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Showing posts from September, 2008

Selamat Hari Raya

TARPaulining All Over

I think they got the name wrong in the first place, that's why it did not get passed. TARP or Troubled Asset Relief Program, it sounded like tarpaulin, the heavy duty netting for lifting heavy goods onto the ships ... no wonder la, the safety net has too many gaping holes in them.

1) Seriously, this will bring back a tighter plan, one that is more accountable and responsible - so, gotta be good right.

2) The original plan did not specify at what price levels will the fund buy the distressed assets at. If they are buying at market, its no use to the banks and financials because it does not add to their capital base. Its the capital that needs to be enlarged. Hence they have to buy at higher than market prices for the whole thing to make sense, or don't buy the assets but give insurance for the assets as a major comfort factor.

3) The biggest obstacle has to be that the naysayers do not want the fund to buy these assets.

4) The release in batches is good to maintain a sense of integ…

Oops, Iron Ore Dips

As I have highlighted a few times, iron ore prices, which are not traded on a daily basis, is a very good indicator of real demand and health of an economy, especially in property and construction. I was led to believe the trend is still firm when BHP and Rio Tinto got 93% year on year hikes for their iron ore a couple of months back. The recent deal signed with Vale caused me to change my views.The head of China's leading steel company says the Chinese economy and steel industry are both "heading for a downward slide", as hopes fade that China can insulate Australia's resource-dependent economy from the widening global downturn. The comments by Baosteel's chairman, Xu Lejiang, coincide with new evidence that a contraction in Chinese building construction is seriously crimping demand for iron ore. "The economy is heading for a downward slide, so the steel industry is certainly heading for a downward slide," Mr Xu said at a Baosteel conference in Shangha…

Selamat Hari Raya

The exodus has begun. Drive safely.

Goldman Sachs & Nomura's Strategy

Finance Asia: As Goldman Sachs exits stand-alone investment banking, Nomura doubles down on the model by buying the Lehman Brothers franchise in Asia and Europe.

Who is taking the right approach?
Some observers argue that the high-leveraged investment banking era is over, and that Goldman Sachs has made a graceful exit from stand-alone investment banking to a bank holding company (BHC) model at just the right time. If they are right about Goldman, it would seem difficult to be bullish on Nomura’s expansion of that same investment banking model in Asia and Europe. The weakness of the investment banking model embodied by Goldman Sachs and Morgan Stanley is nicely summarised in the September 20 issue of The Economist as stemming from: the higher risk of insolvency, due to higher leverage and the reliance on the short-term wholesale markets; the requirement to mark-to-market; and weaker future demand for t…

Reassessing Indonesia (Part 1)

Malaysia and Singapore have a unique relationship. We are like squabbling in-laws, but we know we cannot and will never divorce each other.You live with the tension and exchange of barbs. The ties between Malaysia and Indonesia are quite different. The animosity at times can boil over. Grudges are harboured and allowed to fester. There is a genuine fear of, and sometimes loathing for, each other.Most of that is at the political and policy levels. Many Malaysians and Indonesians love to visit each other’s country. Indonesia to Malaysians in general, is a bit of an underachiever. Naturally, Malaysia to Singaporeans, is also a bit of an underachiever.It’s time to reassess Indonesia. In many ways, the country is moving in the right direction business-wise.Recently, Qatar and Indonesia set up a US$1bil fund to invest in energy and infrastructure. Qatar is the world’s largest exporter of liquefied natural gas (LNG), while Indonesia is third. Both countries are also members of the Organisati…

Financials Market Cap Decimated

Many of you would have received the "scary" email on how financials have been decimated in value. When there has been a bloody earthquake, its easy for bystanders to shout, "look at the many dead bodies". Is that a sincere warning, or just panic stricken obsevers talking? Gor those who missed the email, here's the gist:

Here's a list of the losses in market capitalization for 25 of the biggest financials since their rough peaks in October 2007. Keep in mind that these companies are not exactly emerging small cap coys but rather blue chips.

These losses include:

* A I G -Then: $178.8 billion... Now: $5.46 billion. Down 96.95%
* Bank of America -Then: $236.5 billion... Now: $123.4 billion. Down: 47.82%
* Citigroup -Then: $236.7 billion... Now: $76.34 billion. Down 67.75%
* Merrill Lynch - Then: $63.9 billion... Now: $30.2 billion. Down 52.74%
* Fannie Mae - Then: $64.8 billion... Now: $0.45 billion. Down 99.3%
* Morgan Stanley - Then: $73.1 bi…

King Roubini Speakth

By Nouriel RoubiniPublished: September 21 2008 17:57 | Last updated: September 21 2008 17:57 Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a self­fulfilling and destructive run on its ­liquid liabilities. (The known business model is that brokers-dealers run with a 25 to 1 leverage on capital to do their business. Followin…

Too Many USD Holders / Peg Revisited

Charles Chong said...i don't fully agree on your statement. Mind you that China is a big adopter of US treasury bills, trillions of them. With China holding so much of US treasury bill, they will do their best to protect the value of USD, not to mention that HKD is in fact pegged to USD. China, being one of the wealthiest nation in Asia currently, will not allow their wealth to be swept away over night.Comments: charles, we cannot hide, i mean the USA cannot hide behind the skirt that many countries are holding Treasuries hence they won't let the USD collapse... yes, politically, China and some of the Middle East nations have that objective as well... even China complained strongly on the GSE to paulson recently, basically hinting that they might STOP buying GSE debts if they do not go and rescue Fannie & Freddie... I ask you this, are the central banks in China, Japan, UK and US strong enough to stop a slide in USD ...think, I don't think they can, they may temporar…

Rebalancing The Twins

The first short position on oil was at US$139 (June 8, 2008), the double up position was taken at US$119.90 (August 5, 2008). The shorts were covered at US$112.90.

New positions(August 19, 2008)
Long oil futures $113.20
Long gold futures $802

The time has come to neutralise the oil position and take a small gain there. While I was bullish on oil, it was too much linked to the movements in USD.

I am very bearish on USD but I am more bearish on the destruction of demand from recent events. The liquidity injections from various central banks are good, but may not push oil past the US$115-120 region.

Sell oil futures $117.80 (gain 4.7%)

However I would be doubling up on Gold exposure. The destruction of wealth, and the reinjection of tons of liquidity by all central banks will stoke inflationary pressures again. In particular I am very much keen to be in real assets in this kind of era. I believe gold can even …

Staff Cuts: Lehman Brothers, Asia Relatively Dicey

Finance Asia: Whitney Group is a global executive search firm focused exclusively on financial services, with offices in North America, Europe and Asia-Pacific. Russell Kopp, a Hong Kong-based director who heads the firm’s wealth management practice in Asia, shares his thoughts on the impact on Asia’s job market of the latest turmoil on Wall Street.

What do the Lehman layoffs and the consolidation of Merrill Lynch and Bank of America mean to the job market in Asia?

Kopp: Lehman's demise is a serious hit to the markets in Asia. Barclays appears to be quite savvy in its approach, as in the US and Europe it's getting the pieces of the Lehman business it wants, without a black hole, and possibly with few liabilities at all. This should mean there is a fair amount of money set aside to lock in the Lehman employees that it ultimately hires.However, it’s a different picture in Asia, as there are a multitude of legal entities and geographic operations which adds some major complexity to…

China's Base Building

The Standard:Many mainland investors are saying they will think twice before jumping back in to the stock market, despite the generous market-saving measures unveiled by Beijing last week."It's good the government has come in to rescue the market, but I'm afraid that we haven't hit rock bottom yet," said Zhan Ye, a driver for a property company who used to order stock trades from his car as he listened to the radio news."As soon as people see prices falling, they'll just get scared and pull their money out again."Middle-class dreams have been buried by the stock-market declines, according to Zhang Qi, an analyst at Haitong Securities in Shanghai."Life savings have vanished just like smoke," said Zhang said. "Looking ahead, more family investors will stay far away from the stock market."Zhou Yu, 25, a Shanghai office worker, cashed his stocks in earlier this year, picking up a laptop, an iPhone and a camera with his profits."…

Staff Cuts: Merrill Lynch, Asia Relatively Safe

Finance Asia: The Bank of America-Merrill Lynch combine is forecasting US$7 billion of pre-tax cost savings over the next four years, representing 10% of the annualised expense base of the merged entity.

What does this mean for Merrill's people in Asia?On a post-merger call posted on, Bank of America CFO Joe Price presented the US$7 billion cost reduction forecast to analysts, saying: “The savings would be centred in the areas you would expect with headcount reductions across both platforms including overlap and back office and support functions and processes, as well as vendor leverage.”

When pressed by analysts that the forecast cost savings seem very high, Price said BoA intends to be “very aggressive on the cost side or the efficiency side”. Some specialists assume this will mean rounds of job cuts. Assuming simplistically that the 10% reduction in the salaries and wages is effected by cutting the same number of employees, this translates to 27,000 job cuts…

Wither Dollar

Up until now, the dollar, in defiance of all expectations, has been strengthening against most world currencies. Even commodity prices had reversed their bullish trend. Maybe some of the long speculators on commodity reversed or deleveraged their positions to ride along side the US dollar reversal.How could the dollar have risen in the face of overwhelmingly negative fundamentals? Some said the dollar had risen because Europe is following the US into recession. But, this proposition is ridiculous. No other nation has been as adversely affected by the credit crisis than America, where the mess had all began.Some opine that Britain’s weakness is part reason for the US dollar’s strength. Yes, British economy is slowing and its property sector is facing a correction after years of bubble activity. But these are simply convenient reasons but hardly persuasive or convincing.Deficit intactSince 2002, the US dollar has lost more than 25% in real terms on a trade-weighted basis (or 28% in nomi…