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Showing posts from August, 2007
Near Term Outlook
As mentioned before, sentiment is still shaky and we need market psychology to turn positive before we see better times. Well, we are still waiting for one of two things:
a) Fed's aggressive rate cuts to lift markets, pump liquidity and/or
b) A big investor to step into the mortgage biz and bid for some stocks. Bank of America's convertible preferred bond investment is good but not good enough because the investment was too shrewd and protected BoA in more ways than one, plus they are preferred which puts them top of the heap in the event of bankruptcy by Countrywide. We need either a big hedge fund or a respected investor like Buffett to come in. In an indirect way, Buffett is involved via Berkshire's stake in Bank of America.
The markets all was shaken from the release of the minutes from a Federal Reserve meeting on August 7. The highlights:
The minutes of the August 7 meeting of the Federal Open Market Committee, released Tuesday, show it considered taking…
What A Photo! If ever you need to get motivated to pick up a camera, this photo should do it. This shot alone captures Love, Sincerity, Friendship, Hope, Gratitude all at one take. Happy Merdeka, as they say, patriotism is about the country not the government. There is an excerpt from a classic which describes Malaysia and Malaysians succintly on this eve of a momentous occassion. Re-reading it makes me think that this has to be the best description of us at this point in time, happy Merdeka everybody ...
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of i…
Here's The Ad:

Friends have been saying how difficult it was to try and catch the ad, well now that its on youtube, np lah.

What An AD By Petronas

We all love the festivity ads and commercials by Petronas - they are always hearfelt, nostalgic and meaningful ... remembering better times and sees the goodness in Malaysians ... that the more different we are, the more things we have in common. Well, when you have Yasmin Ahmad's sensitivity and creative brilliance, its a potent mix.

But have you seen the new Merdeka ad??? OMG, what a daring one! It shows a guy being asked to build a sampan to pay off his debt ... in the end the creditor friend gave the boat to him as a gift which will allow him to be independent and make a decent living. The new boat sank, and the tag lin at the end was in Malay but its resounding, loosely translated: Are what we putting in now able to carry us to the future, what our future will be depends on what we put in n…
Views On Selected Stocksyusuf said...
SD, Whats your take on Dialog, Equine and RBLand? Reckon its good? When u reckon this toxic debt scenario will peter off? Will there be a run this week prior to the Budget?
12:14 PM
Salvatore_Dali said...
yusuf,dialog = overpriced, considering the projects they got... sapcrest, coastal and ramunia the way to goequine = fortunes tied with connections, if connex go down, the stock is kaput, connex is in icu now rbland = nta of rbland is 1.80 only, above 2.50 u r paying too much premium for ijm properties injection, might as well wait for requotation after absorption for better entry px, or just go into Talam as next possible exercise, the catalysts are looking good for talam anywaySubprime = thrashed the subject to death, pls re-read old postingsBudget = personal n corp tax cuts definitely, nothing to shout about, all the corridors also announced and strategised to death already, whats new, no budget rally
Hold Till When?

For those long or very long in China H-shares covered warrants, you should be feeling good. Now, many are asking "hold till when"? You have to monitor the Shanghai and Hongkong markets to get a sense of perspective. You also have your own investing objectives.

Some Pointers :

a) If your aim is to get 50% or 100% returns, you can get out soon, if not already.

b) If you generally agree with what I have been writing on H-shares' attraction, then you should HOLD TILL the buggers expire. This is because the entire H-shares discount scenario, pouring in of China money into H-shares will play itself out over 6-12 months.

c) The longer term factor in that most will have to requote their shares back to Shanghai can only narrow the discount. We should see some having dual listings in HK and Shanghai. Some may completely leave HK and just list in Shanghai owing to government's directive and its more lucrative to re-sell shares in Shanghai (easier to raise funds and g…
More Drama Still For Subprime?
Is a rate cut enough to create a bottom for equity markets? While I think the subprime's actual financial impact is muted, its the reverse in sentiment it caused which has been doing more havoc rather than real financial consequences. Hence when assessing a bottom for equities in general, we need to look at recovery in sentiment.

Things Casting A Dark Cloud Over Sentiment & Market Psychology
a) The rate cut is insufficient to cause a substantive recovery in sentiment b) The subprime drama still has a long way to play itself out. There will still be more hedge funds and financial institutions revealing losses every other day. News and media will continually focus on houses being foreclosed in US every now and then. Holders of CDOs and its related instruments will complain that there is NO market to dispose these instruments, and hence difficult to market them to market.
c) The big concern is not subprime but that "credit" in itself has stoppe…
A regular reader and contributor under the nick of doraidd emailed me a couple of days ago to tell me that he has bought a book for me to read and placed it with Kinokuniya KLCC. That was a big surprise and a pleasant one. Thanks once again!
After grabbing the freebie, I was caught by the untimely heavy rain around KLCC. It was as if a guy who hasn't peed the whole day, lasting nearly an hour. Nothing doing, but to read the book. Finished the first 25 pages and enjoyed it thoroughly. Funny, and while its supposed to be about the misuse and abuse of derivatives, it has a lot of local flavour such as the Asian 97 crisis.
The book is written by a true expert in derivatives, Satyajit Das, titled TRADERS, GUNS & MONEY. Mr Das has worked for Commonwealth Bank of Australia, Citicorp, Merrill Lynch and the TNT Group. Though I have not finished reading the book, the first 25 pages is a hoot already.
Thanks again doraidd...
p/s ARKs - acts of random kindness; ARGS - acts of …
H-Shares Covered Warrants On Bursa
These covered warrants had a double fillip for the last couple of days. One, was the recovery in all Asian markets following the Fed's rate cut. Second, the allowance by Beijing for its residents to buy HK listed shares with no restrictions. Most have more than doubled in price over the last couple of days. Are they still good buys?
I have been harping on the H-shares and the related covered warrants. The discount buffer is still there, hence I believe strongly that there will more upside in store. The H-shares warrants comes at a unique time, probably investors won't another chance like this. Great discount buffer of 20%-40%. Beijing issued notice that more H-shares will need to come back to list in Shanghai to boost options/supply for mainland investors. QDII rules. Most recently, the permission to buy HK listed stocks. Read the WSJ just now and they had a negative slant on the size of the liquidity that would be investing in HK listed shares.…
Where Do You Go To, My Lovely?

I was intrigued by the timely article by The Edge back in July on the "high receivable among certain Mesdaq companies". whereiszemoola has been tearing companies to shreds over these doubtful issues. I have changed my positive view to a negative view on Nextnation based on the surge in receivables. I will be trying to go through each one of those companies highlighted by The Edge. First on the chopping board is Airocom.

From their website: Airocom is a provider of Value-Added Wireless Messaging Platform and Telecom Applications Development. Airocom develops scaleable messaging solutions and telecommunications software via smart partnerships with customers and suppliers. Airocom provides consumers, enterprises, mobile operators, service providers, carriers, portals and ISPs a complete end-to-end solution to their present communications needs. Our homegrown and flagship product, AiroGate Wireless Messaging Gateway provides maximum performance and a…
H-Shares Marching On
Excerpts from The Standard HK news daily: Millions could plow their money into the Hong Kong securities market following a trial initiated yesterday by the mainland to allow individuals to invest in stocks traded on the bourse. The decision by the State Administration of Foreign Exchange came just days after a Beijing visit by a top-level delegation led by HK Financial Secretary John Tsang Chun-wah. The pilot program will solidify Hong Kong's status as an international financial center and will help narrow the huge price gap between mainland-traded A shares, which trade at extremely high earnings multiples, and Hong Kong- listed H shares, which trade at relatively lower earnings. The move is also in keeping with initiatives outlined in the Action Agenda on China's 11th Five-Year Plan and the Development of Hong Kong.
SAFE earmarked Tianjin's Binhai New Area for the trial run. In a statement on its website yesterday, the forex regulator designated Bank of…
Good News & Bad News
Whenever people ask us which do we want to hear first, always go for the bad news first cos then we can have a "worst case scenario", e.g. bad news: your granduncle passed away last night of a sudden heart attack... good news: the autopsy revealed that he actually had 3rd stage terminal cancer in his lungs and liver, would have had to suffer and die anyway .... you get the drift.
The Bad News:
Again, the subprime thing has been magnified and compounded by the leverage by hedge funds. The domino effect has been due to the same thing. Even markets which have little correlation the subprime got hammered. The way the yen has appreciated over the last few trading days confirms the huge unwinding of yen carry trades, which can explain the bulk of sharp selling across Asian markets.
The Malaysian bourse has been one of the top performers for the past 6-18 months and is a favourite among foreign funds and hedge funds. The subprime mess caused a fear of redempti…
The New Investing Paradigm

I still think that the subprime thing is just a small thing, however the blowout due to the repercussions of subprime give rise to many fresh lessons in the continually evolving investment paradigm. You can call it the globalisation effects. Unless you still have walls around your stock markets like China, you are no longer immune to seemingly unrelated hiccups 10,000 miles away.

Put it another way - almost every asset class or sectors or country effects will have an effect on your stock portfolio, whether you like it or not, whether you have even heard of them in the first place is immaterial. Hence you can be safely buying and keeping Public Bank and UMW and IJM, but something could have happened to cause wild gyrations in gold futures due to a no-export and no-gold trade rule put up by Russia, leading to a 25% jump in gold prices. Now, nothing PB, UMW or IJM does is in any way related to gold or even something as far away as Russia. But the thing is NOTHIN…
Morgan Stanley Was Right, I Was Not
A few weeks back I posted the bearish piece by MS on the subprime mess. Going through it again magnifies how prescient the article was. Here's a rerun PLUS AN UPDATED OPINION BY MS:
Morgan Stanley has warned that current jitters on the global credit markets could spread to equity markets. Stock market corrections - after an increase in the cost of debt - historically follow six months later, suggesting that the current rally on Wall Street and European bourses may be more fragile than it looks
The current rally on Wall Street and European bourses may be more fragile than it looks. A rise in the interest rate spread between risky debt and benchmark treasuries knocks away a key support for share prices by raising the cost of money for leveraged buyouts, but there is often a long delay before investors react. A study by MS found that credit spreads began to widen on average six months before every stock market correction of 10pc or more over the past…
Betting On A Rebound At 1,200
You can monitor and monitor your stocks, and they keep getting whacked. Put them aside and don't look at them. For those with still some capital left and itching for a kicker on rebound around 1,200 - the simple list is for you to monitor and pick from:
(warrant px / premium / effective gearing / expiry)

Great Leverage, A+ Fundamentals, Low Premium
AMMB-CA 0.09 / 3% / 6.0x / 11 Oct 2007
KL Kepong-CD 0.06 / 19% / 8x / 17 Jan 2008 ~
Public Bank-CD 0.055 / 15% / 7.5x / 4 Apr 2008 ~

Great Leverage, B Fundamentals, Low Premium
Air Asia-CA 0.075 / 9% / 9.0x / 19 Oct 2007
CCCC-C1 0.165 / -10% / 18x / 31 Jan 2008
Tenaga-CF 0.075 / 15% / 7x / 4 April 2008
YTL-CD 0.05 / 25% / 5.5x / 2 Jan 2008

Really Specky, High Stakes Gamblers Only
Bursa-CD 0.025 / 22% / 7x / 12 Oct 2007
Commerz-CD 0.025 / 27% / 7x / 16 Nov 2007
Maybank-CD 0.015 / 15% / 16x / 14 Sep 2007
Genting-CD 0.015 / 20% / 7x / 28 Sep 2007
Resorts-CB 0.09 / 4% / 7x / 20 Sep 2007
Tenaga-CE 0.015 / 20% / 12x / 2 Oct 2007
Dreamgate's Potential
The principal activities of Dreamgate are manufacturing, refurbishment, technical support, and maintenance, sales and marketing of gaming and amusement machines and equipment, sales and marketing of security surveillance products and systems, renting of property and investment holding. Dreamgate is one of the ten companies, which are given the licensed by the government to deal in gaming machines and equipment in Malaysia. Those equipments for table games produced and supplied to the gaming industry are such as roulette, blackjack, baccarat, poker and Pai Kow. In addition, it also produces gaming accessories like, dice chips, playing cards, card shuffle devices etc. Meanwhile, it also produces amusement machines and equipment to theme parks, amusement arcades, clubhouses and other entertainment centres. Dreamgate supplied its products locally and as well as to countries like, Thailand, Cambodia, Vietnam, Macau SAR, Singapore, Nepal, South Korea, Philippines, M…
Updates On Credit Situation
The ECB has worked much harder than the Fed over the last few days to neutralise the tightening situation. Last Thursday the ECB injected 94.8 billion euros, and on Friday the ECB topped it up with another 61 billion euros. Not satisfied, the ECB injected another 47.67 billion euros. The strong persistent stance by the ECB showed speculators that the ECB is not to be messed with. The aggressive and compounding action by the ECB probably drove away traders and vultures trying to feed on the weak.
Other central banks chipped in by injecting some liquidity, just to show some solidarity. BOJ injected a token 600 billion yen (US$5 billion) while the Reserve Bank of Australia pumped in A$1.52 billion. The Fed put in another US$2 billion into their financial system. The amount shows that the US side is not showing much vulnerability. The rest of Asia's central banks have made statements that liquidity is ample but will be ready to act if anyone tries to mess wit…
44m x 0.14 x 0.13
Excerpts were taken from Jack Miller's popular blog "Stocks Or Bonds" Many would have liked Bernanke to cut rates by 50 basis points last week on hindsight. The business media has been having a field day with the majority believing that Ben Bernanke has held short rates too high too long.
The President of the Federal Reserve Bank of Richmond wrote a nice rebuttal to some of the negative press. It was published as the President's message in the "Regional Focus," spring of 2007. The summary point of the article was, "Monetary policy works best when it allows the real economy to respond appropriately to economic fundamentals, rather than attempts to insulate the economy from shocks by tolerating swings in inflation." Ben could have lowered rates to "fix" the sub-prime problem. This would have been like castrating a dog to prevent breeding. Ben has injected reserves into the system so th…
PPT Part Deux Many people can produced charts much like the ones above and the one below. This is 2007 and what is interesting is the amount of strong buying at "critical moving averages" As the indices are about to break the long trending moving averages, more often than not, there will be big buying (usually computer generated trades) to whisk them to high ground causing investors to regard there is a strong bounce from "not breaking long trending moving averages usually the 200 day moving average". Of course the counter explanation is that there are a lot of quant funds, and usually these computer models to buy at critical levels. That would hold water but these quants would not have the balls or gumption to do that day in day out or even try to lead reversing the market. What I think is the PPT generated trades come in first thus triggering the quant funds into action as well. Sometimes the down trend is so strong it is highly unlikely that quants will be wanting…
Plunge Protection Team
The Working Group on Financial Markets (also, President's Working Group on Financial Markets or the Working Group) was created by Executive Order 12631, signed on March 18, 1988 by the then President Ronal Reagan. The Group was established explicitly in response to events in the financial markets surrounding October 19, 1987 (Black Monday) to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence. One theory regarding the Working Group refers to it as the Plunge Protection Team. This theory claims that the Working Group is a scheme to manipulate US stock markets in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures. The term "Plunge Protection Team" was originally the headline for an article in The Washington Post by staff…
Don't Blink!
While writing about Bernanke, I spoke of how he had to project a feeling of confidence, and by not lowering rates: he basically told investors that there is no need to panic. Markets are like that. While one bigwig do one thing, and then do something to destroy that very thing. In an unprecedented move yesterday, the European Central bank poured a record 94.8 billion euros (US$130 billion) into the markets, with the Federal Reserve also injecting capital as banks gasped for liquidity. Now, isn't that a bit silly. Bernanke looked like Churchill for a while and then like a Japanese prime minister the next. When you cave so soon after a non-action on the fed funds rate, you send out a strong signal that ALL IS NOT WELL.
The move came in the aftermath of France's largest listed bank BNP Paribas shutting the door on withdrawals of funds worth 1.6 billion euros, tied to subprime securities. BNP Paribas said it can not provide a fair value of the holdings of the funds,…
Bernanke's Stance
Bernanke has taken up a job that has shoes that are hard to fill. Alan Greenspan has had a long stint at Federal Reserve and has left behind a strong track record. Greenspan has ridden out the LTCM debacle and internet bubble and his policies helped set the platform for good quality economic growth, keeping inflation at bay.
Last night was crucial for Bernanke. Would he kowtow to market pressures over the jitters caused by subprime and lower rates? In the end he stood firm, and his message sent a clear message that this was his term and he was going to set out his parameters as chairman of Federal Reserve.
The clear message was that investors should not look to the Fed to cure short term jitters. Another message was that the Fed would not play a direct interventionist role to "manipulate" the stock markets. This affrms the belief that the Fed's role is NOT to ensure an always trending up stock market. Many things have to be worked out by the market t…
China Says "No More Bullying"
The Chinese government has hinted that it may liquidate its vast holding of US Treasury bonds if Washington imposes trade sanctions to force a yuan revaluation. Henry Paulson, the US Treasury secretary, met with Chinese president Hu Jintao in Beijing last week. Two Chinese officials at leading Communist Party bodies have given interviews in recent days warning, for the first time, that Beijing may use its US$1,330bn of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies. Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is breaking down through historic support levels. This comes at a time when it looks like the bill looks to passed soon which would allow US to put trade sanctions against China goods. After being told, cajoled, pestered by US o…
Reassessing Talam
Talam was one of my better calls in 2006. Below was the posting made almost a year ago on 24 August 2006 when the share price went to 10 sen:Desperately Seeking Talam
Making Sense & Assessing Risk

August 24, 2006 - When things like Talam happens, what do you do? Talam's shares already at a 52 week low of 17 sen, dropped as low as 10 sen today on huge volumes after both Bursa and the company disclosed that Talam has again delayed finalisation of its annual accounts for year ended 31 Jan 2006. Bursa has warned that failure to submit by 31 August will result in suspension and maybe delisting. The knee jerk sellers would theorise that most companies who delay submission are prime candidates for PN4/PN17, or there is a huge writedown, or need to restate losses for previous years, etc...

1) The company has a MOU with major financiers to pare down debts by 70% over a 2 year period. Its current debt is RM864.3m. That makes its current gearing at 1.4x, not that excep…