Monday, June 30, 2008

Bear Factors & CFTC


Thanks to Friday's 106.91-point drop left the Dow Jones Industrial Average at 11346.51, down 19.9% from its October record, after it had fallen as low as 11297.99 during the day. At the day's low the Dow was down 20.2% from October. Investors typically consider a decline of 20% or more the mark of a bear market. The last bear market, which extended from January 2000 until October 2002 for the Dow, was accompanied by a mild recession.

The usual bear markets are due to one or more of these factors: inflated stock values, mounting inflation, rising interest rates or a recession. Inflated stock values - not really this time. Mounting inflation - yes for sure. Rising interest rates - not yet but will have to rise to fight off inflations in the coming months. Recession - despite the many wolf calls, a recession is not likely globally, even in the US.

Since 1960, the average bear market has lasted about 14 months and has taken stocks down about 31% before they hit bottom. The mildest bear market saw a 21% Dow decline in the early 1990s, and the worst, during the 1970s oil crisis, a 45% drop. We have to remember that markets are forward discounters. Having reached the 20% correction, it is difficult to bounce back from that level immediately. If we mark to the mean which is 30% correction, its another 10% from here.

However I think we will not get anywhere near 30% as the "inflation" though widespread, its not pervasive enough. The inflation is largely due to commodity and fuel in particular moving its way into food, transportation logistics and salaries. However, unlike previous inflationary scare, the world is not at the tip of recession as much of the inflation had been due to productivity/consumption growth and the US printing tons of money for the past 7 years.

The US currency is already paying for the excessive printing. If inflation is due to productivity and consumption. Those are not essentially bad things. The biggest argument is that a 20% correction in oil prices would soothe the inflationary pressures substantially. If we have that, the rest of the world should have little problem coming to grips with higher food and related prices as most of the global economy is still chugging along.

What has zipped across the media screen but deserves greater attention was that the US House of Representatives on Thursday passed a bill that directs the Commodity Futures Trading Commission to use all its authority to curb speculation in energy futures markets. In just one of a slew of bills, the House of Representatives overwhelmingly passed largely symbolic legislation on Thursday ordering regulators to "curb immediately" excessive speculation in commodity markets. Many Democrats in the House and Senate are blaming loopholes in the regulatory system and want the CFTC to lower the boom on the Las Vegas world of commodities trading. Of course the White House could over-ride the bill but its not just Democrats, there are some Republicans as well willing to cross the fence to support the bill.

Of all the bills, market players are most concerned about the Senate's End of Speculation Act which calls for an increase in margin requirements as a blunt tool to tackle price speculation. That bill has yet to be debated. The chess players have begun moving their pieces. You all know whom I am rooting for.


p/s photo: Pinchaseeni

Friday, June 27, 2008

Can Hiap Teck's Fortunes Continue?


The Star: Steel pipe maker Hiap Teck Venture Bhd posted a 180% increase in net profit to RM45.96mil for its third quarter ended April 30 compared with a year earlier while revenue was 32.83% higher at RM445.86mil.

In a note accompanying its quarterly result, the company said higher business volume on the back of strong market demand coupled with an increase in steel prices contributed to its better performance. It added that better profit margins for steel products also contributed to the improved showing. Group managing director Kua Hock Lai said that going forward, margins might soften because cost was catching up with the selling price of the company's products.

Steel bar prices have adjusted to international levels after the Government lifted the price cap and waived the requirement for approval permits and import duties from May 12. Kua said the company was targeting between 15% and 30% of its manufacturing division's earnings to come from the oil and gas application product line in the next financial year. In the year ended July 31, 2007 manufacturing added 55% to earnings while the trading division contributed the balance. “Currently, this product line contributes less than 15%,” Kua said. He said the trading division had more exposure to the local market while the manufacturing division was not so exposed.

“We export between 50% and 60% of the products from the manufacturing division,” Kua said, adding that exports contributed 25% to earnings. He said the company planned to expand its exports to the United States and Europe. “We have very good tie-ups with international steel trading houses which will come in handy in our future plans,” Kua told StarBiz. He said the company had just started exporting to the United States. This month alone shipments there made up about 30% of Hiap Teck's exports, he said.

Due to the countervailing duties and anti-dumping measures imposed on Chinese steel pipe products by the US government in recent days, we see an opportunity for us to further penetrate this market,” he said. Kua said the company's order book stood at two to three months versus the industry average of 1½ to two months. The company has an annual steel pipe production capacity of 580,000 tonnes and an average capacity utilisation of between 60% and 65%.

Comments:
The mismatch in material cost with the lifting of ceiling prices may have exaggerated performance, but that kind of margin would narrow dramatically in the coming months.
The 15% export levy imposed on Chinese welded steel products early this year boosted demand, and in fact created a huge shortage globally.

Coincidentally, Hiap Teck also managed to get the CE certification which will allow them to sell to Europe effectively.
Going forward, revenue should pick up further, in particular from exports, but investors should not expect similar margins like the just announced quarter.

Issued Capital: 327.4m

52 week High-Low: 2.47-1.44

BV/share: 1.26


Should make 38 sen per share in 2008, thats a pretty low PER even assuming zero growth. If you like steel prices over the next 12 months, Hiap Teck should benefit enormously. Good to buy for the next 2 quarters' earnings which should continue to surprise on the upside considering its capacity utilisation of just 60% - hence great economies of scale with additional orders from overseas. Current price: 1.65. Look for a swift retest of its 52 week high of 2.47.

p/s photos: Han Chae Young

Thursday, June 26, 2008

Mantua On Subsidies


I say it again, Mantua, you should be blogging, you'd be a hit. You certainly write better than me, and not as antsy or sarcastic as me as well. Here's what Mantua wrote on subsidies:
Dali

You are right. Price subsidies are found all over the world. They all result in distortions to the smooth operation of the world's free markets but ultimately they all fail.

For many years, US & European farmers received heavy subsidies to keep them afloat. These subsidies allowed them to dump surplus output of cereals, cotton, sugar, etc onto consumer markets worldwide. The resultant low prices resulted in:
1) many farmers in the 3rd world abandoning their farms;
2) mass migration to already overcrowded cities;
3)endless supply of cheap labour to burgeoning new factories;
4) rise of the middle class in newly developed countries
5) increase in demand for food & fuel at just the time when supply has reached its peak.

Same thing with oil. The industrialised West was built on the back of cheap oil supplies from Middle Eastern states or nations whose rulers were encouraged to spend their oil incomes wastefully, making them ever more dependent on further exports to the west.

In spite of their continuous preaching for democracy worldwide, the western powers propped up many non-democratic regimes, notably in Saudi Arabia, Kuwait & Iran (pre-Shah).

The resultant indecently low oil prices led to unsustainably wasteful lifestyles in the west (especially the US) which were mimicked by nations worldwide.

In a sense, we could argue that ALL oil importing nations have been subsidised for many years by cheap oil from the Middle East. Like all forms of subsidies, this situation could not last forever beause:

1) the supply of cheap oil is finite - all the big oilfields have been discovered;
2) the low oil prices discouraged efforts to look for oil elsewhere;
3) sharply rising fuel demand from newly developing countries;
4) increasing democratisation & radicalisation of the Middle Easter & other OPEC nations, who are finally realising they should manage their god-given natural resources less wastefully.

In conclusion, the recent sharp rises in energy & other commodity prices is the natural outcome of decades of wasteful consumption & chronic under-investment in new supply sources.

While speculators have no doubt exacerbated the recent oil price rises, we tend to ignore the underlying cause which is the supply/demand balance.

Although there is sufficient supply today (as argued by OPEC members in their rejection of demands by oil importing nations for increased oil production), the market realises that new & more costly oil supplies take time to come to market & may not satisfy current demand trends.

This trend will keep on rising unless consumers worldwide change their lifestyles drastically or else have it forced on them through severe economic recessions. Especially in the most wasteful (& blinkered) nation of all, the US.

Curb the speculators if you must, but we must all reassess our own lifestyles & assist in curtailing the spread of consumerism worldwide, at least in its current form.

p/s photo: Bai Xin Hui

Wednesday, June 25, 2008

Essential Reading - When Markets Collide


If you are sick and tired of reading Warren Buffett or Ben Graham or even Peter Lynch, try this one. Mohamed El-Erian was the ex-fund manager of PIMCO's highly regarded emerging markets fund. He left to become president of Harvard Endowment for another highly successful tenure, where he managed US$35bn in endowment. Now he is back as co-CEO and co-chief investment officer of PIMCO. He spent 15 years at the International Money Fund, working on policy, capital market, and multilateral economics issues. In 2004, Fortune named him a member of its eight-person “Mutual Fund Dream Team.”

According to the McGrawHill byline: When Markets Collide is a timely alert to the fundamental changes taking place in today's global economic and financial systems--and a call to action for investors who may fall victim to misinterpreting important signals. While some have tended to view asset class mispricings as mere “noise,” this compelling book shows why they are important signals of opportunities and risks that will shape the market for years to come. One of today's most respected names in finance, Mohamed El-Erian puts recent events in their proper context, giving you the tools that can help you interpret the markets, benefit from global economic change, and navigate the risks.

The world economy is in the midst of a series of hand-offs. Global growth is now being heavily influenced by nations that previously had little or no systemic influence. Former debtor nations are building unforeseen wealth and, thus, enjoying unprecedented influence and facing unusual challenges. And new derivative products have changed the behavior of many market segments and players. Yet, despite all these changes, the system's infrastructure is yet to be upgraded to reflect the realities of today's and tomorrow's world. El-Erian investigates the underlying drivers of global change to shed light on how you should:

  • Think about the new opportunities and risks
  • Construct an appropriately diversified and internationalized portfolio
  • Protect your portfolio against new sources of systemic risk
  • Best think about the impact of central banks and financial policies around the world

Offering up predictions of future developments, El-Erian directs his focus to help you capitalize on the new financial landscape, while limiting exposure to new risk configurations.

His main contentions:

a) there is a realignment in global growth, shifting from one big engine (the US) to many smaller planes, which will bring about a bumpy process

b) the return of inflation, the smaller planes went from being producers to being producers and consumers, the inflationary long effects are still not fully appreciated by the markets

c) structured finance has diminished the barriers to entry to mortgage finance, which brought about overeager innovation, and the sub prime crisis, but the global mortgage finance market will never be the same in the future, the sub prime mess was an initial overeager casualty as with any grand innovation, but will elevate the mortgage markets of the future

d) transfer of wealth, debtor countries are now creditor countries, another bumpy ride


USD Millionaires, Where Are They?


NST: The country's poverty rate will increase from 3.7 per cent to 24.3 per cent if the poverty line is raised from the current RM800 to RM1,500 per household.
Minister in the Prime Minister's Department Tan Sri Amirsham A. Aziz said the definition of the poverty line was a household income sufficient for basic necessities. It does not include luxury items. The basics are food, clothes and other expenses like rental, utilities, transport and communication, health, education and recreation.

On such an optimistic note, let's all have a look at the number of millionaire households globally. The definition of a millionaire household is homes with more than US$1m in net assets.

The absolute figures, number of millionaire households:

1) USA 4,585,000

2) Japan 830,000
3) UK 610,000
4) Germany 350,000

5) China 310,000
6) Italy 270,000

7) France 265,000
8) Taiwan 220,000
9) Switzerland 205,000
10) Brazil 190,000
11) Netherlands 145,000
12) Belgium 135,000
13) Australia 135,000
14) Spain 125,000
15) Canada 110,000

Naturally the absolute figures would be skewed favouring those with large population. Although, Australia, Belgium and Netherlands are notable exceptions.

A more revealing figure would be as a percentage of all households in that country:

1) UAE 6.1%
2) Switzerland 6.1%
3) Qatar 5.2%
4) Kuwait 4.8%
5) USA 4.1%

6) Singapore 3.8%
7) Taiwan 3.0%
8) Belgium 3.0%

9) Israel 2.7%
10) UK 2.4%
11) Ireland 2.4%
12) Bahrain 2.2%
13) HK 2.1%
14) Saudi Arabia 2.0%
15) Netherlands 2.0%

We can understand those OPEC nations with their millionaires. USA, UK and Singapore are up there mainly because of the strong property markets over the last 10 years (even taking into account the property correction in the US over the last year and a half). If there are more foreclosures and a further 25% correction in property prices in the US and UK, coupled with another 10% weakness in USD, well you can see USA and UK slipping quickly down the rankings. Switzerland is there with its banking facilities, or rather the millionaires move there. Ireland is a real success story, from the pits the country have risen through smart investment incentives.


It will always be pretty hard for normal public working in Malaysia, Thailand, the Philippines or Indonesia to hold net assets of more than US$1m. The average salaries would put all these countries on a backfoot. We tend to subsidise a lot of necessities and in particular fuel and diesel. The subsidies and a deliberate weak currency policy helps to ensure competitiveness. However, if these countries do not reinvest properly into education and high value add industries, we will forever have to contend with sluggish salaries. In a way, that translates into the property values.


While I am loathed to put Singapore in a shining light, they have reinvested very well. In 5 years time, if you have finished paying off your HDB flats, you can retire as an easy RM millionaire in Malaysia. If you have an executive HDB flat and paid that off, well, you should be very very close to being a USD millionaire - we are not even talking private property here. These are government housing.


For Malaysian graduates, work hard for the first few years then plan your career well. You may want to move to "internationally competitive" arenas, prove yourself and really earn good money, or get reposted back to Malaysia. You stay local, you will be paid local. Unless you try and establish your own business, which is no guarantee. Or pick industries which pay industry competitive rates - technology, investment banking, oil & gas, advertising, private banking, etc.


p/s photo: Sarunat Visutthitlada Lider

Tuesday, June 24, 2008

India's Insurmountable Oil Subsidy Problem


China have raised prices of gasoline, diesel oil, aviation kerosene and electricity by as much as 18%. China's new gasoline price is at about US$3.29 a gallon, and the diesel price is at US$3.08 a gallon. Despite price hike, break even price for refiners still far below market price (based on crude oil price of US$92 below market price pushes demand growth faster than in an undisturbed market.

Chinese fuel subsidy costs are lower than in some of its Asian counterparts on a GDP basis as it produces around one-half of its oil consumption. Subsidies distort demand. A more efficient way to protect people’s purchasing power would be to let prices increase and introduce direct, targeted subsidies for afflicted consumers like Korea has done, and which Malaysia is now trying to do.

China's total amount of implicit subsidies (financial support from the state budget and losses incurred by state companies) in 2007 was about US$27 billion, 0.8% of GDP. 2008 costs might be US$100 billion, or 2.2% GDP. Chinese fiscal position means it can afford to continue status quo, can do so longer than its neighbors or could raise prices gradually.

China's oil subsidy situation is quite manageable. However, the market seems to be ignoring India's potentially more explosive situation with respect to oil subsidy. I can forsee a dramatic demand destruction in India. If you have been to India lately, you will find a lot of petrol stations closed, seriously. Many of the big refiners and petrol pump stations are state controlled in India. Take Indian Oil, it has 17,800 petrol stations and can register revenue of US$59bn. However, Indian Oil loses US$76m (RM247m) A DAY for every day it allows its petrol stations to operate. That's due to the government insisting that these state companies continue to subsidise all gasoline, diesel and cooking oil.


Presently petrol cost only one-third the price in USA despite a nastily handled 13% hike in fuel price on 4 June recently. If oil stays at US$130 for the rest of the year, there should be at least another 13%-15% hike in order to stop the state budgets and government budgets from totally imploding. Even then, the problem would not be solved.
Politically and socially, the Indian public are pretty angry with the recent hike. Can you imagine another round before the year is over?

Manmohan Singh, the PM, is seriously betting that the price of oil would drop back to US$100 by year end or else you can basically kiss the whole government machinery goodbye.
Due to the diverse political landscape across India, managing a substantial and dramatic reduction in oil subsidy will probably require military intervention and curfews. It is just unmanageable.

Private oil players such as Essar Oil and Reliance Petroleum are still trying to expand but their oil is unsubsidised, which totally puts them out of the competition. Reliance Petroleum has shut down all 1,400 of its new gas stations while Essar has temporarily closed its 1,250 pumps. Even Shell has closed 40 of its 50 stations.
Removing oil subsidy is like one of Buffett's stories. You don't know who is swimming naked until the tide recedes.

Oil subsidy is a bloody crutch and a bloody curse. Industries and economies must compete as close to international input prices as possible. Wealth from resources should be used less and less to subsidise the price of fuel to the general public but rather be used to target support for specific affected groups and improve the social safety nets for the poor.
Just Indian Oil is already losing US$76m (RM247m) a day. If you add the other state controlled Bharat Petroleum and Hindustan Petroleum, you are looking at a gigantic problem. If you add the 3 together, you might be looking at RM500m losses a day - how long can any government stomach that??!!

p/s photos: Cholada Mekratree

Monday, June 23, 2008

Remembering Eva Cassidy


Beautiful Eva died in 1996, from melanoma, the most deadly form of skin cancer. Her music was little-known during her 33 years of life, but today her soul-stirring voice is reaching people all over the world. For some fans, the pleasure of listening is enough. Others want to know more: "Who was this remarkable singer? Why haven't we heard of her before?

It was the fall of 1996, and Eva Cassidy was dying. As she lay in bed in the Bowie home of her parents, musicians in a nearby studio were laying guitar, piano, and violin tracks on vocals Cassidy had recorded over the years.

"After they'd finish, they'd come in and say, 'Eva, we just finished one of your songs—would you like to hear it?' " recalls friend Jackie Fletcher. "She had left so many incredible recordings."

Her friends wanted to do something—anything—for Eva. They wanted to share with others a voice that had been little heard outside Washington. Fletcher sent tapes to local radio stations, requesting that they play Cassidy.

"If they'd tell me, 'Jackie, I'm going to play Eva in this hour,' I'd call Eva and say, 'Listen to the station—they're going to play you tonight.' It made her so happy. She had worked so hard, and finally she was getting some recognition."

No one guessed then how the voice of Eva Cassidy would spread.

Four and a half years after her death from melanoma, a posthumous album, Songbird, reached number one on the United Kingdom chart with more than a million copies sold. One Web site devoted to Cassidy—there are five and counting—has messages from fans in Australia, Poland, Hong Kong, even Vatican City. In this country, National Public Radio aired a nine-minute segment on Cassidy in December, and soon her albums occupied five of the top seven slots on Amazon's bestseller list.

What is it about Eva that has created such a sensation?

For one thing, her voice is captivating. Mary Chapin Carpenter, a gifted singer herself, says that the first time she heard Cassidy's voice she "just about fell off the couch."

When radio stations play Eva, their switchboards light up. Many callers say they were in their car when they first heard her and had to pull over to cry.

"Eva evokes that kind of reaction. Not just 'She's good' but 'Who the heck is that?' " says Keith Grimes, who was a guitarist in the Eva Cassidy Band.

Cassidy had great control, phrasing, and range. She was petite—five-foot-two—but could belt out a bluesy "People Get Ready" as easily as she could sing a delicate tune like "Autumn Leaves." Some who heard this soulful Scotch-Irish-German woman thought she was black.

It's more than Cassidy's technical skill that grabs people. It's the sense as she sang that she was reaching from her heart to her listener's.

"There are singers that have great instruments but are just singing the notes," says Grace Griffith, a friend and local chanteuse. "Other singers have emotion but not the instrument. Eva had both."

No song speaks to this expressiveness as much as her rendition of "Over the Rainbow." Cassidy, who loved the Wizard of Oz books as a child, breathed new life into an old song about hope and longing.

An amateur video of Eva shot at Blues Alley, her face full of feeling as she sings "Over the Rainbow," is largely responsible for the big sales in England. It's just about the most requested video in BBC history.

Eva's parents receive two or three letters a week that mention how soothing and uplifting Eva's music is, how it helps them through troubled times. Her mother, Barbara, recalls a letter from a woman who said that when her son died, "the doctor gave her a hug and Eva's record."

In 1998, when David Finn's mother was dying, Cassidy's voice provided comfort.

"With the diabetes, she had lost her sight and was bedridden the last six months of her life," recalls Finn, who once owned an Annapolis restaurant called Pearl's, where Cassidy performed. "We would sing along with Eva's songs. The diabetes causes a lot of pain. It was one of the things that would help ease the pain."

Some may wonder if Cassidy's death at the age of 33 accounts for some of the popularity. No doubt her life story is part of it. But articles about her haven't boosted sales as much as when her songs are played on the BBC or NPR. Hearing about Eva Cassidy isn't as powerful as hearing her.

Says her father, Hugh Cassidy: "The letters, the things I read, more and more confirm that there's something afoot here. It is kind of mysterious the effect it's having."

Eva Cassidy was happiest not in a smoky nightclub but outdoors, where she hiked and biked and basked in the beauty around her. She and her mother—her best friend—went for a walk, bike ride, or drive to the water almost every Sunday.

"She had this old pickup truck, and one time we were on this country road and she started swerving," recalls Barbara Cassidy. "I said, 'What are you doing?' And she said, 'Mom, don't you see those caterpillars? I can't run over those.' "

"She's one of those people who see God in everything," says Keith Grimes. "She had respect and appreciation for living things. She wasn't a religious person in the churchgoing sense, but she was spiritual."

Cassidy's favorite "holiday" was the first day of spring. Her birthday was in February, and she'd save one of the sugar roses off her sheet cake and stick it in the freezer. Then on the first day of spring she'd take it out and savor it.

Cassidy's favorite time was sunset, which she called "the golden time."

"When I'm working out in the shop, I wait for the golden time," says Hugh Cassidy, a retired Prince George's County teacher and a metal sculptor. "You just stop what you're doing and take it in. When I see those golden rays, every once in a while I'll say, 'It's time to put on Eva.' "


Mantua Should Be Blogging





Very good points Mantua, you should start your own blog, seriously. Cheers.

mantua has left a new comment on your post "Fair Rebuttals":

Dali

Indonesia preceded Malaysia in the use of production sharing contracts and produces much more oil. Pertamina, by all accounts, should have been far more successful than Petronas. It did'nt because:

1) it did not have the technical skills & vision to venture out to become a fully functional oil explorer & producer in its own right (unlike Petronas);

2) large parts of its income disappeared into private coffers of staff, managers & directors alike;

3) whatever was left & returned to the govnt (billions) disappeared into the ex-President's overseas accounts.

As for Statoil, I am uncertain about its income source. It could be the state royalties which are much less the the lion's share of PSCC's profit oil. So any comparison on financial perforamce is probably of little use.

Statoil may well have been favoured in Norway's allocation of exploration blocks (much like Petronas in Malaysia) but would have to compete on a level playing field on overseas venture,like Petronas.

I do not subscribe to the public vilification of Petronas as the large majority of the issues raised are the responsiblity of the government, not Petronas. However, the latter's overall performance rates no more than a B- because:

1. it has failed to harness the skills & enterprise of the Malaysian population because of its ethnically biased hiring policies, which cannot be totally blamed on the govnmt;

2. its liking for sponsorship of big-time events which have little pay-back value e.g. sponsorship of F1 racing teams which generate a lot of overseas advertisement exposure but for what purpose? Petronas gains little from overseas exposure as it has no direct sales outlets, unlike other oil majors. Do you see Statoil or other national oil agencies spending so heavily on adverts?

Oil Majors - Comparative Stats


btw, my fellow blogger Seng is absolutely correct to insists that pages 81-165 of the 2007 annual report be made fully available on the website... I think other oil companies (the listed ones in particular) does that, so I doubt there are trade secrets you cannot reveal, maybe executive compensation information may be deemed sensitive, but hey, its a brave new world Merican, so let's get it all out there ... at least make my job in defending Petronas ass easier OK!


Petronas Malaysia

ROE - 2005: 38.5%; 2006: 41.6% ; 2007: 40.9%


Net profit - 2006: RM43.1bn (US$13.26bn) ; 2007: RM46.4bn (US$14.27bn)

ROE Of Majors
(Most Recent Year)

1) Royal Dutch Shell 24.06%

2) BP Plc 26%

3) Total SA 29.5%

4) Repsol YPF 17.9%
5) Statoil 33.23%

6) Lukoil 23.23%


Net Profits Of Majors (Most Recent Year US$)

1) Royal Dutch Shell 91.8bn

2) BP Plc 75.3bn
3) Total SA 56.4bn

4) Repsol YPF 18.3bn

5) Statoil 12.3bn

6) Lukoil 20.4bn


Notes: Just for comparison sake, Statoil makes about the same amount of money as Petronas. However, Norway is the world's third largest oil exporter behind Saudi Arabia and Russia. Norway is also the world's seventh largest gas producer and the second largest supplier of natural gas to Europe. Statoil merged with Norsk Hydro and is the leading petroleum company in Norway, and also the world's largest operator of deepwater fields. To be fair, Norway has more than just one oil giant.


Asian Majors Net Profit (US$)

1) Petrochina 19.13bn

2) CPCC 7.096bn

3) CNOOC 3.96bn

Return On Equity (Most Recent Year)

1) Petrochina 24.19%

2) CPCC 19.46%

3) CNOOC 28.7%


A detail report was submitted to the Select Committee on Energy Independence & Global Warming last month. The report covers Exxon Mobil, BP, Shell, Conoco Phillips and Chevron. The 5 companies CEO's average pay was US$23m. At Exxon Mobil, the top 5 executives was paid a total of US$28m (average RM18.2m pp) in 2001 and a total of US$76m (average of RM49.4m pp) in 2007. Keep that in mind as Petronas starts to reveal executive compensation in the coming days.

photos: Rain Li Choi Wah

Sunday, June 22, 2008

2v1g, Got Yours Yet?


After visiting a few cd shops for the last couple of days, I finally got the cd today at 1st Floor Bangsar Village 1. Its value for money at 39.90 considering its an audiophile pressed cd.

Since I only had listened to the previewed 6 songs, I was delighted to find the other songs were equally impressive. The great thing is playing the cd on a proper stereo, it really enhances the experience, especially Roger Wang's guitar. The two vocalists must be applauded for their sense of timing and tempo as they only have a guitar as backing.

The toughest song for Roger and the singers must be the last track, "we want us to be together", hard to play, harder to sing, harder still to sound good. Great effort.

My new favourite track, "sher fou / perhaps", refreshing take minus the wailing /screeching by the original singer.

Petronas Bashing


I have always tried to be frank on business issues. I have no problem highlighting business missteps and poor business decisions and strategy.

Over the last two weeks, following the hike in fuel prices in Malaysia, there has been a lot of public anger and frustration looking for the right punching-bag. Petronas is now a prime target for the general public and political opposition to focus their venom at.

Is it fair? Has Petronas been badly managed? If they had been poorly run, then yes, bash away. Let’s be clear. Don’t whack first and then ask questions later.

Petronas has always published solid annual reports in accordance to international accounting standards and reporting requirements. It’s all there on their website. The information provided is deemed sufficient to raise billions of dollars from international banks. Or else, banks will not be lining up to provide credit to the corporation.

So far, it appears that what most of the criticisms have been focused on are the “additional information” – do they have planes?; how much do they spend on the philharmonic orchestra?; and what’s the senior executives pay? – to name a few.

We have to remember that how much they pay to the government is not determined by Petronas. It’s decided by the government. Hence if you want to attack Petronas, it ought to be on how well they manage the operations, and did they fritter away funds at unnecessary expenses.

Whether the funds had been deployed properly by the government is a separate issue and that does not involve Petronas.

Let’s get the nitty-gritty out of the way.

Executive planes – even if they have it, it’s a necessary business investment for a company like Petronas. Petronas is not a Malaysian oilfield business entity but has operations in over 30 countries. Its not like the executives are flying to LA to buy art or visit their second home.

Philharmonic orchestra – If Petronas had not invested, we would not have a world class concert hall and an orchestra that is of international standards. Should we even have a world class concert hall? That’s like asking if we need to have good museums.

If we had a few great concert halls and a half decent orchestra that is of international standards, then yes, Petronas would have been throwing funds at superfluous needs.

Some critics scoffed when they heard that members of the orchestra are paid between RM20,000 to RM30,000 a month, and the majority of them are foreigners. When building something of international stature, then international benchmarks (which includes salaries) will have to be used to draw them in.

Then you ask, “Why so many foreigners?” One would be naive to think that we can start an international standard orchestra dominated by Malaysians. This is not another Malaysia Boleh project.

The idea is to get the best from abroad and hope that by doing that, we can groom Malaysians in their footsteps. Think of it as a grand CSR project.

That’s pretty good but revenue and profit are still not good enough. I would look at return on capital employed as that shows how effectively the company has invested – 2003: 25.6%; 2004: 28.7%; 2005: 38.5%; 2006: 41.6%; 2007: 40.9%. The figures should speak for themselves.

To the general public, it may appear as if Petronas is staffed by fat cats sitting around twiddling their thumbs, signing joint ventures with foreign big oil companies to drill for oil in Malaysian waters. They pump, we sell – surely its easy money. If Petronas had done just that, we would have been a net importer long ago.

Petronas had reinvested well, with solid operations in Turkmenistan, Egypt, Cuba, Chad, Vietnam, to name a few. Petronas is to these countries, what Shell and Exxon are to Malaysia.

Petronas has generated total profits of RM570bil since formation in 1974 to last year, of which RM335.7bil had been given to the Government (in taxes, royalties and dividends). Effectively, that’s a 58% tax on Petronas’ profits.

The other often cited criticism is how other oil producing nations can still maintain selling fuel at deeply subsidised rates to their people. Why can’t Malaysia do that anymore? Answer – it’s a simple maths equation which has not been properly communicated.

It depends on the ratio of total net export to domestic consumption. If it’s 1:2 it means if we consume 1 million barrels, we are net exporting 500,000 barrels, which is not a lot of net exports. Some countries have a ratio of 5:1 which is to say they may be consuming 1 million barrels but they are net exporting 5 million barrels. Suffice to say, some countries benefit a little but some benefit enormously. Malaysia is at the shorter end of the curve.

The second and more important reason has to do with tax.

As shown from the table above, the effective tax rate is between 40%, and 58% if you include special dividends and royalties. If Malaysia subsidises 35% of the real price of oil, then we would NEVER have to remove the subsidy because what the government gets from oil tax will always be greater than the subsidy amount. But we all know that we subsidise a lot more than 35%, maybe 60%-70%.

Collectively the government has taken a 58% cut of Petronas’ profits. Not all of that goes to subsidy as the funds need to be diverted to other expenditures.

The government could have preempted the problem by having a graduated tax scale. For example: for amounts up to US$40, impose a 60% tax on profits; amounts from US$41 - US$80 impose a 70% tax; and amounts more than US$81 impose an 80% tax. That way, your subsidy should always be handily covered.

If oil stays at US$150, a lot more reinvestment will have to be done to dig deeper and it will incur more capital deployment to use more expensive equipment and technology for oil. Higher price of oil means the low hanging fruits have been mostly harvested. To find more oil now requires getting to the more difficult locations and methods.

To keep subsidy on would mean whacking Petronas with a bigger windfall tax stick, but at the same time reducing its ability to invest properly in its global business.

The other thing critics cry foul at is in relation to executive compensation. My guess is that the top guys get fetch salaries in the region of RM1mil - RM6mil a year. Before you get all knotty about those figures, it is fair to say that they are still underpaid compared to their peers in the industry.

Petronas Malaysia is by and large regarded as one of the best managed companies in the industry.

And yes, it can improve its disclosure. The people deserve that. There is room for improvement with regard to disclosures on executive compensation, justifications for special projects and events (e.g. F1, Monsoon Cup, Cyberjaya, etc.), actual deployment of funds into petro-related projects, including cost, joint venture terms, payback calculations, return on capital deployed, success rate and so forth.

At the end of the day, the people need to be clear on how RM234.3bil (retained profits) had been spent through the years. It’s just a matter of coming clean if you have nothing to hide.

But don’t make the mistake of interchanging Petronas with the Government. The uprising criticisms against Petronas Malaysia is largely misdirected. Aim your arrows elsewhere.

p/s photo: Deanna Yusoff


Friday, June 20, 2008

Market Moving News & Developments?



Market Watch: While the economy is very weak, better times may be ahead, an economist with the Conference Board said Thursday on a report that the index of leading economic indicators rose slightly in May for a second straight month. The index, which attempts to forecast turning points in the economy, rose 0.1% in May, matching April's gain. "Latest data suggest the economy has not fallen into a contraction and may not undergo one in the second half of the year," said Ken Goldstein, labor economist at the Conference Board. "In fact, the economy might even begin to turn a corner early next year."

Market Watch: Weekly U.S. initial jobless claims dropped by 5,000 to 381,000 in the week ending June 14, a two-week low, the Labor Department reported Thursday. The four-week average of initial claims rose by 3,250 to 375,250. Continuing jobless claims fell to 3.06 million, the lowest since April, but still well above the year-ago level of 2.52 million.

Market Watch: Oil prices fell sharply Thursday following media reports that China will increase retail gasoline and diesel prices by 1,000 yuan a ton starting Friday. Dow Jones Newswires reported the news citing a Reuters story. Crude oil for July delivery dropped $2.27 to $134.40 a barrel on the New York Mercantile Exchange.


Comments:
The above news items are all positive but the equity markets seem to be still finding its feet. Largely, I am not a chart-person, but followers of technicals still think the Dow and Nasdaq are having a downtrend even though the strength behind Nasdaq is appreciably stronger.

The weaker oil price was a boost but on long term charts oil has been registering higher highs and higher lows for the last 3 years. Technically speaking, if left on its own, the uptrend would not be broken until a significant support level has been broken. That level, viewed by many chartists, currently stands at US$120. If it breaks that, then we are looking for the US$100 as the next significant support level.

Hence current oil price weakness, while welcomed, may not be sufficient to be a strong rallying point for equities.
Why am I not more into technicals, I could write a small book if given the chance. Take oil for example, its important information to know that the price is still on the uptrend channel. However, as I have explained, I see oil having a lot more "fiscal enemies" at current US$140 level. Its a bubble no doubt, the high price is there to generate interest to seek out more difficult and expensive oils. The shortage is not immediate but is projected 4-5 years out.

What the charts will not tell you is when "fiscal measures" or "when regulators decide to intervene" to move the goalposts. I have not been commenting on oil being a big problem for the longest time. When it short squeezed twice within a week jumping a few dollars each time, it triggered alarm bells. Its too easy to jump on the oil bubble bandwagon. There are certain trigger points which you sense will cause certain people to act. Left alone, oil will merrily go ahead upwards. But people will act, by cutting subsidies, the promotion of demand destruction factors, and the implementation of strict position limits. Even OPEC does not welcome the current situation.


Funnily enough, I don't seem to have a snappy conclusion to what I have just written...

p/s: Nook

Thursday, June 19, 2008

Oil Subsidy, The LATAM Experience


We have been so preoccupied with the drastic cutbacks in fuel price subsidy, we haven't paid sufficient attention to what's happening in other countries. Let's have a look at some countries in Latam, some are net oil exporters, some are net importers, some subsidise, some don't. Their report card tells quite a story.

Let's look at those a bit like Malaysia, namely Argentina and Colombia. Both are small net exporters of oil, around 300,000 barrels a day. The public in Argentina and Colombia pay US$1.04/l (RM3.38) and US$1.10/l (RM3.57) respectively. Both countries still subsidise fuel products for the people. Argentina spent US$11bn a year and is grappling with an inflation rate of 9%. While Colombia spends around US$3bn a year, and they have a more manageable inflation rate of 6.3%.

Big exporters include Mexico and Venezuela. They export some 1.4m barrels a day and 2m barrels a day respectively. Naturally fuel price is heavily subsidised and cheap. The public in Mexico and Venezuela pay US$0.69/l (RM2.24) and US$0.04/l (RM0.13). Boy, don't we all want to live and work in Venezuela??!!

Mexico's subsidies total US$19bn, while Venezuela's total subsidies were US$11bn. Of course Venezuela's population is almost the same as Malaysia at 26m, while Mexico's population is nearly 110m. Hence you need to divide the subsidy with the population to get at a realistic figure.


However, the good news ends there for Venezuela because they are currently struggling big time with inflation at 32% while Mexico is chugging along nicely with inflation at just a tad below 5%. Draw your own conclusions.


Let's now look at the net oil importers, Brazil and Chile. Brazil imports 30,000 barrels a day while Chile imports 244,000 barrels a day. Brazil has NO subsidy, while Chile's subsidy is a mere US$311m. Naturally fuel price for the public there is high. Brazilians pay US$1.58/l (RM5.13) while Chileans pay US$1.35/l (RM4.38). Brazil's inflation is at a manageable 5.5% while Chile's at 8.9%.


It maybe premature to draw solid conclusions from the Latam countries' experience but seemingly the countries that practice lesser fuel product subsidies do better over the longer term. It probably has to do with working in proper competitiveness in the industrial structure of the economy when you do not have oil subsidy. I guess, in a way, you can call it the curse of having oil. If you have it, you have to do a lot better with it as it can mask inefficiency. If you don't have oil, you are already competing at international standards of efficiency, you'd probably try harder already.


p/s photos: Jennylyn Mercado

Wednesday, June 18, 2008

p/s ...... target buying levels activated


Singapore Slung?





This is really not a posting about weaker Singapore exports, but I needed a starting pitch, so here goes:

WSJ:
Exports from Singapore in May fell the most in more than two years as shipments to the U.S. and Europe tumbled, highlighting the island state's exposure to weaker demand from Western developed economies.

The data come as Singapore's central bank has embraced a stronger currency to fight inflation; that policy tool might be causing unwanted harm to the important manufacturing sector.

Nonoil domestic exports fell 9.8% in May from April in seasonally adjusted terms, trade-promotion agency International Enterprise Singapore said Tuesday. The decline followed a 1.6% rise in the previous month and was wider than the 0.4% drop forecast in a Dow Jones Newswires poll of economists. May's contraction was the sharpest since January 2006. Shipments to Western countries were much weaker in May, and healthier demand from Singapore's Asian trading partners wasn't sufficient to keep overall exports afloat.

Comments:
The Monetary Authority of Singapore has been a strong user of Singapore's currency to stop imported inflation. Collectively, compared to its neighbours in Asia, and even the British pound and Euro, the Singapore dollar had been kept remarkably strong over the last 2 years. Even in light of a sub prime crisis and a weaker US economy, Singapore has kept up a firm currency probably to help it deflect the viciously spiraling oil price from infiltrating the domestic economy.


Is Singapore going the right way?

The planners have basically restructured Singapore's economy to be of high value add type. Maintaining high land values with strong international projects. High land values bring forth high property values and thus further attracts high value add services and businesses, which in turn promotes high international salaries.

The trouble is that this formula benefits the top 10% of the population only, and at the same time marginalises the bottom 30% or so of the income ladder. The bottom half seemingly cannot afford to live in Singapore anymore. Its a fact. Singapore still has one of the highest percent of emigrants in the world. The intellectual government knows that, but is willing to let the go on their own accord - for the better good?


Singapore government basically, in their silence, is saying that they are really operating like a good professional company that happens to be a country. General Electric shaves the bottom 5% in terms of performance, i.e. letting them go, in order to bring in constant improvement to their people assets. Singapore looks to be doing the same.


What will Singapore be? Its like they are deliberately planning to be the Monaco of Asia. Where average income per capita will rise to the top 5 in the world. Where hotel rooms will average S$500 a nite for a 4 star and S$800 a nite for a 5 star. Where the Singapore dollar will one day match the USD one for one. Where the place will be so expensive that fellow Asians cannot afford to go visit - (gee, its happening already... examine your frequency in visiting Singapore for the last 12 months and compare that 5 years ago or ten years ago. I have shifted my vacation plans to HK and Thailand, its a lot cheaper and more fun). Where the place is populated and dominated by high value add industries. Where the young's best hope in owning a home is if their parents had left them something.

Be careful what you you wish for, cause when you get it, you may not like it.

Bullish Signs


WSJ: Foreign demand for long-term U.S. securities jumped in April, partly due to greater interest in Treasury notes and bonds, according to a Treasury Department report released Monday.

Net foreign acquisition of long-maturity U.S. securities totaled US$102.8 billion in April, following purchases of US$53.3 billion the month before, the Treasury report showed. Foreign net purchases of U.S. Treasury notes and bonds totaled US$80.3 billion in April, up from US$53.6 billion in March.

Comments: The significant jump in net inflows into US securities is crucial in assessing the global investors' mood. We have to remember that we are talking of a sub prime crisis on its last legs, but also the USD downtrend seemingly trying to reverse its persistent weakness. The net inflows is significant also as the world grapples with higher inflation and spiraling food prices. In light of all these mini waves, its a little surprising to see that there are good net inflows into US securities.

We must remember that it is very hard for other equity markets to rally if the US markets are down in the dumps. It appears that global investors by and large think that USD will remain firm to steady for the rest of the year, and possibly that they also think that the oil price bubble is more likely to ease from here onwards. Would you be buying equities if you think oil was going to US$180 this year? (Oil price is negatively correlated to USD for the past 12 months). Hence we should take these developments into account when formulating the equity strategy for the rest of the year. On balance, these are bullish signals in its infancy.

p/s photo: Nabila Syakieb

Tuesday, June 17, 2008

Lift Your Spirits, Pie Jesu


Last year we had the enchanting Connie Talbot. This year we have the unassuming 13 year old kid named Andrew Johnston. Open up your hearts and be touched by his voice. Remarkable to say the least. Click on the link for a bit of magic.


http://www.youtube.com/watch?v=9K2EA8SWhh8

http://www.youtube.com/watch?v=es-43w8pAek


p/s photo: Shiho Hoshino

China Market Irregularities


The detention of Wang Yi, vice governor of China Development Bank and a former China Securities Regulatory Commission vice chairman, for his involvement in market irregularities may just be the tip of the iceberg.

Wang, 52, is the first high-ranking executive of the regulators arm of the securities market to be detained, mainland papers reported. And his situation may well open the lid on a series of wrongdoings among listed companies and securities firms.

Wangs former secretary has been under investigation for his alleged involvement in bribery cases, while his brother Wang Lui was said to be deeply involved with the controversial Shanghai listing of Pacific Securities. News of his detention has also poured cold water on the market as Wang has established a good network in his years with the watchdog.

p/s photo: Taksaon Pasukcharean Thaksarn


Useful Economic Info Nuggets


+ Indonesia's relatively limited oil price rise means that the government will still be vulnerable to further international price increases - the worst of both worlds, a rising deficit with higher retail prices and inflation.

+ Thailand has one of highest oil consumption/ GDP ratio of key Asian economies.

+ Rising Inflation: China, India, Taiwan, Singapore, Hong Kong, S.Korea, Indonesia, Thailand, Philippines, Malaysia; even worse, Inflation in double-digits: Vietnam, Pakistan, Sri Lanka, Bangladesh.


+ According to Asian Development Bank and World Bank, inflation is a bigger risk to Asia than U.S. slowdown; Commodity inflation may impact terms of trade for importers/exporters and feed into higher prices, wages.

+ Rising inflation (oil prices), monetary tightening, equity sell-off by foreign investors is causing downward pressure on Asian currencies; India, S.Korea, Thailand, Philippines, Indonesia already intervening in currency market to prevent large depreciation and the resulting inflationary pressure from food and oil prices.

+ Bank Negara’s international reserves were at an all-time high of RM399.92bil as of May 15. The reserves position was sufficient to finance 9.9 months of retained imports and was 7.3 times the short-term external debt. The reserves comprise gold, foreign exchange and other reserves, including special drawing rights. The international reserves had risen by RM64.18bil from RM335.74bil as of Dec 31 last year.

+ Malaysia raised fuel prices by 41% in early-June w/ cash transfers for small car owners; move may raise inflation up to 5-7% in the coming weeks, forcing monetary tightening ahead in spite of slowing exports and growth forecast and impact on domestic demand.

+ Taiwan dollar, Malaysian ringgit, Thai baht will perform better due to current a/c surplus, lower capital dependence; Indian rupee, Korean Won, Vietnamese Dong will weaken as high imports impact current a/c deficit.


+ Malaysia's Q1 2008 GDP grew at 7.1% on energy exports and increase in govt wages but Govt has lowered 2008 growth forecast to 5-6% (2007: 6.3%); forecasts by IMF: 5%; ADB: 5.4%; WB: 5.5%.

p/s photo: Haruna Yabuki

Why So Many Female Photos????

Thanks to Rocky Bru's posting, there have been a number of fresh visitors to the site. To anticipate the first thing that pops into your minds, here's why:

I will probably have to repost this every other month, but its worth it. Strictly speaking, if I wanted to be a difficult a-hole, I will just say that its my blog - hence there is no need to explain or justify the pictures. But I will try to be nice so I will venture an answer:

I used to have to search for "intelligent photos" which somehow may relate to the topic of my posting, you can see from the first 2 years of postings. It was exhausting and not very fun at all. Posting has to have photos as its nicer to look at and more captivating.

Then I said to myself, its my blog, there is no need to look professional. Its all in the comments. If readers want to read it, they will read it. Why not put up photos I like to see. I am a very single hetrosexual guy. Hence I like pretty girls - or rather to look at them.

I don't just put up any girls, they have to be my type and have some jenaisequa' (pardon my Japanese) ... some readers prefer me not to post the photos, some really wanted me to. As for myself, I really wanted to as well.

What I post is to share, there is no fee or subscription, or membership... in exchange I would ask my readers to "pardon my habits and indulge me a bit".

Cheers...

p/s photo: Akemi Katsuki

Monday, June 16, 2008

The Paulie & Benny Show - Fight Oil With Strong Dollar?


How many people actually make critical decisions in Washington? Definitely not Bush. Why aren't there more pressure on the CFTC to clamp down on the position limits issue? If you read between the lines, Paulson does not think speculators are to be blamed for the spike in oil price. Bernanke has been unusually quiet on the matter. Bush has been quiet because nobody has told him what to say on that matter.

Its significant that Paulson holds that view because that will point towards the mediation prescribed by Paulson and Bernanke. If it was me, you all know what I would have prescribed already.

Hence, the Paulie & Benny Show is prescribing the stronger dollar as the medication for curb oil prices.The US dollar just cnotched the biggest weekly gain against the Euro since 2005 and the biggest weekly rise against the Japanese yen since December 2004. Bernanke’s speech on Tuesday prompted the strong turnaround in USD sentiment; he said that US economic risks have diminished and he’s paying attention to the weak dollar. Increasingly over the past few months, a weaker dollar seems to be negatively correlated with oil prices although whether a causal relationship exists between these two is another issue altogether.

What we do know is that Paulie & Benny would not do things halfway. If they are prescribing a stronger USD to counter oil price, then believe you me that it will be a sustained and prolonged strategy for more than a few weeks.


I hope its successful. If not, I hope Paulson would kindly remember how Nelson Hunt tried to corner the silver markets in the past by hoarding futures. Hence speculators can be akin to hoarders, especially when they act as a group, and when this group is overwhelmingly stronger than other genuine players. Paulson may think that asking CFTC to change rules is tantamount to market intervention, well, remember that the LME had to step in and changed the rules to bust the silver cornering attempt by Nelson Bunker Hunt.


To me, thats where oil price is headed, for its Alamo. Hence it is infinitely better for all to "tweak the rules" at US$130 than to tweak it at US$180. Surely if oil were to go to US$180 this year that Paulson would maybe admit that speculators are responsible. I do think Paulson is still beholden to the big investment firms in New York rather than do the right thing for the markets. I do think that Paulson may be buying time for the big investment banks to neutralise their positions before asking CFTC to act to lower position limits.


Choice A or B, Paulie & Benny are acting to strike down oil price. The more successful they are, the better it is for equities.

photo: Carmen Soo

Hoarding Or No Hoarding?


VERITAS said... "Collectively, these funds have stockpiled (long on inventory via the futures market) 1.1 billion barrels of petroleum. It’s not like they are actually going to take delivery of these oil barrels, but their stockpiling is tantamount to hoarding 1.1 billion barrels from the real market place. If real supply is constant, one can imagine what the 1.1 billion long positions will do to oil futures prices if they are rolled over."

For every buyer of a contract in the futures market there is a seller of that contract. So who are the sellers ?
Right now, the buyers are collectively 'stronger' than the sellers being reinforced by the entrants of new bulls attracted by the seemingly inexorable rise in price. The tipping point will come when price stops rising and the sellers become collectively 'stronger' and attract new recruits to their camp. The futures market is just a tug-of-war between buyers and sellers. There is no hoarding of 1.1 billion barrels from the real market place.

Salvatore_Dali said...

Veritas,

Yes, there can be hoarding because your argument that for every buyer there is a seller of the futures contract does not hold water. If your argument holds water, then there will be no px movement as buyers always equate corresponding seller side?!!

I give you a simple example, lets say there were 20 contract players to start and 10 on buy and 10 on sell, willing buyer willing seller a price of $50.00 was achieved. Next month there were another 20 players, same sized, but 15 were buyers and only 5 sellers... the px would have to adjust to that demand supply. Now there are 10 +15 buyers = 25 buyers. Sellers 10+5 = 15. To match, there has to be an additional 10 sellers, which will come from the buyers taking profit at higher levels. Thus all equal.

But no, the 10 long players who took profit returned in the next month as long players as well. The 25 buyers from previous month stayed long. Then another 20 new contract players come in and 15 were buyers only 5 sellers.

Thus now we have 10 who took profit n came back long. You have 15 who kept rolling and adding to positions and you have another 15 new entrants who went long as well. You have 40 long players and 5 genuine sellers. To satisfy the demand and supply the price has to rise for the longs to consider selling.

You can do the math. The higher the price then there could be speculation on the short side. Some hedge funds could take huge bets that the oil price is a bubble. Hence they went short the next month, however the rolling over of longs plus the deluge of momentum players caused a short squeeze, and the hedge funds cut their losses and bought back, its a spiral.

In a properly functioning market if a price is irrational, the sell side would increase. However, in this case the genuine sellers are the producers and they thought US$110 was a very good price to sell. Now they have nothing to sell for the rest of the year. They can only sell naked, a naked short, which will have to be covered if price moves up some more. The problem is compounded because there are no more natural short side. Those on the short side are getting less and lesser by the day. The only shorts available are those who were long and wanted to take some money off the table.

Hence this may be a very different kind of speculators, the long term kind, who by right should be regarded as investors since their time line is so long.

The ones keep going long are basically hoarding... if not how to corner the gold, silver, tin markets in the past... They never sell. Why they never sell, well if u r diversifying a US$10bn portfolio... u want maybe 15% in commodities, hence no need to sell, and u should not sell a diversification move, its not a trade.

The many ETFs and long only commodity funds launched are are not end consumers. None of those who go long are. The sellers in this equation: oil producers, they sell n they regret the next month, could have sold higher. How can u say there can be no hoarding.

Hoarding means increasingly stockpiling WITH no intention to consume the commodity.

Veritas added: I n the Silver Bubble of yesteryears, Nelson Bunker Hunt initially hoarded the futures contracts, which shot through the roof. I believed he then became greedy,enlisted the participation of the Saudis, and started taking delivery of physical metal to push the price even higher. LME stepped in, changed the rules and the music stopped.

p/s: photo: Charlie Yeung

Sunday, June 15, 2008

CPO Boost Due To Iowa Massive Floods / Saudi To Raise Output

WSJ: The effects of flooding in the Midwest are rippling across and beyond the Great Plains, striking at the ethanol industry, hog farmers, pork producers and even catfish farms as grain prices continue to soar.

Cities in Iowa, Wisconsin, Illinois and Missouri sandbagged levees to keep them from bursting and urged residents to seek higher ground. River levels in some places have surpassed records set during a flood in 1993, considered the worst in recent history.

The entire state of Iowa is experiencing flood conditions, according to the Army Corps of Engineers. In Cedar Rapids, population 124,000, a railroad bridge collapsed, 3,000 homes were evacuated and a downtown hospital had to be evacuated. Experts say Iowa's Cedar River could crest above 30 feet -- more than 10 feet higher than its crest of 19.27 feet in 1993. Heavy rains are expected to continue across the Midwest at least through Monday, though drier, sunnier weather is forecast next week.

The flooding threatens to wipe out farms' crops of corn or soybeans, and this has pushed prices to record levels. On the Chicago Board of Trade Friday, corn prices hit a new record high of $7.3175 a bushel, while soybeans traded near record highs, closing at $15.60. Corn prices have climbed about 10% in the past week, threatening to put further upward pressure on food prices that have been climbing for a year.

Bill Lapp, an economist at consulting firm Advanced Economic Solutions, Omaha, Neb., and former chief economist at ConAgra Foods Inc., said higher grain prices brought on by poor weather will help push food prices up by 9% a year through 2012, including this year. Last year, food prices rose by 4%, and the Department of Agriculture estimates they will rise by as much as 5.5% this year.

The Iowa Renewable Fuels Association said Friday the flood has caused 300 million gallons of ethanol production, on an annual basis, to be forced off line and that could quickly grow to 400 million gallons. The higher corn prices are also hurting big grain processors like Archer Daniels, which turns the grain into products from corn syrup to ethanol. Expectations for tighter ethanol supplies because of higher corn prices could increase demand for gasoline, in turn helping to force up gas prices. The squeeze on ethanol also could heighten calls for the federal government to suspend its requirement that nine billion gallons of biofuels be blended into gasoline by the end of this year.

WSJ: Saudi Arabia's oil minister today will address reports that the world's largest oil-producing country is set to raise production by about 500,000 barrels a day, his adviser said.

The increase would bring Saudi Arabia's oil production to 10 million barrels a day, the country's highest ever, according to reports by the New York Times and the Middle East Economic Survey, an industry publication.

Saudi Arabia has called for a meeting of oil producing and consuming countries on June 22 in the port city of Jiddah to discuss ways of dealing with soaring energy prices.

The New York Times report on Saturday, citing unnamed analysts and oil traders briefed by Saudi officials, said the production increase was to be announced following the meeting. The Middle East Economic Survey said Friday that Saudi Arabia was considering a production increase, but didn't provide a source.

The Saudis are concerned that sustained high oil prices will eventually slacken the world's appetite for oil, affecting them in the long run. Crude prices have reached record highs, surpassing $139 a barrel on June 6 after surging nearly $11 in the biggest single-day price leap ever. The prices had receded by Friday, with the benchmark light, sweet crude for July delivery falling $1.88 to settle at $134.86 on the New York Mercantile Exchange. In London, July Brent crude lost $1.84 to settle at $134.25 on the ICE Futures exchange.

p/s photo: Sonja Kwok Sin Nei & Sharon Chan Mun Chi

Advice For Bloggers


I have been blogging for more than 3 years. Many bloggers come and go. Many do give it a go. Many lose interest quickly or run out of things to blog. Many will not be able to blog consistently. Having a sustainable blog requires a lot of dedication. Considering that most bloggers get nothing to blog. It can quickly turn into a chore rather than a redeeming habit.

I think out of every 100 new blogs started, only 10 will be around after 6 months. Most just die a natural death from it being a chore or from infrequent updates. Its very close to the closure rates for new restaurants.

I have to always refresh my LINKS as I will need to delete those blogs that have "passed away". If you blog for social reasons, its different, because your audience is already limited. If you blog on a subject matter such as politics, technology or business - your audience is enlarged, and you have something worthwhile to say, at least most of the time.

Below are some useful advice for aspiring bloggers:


a) You should have frequent updates. Weekly is the bare minimum. Even then, it is usually insufficient to attract most readers. I would suggest at least twice to three times a week. Daily would be the best.


b) Should you use your real name or a nick. Depends on the subject matter. Some people think there is less sincerity and bravado if you use a nick. It all depends on your current situation. Maybe your job is sensitive, and the blog may compromise your career. Hence no hard and fast rules. The other side of the coin is that some will say using your own name is self-promotional. You cannot win over everybody. Damn if you do, damn if you don't.

c) Can you be rude, sarcastic, vulgar, etc. .. that's the beauty of blogging. Its your blog. If you are rude, sarcastic and vulgar for no good reason, people will be turned off - soon you will blog to empty internet space. Its not an English test paper presentation, its your blog. But it should be clear, concise and have points to make. Rude words, sarcasm or vulgar words should be for clarity and emphasis. They should be able to carry the mood and your character. You cannot please everyone.


d) Its your blog. You cannot aim to please everyone cause then you will be writing for the lowest common denominator. The blog must please your own self first. There will always be critics. There will always be people who criticise your style of writing and your views. Answer them as best you can. Ignore them if you want. Its your blog.


e) For a blog to make sense for you, it has to mean something to you. You must have something to share. You hope that something has value in it. You have to have an almost altruistic bent as you will probably get zero returns. It is a good mechanism to voice your views, and indirectly release some stress. Its probably the next best thing to writing and publishing a book. Everybody wants to have a book published for egotistical reasons - a good blog goes a long way to satisfy that "desire", I guess.


f) Your character should come through your blog. I know most readers think I am curt in most of my replies, or impatient with silly questions - still am, but that's who you are. No need to paint a superhero alter-ego.

p/s photos: Supaksorn Chaimongkol