollars to buy anything. That's true for an ounce of gold, a barrel of oil, a bushel of wheat, or shares of stock. So you're always going to see prices rising as the dollar is falling. That's what's happening now.

Now at some point, inflation could be so problematic that it drives interest rates up substantially, and as inflation gets bigger and bigger, the prices that tend to react more quickly will be things like food and energy. So if U.S. corporations suddenly see the cost of their long-term debt or short-term debt jump up and their customers don't have any money to buy their products because they're spending all their money on food, then ultimately you could see falling stock prices as the dollar is falling.

Schonberger: Speaking of relationships, you expect gold to go to $5,000 an ounce, correct?

Schiff: Yeah. It could go higher than that, but I think $5,000 is a reasonable expectation of where gold is headed over the course of the next several years, based on monetary and fiscal policy that is in place. Now if the government were to reverse course -- if they suddenly brought the budget into surplus, and if the Fed aggressively raised interest rates back up to a reasonable level, say 5%, 6%, or 7%, not just a quarter-point every few months -- then gold would probably not get to $5,000.

But I don't think they're going to do that. Based on what the Fed is saying and doing, they're going to keep interest rates at practically nothing for as far as the eye can see. The U.S. economy is not recovering. All we're doing is spending stimulus money. The minute you take away the stimulus, all the GDP growth, all the jobs that are associated with that stimulus spending, will vanish. So they can't take the stimulus away without destroying the phony recovery. So if interest rates are going to stay low and they're going to keep printing money, the only thing that's going to happen is the dollar is going to fall until it all of a sudden collapses ...

Schonberger: So then you're actually calling for a collapse in the dollar relatively soon?

Schiff: Relatively soon, yes. Maybe not tomorrow, but I think it will happen soon. I think it will happen before Barack Obama leaves office even if he's only a one-termer. The first initial collapse in the dollar will be about a 50%, 60%, or 70% decline in dollar value. That collapse will usher in the new leg -- the much more severe leg of our economic downturn. Not only will we have a financial crisis, but we'll also have a currency and economic crisis.

Hopefully that will be the tough medicine, the shock that finally causes Congress and the Fed to abandon its current policy and start doing the right thing. If it doesn't -- if they respond to that big drop in the dollar by creating more inflation, and if they fail to raise interest rates aggressively and withdraw liquidity -- then they will turn the dollar into confetti. Then we will have hyperinflation. If we go down that road, gold prices aren't just going to $5,000, they'll go to $50,000, or $500,000. I hope that cooler heads will prevail before we go down that road, but from this point that's still a possibility if we don't change policies.

Strong words from Peter Schiff.

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. AFLAC is a Stock Advisor recommendation. Coke and Wal-Mart are Inside Value picks. Coke is also an Income Investor recommendation. The Motley Fool has a disclosure policy.

http://www.fool.com/investing/general/2009/12/11/the-future-of-gold-the-dollar-and-more.aspx

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Warren Buffett's Priceless Investment Advice
By John Reeves
December 9, 2009

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

If you can grasp this simple advice from Warren Buffett, you should do well as an investor. Sure, there are other investment strategies out there, but Buffett's approach is both easy to follow and demonstrably successful over more than 50 years. Why try anything else?

Two words for the efficient market hypothesis: Warren Buffett
An interesting academic study illustrates Buffett's amazing investment genius. From 1980 to 2003, the stock portfolio of Berkshire Hathaway (NYSE: BRK-A) beat the S&P 500 index in 20 out of 24 years. During that period, Berkshire's average annual return from its stock portfolio outperformed the index by 12 percentage points. The efficient market theory predicts that this is impossible. In this case, the theory is clearly wrong.

Buffett has delivered these outstanding returns by buying undervalued shares in great companies such as Gillette, now owned by Procter & Gamble. Over the years, Berkshire has owned household names such as Walt Disney (NYSE: DIS), Office Depot (NYSE: ODP), and SunTrust Banks (NYSE: STI).

Although not every pick worked out, for the most part Buffett and Berkshire have made a mint. Indeed, Buffett's investment in Gillette increased threefold during the 1990s. Who'd have guessed you could get such stratospheric returns from razors?

The devil is in the details
Buying great companies at reasonable prices can deliver solid returns for long-term investors. The challenge, of course, is identifying great companies -- and determining what constitutes a reasonable price.

Buffett recommends that investors look for companies that deliver outstanding returns on capital and produce substantial cash profits.

• He also suggests that you look for companies with a huge economic moat to protect them from competitors.
• You can identify companies with moats by looking for strong brands that stand alongside consistent or improving profit margins and returns on capital.

How do you determine the right buy price for shares in such companies? Buffett advises that you wait patiently for opportunities to purchase stocks at a significant discount to their intrinsic values -- as calculated by taking the present value of all future cash flows. Ultimately, he believes that "value will in time always be reflected in market price." When the market finally recognizes the true worth of your undervalued shares, you begin to earn solid returns.

Do-it-yourself outperformance
Before they can capture Buffett-like returns, beginning investors will need to develop their skills in identifying profitable companies and determining intrinsic values. In the meantime, consider looking for stock ideas among Berkshire's own holdings.

The financial media made a big fuss over Berkshire's $44 billion acquisition of Burlington Northern Santa Fe, which has caused some of his recent stock selections to fly under the radar. For instance, Buffett just opened a position in ExxonMobil (NYSE: XOM), which joins ConocoPhillips (NYSE: COP) to comprise Berkshire's oil and gas exposure.

It's easy to see why Berkshire likes this efficient operator. ExxonMobil boasts a rock solid balance sheet and broad geographic diversification. Furthermore, Exxon should only benefit if commodity prices increase -- a theme consistent with Buffett's recent railroad purchase. And if Buffett's buying history is any guide, you can be confident that Exxon shares are trading at a discount to their intrinsic value.

So what will Buffett buy next? Unfortunately, we'll have to wait until Berkshire files its next Form 13-F to know for sure.

Of course, that's the problem with following Buffett's stock picks -- we'll never know what he's buying today until long after the fact. In the meantime, another place to find great value-stock ideas is Motley Fool Inside Value. Philip Durell, the advisor for the service, follows an investment strategy very similar to Buffett's.

He looks for undervalued companies that also have strong financials and competitive positions. Philip is outperforming the market with this approach, used since Inside Value's inception in 2004. In fact, Philip's recommendation for December is a pick that Buffett would love -- an electric utility with stable free cash flow, strong competitive advantages, and a 4.3% dividend yield. To read more about this stock pick, as well as the entire archive of past selections, sign up for a free 30-day trial today.

If investing in wonderful companies at fair prices is good enough for Warren Buffett -- arguably the finest investor on the planet -- it should be good enough for the rest of us.

Already subscribe to Inside Value? Log in at the top of this page.

This article was originally published on April 7, 2007. It has been updated.

John Reeves can't remember the last time he used a razor made by someone other than Gillette, and he wishes he'd owned shares in that company before P&G acquired it. John owns shares of Berkshire Hathaway. Berkshire Hathaway and Walt Disney are Motley Fool Inside Value and Stock Advisor recommendations. P&G is an Income Investor pick. The Motley Fool owns shares of Berkshire Hathaway and Procter & Gamble. The Fool has a disclosure policy.

http://www.fool.com/investing/value/2009/12/09/warren-buffetts-priceless-investment-advice.aspx

Picking next year's winners might be a lot tougher.

What Will Be the Best Stock for 2010?
By Dan Caplinger
December 15, 2009

During 2009, finding winning stocks was like shooting fish in a barrel. But if what goes up must come down, picking next year's winners might be a lot tougher.

Among more than 4,000 stocks with market caps above $100 million that traded on major U.S. stock exchanges, more than 700 have doubled in price this year, and 84 have managed to see their prices rise 400% or more. Some of the top gainers include:

Stock
2009 YTD Return

Diedrich Coffee (Nasdaq: DDRX)
9,578%

Human Genome Sciences (Nasdaq: HGSI)
1,247%

Pier 1 (NYSE: PIR)
1,235%

Kirkland's (Nasdaq: KIRK)
615%

Teck Resources (NYSE: TCK)
551%

Dendreon (Nasdaq: DNDN)
469%

Sirius XM Radio (Nasdaq: SIRI)
411%


Source: Capital IQ, a division of Standard and Poor's. As of Dec. 14.


No encore
With those staggering numbers almost in the record books, a repeat performance of 2009 seems unlikely for most of those stocks. Still, that doesn't mean that there won't be any great stock returns in 2010.

Nevertheless, I'm not going to try to sell you on any hot predictions for next year. After all, I'm still reeling from my pick of Diedrich as the year's scariest stock. The company went on to jump another 60% in the month or so after I made that call.

How about you?


http://www.fool.com/investing/general/2009/12/15/what-will-be-the-best-stock-for-2010.aspx

What Was Your Worst Investment Mistake in 2009?

What Was Your Worst Investment Mistake in 2009?
By Dan Caplinger
December 15, 2009

In 2008, nearly everybody made bad investments. By comparison, 2009 was a complete delight.

Still, investors made mistakes. Even with the huge rally, some stocks, including Valero Energy (NYSE: VLO), MetroPCS (NYSE: PCS), and Apollo (Nasdaq: APOL), managed to drop this year. In addition, Treasury bonds, which rode high during 2008, also knocked investors for a big loss this year.

What might have been
Personally, though, my biggest mistake this year was in cutting my winners short. The decision to take some profits on part of my positions in Starbucks (Nasdaq: SBUX) and Freeport-McMoRan (NYSE: FCX) well into the rally seemed like a no-brainer at the time, but those stocks just kept going up. Similarly, I trimmed my holdings in junk bond mutual funds and some international bonds, figuring that gains might well prove short-lived. Although that didn't cause any losses, the opportunity cost of getting out too early was extremely high.

There's a lesson in that. Plenty of investors are smart enough to buy top performers like Apple (Nasdaq: AAPL) and Green Mountain Coffee Roasters (Nasdaq: GMCR), and a good number of them earn decent profits from them. But only the most disciplined, patient investors stick with those winners for the long haul, squeezing every penny of potential gain out of their shares and turning a modest winner into a gold mine for their portfolio.

How about you?


http://www.fool.com/investing/dividends-income/2009/12/15/what-was-your-worst-investment-mistake-in-2009.aspx

Top Glove posts RM65.2m 1Q net profit

The glove sector continues to be resilient and growing strongly.  Topglove is the leader in the group.  Watch the others too.


Top Glove posts RM65.2m 1Q net profit
Written by Loong Tse Min
Wednesday, 16 December 2009 14:50

KUALA LUMPUR: Latex glove maker Top Glove Corp Bhd whose share price surged Dec 15 on expectations of strong quarterly financial results on Wednesday, Dec 16 posted a 90.9% jump in net profit to RM65.2 million in its first quarter ended Nov 30, 2009.

In its results filing to the stock exchange during the midday trading break, the company attributed the strong growth in earnings to cost-savings measures implemented at all its factories, improvements in product quality, productivity as well as aggressive marketing strategies.

Revenue for the quarter grew 22.3% to RM472.3 million from RM386.1 million in the same quarter a year earlier, with earnings per share rising to 21.94 sen from 11.60 sen. No dividends have been declared for the period under review.

In the notes accompanying the quarterly filing, the company added that its group continues to strengthen its balance sheet and working capital position, currently in net cash position of RM222 million, with RM237.1 million cash in bank as at Nov 30, 2009.

The group also has fully redeemed the bonds outstanding before its maturity date in view of its strong cash flow position. According to the company, its finance cost for current quarter has reduced by 85% to RM400,000 from RM2.7 million in quarter ended Nov 30, 2008.

Going forward, Top Glove said: "The group is confident of continuous growth and good profitable performance in current financial year".

It disclosed that its factory in Klang has commenced installation of 16 new and more advanced glove production lines with completion expected by February 2010.

It has also begun CONSTRUCTION [] of another factory in Klang that will house an additional 16 production lines with target completion by July 2010. It is also installing nine more "latex concentrate centrifuge machines" in Thailand to be ready by January 2010.

The Top Glove group currently has 355 production lines in 19 factories with a capacity of 31.5 billion pieces of gloves per annum. Staff strength stands at 9,100 employees.

At 2.30pm, Top Glove was trading unchanged at RM9.53 with 400,700 shares changing hands.

http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=155812&Itemid=79


Top Glove Q1 net almost doubles
Published: 2009/12/17


Top Glove Corp Bhd (7113) said its first quarter net profit almost doubled to RM66.5 million on cost saving measures and aggressive marketing strategies.

Revenue for the quarter ended November 30 2009 rose 22 per cent to RM472.3 million from RM386.1 million previously.

"Top Glove has adapted well to the challenging business environment, resulting from cost-saving measures implemented at at our factories in Malaysia, Thailand and China.

"In view of the strong profit growth for the first quarter, we're optimistic of positive outlook for the next few quarters," chairman Tan Sri Lim Wee-Chai, said in a statement.

To meet higher demand for latex concentrate, Top Glove is installing nine more latex concentrate centrifuge machines in Thailand.
"We should be able to complete this upgrading works next month," said Lim.

Currently, the company is in net cash position of RM222 million, with RM237.1 million cash in bank as at November 30 2009. It has fully redeemed outstanding bonds before the maturity date.

Its finance cost is also down by 85 per cent to RM400,000 in the first quarter.

In the last 10 years, Top Glove's profits expanded at an average rate of 36 per cent. Its performance far outweighs global rubber glove demand growth of 10 per cent per year.

With installed capacity of 31.5 billion pieces of gloves a year, the world's biggest glovemaker continues to build on its size.

Factory 20, which is located in Klang, Malaysia, has commenced the installation of 16 new and advanced glove production lines and is targeted to be completed by February 2010.

As for Factory 21, it is being built and is expected to start operation towards the end of next year.

http://www.btimes.com.my/Current_News/BTIMES/articles/16top/Article/

Investors need to watch out for possible market corrections of at least 10%

Investors need to watch out for possible market corrections of at least 10%
By Ryan Huang/ Jonathan Peeris, Channel NewsAsia,
Posted: 14 December 2009 2054 hrs


SINGAPORE: Online financial services firm CMC Markets said investors hoping to enter the stock markets before year-end should be wary of a possible correction of about 10 per cent.

CMC said recent rallies have run ahead of fundamentals. And there are also concerns about when central banks will withdraw stimulus measures from the global financial system.

Stock markets may have rallied and shown signs of stabilising in recent months, but CMC Markets believes there should be caution going into 2010.

For one, it said, the recent stock market rallies have been fuelled by the weakness of the US dollar and Japanese yen. And when these currencies stabilise, the stock rally may falter.

Then there is the question of how markets will react to central banks eventually pulling back the massive stimulus for the global economy.

CMC believes there are significant headwinds ahead for markets.

Ashraf Laidi, chief market strategist, CMC Markets, said: "First of all, the fallout from the Dubai story is really not over yet and just starting. The question really depends upon the extent to which these various entities that are part of the Dubai Holdings umbrella may be forced sell some of their UK and US-based property."

CMC said other problem areas include the current credit tensions inside some Eurozone countries like Greece and Spain. There are also signs of weakness in the commercial real estate sector in the UK and the US.

Mr Ashraf Laidi added: "I think currencies like the Malaysian ringgit and the Singapore dollar could be boosted by a concrete improvement in interest rates.

"I think the real estate sector in these regions probably cannot be described to be in a bubble as others can. I think that services and activity in financial services here and the demand is really taking a life of its own."

CMC also sees a bright spark in gold as a long-term investment. It said while gold prices may dip in the next two quarters, the yellow metal may hit a high of US$1,500 an ounce in the second half of next year. - CNA/vm

http://www.channelnewsasia.com/stories/corporatenews/view/1024760/1/.html

LCL Founder Loses Company After Dubai Debt Crisis

Debt and leverage are double-edged swords. You can make it big or you can be decimated. You will never be bankrupt if you are not in debt or excessively leveraged. Always be prepared for the unexpected downsides. Who would have thought that Dubai will be also mained in this financial crisis?

LCL Founder Loses Company After Dubai Debt Crisis (Update3)


By Barry Porter

Dec. 15 (Bloomberg) -- LCL Corp Bhd. Managing Director Low Chin Meng lost control of the Malaysian interior design company he founded after a debt crisis in the Gulf emirate of Dubai forced it to default on loans.

CIMB Islamic Bank Bhd. sold 16 million of Low’s LCL shares, representing his remaining 11.2 percent stake in the business, that were pledged as security against financing, Malaysian stock exchange filings show.

More than of 80 percent of Selangor-based LCL’s sales came from the United Arab Emirates last year compared to 46 percent in 2007, according to data compiled by Bloomberg, as Dubai built the world’s tallest tower and palm tree-shaped islands in a bid to lure international investors.

“When the company was growing at a fast rate it needed short-term capital to meet orders,” Nigel Foo, an analyst at CIMB Investment Bank Bhd., said in a telephone interview from Kuala Lumpur today. “To achieve this Low personally pledged his own shares.”

LCL said Dec. 10 it had been “severely” impacted by financial turmoil in Dubai and defaulted on 72 million ringgit ($21 million) of loans from Affin Bank Bhd. and Bank Islam Malaysia Bhd. because clients in the sheikhdom hadn’t paid bills. State-owned Dubai World roiled markets worldwide Dec. 1 when it said it was in talks with creditors to restructure $26 billion of debt built up during the emirate’s six-year real estate boom.

Bank Debts

LCL had 376 million ringgit of net debt as of Sept. 30, according to a Dec. 11 report by CIMB’s Foo. In addition to loans from CIMB the company borrowed from AMMB Holdings Bhd., Alliance Bank Malaysia Bhd., Bank Muamalat Malaysia Bhd., EON Capital Bhd., Public Bank Bhd., Standard Chartered Plc, Kuwait Finance House and Royal Bank of Scotland Group Plc, according to its Dec. 10 statement.

LCL jumped 8.7 percent today in Kuala Lumpur trading to close at 25 sen, giving the company a market value of 35.8 million ringgit. The stock has plunged 64.5 percent this year.

Low sold blocks of shares in the past three months, reducing his stake to 11.2 percent from 29 percent on Sept. 24, exchange filings show.

Calls to his mobile phone today weren’t answered today and officials at the company’s main office said he wasn’t there when Bloomberg called seeking comment.

Separately, the Malaysian stock exchange said today it reprimanded LCL for not submitting its annual audited accounts on time for the year ended Dec. 31 2008.

To contact the reporter responsible for this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net

Last Updated: December 15, 2009 04:23 EST

Another Polished Gem in Teh Hong Piow's stable of companies

10-Year Group Financial Graphical Summary (Page 62 and Page 63 of Annual Report)
http://www.lonpac.com/annualreport08/LPI08_4.pdf

Over the last 5 years, the earnings per share have increased 3x.  Its share price has increased more than 2x.  Dividends over the last 5 years have also grown commensurate with the earnings, though these had been flat the last 2 years. 

Technicians should take note

Defensive stocks may not be spared, says chartist

Tags: BAT Malaysia Bhd | Defensive stocks | Dubai World | FBM KLCI | Finance sector | Fitch Ratings | Genting Bhd | Lee Cheng Hooi | Maybank Investment Bank | Nakheel | Petronas Dagangan Bhd | Plantations | YTL Corporation Bhd

Written by Daniel Khoo
Monday, 14 December 2009 11:34

KUALA LUMPUR: Defensive stocks may not be spared the brunt of an expected “steep correction” in the market ahead, said a technical analyst.

Maybank Investment Bank’s head of retail research, equity markets, Lee Cheng Hooi, who last Friday advised investors to liquidate their stocks, said some key FBM KL Composite Index stock constituents may lead declines in the market.

Among stocks which Lee expects will undergo a correction are YTL CORPORATION BHD [], GENTING BHD [], BAT Malaysia Bhd and PETRONAS DAGANGAN BHD [].

“Despite these stocks being defensive in nature, they don’t seem to be in great shape,” he told The Edge Financial Daily pursuant to his chart analysis of these stocks.

Lee also said banking stocks were “looking a bit high” and he did not rule out a further correction in the sector. The finance sector constitutes about 35.7% weightage on the FBM KLCI, followed by PLANTATION []s.

“The market is high, and we will likely see a snowball sell effect,” he said, adding that the local benchmark index may well fall below 1,200 since its run-up a few months ago.

In a report last Friday, Lee urged investors to liquidate their stocks in view of the “steep correction” round the corner, as the FBM KLCI hovered at a key neckline support level of the head and shoulders chart pattern.

He said the FBM KLCI may have peaked at 1,288.42 on Nov 17, 2009, and “urged investors to liquidate all their stocks on any and every rally”. He said all the FBM KLCI’s indicators (CCI, DMI, MACD, Oscillator and Stochastic) turned negative recently.

“There could be a potential steep correction very soon. Tactically, investors should liquidate all their stocks. If the FBM KLCI breaks below 1,255, the market would head down towards 1,207 (the measurement target of the dreaded head and shoulder pattern),” he said.

The head and shoulders pattern is a reversal chart pattern after a long upward trend and is recognised by technical analysts to forecast likely future trends in stock markets.

“Large local funds are distributing their massive positions, whilst maintaining the illusion that all is well with the FBM KLCI and FBM 100,” he added in the report.

Lee said weakness in most blue-chip components and mid-capped stocks would cause further market downside in the medium term, and the FBM KLCI was holding above the 50-day simple moving average for now. Lee said any US dollar’s rise would be among the factors giving downward pressure to equity markets.

FBM KLCI closed almost flat last Friday at 1,260 points with a high degree of uncertainty throughout the trading day. The benchmark index has risen about 50% from its low of 835.17 about a year ago.

There was now risk aversion to emerging markets after Dubai delayed its debt repayments, Lee further told The Edge Financial Daily, advising investors to hold cash at this point in time.

He likened the state of the world economy now to “a house of cards”.

“Dubai has started it (the correction), and these debt defaults will cause jitters in the world economy,” Lee said, referring to the latest news of debt repayment concerns in Spain and Greece.

Dubai is delaying its debt repayment, putting at risk the US$59 billion (RM200 billion) debt held by government controlled Dubai World and its property arm and an upmarket builder Nakheel.

Fitch Ratings last Tuesday announced that Latvia and Lithuania’s credit ratings were under pressure from the sharp deterioration in public finances, according to a Bloomberg report.

The same agency also cut its rating on Greek government bonds one step lower to BBB+, causing a heavy selloff on Greece’s government bond markets on fears over debt default.

Reports also said Standard and Poor’s shifted its outlook for Spain’s debt from stable to negative. The agency further said “reducing Spain’s sizeable fiscal and economic imbalances required strong policy actions, which have not yet materialised”.

Heavy bond selloffs have also been reported in countries like Portugal and Ireland as investors feared credit ratings for these countries may be downgraded.


This article appeared in The Edge Financial Daily, December 14, 2009.

EPF net buyer in banking stocks

EPF net buyer in banking stocks

Tags: Bank Negara Malaysia | CIMB Group Holdings Bhd | Domestic banking stocks | ECMLibra Investment Research | EON Capital Bhd | EPF | Hong Leong Bhd | Maybank | PBB

Written by Yong Yen Nie
Monday, 14 December 2009 11:41

KUALA LUMPUR: The Employees Provident Fund (EPF) has re-emerged as a net buyer in most domestic banking stocks, especially large-capped ones since November 2009, a significant shift from its net selling activities in the period prior starting in April this year.

According to latest filings on Bursa Malaysia, EPF has raised its stakes in MALAYAN BANKING BHD [] (Maybank) and CIMB Group Holdings Bhd to 808.7 million shares or 11.4% and 462.22 million or 12.9%, respectively.

A month earlier, EPF held 788.25 million shares or an 11.1% stake in Maybank and 441.68 million shares or a 12.3% stake in CIMB.

Prior to this, the statutory pension fund had pared down its holdings in Maybank and CIMB from April this year. At end-April, it had held 887.77 million shares or a 12.5% stake in Maybank and 623.48 million shares or a 17.4% stake in CIMB.

EPF also picked up PUBLIC BANK BHD [] (PBB) shares in November, raising its interests to 474.93 million shares or 13.4%, compared with 461.54 million shares or 13.1% at end-October.

EPF used to hold a 14.8% stake comprising 523.76 million shares in PBB but had pared down its stake in the banking group since end-August this year.

It also accumulated more AMMB HOLDINGS BHD [] shares and held a 13.4% stake or 405.35 million shares in the banking group as of end-November, compared with 395.38 million shares or 13.1% a month earlier.

EPF had been a net seller in AMMB shares since July. As at end-June, EPF had held 451.57 million shares or a 15% stake in AMMB.

Banking analysts said EPF was seen to be turning its focus on banking stocks, given the improved indicators in the financial sector and stronger expectations of an improved economic outlook in 2010.

A banking analyst with a local research house said several research houses had made overweight calls on the sector following banks’ better-than-expected financial results for the quarter ended Sept 30, 2009.

“With the anticipation of a stronger economy next year, EPF would want to have an investment strategy that benefits the most from the recovery,” she told The Edge Financial Daily last week.

The banking analyst added that while there was still some upside left in the banking stocks, most of them were approaching the target prices.

“(Nevertheless), we believe buying activities for banking stocks will continue for the first half of 2010, underpinned by stronger economic trends, while profit-taking would be more pronounced by June next year,” she said.

EPF had also accumulated shares in other mid-capped banking stocks, filings on Bursa Malaysia showed.

According to filings last Friday, EPF had raised its interests in HONG LEONG BANK BHD [] to 177.28 million shares or 11.2% from 171.32 million shares or a 10.8% stake at end-October.

The pension fund had also increased holdings in ALLIANCE FINANCIAL GROUP BHD [] (AFG) to 235.9 million shares or 15.24% at end-November from 226.02 million shares or 14.6% a month earlier. Filings showed EPF has been accumulating shares in AFG since end-June.

EPF slightly pared down holdings in EON CAPITAL BHD [] to 83.4 million shares representing 12.03% at end-November from 83.62 million shares or 12.06% a month earlier.

Recent Bank Negara Malaysia statistics showed that the decline in loans growth had bottomed in October, following a faster loans expansion of 7.5% year-on-year (y-o-y) compared with 7.2% in September this year.

In a report, ECMLibra Investment Research said the improving loans growth corresponded with a gradual recovery in economic conditions, as shown by a 1.2% contraction in gross domestic product (GDP) for the third quarter of 2009 (3Q09), which was healthier than 1Q09’s and 2Q09’s contraction of 6.2% and 3.9%, respectively.

“Going by the lending indicators, it would seem that there has been some pent-up demand for credit, as shown in the double-digit y-o-y changes in the applications and approval numbers.

“Net NPL (non-performing loans) ratio on a three-month basis remained unchanged at 2.1%, but has improved to 1.5% on a six-month basis (from 1.6% previously),” it said.

The research house added that the banking system’s capitalisation remained stable with risk-weighted capital ratio and core capital ratio of 14.5% and 13%, respectively.


This article appeared in The Edge Financial Daily, December 14, 2009.

Value Growth Investing

Publiished by FT Prentice Hall in 2001 , 1st edition

Description of Value Growth Investing
"Drawing on the principles of some of the most successful investors of the last century, this book is both a valuable guide to the ideas of these gurus and a fascinating elucidation of the author's own investment philosophy of 'valuegrowth'." Romesh Vaitilingam, author of The Financial Times Guide to Using the Financial Pages "Glen Arnold explores and endorses all the investment concepts that I try to promote every week in the Investors Chronicle and his portraits of the great investors are right on the mark. Despite being a professor of finance, he is eminently readable." Alistair Blair, No Free Lunch column, Investors Chronicle "Market commentators and investment managers who glibly refer to growth' and value' styles as contrasting approaches to investment are displaying their ignorance, not their sophistication." Warren Buffett, 2001 Valuegrowth Investing answers the key question for investors: "What are the crucial elements leading to the successful analysis of shares?" To be a successful investor you have to be a good evaluator of businesses.
There are too many so-called investors who occupy their time analysing the stock market, identifying trends and forecasting.Valuegrowth investors understand the companies in which they buy stocks as living businesses. This book draws on the rigorous investment techniques developed by the great investors of the last 100 years, such as Peter Lynch, Benjamin Graham and Warren Buffett. These ideas are combined with modern finance frameworks and with recent developments in the field of business strategy analysis, to create a new way of valuing shares. All investors are searching for the Holy Grail of a set of sound and profitable investment principles to guide them in share selections. Valuegrowth Investing shows that the Grail has been found.Valuegrowth Investing: *draws on investment principles discovered by world-renowned investors such as Peter Lynch and Warren Buffett *combines these principles with insights provided by recent developments in the field of business strategy to provide a coherent investment philosophy for tomorrow's investment strategies *describes what the ordinary investor should focus on and then offers evaluation techniques to identify underpriced shares *provides tools for analysing key investment factors *shows that successful investing does not require great intellect, it requires great principles.


Contents of Value Growth Investing
Part One: Investment Philosophies

1. Peter Lynch's niche investing
2. John Neff's sophisticated low price-earning ratio investing
3. Benjamin Graham: The father of modern security analysis
4. Benjamin Graham's three forms of value investing
5. Philip Fisher's bonanza investing
6. Warren Buffett and Charles Munger's business perspective investing - Part 1
7. Warren Buffett's and Charles Munger's business perspective investing - Part 2

Part Two: The Valuegrowth Method

8. The Valuegrowth Investor
9. The analysis of industries
10. Competitive Resource Analysis

Expensive IPOs failed due to overpricing

Expensive IPOs failed due to overpricing

3 Nov 2009, 1045 hrs IST, Supriya Verma Mishra, ET Bureau


Initial public offerings are back, so are investors who have not learnt their lessons. There is nothing more disturbing for an investor than missing More Pictures
out on potentially high returns IPO, which can be flipped in a few weeks. Some have made millions that way, but most seem to have lost money.

Most share sales since 2004 failed to deliver, thanks to robber barons and bankers who took every penny possible out of investors’ pockets, shows an ET Investor’s Guide analysis. Not that those investors were naive. It was greed, when they queued up to shell out hundreds of rupees for a share in companies with no revenues even!

The frenzy among retail investors is not back to where it was in January 2008, but is rearing its head. A risk-return analysis of past IPO’s suggested that investors need caution in a market, which is to see a flood of IPOs. About 20 companies are set to raise Rs 20,000 crores in the next 2-6 months (depending on SEBI clearance).

Legendary investor Warren Buffett is wary of IPOs. Shouldn’t retail investors walk his path? “It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller to a less-knowledgeable buyer,” Buffett reportedly said on IPOs.


Check out the IPOs that failed to deliver


Methodology

Out of the 277 odd companies that raised funds through an IPO since 2004, we short-listed those that raised more than Rs 100 crore. It led to choosing 114 companies. We then calculated the returns from these investments at IPO price and their current market price. We compared with the returns the Sensex provided from the date the stock listed till Friday. Having done this, we worked out the shortfall, or gains in the returns posted by stock vis-àvis the Sensex starting from the period the stock began trading.

Out of the 114 companies; a little over one-fourth (30) bettered the Sensex return during the period and another half a dozen were in line with the broader market. In a majority of the IPOs, however, investors lost their capital, leave alone getting returns. About two-thirds of all IPO companies (65) are trading below their offer price out of which nearly 60% of them are at half their initial sale price. Investors might have been better off with bank deposits.


The analysis

But why did majority of the IPOs fail to deliver? The usual answer from the companies and bankers will be “that’s the way market is”. Although there’s no single reason, a dominant one is the pricing as sellers try to get the maximum, which, at times may be even higher than their traded peers by sugar-coating prospects. Broadly speaking, the companies that debuted with high valuations compared to their listed peers failed miserably.

A company which has a nascent business and asking for a valuation 60-100 times its latest annual earnings is almost robbery, but have happened. In order to support such a pricing, it will have to more than double its earnings every year on consistent basis. This is well nigh impossible in best of circumstances, not surprisingly most of these high fliers fail to deliver.

Most of the IPOs in our sample however failed to deliver simply because they were priced too aggressively. This includes initial public offers of Suzlon Energy (priced 55 times its preceding year’s earnings), jewellery maker Gitanjali Gems (112x), and multiplex operator PVR (140x) among others. Besides the company specific reasons, the common factor among them was their high price to earnings (P/E) multiple that they were asking.

At a P/E of 140x, PVR would have to grow at least 70-80% to justify such rich valuations. However given the unreasonable valuations and too much expectation built into the price, these stocks were the first ones to be slaughtered at the hint of first trouble in the market.


Other cases of irrational exuberance include Reliance Power and Mundra Port. In Jan’ 08, Reliance Power raised Rs 11,700 crore from the market at More Pictures
five digit earnings multiple and no revenue from operations. It is yet to generate any revenues form electricity. For the year ended March’ 09 it had other income of Rs 360 crore.

The company’s gross block remains at a miniscule Rs 295 crore (on consolidated basis) and the market capitalisation it still has is Rs 38,000 crore, a far cry from the more than 84,000 crore at the IPO price. Similarly for Mundra Port, out of Rs 1,770 crore raised, close to half of the funds still remain unutilised after two years.

Financial services were the worst hit during the last year’s market meltdown. Future Capital listed in 2007 at a price to book value (P/BV) of 35. The company had priced the stock so aggressively that it is down 69%. Today it is trading at a P/BV of 2.5x. Being a new player, this is steep when compared to bigger players like Motilal Oswal (2.98x) and M&M Financial (1.72x). Precisely for this reason Future Capital’s daily compounded return is –33 % as compared to M&M’s 7%.

There are some who were battered by the economic circumstances. Like in case of Jet Airways, which was the only listed airliner. With Rs 400 crore profit in its first year of listing, the stock was reasonably priced at 26 times its trailing year earnings. But within two years of its IPO, its finances were shattered due to a price war and record high crude oil prices. It is struggling.

There were some IPOs where investors made money too, like the public sector companies, which usually don’t price aggressively. Public sector units such as Power Finance Corp (13.2x) and Rural Electrification (15x) were reasonably priced. Undergarments maker Page Industries (27x), and Tulip Telecom (13.9x) were attractively priced and have returned at least 38 %daily annualised returns. Besides pricing, their business model was very unique.

Like Page Industries is the sole manufacturer and marketer for the innerwear brand ‘Jockey’ for the last ten years. Thus it not only plays the role of a contract manufacturer but also actively creates brand awareness for the foreign brand. They raised funds for expanding their business and not setting up a business from scratch, so their gestation time to generate returns was very low.

While it is may not be appropriate to paint all the IPOs with the same brush, investors should be cautious that the majority are over-priced and may choose the ones that are priced at a discount to their listed peers, or wait for the market to arrive at a price, possibly lower than the IPO one.

http://economictimes.indiatimes.com/Features/Investors-Guide/Expensive-IPOs-failed-due-to-overpricing/articleshow/5187660.cms?curpg=1

Valuing bonds and dollar not easy anymore

Valuing bonds and dollar not easy anymore

9 Nov 2009, 0722 hrs IST, Bloomberg


"In price is knowledge," one editor used to scream at me. Whether or not you believed in efficient markets, you could be sure the price of a bond, a currency or a commodity was trying to tell you something about the outlook for growth, inflation or monetary policy; all you had to do was listen and translate. Not anymore. The ad-hoc combination of quantitative easing, government stimulus packages and zero-interest-rate policies has distorted markets beyond recognition.

In short, it is almost impossible to make a coherent argument for what a 10-year Treasury should yield, what a dollar or euro is worth, or whether to buy or sell copper or gold. Following are examples of markets driven mad by the recent enthusiasm for government intervention.

Unshackled from Bondage, Unhinged from Reality

The 10-year US government bond yields about 3.5 per cent, down from a five-year average of 4.14 per cent and its 20-year average of 5.57 per cent. Today's level, though, is about as reliable as the price of a collateralized-debt obligation in the depths of the credit crunch.

The combination of US authorities keeping the fixed- income market on life support by buying debt, plus commercial banks filling their balance-sheet holes with top-quality government securities, makes the Treasury yield an exercise in marking-to-myth.

$12.1 Trillion With bonds as your guide, you would never guess that the US Treasury plans to borrow a net $276 billion for the October-December period and a further $478 billion in the first quarter of next year, or that it expects to hit its $12.1 trillion debt ceiling some time next month.

If anyone is worried that the multi-trillion-dollar global Keynesian experiment we're in the middle of might backfire and ignite inflation, they haven't told the Treasury market. Maybe they have been whispering instead to the gold market. Gold has reached a record $1,095 per ounce this week after a 25 per cent gain so far this year. You know markets have gone mad when the 10-year Treasury couldn't care less that gold is at a record.

Credit Where It Isn't Due

Investors who own European corporate bonds have made more than 15 per cent this year on a total-return basis, according to figures compiled by Deutsche Bank AG. Subordinated debt sold by financial companies has delivered more than 26 per cent. In Europe's high-yield market, junk debt has returned a spectacular 67 per cent. You will struggle, though, to find anyone who trusts the rally. Too much money, with nothing better to buy, indiscriminately rushing back into the credit markets - that seems to be the culprit.

Never mind that the default rate among high-yield companies in Europe reached 9.3 per cent at the end of the third quarter, up from 6.4 per cent in the previous three months, according to Moody's Investors Service. The rating company is predicting speculative grade bond failures will peak at 10.9 per cent this quarter, before almost halving to 6 per cent a year from now. That seems way too optimistic, given the economic carnage wreaked by the credit crunch on corporate creditworthiness.

You know markets have gone mad when corporate bonds promise equity-style returns. It can mean only one thing: Investors should brace themselves for the equity-style risk of losing all of their money, not the security of regular interest payments.

Currency Carnage

The Japanese economy has been a basket case for years, with a second-quarter gross-domestic-product performance that was downgraded to an anemic 2.3 per cent pace from an initial 3.7 per cent estimate. The US economy, meantime, is lauded for its flexibility and endurance, as proven by its bounce out of recession to post 3.5 per cent growth in the third quarter. Nevertheless, the currencies of both countries currently seem yoked together in the hive-mind of the investment community. When risk aversion rises, the yen and the dollar climb, and we're told that investors are seeking the safety of havens. When risk appetite improves, the dollar and the yen both get trashed, unwanted and unloved. Moreover, the US currency is now talked about as a carry-trade favorite, something you borrow because it's cheap and easy, and you want to invest somewhere more lucrative.

You know markets have gone mad when the yen is perceived to be a refuge and the dollar is the catalyst of choice for re- inflating a global bubble.

http://economictimes.indiatimes.com/features/investors-guide/Valuing-bonds-and-dollar-not-easy-anymore/articleshow/5210524.cms

Mark Mobius eyes Gulf stocks

Mark Mobius eyes Gulf stocks

3 Dec 2009, 1215 hrs IST, Bloomberg
SINGAPORE: The worst plunge in Dubai stocks in a year and record retreat for Abu Dhabi are luring Mark Mobius to “bombed out” Emaar Properties PJSC while investors say phone companies, airlines and port operators have become bargains.

Dubai isn’t likely to go bankrupt and will be “bailed out,” Mobius, who oversees more than $30 billion of developing-nation assets as chairman of Templeton Asset Management, told Bloomberg Television in Hong Kong on Wednesday. “From a longer-term perspective, you’ve got to look at these really bombed out sectors.”

Emirates Telecom, the biggest operator in the United Arab Emirates, is attractive after falling to its cheapest level since July, said hedge-fund firm Gulfmena Alternative Investments. Dubai-based courier Aramex will rally after a 7.4% drop the past two days left shares at a 32% discount to the average price-to-earnings ratio since 2006, according to Duet Mena.

Abu Dhabi’s ADX General Index sank 12% and the Dubai Financial Market Index fell 13% since Dubai said November 25 it would seek a “standstill” agreement on debt owed by state-run Dubai World. The measures are now the cheapest after Nigeria’s among 71 benchmark indexes tracked by Bloomberg. Dubai-based Emaar, the UAE’s largest developer, plunged 19%.

“I particularly like companies like Emaar, property companies,” said Mobius. “There are many of those properties that are cash-flow rich, that are doing quite well. Not all of the properties are in trouble. If you ever tried to stay at a hotel in Dubai you realise what the prices are, which should come down, but even with half the prices that they’re charging, they can make money.”

STOCKS REBOUND

Qatar’s DSM 20 Index led gains globally today, climbing 5.3%, as Commercial Bank of Qatar, the Gulf country’s second-biggest bank by assets, said it has no exposure to Dubai World or its unit Nakheel. Dubai and Abu Dhabi markets are closed until December 6 for the UAE National Day. The MSCI Emerging Markets Index rose for a third day, extending its longest rally in three weeks.

The cost of credit-default swaps protecting Dubai debt against a government default fell 9 basis points to 451, extending the steepest decline in nine months on Tuesday, according to prices from CMA Datavision. The contracts decline as perceptions of credit quality improve, with one basis point equivalent to $1,000 a year to insure $10 million of debt.

ARAMEX, AIR ARABIA

Mobius predicted on November 27 that Dubai’s attempt to delay debt payments may spur a “correction” in developing-nation equities, adding that a 20% slide is “quite possible.” “Now as the dust settles, a few companies in the UAE stand out,” said Rabih Sultani, a fund manager at Duet Mena in Dubai, a unit of Duet Group, which oversees about $2.1 billion. Sultani said he favours shares of Emirates Telecom, known as Etisalat, Aramex and Air Arabia, the UAE’s largest low-cost carrier. While Mobius expects Dubai property shares to lead a recovery, some areas in China and India may become the “next Dubai” because of too much spending and borrowing, Mobius said, citing the cities of Shanghai and Mumbai.

“It wouldn’t be a country-wide situation, isolated pockets of disaster because of over-spending and over-leveraging,” Mobius said. “It’s not going to happen tomorrow but with the kind of money supply that’s coming in, with the IPO activity that we’re seeing, that’s definitely in the cards.”

http://economictimes.indiatimes.com/markets/global-markets/Mark-Mobius-eyes-Gulf-stocks/articleshow/5293887.cms