Sunday, April 05, 2020

Things To Do During Lockdown

All local councils, utility companies, construction firms (those with permission) and city planners in Malaysia should take the opportunity during the lockdown to:

- repair roads
- lay your lines 
- finish your towers
- change faulty lightbulbs
- speed up construction projects that creates congestion
etc ....

Basically try to finish up things that would disrupt traffic.

Saturday, April 04, 2020

Why I Think Markets Are Too Optimistic

Bastardisation Of Currencies

When governments keep throwing money at the problem, some succeed while others are restricted by their fiscal constraints and prudent financial management. There's only so much budget deficit you can stomach. Not the US and Eurozone, they can literally print their way out of the problems at hand, with no need for any asset backing, particularly from the USA. The rest of the world, we can't do that. Our printing capacity has to correlate with our foreign reserves, government debt to domestic and international bodies, our GDP, etc...

What that does is that at every major financial crisis, involving the big guns, its the smaller guys that get whacked. The big guys has printed more monopoly money, get the money circulated, pay down debt, give people money to spend, and spend trip way out of the issues. The smaller nations just have to tighten our belts and compete ever harder to maintain status quo. Its colonialism in the financial age.

Just when you think colonialism is over, in financial markets, the masters still get 10x, 20x, 30x more than the slaves earnings per day. Even when the master make mistakes, its still the saves that kena.

The Horny Black Swans That Keep On Reproducing

That rant aside, have a look at the video. You will begin to appreciate why swiftness, preparedness and commitment to curtail were so important. Just look at China, South Korea, Singapore and HK. Compare that to the top 4 European countries, plus UK, Iran and USA.

Looking at the trajectory alone, the latter countries have not even peak yet, although Italy has shown positive signs of peaking. USA at near 277,000 confirmed cases, and the equity markets there seemed to have rallied. All markets are forward discounting machines. I want to know how many cases has the US markets discounted thus far, taking into account the substantive trillions of dollars worth of stimulus: 300,000 ... 500,000 .... one million or 2 million? Mind you, China and South Korea seem to have peaked at 80,000 and 11,000 respectively.

How can you discount something that has not peaked? You cannot take the statistical distribution for China or South Korea and extrapolate because: the level of preparedness were different; the "more authoritative governments" have better deployment and effectiveness in curtailment strategies; the level of resources and testing are different ... hence it is likely the trajectory will be pushed out higher and further than the former group.

Look at the above statement from US White House (reported in CNBC)... 93,000 deaths, at 1% mortality rate = 9.3 million cases. OK let's take a 5% mortality rate (which is very worrying for the public) = 1.86 million cases. Look at those figures for a while and compare China's 80,000 and South Korea's 11,000. Even if you double both those figures: 160,000 and 22,000 ... compare that to 1.86 million.

OK, let's not even look at those figures, let's halve that further from 1.86 million to 930,000 cases to deal with say over 2-4 month period. There is no way the US system can take it. There are only 924,107 hospital beds. Other illnesses may require at least 50%-70% of those beds.

So, you still think the US equity markets have discounted the fallout from the virus? If its 1 million cases over 4 weeks .. I think US cities will descend into a state of anarchy ... making handguns very handy indeed.

The Latecomers

Has anyone looked at Japan? Its about to boil over.  Last Thursday the prime minister's plan was no lockdown and everyone gets 2 cloth masks. Look at the table above. On 2nd April  Tokyo had 97 new cases, still hunky dory. That's just Tokyo, in Japan the total has surged past 340 cases.  Ueno Park was only closed on 24th March to the public.

Well, everyday in March 2020 till they closed the park, the scene was like this everyday:

Now imagine the scene below being played out 20 hours a day in every major city in Japan with no lockdown:

... at schools, Disneyland, malls, cinemas, etc...

Japan is a time bomb.

There are other latecomers as well, places where "proper testing" had been insufficient, masking the real numbers. Consider Indonesia and Pakistan to start with.

The Bigger Time Bomb For Us

Unfortunately, Ramadan is just around the corner. Will Malaysia allow the 1 million legal and 1 million illegal Indonesians and other foreign workers to go back for Ramadan. Do we have the resources to check, test/quarantine them when they come back. What about illegal channels of entry? Will we have another wave after Ramadan?

Sunday, March 29, 2020

Why The Government MUST Implement These To Save SMEs

The government tried to assuage the fears faced by SMEs by directing a lot of help in credit and financing. This shows very clearly there is very little understanding of being an entrepreneur by the government.

Why would SMEs take loans to pay salaries and rental when they don’t have any income to sustain their businesses?

Do you know how much SMEs contribute to the local economy? If we end up with about 200-500 people dying from the virus after two months, that might be deemed as "successful". The rest of the workforce can look forward to a 20%-30% closure and/or bankruptcy by the SMEs as things stand.

At that rate, we can look forward to a loss of some 800,000 to 1.3m jobs. We have to balance between being cautious, and having "something to come back to after the storm".

Look for "calculated ways" to introduce a 50% work rate for as many businesses as possible, taking into account the need to control the spread of the virus.

MITI must be more accomodating and take on a more empathetic advisory role in dealing with companies requesting to restart working at 50%. Rather than reject if conditions weren't met, do advise them on how to get approved - be it cleanliness issues, sanitizing, testing, etc...

UK and Canada have rolled out a 75% subsidy for the salaries of SMEs' employees. While that would be a bit debilitating for Malaysia to consider, I think we should strive harder. Maybe not 75%, but maybe 35% for a 3 months period? Whatever it is the present situation is insufficient.

Clearance of goods from ports, the SST to be paid should be delayed for 6 months and/or Companies be allowed to retain 10 % of SST payable for the next 12 months.

All commercial electricity bills to be reduced by 50% for the next 3 months.

A moratorium of interest payments for the next 6 months.

All EMI’s to banks and NBFC to be put on hold for 6 months with no levy of interest or delayed payment.

Employer share of the EPF not to be paid by the companies but to be borne by the government for a period of 6 months.

Property tax for FY2020-21 to be reduced to half for all commercial properties.

Monday, March 16, 2020


Forced-selling doesn’t kill investors. 

Investors who go max on margin buying kill themselves. 

Why blame the system when the rules and conditions are there for all to see before they signed up?

Thursday, March 12, 2020

What Kind Of Bear Market Are We Talking About Here

Well, its official, its a bear market. We somehow still cannot call it a crash but a correction. I don't mind this bear market at all cause it is "within reason" and "within grasp". Let's look at how different the current bear market is from the 2008 crash and 1998 Asian crisis.

1998 - This one you can feel it in your bones. Once it happened, there was an immediate domino effect on all emerging markets' currencies. Our currencies were suddenly seeing 20%-35% drop in value in a matter of days. That sobering crash allowed us to see the extent of the mess that easy credit had on everyone, and how everyone geared to the hilt. 

I immediately knew I would be out of a job within a few weeks. You know very well that the whole Asian emerging markets' economies will shrink, the effect was close to 20%-30%. Companies were trying their hardest to park loans and renegotiate terms, but it was inevitable, we needed these companies and these loans to fail. The longer we stave them off the longer the contraction and slower the recovery.

That was a big lesson from Japanese markets. Since the correction in 92/93 in Japan, all listed companies there refrained from facing the music. Even banks dared not collect. The whole taichi movement last 12-15 years.

2008 - This was scary cause it involved the very existence of the top 5 banks. If they failed, the whole capitalist system could unravel, and that could unravel the whole financial infrastructure for all markets and capital flows. 

It was a lot scarier because financial markets and its derivative instruments (in particular) have dwarfed the real economy. Hence any big missteps will be amplified in a bad way to the real economy.

2020 - This one has to do with the virus morphing into a pandemic. Oil prices has shock value but not much to do with the real bear market. Saudi Arabia wanted Russia and the rest of OPEC to toe the line. Russia wants lower prices in order to kill off Americal shale/fracking producers. At most, the US producers will file for bankruptcy. The top 5 banks in the US only has between 1%-3% of the loans exposed to shale/fracking companies. No big deal.

The good thing about this bear market is that it has very little impact on the integrity of the financial markets and liquidity. The prolonged impact is what everyone is looking at. But just on the fact that it has little systemic effect on the financial system is a huge load of relief. In that way, this bear market IS NOT SO SCARY.

Looking at China, where the outbreak has peaked, we saw economic activity dropping by 30-40% over a 2-3 month period. HK had a longer tough run with the protests over democracy reforms and almost immediately by the corona virus - companies on the frontline are failing by the droves. Nobody will sympathize with the mall or commercial property owners. The lack of business will not be able to counter 50% discounts to rentals.

These frontline industries (retail shops, f&b outlets, airlines, etc..) will feel the brunt very fast, as soon as 1-2 months. Subsequently, the contraction will be felt via employment cutbacks. By 4-6 months, significant job losses will be next. Followed by defaults on mortgages and subsequent forced sales and personal bankruptcies.

Governments can step in to address the situation: no mortgage payments for 3 months or personal tax cuts... but business failures will overwhelm and job losses at smaller firms will be more pronounced than bigger ones.

The markets are now trying to discount a substantive contraction in their economies by 20-30% over a 1-2 month period. If it drags on, the equity markets will dive again later.

For now, we are reaching a good level for a quick buyback during tomorrow's weakness. Trade, don't hold as the situation is still fluid.

Monday, March 09, 2020

Irrational Market Blue-Black

There are black swans and there are Black Swans... but this swan somehow can give birth to many little black swans. The world is already trying to come to terms with Covid 19. Central banks have cut rates, governments have put through fiscal packages to alleviate the economic effects. Now suddenly we have the oil plunge. 

Let's be sober here, Saudi Arabia is cutting its nose to spite the face. Even though their cost of oil production is a lot less than Russia, its not that cheap. The strategy is to get Russia to come kowtowing for the March 18th meeting. NO ONE affiliated with OPEC wants the current situation, no one wants USD25 to prevail. Would you keep going to work if you KNOW FOR A CERTAINTY you have to pay the employer RM1,000 a day??!!

Hence it is a short term strategy, but I would still avoid oil & gas stocks for the time being because sentiment is bigger than facts now.

Last time I heard: low oil prices is good for the global economy, generally. Why are we reacting this way??? Are the OPEC countries a substantive consumer of global goods??? Rhetorical indeed.

If G7 and G15 can come together so quickly to address Covid 19, don't you think calls will be buzzing across continents to say WTF ... we don't need this shit now?!!

If you are among the lucky ones who are not exposed that much to the markets, and can take a 1-3 months view at least, you should put your money to work, even in some local stocks.

That's because there are some great second liners that have been hammered 15%-30% over the last few days alone. Just look for the ones with least exposure to disrupted supply chains owing to the virus and not entirely correlated to oil prices, plus they are profitable and cash flow positive.

The list is meant for readers to go and do their own research and not a call to buy blindly.

MYEG - (Recent high 1.38, today 1.03) How da hell is oil prices important here? Slowdown in economy, ok a bit, but you know our we have car registration, etc... that is humdrum transactions but must go one.

NOTION VTECH (Recent high 1.38, today 72.5 sen) - Last quarter made net profit of RM14.2m, bonus issue coming up soon. Chairman reiterated that they are actually benefitting from the breakdown in supply parts.  Project Nixon (EMS codename)  need 600k pieces of aluminium tubing for vacuum cleaners worth RM4.5 mil sales per month from June 2020 onwards. Project Stingray (Extrusion solutions codename) is a major expansion of the extrusion business from 200 tons per month capacity to 1000 tons capacity and billet furnace for upstream recovery of aluminium leftovers. Mainly for external customers. Notion is transforming the group into an aluminium total solutions company more than precision machining or fabrication.

DIALOG - (Recent high 3.45, today 3.03) This company stands to benefit as an oversupply of oil will require companies to find storage space. Probably at Pengerang SPV1.

Tuesday, March 03, 2020

Follow Me On TWITTER

Owing to the shifting paradigms on communications ... I feel a Twitter feed is imperative to send out messages concernings markets, stocks, new posts. Do follow me on Twitter so as to not miss out on important "stuff". Button on the right side.

Things To Do During Lockdown

All local councils, utility companies, construction firms (those with permission) and city planners in Malaysia should take the opportunity...