Monday, July 31, 2006

Fed's Rate Hike Over?
Finally, Something That's Flaccid & Good

Despite the non-stop shelling between Lebanon-Israel, global equity markets have been able to shrug off the repercussions. That's largely due to the growing perception that Federal Reserve have temporarily finished with raising rates. The peaking of the rate hiking cycle is significant because something that has peaked can only go down. Reason #1 for the perception - the Fed's beige book report on regional economic activity showed that economic growth lessened around the U.S. in the past six weeks, while price pressures generally remained in check The report, one of many factors the Fed uses to determine monetary policy, would seem to give another reason to end rate hikes in the near future.

Consumer spending appears somewhat weaker, while strong factory and commercial lending activity suggests business spending may be compensating for it. On wages, a growing gap between highest- and lowest-paid employees was observed, and food retailers appear stronger than restaurants in some regions, suggesting more low-income customers are choosing to cook at home rather than eat out. The report led the dollar down the Euro and Asian currencies, on concerns for a weaker U.S. economy and lower interest rates in the near future.

However, that is just one part of the equation. Having been observing the Fed and Bernanke's testimony, it is obvious that the Fed pays unusually close attention to the housing side, though they would be loathed to admit that. The Census Bureau reported that sales of new homes fell 3% in June to 1.13 million units, and sharply revised down its estimate for May from 1.23 million units to 1.17 million units. Sales were down 11.3% in the Northeast, 7.9% in the Midwest and 6% in the South, but were up 8.2% in the West. Inventories of unsold homes at end-June hit a record 566,000 units, a 6.1 month supply at current sales rates, down from 6.4 in February.

The Commerce Department reported that new orders for durable goods exclusing defense and aircraft grew only 0.4% in June, sharply lower than May's 1.3% growth. Orders for defense capital goods were up 51.2% and aircraft orders rose 8.8%, so total durable orders rose 3.1%. The Labor Department reported that claims for unemployment benefits fell by 7,000 to 298,000 in the week ending July 22. Looks like the picture is setting the US equities for a mini bull run over the immediate future.

Friday, July 28, 2006

Landmarks' RNAV & Sungei Wang REIT

This is not an attempt to further promote Landmarks but rather a clarification. The RNAV looks at the book value of assets and compare that to the independent valuation or closest to market valuation. Then we take the market values with the corresponding capital rates, deduct the book value to get the revaluation surplus. We then add the revaluation surplus to shareholders funds to get the RNAV.

Datai 33% - RM125m
Datai Hotel 33% - RM85m
Datai Golf Course 33% - RM7m
Datai Land 33% - RM35m
Andaman 100% - RM145m
Sungei Wang Plaza 100% - RM560m
Shangrila Hotel 27% - RM300m
Teknologi Tenaga Perlis 20% - RM225m
Landmarks Land 20% - RM35m

The assets under Landmarks are mainly good class assets and many are REIT-able. The company has stayed under the radar for a long time because the controlling shareholder was holding just 18% and did not have the financial muscle to get a bigger stake. The recent popularity of REIT makes a lot of sense to other predators to control Landmarks as they could unlock a lot of hidden values in the stock. It appears that there are now more than 2 parties keen to get control of the company, which bodes well for Landmarks and their minority shareholders.

The first step to unlocking is via the SungeiWang-Andaman REIT. Back in Sep 2005, the company proposed a SungeiWang REIT and that was shockingly rejected in Feb 2006 due to only one property and a low stakeholding in SWPlaza with no growth plans. A new REIT proposal was submitted in the same month. In April 2006, the new SW-Andaman REIT was approved. Last month the Securities Commission approved the disposal of SWP and Andaman. The REIT should list by October 2006. One can expect a cash dividend of 50 sen per Landmark share or get one free REIT for every two Landmarks shares held.

The next unlocking step could involve the attractive Shangrila Hotel shares. The company could distribute the shares to Landmarks' shareholders, which works out to be worth another RM0.64 per share, add that to the REIT's RM0.50, its looking good. But a caveat here, the Shangrila stake has largely be pledged as collateral for a RM185m RSS Bond, together with cash flow from datai's operations (hence the non-involvement of Datai in the SW-REIT proposal). Even so, any sale would go down to reducing debt substantially. Hence, it is more likely that the next asset sale will be its 20% stake in Teknologi Tenaga Perlis power plant, very easy to sell owing to the DCF predictability. The power plant stake should bring in RM225m or nearly another 50 sen in pure cash dividend.

Aside from the new shareholders in Zimulia, Killinghall (M) Bhd just announced that its chairman Syed YusofSyed Nasir has emerged as a substantial shareholder of property group Landmarks. An exchange circular quoted Syed as saying that he had bought 5.23 pct or 24.65 mln shares in Landmarks on the open market. ............ Let the games begin....

Wednesday, July 26, 2006

Top Buys For 2006 #8 - Landmarks

While Tebrau is swaying sideways, the longer it does that, the more uncomfy I get. So better to look at other finds. Landmarks look interesting. The sale of Sungei Wang Plaza and the Andaman Hotel to Sungei Wang REIT should bring about a 50 sen capital repayment to shareholders. Or shareholders could swap one SW-REIT for every 2 Landmark shares. Deal scheduled for completion in October 2006. The net yield for the REIT is expected to be 4.8%. The structure of the deal and the available free float makes Landmark shares a prime target for hedge funds and yield based investors. The main uncertainty is the listing process of the REIT, which was scuppered by the SC earlier. This time around, green light is expected and should attract lots of funds into Landmarks.

All other stuff like room rates, blah blah on its Langkawi hotels and Shangrila are unecessary. The other probable deals to come after the REIT are:

1) sale of stake in Shangrila Hotels

2) sale of its 20% stake in power lant Teknologi Tenaga Perlis

The unlocking of values are very likely to move ahead swiftly because the old shareholders of Zimulia with 18.7% came in at RM1.30 and disposed the stake apparently above RM1.70. What's even more interesting to add to the trigger points is the rumoured entry of new shareholders. Zimulia is said to be sold to to Datuk Zakaria Abdul Hamid and Lee Tuck Fook for between RM1.70 to RM2.00. Another new player coming in is said to be Mark Wee from Sarawak gaming industry (son of Datuk Amar Wee Hood Teck). This is because 18.7% is nothing and you would need a strong partner to mop up more shares to control the company.

Just to spice things up, there are additional triggers in the shareholdings structure - which is open to a General Offer anytime; plus the inherent attractiveness of assets within Landmarks make for easy piecemeal sales. Probably the top two hotels in Langkawi / Malaysia are in Landmarks, The Datai and The Andaman. Its 26.6% stake in the well managed Shangrila Hotels will find Robert Kuok scrambling to buyback the stake from Landmarks should they sell - the last thing Robert wants is to see the stake in the hands of another stranger who could derail the hotel's brand building.

The SW-REIT should bring in a 50 sen special dividend, and the other two assets, if sold, could bring in another 50 sen in special dividend over the next 12 months. These are the kind of unlocking of values which will attract a lot of funds' attention, in particular, hedge funds. The trigger points are all there. For hedge funds, buying and holding the shares for 1.5 years would bring in probably close to RM1.00 in cash dividend plus upside potential in share price - should easily bring on a return of 30% a year compounded. An easy sales pitch.


The RNAV is RM2.40. As assets are being unlocked, we should find the share price trend closer to RNAV. RM2.00 should not be a problem by October/November.

Paid Up: 463.8 million shares
Current Price: RM1.63
52 week Hi-low: RM0.87 - RM1.64
Bloomberg Code: LMK MK
KLSE Code: 1643
Reuters Code: LMHS.KL
RNAV: RM2.40
Target Price: RM2.00 by October/Nov 2006
Actual Return: 22%
Annualised Return: 66%

Where Do You Go To, My Lovely?
Ten Bucks For Those Who Know The Song/Singer

Finally, something biting and worth reading from the New Straits Times. None other than the column by Brendan Pereira. Basically he wrote on the missing buggers who basically absconded after much trickery and illegal activities. Brendan's words in blue:

... judging by the Malaysian experience, there is little need to keep looking over your shoulder for the phalanx of advancing enforcement officials. All you need is a crooked mind, an insatiable hunger for ill-gotten gains and an escape route, and you are on your way to joining the exclusive club of Messrs Balbir Kaur, Teh Soon Seng, Datuk Patric Lim, Jennifer Tay, Michael Soosai, etc. They are members of the fugitives club. They are wanted for corruption, stock market manipulation, criminal breach of trust, attempting to defraud a stockbroking firm and cheating. At some point during the course of investigations, they bolted, changed their identities, altered their looks and switched their postcode. Anecdotal evidence suggests that they have embraced respectability and are leading comfortable lives in China, India, Australia and New Zealand. They believe that the severely-stretched police force and the Interpol have more important issues confronting them than some white collar criminals living it up abroad.Hard to fault their reasoning. They remain free, after all.

I got to thinking about the life of a fugitive while following the high-profile trial where RHB Capital Bhd and its two subsidiaries are suing RHB founder Tan Sri Abdul Rashid Hussain and five other former officials for RM1.43 billion over several alleged breaches and negligence. The plaintiffs allege that approvals given by Rashid and the other co-defendants to five borrowers for margin financing were "irregular, improper and wrongful". They also claim that the margin financing was secured by inadequate and highly volatile securities and there was no assessment done on the applicants’ credit worthiness. The RHB Group suffered RM500 million in losses stemming from margin financing facilities to these five individuals in 1997 for the purchase of Omega Holdings Bhd shares. The most prominent name of the five borrowers is lawyer Jennifer Tay. Judging by the case presented before the court, she was a key player in this scheme, and her husband, Surendran Palachandran, was her sidekick. The couple would have been key witnesses in the case. They could also have been serving time in Sungai Buloh for allegedly manipulating the purchase and sale of Omega Securities shares.But sometime in 1998, they got wind that the authorities were going to charge them in court and they fled the country. They stayed below the radar for a few years but have since been sighted in India and Australia. Officially, they are still on the wanted list here and are on the Interpol alert, but precious little is being done to bring them back to face charges here. The conspiracy theorists will argue that this reluctance has something to do with the fact that some political players and heavy hitters were involved in the shenanigans at Omega Securities. Maybe so.But what’s the excuse for not doing more to go after Balbir and Teh? Anecdotal evidence suggests that Balbir is either in Punjab or in New Zealand and bears little resemblance to the magistrate who was arrested in October 1987 by the Anti-Corruption Agency for allegedly accepting RM25,000 as an inducement to acquit three Indonesians facing charges under the Customs Act. She disappeared while on bail. Next year, she can celebrate 20 years on the run. Correction — she can celebrate 20 years of living outside Malaysia. Teh is a less famous member of the fugitive club. He was the managing director of Aokam Perdana, once the punter’s darling.Aokam rocketed to prominence in 1992, capturing the imagination of punters and institutional investors. Its share price, which traded listlessly at RM1 for most of the late 1980s and early 1990s, touched a high of RM31.50 at the height of the Kuala Lumpur Stock Exchange’s bull run in 1993. Teh, a graduate of the London School of Economics, gave many interviews at the height of Aokam’s popularity. In 1994, he was asked what he hoped to see his company achieve in 10 years."I am building it to become something like Georgio Pacific in the United States. Very big, regional and multi-product," he said. He apparently had to junk those ambitions in 1997 after several police reports on criminal breach of trust and misappropriation of funds totalling RM45 million were lodged. In the early days, there were reports that he was living a life of luxury in Shanghai. But after a while, the trickle of news about him dried up. These days, mention his name and this is the likely reponse: Teh who? Very few remember the businessman who used to have a retinue of 20 bodyguards and was the face of the bull run in the 1990s. Fugitives breathe easy when they reach this stage of life when their names no longer ring a bell, let alone invite derision. They know it’s a bellwether of the interest the authorities have in bringing them back to face justice. The evidence so far suggests that they are right. A real pity because the crimes allegedly committed by Balbir, Tay and gang are arguably more serious than the ones committed by the bunch of petty criminals who are paraded before magistrates and judges daily. The only difference: one group of criminals had the means to fly the coop.

I believe Teh Soon Seng is doing very well in Shanghai. In fact he used to even own horses by proxy, racing in Malaysia / Singapore. The pity is that there are probably 5 great stories for a non-fiction / movie / series - now if only we can nail them and get them to tell the stories.

The Private Equity Buyout Effect
Here Come The B.S.D.s

It is a significant deal, when Merrill Lynch paid one of their regular visits to HCA, the commercial American hospital company. Merrill Lynch had an audacious proposal: assembling a group of private investors to acquire the company for more than $US30 billion. The deal, including debt, is the largest leveraged buy-out ever, worth $US33 billion. Ignoring inflation, that eclipses the historic $US30.6 billion takeover of RJR Nabisco in 1989. The 89 episode was the subject material for the wildy successful book Barbarians At The Gate, easily one of my favourite books of all time. I guess the barbarians have returned again, only this time, the gates are more welcoming.

I have mentioned often that the funds raised by the private equity buyout firms over the last 12 months points to more bigger deals in order for the funds to perform. Private equity firms like Kohlberg Kravis Roberts, which came to fame in the RJR buyout, and others largely unknown outside Wall Street now possess more than $US2 trillion in buying power. In addition to KKR, the new brand names of finance are Bain Capital, Blackstone Group, Carlyle Group, and Texas Pacific Group. The companies they own include Hertz and Warner Music. The deal-making prowess of the big private equity firms means that they have become Wall Street's most important clients.

The buy-out spree is expected to run on. Some big public companies, fed up with scrutiny from investors and regulators, are now selling themselves to private equity firms. And private equity is increasingly able to take on bigger deals. Firms raised more than $US260 billion worldwide this year from big money managers like pension funds. Earlier this month Blackstone Group raised $US15.6 billion, creating the world's largest private equity fund. Private equity firms use the money they have raised and borrow more to buy businesses. The firms borrow against the value of the asset and its cash flow that they are acquiring, often allowing the firms to invest only a small sum of equity in a large transaction.

In the HCA deal the three private equity firms - Bain, KKR and Merrill Lynch's buy-out unit - and the Frist family are investing $US5.5 billion in cash. The rest of the $US33 billion price tag is being financed by debt, which the firms hope to pay down, like a mortgage payment, using HCA's income. Taking advantage of relatively cheap borrowing costs, private equity firms have gone on a worldwide shopping spree. Already this year private equity has bought well-known brands, worth more than $US347 billion, twice last year's pace. Private equity firms spent $US12.3 billion for Univision last month; $US22 billion for Kinder Morgan in May; as much as $US14 billion for General Motors' finance unit, GMAC, in April; and $US17.4 billion for Albertsons, the supermarket chain, in January.

The implications are manifold, but mostly good. We have currently listed US companies holding onto the largest cash balance in their books in history. We also have private equity with enormous booty to invest. The twain shall meet. There are sufficient big candidates to absorb the initial investments. It will have the effect of boosting valuation for similar companies in similar industries. It will create positive vibes for equity sentiment.

Tuesday, July 25, 2006

AMD's Deal Forces Intel's Hand
Chips Ahoy!

PC chipmaker Advanced Micro Devices and graphics chip maker ATI Technologies have merged in a block buster deal. Shares of Nvidia (up $1.66 to $19.43), one of the largest makers of graphics chips for computers and other consumer electronics - and the number one competitor to ATI (up $3.00 to $19.56) - were up nearly 10 percent yesterday. AMD (down $0.90 to $17.36) said that it will spend US$5.4 billion to acquire ATI in a cash and stock deal that is expected to close in the fourth quarter.

Analysts and investors say that the spike in Nvidia's shares could be attributed in part to speculation that Nvidia is in talks with Intel (up $0.28 to $17.43), the number one maker of chips for PCs, to supply graphics chips to the company. But people in the business are divided on whether the news means that Nvidia and Intel will reach an agreement, or whether such a partnership would take the shape of an out-and-out acquisition.

The news of ATI's sale to AMD could be bad news for Nvidia in the short term. That's because Nvidia has done brisk business selling chipsets, or the pairs of chips that surround microprocessors, to AMD, particularly for AMD's popular Opteron server chips. Those ties may have to be severed in light of the deal. AMD has been very good to Nvidia and Nvidia has been very good to AMD. If you were to look at Nvidia's chip set business, it's 20 percent of total revenues, and 90 percent of that is for the AMD platform. They built a very successful premium brand image on the AMD side of the business and very little on Intel.

Intel will have to come up with its own strategy for making high-end graphics processors. Intel currently makes graphic processors, but these are designed for low-end machines, unlike the souped-up processors that Nvidia and ATI make for demanding, graphics-heavy applications such as gaming. Intel has well-documented problems of losing market share and slowing growth, which have caused the chip maker to put up several consecutive quarters of weak performance. That led to a broad restructuring at the company, which is still taking place.

Analysts agree that while AMD's news means Intel will likely need to come up with its own approach to high end graphics processors, buying Nvidia outright is not necessarily the answer. If Nvidia feels threatened by this AMD/ATI partnership, it could form a partnership with Intel, which could really use a reliable partner on the high end of graphics chips. A partnership between Intel and Nvidia in which the latter supplied high-end chips to the former could make sense. The issue with Intel is not on the balance sheet, it's on the income statement. It's lack of growth, issues with profit margins, and competitiveness. The balance sheet is so darn strong, most shareholders would say whatever you need to do to get growing again, do it. Nvidia currently sporting a market cap of roughly US$7 billion, the purchase would be less costly for Intel, with a market cap of roughly US$101 billion, than it was for AMD to buy ATI. AMD's market cap is about US$8.5 billion, while ATI's is about US$5 billion. Intel has disappointed people with lack of growth or not always having a best of breed product. But say what you will, they continue to make a lot of money, and they could spend quite a bit more on Nvidia than AMD spent on ATI and they wouldn't feel it nearly as much.

Stumbling Blocks To FDIs Into Malaysia

Foreign investors said their main issues with Malaysia are bureaucracy and limits on foreign ownership, according to Chew Seng Kok, the managing partner of law firm Zaid Ibrahim & Co. There are numerous other issues which cloud FDIs interest in Malaysia. Certain issues are largely immovable and is part of the system, such as the 30% bumiputra partner. That to most FDIs is a turnoff, but its part of the system.

When we talk of bureaucracy, we are also talking of some arbitrary interpretations by the Foreign Investment Committee (FIC) which sometimes create ambiguity and uncertainty when apllying for approvals. Which is why so many potential investors would ask if there were any contacts who know people at FIC well - there should never be a need to know anyone well at anyplace ... it is not a neighbourhood operation. Whether there is a need to know "someone" well or not should not even be discussed, if there is a perception problem, highlight it and the FIC should come out and proclaim its integrity and professionalism.

Take property transactions, it would be at least 9-12 months to obtain FIC and Land Office approvals when the same process takes only 1-2 weeks in other countries!!?? Why?? We cannot afford computers? If we follow that, imagine how long it would take for property transfers, usually a few months if you are lucky, but it is not uncommon for the process to be 1-3 years. On property again, we should get rid of real property gains tax. Already the commercial side is so poor. If we want to be a smallish financial centre like HK and Singapore, we must encourage property investments. Work permits for IT professionals take too long and we don't treat them with enough respect. That has stifled "better value" outsourcing investments into Malaysia. We take a few months to approve qualified IT professionals, and meantime thousands of illegals are swarming onto our shores - get a perspective, man!

Bureaucracy within Malaysia is still too involved. When it comes to buying companies or assets, there is just too many different departments involved. In a survey by the World Bank on EASE OF DOING BUSINESS, Malaysia is ranked number 21. The survey if for the 150 odd countries in the world. Not bad at #21, but we have to compare with our neighbours and other Asian Tigers and improve, if not we are the toothless one. The variables surveyed include (bracketed is Malaysia's position):
a. starting a business (57)
b. dealing with licensing (101)
c. Hiring & firing (34)
d. registering property (53)
e. getting credit facilities (6)
f. protection for investors (5)
g. paying taxes (19)
h. cross border trading (36)
i. enforcement of contracts (61)
j. closing a business (43)

We all will nod our heads knowingly at specific items mentioned where we could really improve. We must let business proceed as free as possible and have strong investor protection and law enforcement as the "whip". We cannot and should put barriers at every level of starting a business, or even in the process of business. Draw the boundaries and leth them mingle within the boundaries, punish only if they over-stepped the boundary. Do not have additional hoops and hurdles within the boundary for them to jump and roll over.

Back to the rankings, the notable countries with the best overall scores:
1) New Zealand
2) Singapore
3) USA
4) Canada
5) Norway
6) Australia
7) Hong Kong
8) Denmark
9) UK
10) Japan
19) Germany
20) Thailand
21) Malaysia
24) Netherlands
27) Korea
35) Taiwan
44) France
91) China
99) Vietnam
113) Philippines
115) Indonesia
116) India

Monday, July 24, 2006

Diminishing Flower Power
IRIS Has Left The Building

Since coming back from being designated, Iris has rallied again above the RM1.30 level. FYI, Iris has collapsed from RM1.20 to today's closing price of RM0.51 on huge volumes. That down trend and volume was similar for the past 3 trading days. Bearing that in mind, it might be worth a review of comments made by the MD of Iris just a few weeks ago, right after the stock was designated:

As reported in The Edge via an interview:

The only people who have suffered from the designation of Iris Corp Bhd are the small individual investors. Institutional funds have not sold down their Iris shares and in fact are buying more of the stock,” says Datuk Tan Say Jim, co-founder and managing director of the company.

Iris is perhaps the most talked about stock by far this year. After achieving a surprising rise in its share price, the stock was then rumoured to be a syndicated play. The authorities had issued a few trading warnings on the stock and finally designated it on May 11 on the basis of “excessive speculation” and unusual trading patterns. Since Jan 3, Iris’ share price had risen about 871%, from 14 sen to RM1.36 on May 11. After the designation, Iris hovered around the 70 sen to 80 sen level. Since the designation was lifted, the stock has once again charged up on huge volumes to retest the RM1.30 level. Alas, the wheels seem to have finally come off now....

But in an exclusive interview with The Edge, Tan shares his views on why there is nothing out of the ordinary in the increase in Iris’ share price, citing the company’s strong growth fundamentals. “This company is only now beginning to do big business. The need for e-passports is estimated to be in excess of 100 million pieces a year and we are bound to get some of that. This year alone, we secured three deals for e-passports and will be announcing another deal soon,” says Tan. Tan believes Iris is the world leader in “covert security in national-type documents”, because it was the first to do an e-passport in the world for Malaysia, seven years ago.

Ratings Agency Malaysia Bhd (RAM) downgraded Iris on the basis that the company may not have the ability to meet its debt obligations, given its heavier dependence on overseas projects. And that was because the overseas projects posed execution risks and low margins. Last year, Iris recorded impressive sales worth RM300 million but net profit was only RM7.4 million. Standard & Poor’s and AmResearch presently have “sell” calls on Iris, both with a target price of 40 sen. AmResearch also cites poor earnings visibility from the overseas contracts as a key concern.

But Tan says Iris is not understood well by local research houses. “Foreign investors see the potential of this company. It’s all about the growth potential.” He may be right. Big-name investors have appeared to buy into Iris. For example, as at May 10, Morgan Stanley & Co International held close to 40 million shares. Credit Suisse held 9.6 million shares and HSBC Private Bank (Suisse) held four million shares. I think the bulk of foreign investors have waved bye-bye for now.

Tan says Iris had gone on a roadshow to Singapore, Hong Kong and Taiwan and investors had received the company well. “I told investors that if they were looking to invest in Iris based on its RM7 million profit last year, then they should not bother with this stock. There are many other more profitable companies to invest in. Iris is a growth story and the world’s best company in e-passports,” says Tan. It is understood that Iris had called off a global roadshow to Europe and the US because of the designation. Meanwhile, Tan says Iris is working on some breakthrough technologies in the area of renewable energy and high technology farming. “Iris is an incubator of new technologies. We are not just a smart card company as perceived by many,” he says. However, Tan says he is disappointed by the reaction of some Malaysian investors when shown the new technologies. “I showed several bankers a prototype of some of the new stuff we’re working on but they wanted proof that it worked on a big scale. They also hold the opinion that if this technology is so good, how come it has not been invented in the West? So I was forced to put one of my projects in India [instead of Malaysia] because of funding issues.” He found a Middle East investor for the Indian project. “These are people who are prepared to put money in technology just based on a concept.”

Still, Iris has a long way to go to shed the negative stigma which has come to be associated with it. One is that the stock is a syndicated play and its share price, manipulated. But retorts Tan: “Please explain to me what syndicated means.” When told that syndicates in Malaysia tend to “borrow” the shares of major shareholders to manipulate the share price of the counter, Tan says: “I don’t see how this applies to Iris. You can track the shares of the four founding members of Iris, including me. We collectively own 36% of the company. And these shares are where they are supposed to be. They can all be traced. So by this definition, what syndication are you talking about?”

Mr. Tan, syndicated means a group of investors conspiring to manpulate the share price higher, with a view to controlling free float with major shareholders, to lure public buying, and hopefully place out as much shares as possible at higher levels, hopefully to split the profits with the controlling shareholders - once task is complete, the share price should dive back to normalised levels. While this is in no way implicating Iris as a syndicated stock, the share price and volume patterns do match closely - I mean from below RM0.30 sen a few months back to above RM1.30, and now from RM1.30 to RM0.51 in 3 days .... even your own mother would say the stock is syndicated!

Implications - Iris downfall has hit several trading stocks very hard, especially those linked to the same group of people. Hence the play might also be over for stocks like Polytower, Oilcorp, Versatile, Satang and MTDInfra. However, other trading stocks which held up relative well would be worth bottom fishing once the blood-letting stops at Iris - they include Mulpha, Tebrau, UEM Bldr and UEM World. Generally the deflating of Iris has not affected the public, the only fear is if it impacted on any smaller brokers. Otherwise, the other blue chips and institutional stocks have held up very well. A temporary shft onto institutional stocks is likely.

August - Time To Go away

I mentioned that although the underlying fundamentals are strong for equities, we are probably not going to see a strong rally till mid-end of October. August is not a good month generally. Markets are about to move into what is typically the worst time of the year for stock investing: late summer and early fall (Western world view). The third quarter is also typically the worst quarter of the year for Wall Street. And those who follow the four-year cycle of the presidency will tell you that the second year of a presidential term of office, like 2006, is the worst of the four. Although, any year under Bush seems to be the worst to me.

How important are seasonal factors? Patterns are there because of some underlying factors, and as observers, we need to decipher whether those similar factors are repeating this year before we hold onto the rule of thumb. Investors are nervously eyeing the worst violence in years in the Mideast; oil prices are near record highs; worries about a slowing economy and rising interest rates in the US; and a possible slowdown in corporate profit growth is looming.

For the last 18 years, August has been the worst month of the year for the S&P 500, and the second worst month for the Dow Jones industrials and the Nasdaq composite.

2006 also marks the second year of the presidential cycle, and that's not a good thing. Over the last 60 years, the third quarter of year two has been good for an average decline of 2.2 percent on the S&P 500. Consider again the presidential cycle theory. The Dow has fallen 22.2 percent on average between the high it hit in the first year of the four-year cycle - such as 2005 - and the low it hit in the second year - in this case 2006. Even after the recent selloff, the Dow is only trading 1.8 percent below that 2005 high - suggesting that a much bigger drop is yet to come.

Friday, July 21, 2006

Global Political Generalisations

Israel / Lebanon - Generally the fighting has escalated but contained within the two. Related countries are not barging in to help, which is a good sign. United Nations made a meek call for ceasefire and called Israel's response excessive. Most of the G8 quietly on Israel's side, even most of the Middle East countries quietly hope that Israel succeeds in paralysing or even eradicate the Hez Army. Major nations on the sidelines, meekly protesting the war but holding to the line that Israel have the right to defend themselves. Israel would be very appreciative of that ... and should there be a concerted call next week for Israel to cease fire by the G8 - chances are high that Israel will listen as they know "friends" allowed them to fight the Hez and destroy as much infrastructure as possible, before being told to stop. More positive developments to follow next week. Its like a friend watching his stronger friend pummeling a weak stranger. All the friend did was call out (unconvincingly) to his stronger friend "Eehhh, don't fight la...". Soon when the stranger cannot retaliate anymore, the friend will then actually pull his stronger friend away... sigh...

Food & Missiles - The belligerence of the North Koreans is very hard to understand. You want to go test your dubious missiles and make everyone pissed at you. Yet, North Korea should know how critical is their dependency on other countries for food supplies. North Korea received nearly 600,000 tons of food aid from China last year, and about 400,000 tons from South Korea. It appears that North Korea is changing its dependence by taking less from South Korea this year. The next big donor of food aid is Japan with about 50,000 tons of food aid last year. That is why when you look at the North Korean missile situation properly, the risk is actually magnified by the media. Certainly you cannot afford to go to war with just ANYONE, when you have don't even have enough food. Certainly, it also means you have depleted military supplies and ammunition. Any kind of confrontation will have to have the huge backing of either China or Russia. China is certainly unlikely to back a small potato with an insignificant economic mandate to piss off the other more economically important countries such as South Korea, Japan, USA, UK, the EU... etc... For goodness sake, feed your own people first. When communism cannot give each person a decent meal, the system is not working for you - North Korea is not agriculturally sound/robust enough, it has too many typhoons and floods. Its closed door policy also meant that almost zero in manufacturing and foreign investment into the country. So, everybody will starve while the government shows its silly shallow belligerent front to everyone. Plus, North Korea cannot do anything really rash without getting China's OK as China can really make life unbearable for North Korea in a jiffy. North Korea has very very few friends left, just China and Cuba and maybe Russia.

KLSE Trading Notes
Welcome Relief On Iris

Iris has basically corrected from RM1.20 or thereabouts down to RM0.70 in just a matter of days. Despite the strong indications and a good tetsimony by Bernanke to Congress, speculative counters took a backseat for the last 2-3 days of trading. A war that is not ending between Lebanon and Israel is not obstacle but a severe warning by KLSE seems to do the trick.

Malaysia's stock exchange warned investors on Thursday of the perils of investing in speculative stocks after several of them nosedived. Bursa Malaysia did not name any stocks but pointed to some high price volatility in some shares and urged investors to base investment decisions on companies' fundamentals. "Bursa will not hesitate to take appropriate regulatory action, which may include designation or suspension, in the interest of a fair and orderly market". But why say it AFTER speculative counters have corrected??!! It appears that certain bigwigs moving the counters were given a pre-release warning prior to the news yesterday, am I right or am I right??!! Because Iris already started its unusual correction a couple of days earlier. Hmmm!

The warning by Bursa is good, timing could have been battered. You can warn a child about the perils of riding a motorcycle, but not immediately when it took a tumble. The market's hottest stock this year, electronic passports maker Iris Corp, finally showed that it has no superpowers after all. It looks likely that the show is over for Iris. Being the charismatic market leader for the past few months, it is only fair that other top volume counters followed suit, sympathy pains I guess. It is very difficult for the others not to fall in synpathy when the leader goes tumbling .

The correction in Iris is making me very comfortable about the market, at least this time bomb has been largely defused. The other gratifying thing is that other significant top volume stocks, while weaker, have shown very good resilience - thus indicating that the parties involved with Iris are generally not the same for counters like Jadi, Polytower, Tebrau, Oil Corp, Sugarbun or Petaling Tin. I think the stern warning is 99% directed to Iris as it rose back to its highs after designation has been lifted, and to delay the stern warning may mean letting the time bomb go bigger. The act of defusing Iris at RM1.30 or trying to defuse it a bit later at RM2.50 have grave implications the longer you let it mutate and fester. The reverberations at higher levels could bring down even smaller brokers and the ripple effect could have been far reaching. Thus, all in all, good news all around.

I am also of the view that the rest of the trading counters will come back to life very soon. I do not think any of the other trading counters have reached anywhere near danger levels of speculation yet.

Thursday, July 20, 2006

Most Expensive Apts In Shanghai
Enough Already, No One's Buying

Nine months after opening in Shanghai, China's most expensive luxury apartment complex has yet to attract a single buyer, but developer Tomson Group is not about to slash prices to get people in. Sales may prove difficult in the near term at Tomson Riviera, located on the banks of Shanghai's Huangpu River, as Beijing's efforts to cool an overheated property sector may keep buyers away from a complex where units can cost US$20 million (HK$156 million). As the development's four towers sit idle, the company is still determined to hold the line on prices. The development's 220 luxury apartments now carry price tags averaging 110,000 yuan per square meter. The fact that they have not been able to sell even one apartment in 9 months tells you a lot - wrong pricing, market does not exists for that price range, way too many units at that price (for that price you want exclusivity, not a togetherness with another 220 families).

To bring in some income as it seeks buyers, Tomson has decided to rent out flats by early next year in one of the complex's four buildings. Global investors such as Morgan Stanley and Citigroup have snapped up close to US$4 billion of property in China last year. But the flood of foreign money has Beijing worried about inflation in the real estate sector. Authorities have prepared draft rules restricting foreign purchases.

Wednesday, July 19, 2006

Rosneft To Begin Trading
But Seriously, Should People Even Buy?

Rosneft shares will begin trading on the London Stock Exchange as planned after the High Court threw out an attempt by rival oil group Yukos to block the initial public offering.The Russian oil company was given the go-ahead to float despite allegations from Yukos, which brought a case seeking to derail the listing, that the flotation would amount to the "laundering" of illegally-acquired assets. The court also refused a plea by Yukos for permission to seek judicial review of decisions by the Financial Services Authority (FSA) and the London Stock Exchange (LSE) to admit Rosneft shares for trading in London.

Yukos will now consider whether to take its case to the Court of Appeal but this will not happen in time to block the start of trading today. A spokeswoman for Yukos said the case had been decided on a "technical point of law" and did not deal with the company’s central complaint that its assets had been stolen by the Russian Government and passed on to Rosneft. The judge said the FSA had assured him that potential investors in Rosneft would be informed of possible problems with the listing. But he said investors would have to make up their own minds, adding "it is their risk in a commercial world."

During a two day hearing Yukos claimed that the flotation would amount to money laundering under the Proceeds of Crime Act because 70 per cent of the value of Rosneft’s shares resulted from the allegedly unlawful seizure and sale of Yukos’s assets by the Russian Government. Yukos contested legal advice given to the FSA and LSE that Yukos’s objections were "non-justiciable" - not open to legal challenge - in the English courts, because the courts had no power to interfere in the actions of a foreign state. Rosneft raised US$10.4 billion through joint listings in London and Moscow in an IPO that will value the company at around US$80 billion.

On a price-to-earnings basis Rosneft, whose large strategic investors include BP, Malaysia's Petronas and China's CNPC, has been branded as vastly overpriced by analysts. It is valued at around twice the level of Lukoil, Russia's premier energy company, which has a longer trading record, a better balance between refining and production and better governance. Against those factors stands the backing of President Putin, who has indicated he will back Rosneft to become a global power of the stature of Exxon Mobil, the world’s largest oil group. I am sure you all are aware that I haven't been the kindest commentator on Singapore's aggressive Temasek's investing strategies - but gotta give credit when it is due - Temasek (wisely) spurned the chance to acquire a large stake in Rosneft after deciding the shares were overvalued. That is the official statement from Temasek - I mean you'd think they call a spade a spade here??!! Temasek probably concluded that possible interference by the Russian government (before and in the future) puts a dampner on the shares. Unlike Petronas (i.e. Malaysia), Temasek (i.e. Singapore) has very little to do with oil & gas exploration or other business alliances. Meanwhile, CNPC from China has gobbled a large stake in Rosneft, but surprisingly China's Sinopec has stayed on the sidelines - for those who are not aware - Sinopec is barred by Beijing from going into a bidding war with another Chinese company when it comes to overseas assets. well, not Sinopec specifically, but rather that for every foreign asset on the market, only one major Chinese company should go into it, and Sinopec got the short straw this time I guess.

Still, the question remains as to whether these kind of assets should be bought by investors. By buying them, we are basically supporting the way the bulk of assets were acquired from Khodorvsky. Money is money, it won't matter to most until you happened to be the actual party suffering holding the short end of the stick. What's even more ridiculous is that certain minority shareholders in Yukos before, basically had their assets stolen... and now have to consider buying them back from Rosneft??!! How do you end up paying twice for the same assets.... how sure can you be that you won't end up paying again the third time?? (if somebody, who happens to be a friend of Khodorvsky, succeeds in throwing out Putin, and again grabs Rosneft assets for tax and other legal misdoings ... putting them back to Yukos... that would be really fun to watch!!).

Even for government to government bodies such as Petronas, who has to show support for future business alliances, pragmatism rules the day again. Then again, if I am elected to run Petronas, I might very well do the same thing. Sometimes pragmatism, hope, ethics, integrity all get mixed up in a whoopass of grey amidst the black and white of the said matter.

Tuesday, July 18, 2006

AIM's Losing Credibility

London's AIM has been an attractive IPO choice for smaller tech companies unwilling, or unable, to meet the higher qualification bar required by other markets, but many shares listed on AIM experience a price drop after their offerings. This indicates a lack of long term buyers and maybe even a quick way for owners to cash out. So far this year, eight of the 20 tech companies worldwide that filed IPOs on AIM, or 40 percent, are trading below their offering price.

Last year, the number was 34 of 68, or 50 percent, and in 2004, it was 45 percent. Companies and investors have to ask themselves if these smallish technology firms are using London's AIM IPOs as a financing event or as an exit. Especially for US technology firms opting for the AIM exchange, surely there must be good reasons why they could not get onto Nasdaq. AIM's small size makes it very volatile because large investors have a bigger effect on valuations. It could be choppy for the next couple of years as (AIM) earns its credibility or loses it.

Forty-one U.S. companies are listed on AIM. Since 2003, the percentage of U.S. firms filing for IPOs on AIM has risen from 2 percent of all AIM filings to 11 percent. A growing number of U.S. companies will go public on AIM because of corporate compliance and Sarbanes-Oxley regulations. However, the companies could be deem as inferior and AIM will eventually be known as a hit and run cowboy exchange for the young technology punks and young financial turks.

World Is Getting Smaller 4
M&A Deals That Scares You

How Much You Overpay To The Devil
Must catch the successful box office of The Devil Wears Prada. Privately held Prada, which produces high-end clothes and accessories under the Prada and Miu Miu lines, has signed a preliminary agreement to sell a 5 percent stake in the company to its primary lender, Banca Intesa, in a deal that values the company at 2.75 billion euro (US$3.45 billion). My, my, imagine just how much you have been overpaying for Pradas and Miu Mius in order for the fashion house to be valued above US$3.0 billion??!! The bank paid 100 million euro for its stake in the designer and will lend the company an additional 200 million euro, which will go toward paying down debt and completing Prada’s acquisition of Britain’s Church’s Group. The deal, which could mark the first step toward the company’s long-awaited and oft-frustrated initial public offering. Then, you can buy your Pradas and also a slice of the company at the same time. The Devil wins again.

RSS Convergence
FeedBurner.com, which syndicates Web postings for 200,000 publisher has acquired blog analytics company BlogBeat.net for undisclosed terms. FeedBurner manages managing headline syndication services and operates a growing Web site advertising network. The deal will allow the company to provide publishers with tools to better understand what headline feeds blog site visitors are reading. FeedBurner has around 25 employees. It manages 346,000 syndicated feeds of blog posts, news stories, podcasts and other regularly updated Web information for 212,000 publishers, both large and small. The deal will provide publishers the most comprehensive picture of how their content is being distributed and consumed online. FeedBurner, which runs online news feeds for commercial publishers including Gannett, Hearst and Reuters and publications such as Crain's, Newsweek and Wired, will combine BlogBeat's blog analytic services with FeedBurner's existing free feed management services. The combination of the two services is set to be completed by fourth quarter. The company counts more than 19 million subscribers from around 190 countries to headline feeds it syndicates on behalf of its customers. FeedBurner has received $10 million in funding to date from venture capital investor Portage Venture Partners, SutterHill, Union Square, Mobius and Draper Fisher Jurvetson.

ICBC To Launch World's Biggest IPO Soon

China's largest bank, Industrial and Commercial Bank of China (ICBC), hopes to raise US$19b when it lists in Hong Kong and Shanghai in what may be the world's largest flotation soon. The bank is this week expected to request a listing on the Hong Kong Stock Exchange, where it is likely to place 12 percent of its share capital. Another six percent was to be placed on the Shanghai bourse. ICBC was hoping to appeal to the city's big tycoons -- such as Asia's richest man Li Ka-shing -- to buy a 1.3 billion dollar, 10-percent bloc of shares. The IPO is expected to just beat the world's largest IPO so far, the 18.4 billion dollar listing in 1988 of Japan's NTT DoCoMo telecom operator. It will certainly eclipse the 13.7 billion dollar flotation of rival Bank of China in earlier this year, then the fourth largest listing.

Monday, July 17, 2006

Funds Flowing Into Private Equity Excessive

There have been a lot of money flowing into venture capital coffers as because firms with strong track records are attracting the money. Firms such as KKR, Carlyle and Texas Pacific have been garnering billions over the last couple of months. Last week saw more of the same when New Enterprise Associates raised a US$2.5 billion venture fund, and the Blackstone Group raised a US$15.6 billion private equity fund, the largest ever. In the private equity universe, buyout firms like Blackstone raise substantial sums from institutional investors to combine with loans to take companies private. Venture capitalists, a much smaller portion of the private equity world, raise money from institutional investors to start and build companies.

These firms aim of an annual 20% return over the medium and longer term. How the hell do you invests US$15 billion? Plus now you are competing with a few US$10 billion sized private equity funds as well for the same companies to invest in. Hence now you find more unlikely companies being bought up by these big private equity firms as they have to get creative, plus they have to seek more opportunities from foreign shores. It's those type of returns that have opened the floodgates on capital flowing into private equity's buyout and venture funds.

Many of the offices that venture firms are opening in China, India and elsewhere around the globe will be shuttered in a few years given the localized nature of building companies and the industry's track record in being reluctant to weather downturns in these distant markets. However, over thexy year or two, we shall see a surge in M&A activity in Asia led by the US private equity firms - in a way, that will shore up investment interest in selective sectors as well. This will also lead to more arbitrage and hedge fund activity in Asia. They all go hand in hand.

Biggest Foreign Fund Manager In China
Good To Know

When we talk of size, we talk of the Fidelitys and Vanguards... but for the emerging economic giant like China, the fund management industry is still very fluid, with players jockeying for positions all the time. Foreign fund management houses have to navigate the rules and regulatory requirements and evolvement to put in place the best strategies. The number one foreign jv in terms of funds under management is China International ( a jv with JP Morgan holding a 49% stake) with nearly Rmb 12 billion. Followed by Invesco Great Wall with Rmb 11.5 billion. Previous year's top dog, Fortis Haitong saw its assets drop by a surprising 32% to Rmb 3.8 billion (back in 2004 funds under management hit a peak of Rmb 13 billion for Fortis Haitong). China Merchants (a jv with ING) also saw lots of money flowing out of their funds management unit.

One of the biggest beneficiaries of the recent asset reallocation is Guangzhou based E-Fund, an equity focused manager that has become China's second biggest fund house with Rmb 44 billion under management.

There are aproximately 20 Sino-foreign jvs in funds management, and they account for roughly 30% of China's mutual fund industry. The other bigwigs such as Fidelity, Vanguard, T. Rowe Price, etc... are not in China yet as they probably see no need to tap the China retail side for funds to manage. They are also not keen to be in a jv which would not have them in control just to be in China. Hence most of them are managing their China funds out of HK. When the fund management industry liberalises further (i.e. allowing 100% or even just 51% control), we might see more M&A activity with respect to local and Sino-foreign fund management units.

Friday, July 14, 2006

Bad News Bears
Real Bears Or Scarecrows??

Well, there seems to be a deluge of bad news surrounding global equities. How should investors view the situation?

1) Oil prices breaching US$78 per barrel, mainly due to Israel stepping up military action against Lebanon. Geopolitics are unstable at the moment, and instead of the usual flight to safety, now its a flight to gooey safety of the enveloping oil, Oil is now seen as a good inflationary hedge, political hedge and solid asset for the medium term.

2) Bank of Japan should end its 5 years of zero interest rates policy and hike rates very soon. Many see this as a sign of tightening, my gawd, how much lower can you go from zero. The uptick should be seen as a very positive sign - that there is strong investment demand, sound export growth, good bank lending (finally), and higher prices (no more stagflation). Japan growth story complements the China and India growth cycle very well.

3) Bernanke did the thing expected of him. Non farm payroll figures hints at a peaking of rates, but the higher oil prices may tilt the balance. Overall, we are very close to a peak in interest rate cycle unless oil goes charging towards US$90. Then all bets are off.

We have to remember that all the negatives are surrounding pretty positive fundamentals. Companies in the US are still managing corporate earnings growth past the 10% mark on average, and cash in the bank has never been higher for many US companies. Growth is still too strong at China, good moderation in India, Japan is chugging away nicely. Commodities are better behaved after the recent correction, demand is underpinned by real production in China and India. Rates cycle are near peaking, rates are high because global demand is firm. (please read blog on "Understanding Bubbles" posted on 29 June).

Overall, oil prices spike is based largely on fears, not on real changes in demand and supply. Traders are profiting from overplaying on fears and worst case scenario. Each conflict will see a lot of hands to calm the waters or pacify the differences. I see it as temporal in effect. Underlying forces in equities still good, but a substantive run probably won't start till end of October.

Thursday, July 13, 2006

Don't Worry, Be Happy!
Wealthy Does Not Equate Contentment

New Economics Foundation is an independent think-and-do tank that inspires and demonstrates real economic well-being. They aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. NEF was founded in 1986 by the leaders of The Other Economic Summit (TOES) which forced issues such as international debt onto the agenda of the G7 and G8 summits. NEF is unique in combining rigorous analysis and policy debate with practical solutions on the ground, often run and designed with the help of local people. NEF also create new ways of measuring progress towards increased well-being and environmental sustainability.

A new global measure of progress, the Happy Planet Index, reveals for the first time that happiness doesn’t have to cost the Earth. It shows that people can live long, happy lives without using more than their fair share of the Earth’s resources. The new international ranking of the environmental impact and well-being reveals a very different picture of the wealth, and poverty, of nations. The Happy Planet Index, an innovative new index from NEF launched on Wednesday 12 July 2006, is the first ever index to combine environmental impact with well-being to measure the environmental efficiency with which countries provide long and happy lives. The results are surprising, even shocking. The ranking unmasks a very different world order to that promoted by self-appointed global leaders, the G8.

Top HPI In The World
1) Vanuatu - 68.2
2) Colombia - 67.2
3) Costa Rica - 66.0
6) Cuba - 61.9
9) El Salvador - 61.7
12) Vietnam - 61.2
15) Sri Lanka - 60.3
17) Philippines - 59.2
21) Tunisia - 58.9
23) Indonesia - 57.9
31) China - 56.0
32) Thailand - 55.4
37) Morocco - 54.4
38) Mexico - 54.4
41) Bangladesh - 53.2
44) Malaysia - 52.7
47) Argentina - 52.2
54) Nepal - 50.0
61) Austria - 48.8
62) India - 48.7
63) Brazil - 48.6
66) Italy - 48.3
67) Iran - 47.2
70) Netherlands - 46.0
81) Germany - 43.8
84) Taiwan - 43.3
88) Hong Kong - 42.9
94) New Zealand - 41.9
95) Japan - 41.7
102) Korea - 41.1
108) UK - 40.3
111) Canada - 39.8
117) Israel - 39.1
129) France - 36.4
131) Singapore - 36.1
139) Australia - 34.1
150) USA - 28.8
156) South Africa - 27.8
176) Burundi - 19.0
177) Swaziland - 18.4
178) Zimbabwe - 16.6

NEF’s report, published in association with Friends of the Earth, moves beyond crude ratings of nations according to national income, measured by Gross Domestic Product (GDP) to produce a more accurate picture of the progress of nations based on the amount of the Earth’s resources they use, and the length and happiness of people’s lives. The Happy Planet Index (HPI) strips the view of the economy back to its absolute basics: what we put in (resources), and what comes out (human lives of different length and happiness). The resulting Index of the 178 nations for which data is available, reveals that the world as a whole has a long way to go. In terms of delivering long and meaningful lives within the Earth’s environmental limits - all nations could do better. No country achieves an overall ‘high’ score on the Index, and no country does well on all three indicators.

The HPI shows that around the world, high levels of resource consumption do not reliably produce high levels of well-being (life-satisfaction), and that it is possible to produce high levels of well-being without excessive consumption of the Earth’s resources. Key findings of the Index are:

1) Self appointed world ‘leaders’ – the G8 - score generally badly in the Index: The UK comes a disappointing 108th – with the remainder of the G8 faring little, if at all, better. Italy is 66th, Germany 81st, Japan 95th, Canada 111th, France 129th, United States 150th and Russia 172nd.

2) Central America is the region with the highest average score in the Index: The region combines relatively good life expectancy (an average of 70 years) and high life satisfaction with an ecological footprint below its globally equitable share. Central America has had a notorious history of conflict and political instability, but the last 15 years have been relatively peaceful, which perhaps, with traditionally high levels of community engagement, explain its success.

3) Life satisfaction varies wildly country by country: Questioned on how satisfied they were with their life as a whole, on a scale of 1-10 (1 being ‘dissatisfied, 10 ‘satisfied’), 29.4 per cent of Zimbabweans rate themselves at 1 and only 5.7 per cent rate themselves at 10. By contrast, 28.4 per cent of Danes rate their satisfaction with life 10/10, with less than one percent rating 1. Life expectancy also varies wildly: Babies born in Japan can expect to live to 82, but only to 32 and a half if born in Swaziland.

Overall, we are over-burdening the Earth’s currently available biocapacity: By consuming 22 per cent above our ecosystems’ ability to regenerate we are eating into and degrading the natural resources that our life-support systems depend on. In the process we are depleting the environmental goods and services that future generations will depend on, with potentially devastating consequences. We are used to comparing countries in terms of crude riches or what they trade. There are international league tables for performance on issues from corruption to sporting success. But, NEF's Happy Planet Index measures something much more fundamental. It addresses the relative success or failure of countries in giving their citizens a good life, whilst respecting the environmental resource limits on which all our lives depend. The order of nations that emerges may seem counter-intuitive. But this is because, to a large degree, policy makers have been led astray by abstract mathematical models of the economy that bear little relation to the real world.

Some of the most unexpected findings concern the marked differences between nations, and the similarities among some groups of nations:

As the HPI clearly demonstrates happiness doesn’t have to cost the Earth. It also reveals that there are different routes to achieving comparable levels of well-being. The model followed by the West can provide widespread longevity and variable life satisfaction, but it does so only at a vast and ultimately counter-productive cost in terms of resource consumption.

Friends of the Earth proposes a Global Manifesto for a happier planet, outlining how we might begin to both live within our environmental limits and increase well-being. Necessary first steps include:
a) Eradicating extreme poverty and hunger.

b) Improve healthcare.
c) Relieve debt.
d) Shifting values from those which emphasise individualism and material consumption to those that promote social interaction and a sense of relatedness.
e) Support meaningful lives. Governments should recognise the contribution of individuals to economic, social, cultural, and civic life and value unpaid activity. Employers should be encouraged to enable their employees to work flexibly, allowing them to develop full lives outside of the workplace and make time to undertake voluntary work. They should also strive to provide challenges and opportunities for personal development at work.
f) Identifying environmental limits and design economic policy to work within them. The ecological footprint gives us a measure of the Earth’s biocapacity that, if over-stretched, leads to long-term environmental degradation. Globally we need to live within our environmental means. One-planet living should become an official target of government policy with a pathway and timetable to achieve it.


The report highlighted a remarkable comparison between Malaysians and Singaporeans. It said, "Consider two countries that share many cultural similarities: Singapore and Malaysia. HLY (Happy Life Years) in both countries is comparable at just over 54 - Singaporeans live a few years longer on average, and report lower life satisfaction, but these are fairly small differences. Malaysia's HPI is 52.7, whereas Singapore's is just 36.1. The reason, of course, is that Singapore's Footprint (the ecological footprint, the regenerative capacity of the biosphere in relation to sustaining human economic activity) is more than double that of Malaysia. It seems that Malaysia is considerably more efficient at converting fundamental inputs into ultimate ends. Increasing economic growth would almost inevitably increase Malaysia's Footprint. However, the experience of Singapore suggests that overall differences in terms of well-being would be negligible. The difference in terms of environmental cost, on the other hand, would be dramatic. From a policy perspective, then, should Malaysians be encouraged to become more like Singaporeans, Singaporeans more like Malaysians? The answer given by the classic conception of growth is essentially the former - but the answer suggested by the HPI is unequivocally the latter".

for a complete research report, methodology and variables employed by NEF, please visit:
www.neweconomics.org

Wednesday, July 12, 2006

Heeeerrrreeeee's ..... The Jeyeratnams!
Singapore's Second Royalty Family

Followers of Singapore politica would be familar with Joshua B Jeyeratnam, or JBJ, or better known as the dissenting voice of the island republic for umpteen years now. What a lot of people do not know is that he has managed to cultivate a stable of offsprings who are literally minting money, fame and power in their own right.

Son Ken Jeyeratnam is a hedge fund manager in London with strong networking contacts in Australasia, and has just launched a US$500 million hedge fund there. Formerly, Ken was a successful derivatives trader. Another son Philip leads an even more exciting life - an attorney, law professor and curiously a decent novelist as well. Philip is now running the project finance practice of a top tier Singapore law firm.

I guess JB Jeyeratnam would have been a very filthy rich hedge fund manager or investment banker if he was born in the 70s, instead .... his role for most part of his adult life has been as Singapore's socialist leaning opposition leader. What to do, .... 40 years ago, there were not many opportunities for those with math, linguistic and oratorial skills - so politics it is. Still, .... good to know that JBJ does not have to starve.

Qatari Pipeline Across Saudi Arabia
Shouldn't Somebody Get The OK First??!!

Saudi Arabia plans to block a US$3.5 billion pipeline backed by Occidental Petroleum and Total SA that would carry Qatar natural gas to the United Arab Emirates, the Middle East's second-largest Arab economy. The undersea pipeline crosses Saudi territory and ``cannot be constructed without the agreement of the kingdom,'' according to a July 8 memo faxed by the Saudi government to the National Bank of Abu Dhabi, which is involved in financing the energy link. Saudi Arabia ``has not given its consent,'' the letter says.

The partners in the so-called Dolphin project have already started to lay pipe in the Persian Gulf between the U.A.E. and Qatar and have raised US$3.45 billion from lenders including ABN Amro Holding NV, Citigroup Inc. and HSBC Holdings Plc. The opposition threatens to reduce the U.A.E.'s ability to meet demand for power and curtail economic growth. Shouldn't somebody from the banks at least voiced the need to get approval from Saudi Arabia??? Obviously they all though that undersea is everybody's territory. Never assume, ... it makes an ass... out of ...

Gas from the Dolphin pipeline will be a critical lifeline for the United Arab Emirates and growth in the southern Gulf. This isn't the first time Saudi Arabia has intervened in regional energy projects. The kingdom's objection to Qatar exports of natural gas to Kuwait through a pipeline that would have gone through its waters helped derail the project. The U.A.E. plans to import 3.2 billion cubic feet of natural gas a day through the pipe. Gas demand in the nation may quadruple to 13.5 billion cubic feet a day over the next 25 years.

The venture is 51 percent owned by Abu Dhabi's government and 24.5 percent each by Los Angeles-based Occidental and Total of Paris. Saudi Arabia has criticized Qatar over its al Jazeera television channel for hosting critics of the Saudi government. The kingdom and the U.A.E. also have a disagreement over border demarcations, which were drawn up in 1974, giving the kingdom a greater share of the 17 billion-barrel Shaybah oil field that straddles the two neighboring countries. Saudi Arabia territorial claims over the area of Gulf that separates the U.A.E. with Qatar extend to Iranian waters. Installed power capacity in the U.A.E. needs to increase to 20,000 megawatts by 2020, up from 11,000 megawatts presently, according to General Electric Co. of Fairfield, Connecticut, the world's largest turbine maker.

Besides the historical differences, Saudi Arabia is alo very wary of the successes of U.A.E. in building blocks of "economic mini-cities" within Dubai. It shouldn't take long before U.A.E. completely overshadows the rest of the economies in the Middle East, and that's pretty tough for Saudi Arabia to swallow.

Tuesday, July 11, 2006

PCCW Finds Buyer Acceptable To Beijing

Richard Li Tzar-kai will step down as chairman of PCCW, Hong Kong's largest telecommunications company, later this year after he agreed to sell most of his holdings to former Citigroup banker Francis Leung Pak- to in a deal worth HK$9.16 billion. Li's 75 percent-owned Pacific Century Regional Developments will sell its entire 23 percent stake in PCCW to Leung in a transaction that will make the former Citigroup banker the largest shareholder in PCCW.

Li will retain a 3 percent stake he holds privately in PCCW following the sale. Leung's acquisition is priced at HK$6 per share, which represents an 8.1 percent premium to PCCW's Friday closing share price of HK$5.55. While Leung has been a succesfful financial player since the heady days at Peregrine, Leung is not worth THAT much that he can buy the stake all by himself - watch this space for an array of private equity groups in his team.

Leung, who has relinquished all his duties at Citigroup, said he had been considering a departure from investment banking for some time. "The opportunity to acquire the PCCW stake has come at just the right time," said Leung, a business associate of Li's tycoon father, Cheung Kong (Holdings) chairman Li Ka-shing. The sale followed offers last month from Australia's Macquarie Bank and US-controlled TPG Newbridge to acquire PCCW's main telecom and media assets for between HK$57 billion and HK$60 billion.

However, both those would-be suitors were unable to secure the backing of state-owned China Netcom Group, PCCW's second largest shareholder, which paid US$1 billion (HK$7.8 billion), or HK$5.90 a share, for a 20 percent stake in the Hong Kong company 18 months ago. Leung's offer, which values PCCW at HK$40.4 billion, is much lower than the offers by either Macquarie or Newbridge, and is structured as a simple equity acquisition, rather than as a purchase of PCCW assets. This deal's structure gives it a greater chance of succeeding than the Macquarie and Newbridge offers. It is much more straightforward and less cumbersome. Richard Li said before Leung's bid was accepted by Singapore-based PCRD that two other "local consortiums" tabled rival bids for PCCW assets. Hong Kong media reported last week that the central government was behind attempts to form counter offers to the bids by Macquarie and Newbridge in an aggressive attempt to preserve domestic control of what was seen as strategically important assets for the country. It is believed that the elder Li, Hong Kong's wealthiest individual, was among local businessmen courted by Beijing to mount counter offers for PCCW. For all we know, Leung could be fronting for Li Ka Shing. It would look a bit questionable and suspicious if Li Ka Shing was to bid for the stake from his son!!??

The PCCW stake sale to Leung, known as "the godfather of the red chips" for his role in bringing some of the mainland's largest state-owned companies to the Hong Kong stock market in the 1990s while he was a banker at BNP Paribas, is likely to reassure Beijing, although it remains unclear whether he will succeed where Richard Li had failed in growing PCCW's business in the mainland. According to the fixed-carrier license held by PCCW-HKT Telephone, it has to operate, maintain and provide a good, efficient and continuous service in a manner satisfactory to the authority.


PCCW chairman Richard Li Tzar-kai has promised to pay HK$1.38 billion privately in a special cash payment to minority shareholders as an expression of gratitude for their support over the past six years, since the merger with Hong Kong Telecom in 2000. The payment will not apply to PCCW's new controlling shareholder - financier Francis Leung Pak-to - China Netcom Group or Li's remaining 3 percent stake in the company. Minority shareholders will receive a cash payment of between 33 and 38 HK cents per share. The size of payments will depend on how many new shares are issued and will be made to those who are on the register at a date to be announced.

After the special payment, Li may still pocket HK$7.78 billion from the sale.

Friday, July 07, 2006

Warren Buffett Buffeted
You'll Never Get To Heaven If You Break My Heart

You make the largest donation ever known in the modern world, and you get slagged for it??!! What gives?? Buffett's contribution is not th end of the matter. Many, well-meaning influential people, have come out to critique the donation, motives, heaven/hell concepts, theology, effectiveness, etc... Here are some comments:

Richard Posner (on effectiveness), ex-Chief Judge on US Court of Appeals : "The foundation is an inherently inefficient allocative institution because, much like the government, it is not subject to market tests. There is no way to assess the value of the Gates foundation's expenditures because the foundation is not competing in any product or capital market. (Colleges and most other recipients of charitable gifts, in contrast, compete in product markets.) Gates and Buffett are extremely able businessmen but the Gates foundation is engaged in activities, such as fighting Third World diseases, that are remote from their business experience".

Warren Buffett told a crowd at the New York Public Library that his gift had secured him a cushy place in the afterlife. “There is more than one way to get to heaven, but this is a great way".

Father Richard Dillon, professor of theology, Fordham University: "I’m not surprised to hear that a man like Warren Buffett believes there's nothing he can't conquer based on his money. Not even the Kingdom of Heaven. While no theologian has any insight that will let them state an opinion on the state of an individual's soul, I can say that one doesn't pay one way to Heaven. Then there is a matter of divine grace—which makes the difference. Now I’m sure Buffett’s comment is probably not meant as a theological one. More an off-the-cuff sort of thing. But it is the kind of swashbuckling, self-satisfied remark that is typical of the great American entrepreneur. Once you get to a certain stage in life, with a certain level of wealth, you start to believe you can accomplish anything". Dillon also found the tax-avoidance aspect of Buffett’s gift is also troubling. “It shouldn't be missed, that the one thing he did intend as a serious thing—getting out of taxes. I'm sure it would be an embarrassment to the whole nation to discover how little he pays in taxes. He might make a better example if he paid his taxes and let the normal paths of social welfare distribute his money so that it might make its way to people who the Gates foundation doesn't have in its view. And, of course, it will most likely to glorify them in the processs.”

The financially cynical Wall Street Journal: "Warren Buffett's decision to donate the bulk of his Berkshire Hathaway Inc. shares to charitable foundations weighed on the company's stock amid concern that, as the charities sell shares to fund their projects, it could hurt the stock price in the long term." The article goes on to paint a variety of other scenarios, all hypothetical in the extreme, that serve to throw a dark cloud over Buffett's donation. The charities are going to wantonly cash in shares and hemorrhage money on AIDS research and development projects! If that isn't bad enough, all this reckless benevolence must be a sign that Buffett is on his way out the door. That will surely cause the stock to plummet! As for reporters' fears that billionaire hedge fund managers might lose a few bucks on short-term fluctuations in Berkshire stock, Buffett "estimated that about 15 percent of Berkshire's shares are bought and sold every year, and predicted that the figure would rise to 17 percent if all the charities sell all the stock they receive each year. That is a sizable increase of 13 percent in the annual turnover."

Gal Beckerman, Columbia Journalism Review, rebuttling the Wall Street Journal's article: "But there is only one question that really needs to be answered about this article: Why write it? Is it because the Journal's sources actually stand to profit from the very fluctuations they claim to fear (and profit even more if they can whip up some market hysteria with an article in a prominent business newspaper)? We can only speculate, but there is no doubt that there is a deeply cynical strain of business reporting that has come to reduce everything to numbers, seemingly blind to the reality that business affects people -- real lives that are either trampled or uplifted depending on the decisions of market players like Buffett. That is sad. But who knows? Maybe one day the folks on Wall Street will come to realize that good deeds add value, and maybe the journalists who cover that beat will report on the perfect negative correlation between the rise in Berkshire's stock and the demand for tasteless fortresses and marble statuary in Greenwich, CT".

The Australian (Newspaper) on putting Buffet's generosity into perspective, " "he ain't no Mother Teresa...": "Overlooked in the rush to deify the Oracle of Omaha for deciding to hand over the bulk of his extraordinary personal wealth to the Bill and Melinda Gates Foundation has been the fact that Buffett intends hanging onto some $US6 billion-$US7 billion of his pile. That's about what Rupert Murdoch is worth, so while the clarion call of philanthropy may finally have opened Buffett's bulging wallet, he's not going to be short of a quid.
Unkind you say? Perhaps. But let's call it despair at the truckloads of adoring, money-worshipping drivel written and spoken about Buffett over the past week. That's not to say Buffett's gift - at $US37 billion the largest in philanthropic history - isn't welcome. It is, and it deserves to be applauded. If it helps persuade other billionaire businessmen to send some of theirs the way of good causes, then so much the better. Already there are signs this is happening. But the idea, heard often in the last week, that Buffett is some kind of Wall Street Mother Theresa who has scaled new heights of holiness and become the greatest philanthropist in history is plainly ridiculous. Prior to last week's circus, Buffet was actually renowned as one of corporate America's great tightwads, a man whose charitable deeds amounted to little more than a few million dollars donated each year to an abortion-rights foundation started by his late wife. The fact is that being tight with money has always been a natural state for Buffett, a man who's spent his entire working life on the punt. Like all gamblers, whether they ply their trade at a racetrack, in front of poker machine or by playing the stock market, Buffett's life has been a treadmill of backing a winner, accumulating more money and then having a bigger punt next time round. In this world, cash is everything. Real entrepreneurialism doesn't exist. People like Buffett aren't interested in building a business or trying to mould the future in any way, because they're too busy reading the form. For them, capitalism is just a game. There is no social purpose to what they do. The only purpose is to acquire more and more money. As it has turned out, Buffett has been better at playing this game than just about anyone in history. Shares in his holding company, Berkshire Hathaway, were worth $US15 when he took it over in 1965. Today, they sell for something like $US92,000. But now, at age 75 and with a place in history to think about, Buffett has suddenly decided that the winnings he has hoarded for decades - money he can't possibly spend - might be able to do some good for someone else. Buffett also claimed his philanthropic gesture had been "coming for 50 years" and that there was "never really any other plan" for where the money should go. Fine sentiments but surely, given the extraordinary scale of his wealth, Buffett should have acted sooner. The contrast with his friend Bill Gates is striking. Gates's BMG foundation has been funding education, medical research and helping to alleviate poverty since 1998 when the Microsoft chief was barely into his 40s.
Earlier this month Gates, now in his early 50s, announced he was leaving the day-to-day management of Microsoft to run BMG full time. Gates appeared sensitive to the implied criticism of Buffett in this decision and tried to defend his friend's approach to life. "My situation is very different from his," Gates said. "He's in the job he wants to do for his entire life. I'm unusual in that I have two things that I feel fully engage me." Buffet's record as an asset stripper also seems at odds with the wave of eulogies about his concern for the poor.
Buffett's strategy in taking over a business has always been to cut costs to the bone and require managers to deliver cash surpluses to feed more Berkshire Hathaway forays on the share market. There's nothing wrong with this. Cost-cutting is a normal part of how a business operates. But it's a bit rich when someone who has closed factories and cut payrolls all over the US suddenly starts to feel the suffering of those he's put on the street. Where, for example, was Buffett's concern in 2004 when an underwear manufacturer he owned closed its plant in Cameron County, Texas, eliminating the jobs of 800 workers in an area with a double-digit unemployment and a poverty rate above 30 per cent? The Oracle would no doubt argue that he had shareholder interests to protect. That's fine too, but you can't have it both ways. Yes, you can reach the twilight of your life and decide to give most of your wealth to good causes.
But you can't take that gift and claim to be a genuine, committed philanthropist like Bill Gates and his wife. Nor should you be portrayed that way. People would be better off reflecting on what Buffett said at a recent stockholders meeting when a 14-year-old boy asked him about the key to success. Buffett replied: "It's better to hang out with people better than you. Pick out associates whose behaviour is better than yours and you'll drift in that direction." That's what Buffett has done by giving his money to Bill Gates - that and no more than that."


At the end of it all, here's my two-pence:

1) He could have chosen NOT to give it at all (much like the tightwads Wal-Mart family)
2) Buffett, despite his wisdom, is theologically incorrect - you cannot get to heaven via huge donations, even the Catholic church would not buy that... and definitely not the Protestant faith. By grace and grace of God alone ... sorry, good deeds are a by product of your faith and not a passport.
3) Buffett made too much on the tax aspect, assuming the government will not be able to spend as wisely as he did. I mean, you live in a country, under the laws, security and infra by the government of the country ... "Give to Caeser, what is due to Caesar".
4) It would have been better with more anonymity, but its really quite difficult with such a huge donation.