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Showing posts from July, 2008

Asian Currencies Outlook 2H08

One thing for sure, Asian currencies will not be moving in the same direction as they did for the past 2 years, i.e. appreciating against the USD. Rising food and oil prices and its impact on inflation, delayed monetary tightening by central banks, rising fiscal and external deficits, risk of slowing domestic demand and growth are weakening investor sentiment, leading to equity sell-off, volatile bond markets and FII outflows hence putting downward pressure on Asian currencies.

Let's look at the ones struggling with higher inflationary risks relative to growth issues: India, S.Korea, Thailand, Philippines and Indonesia intervening in currency markets to prevent large depreciation and the inflationary impact of oil imports.

The other group are those with oil and commodity exports, strong FDI prospects, fiscal and trade positions may be less vulnerable than their Asian peers. Mainly in Asia we are talking about Malaysia solely. That fact seems to off the radar of most economists. They…

The American Dream (Nightmare)

US GDP in 2007 was US$13.843 trillion (or US$13,843 billion). Malaysia's GDP was US$186.482 billion. There are plenty of long term bears over the US economy. The US economy has been running on empty, running on it being the reserve currency, for far too long. The events and developments over the last 5 years have shown that the world economy is realigning and the rest of the world is making the US more accountable for their excesses. The sub prime mess and Fannie & Freddie bailouts are just a portion of the financial and economic problems within the US. To get a grasp of each problem, lets use it as a percentage of US GDP. Its quite frightening. I certainly would not like to be going into retirement age and living in the US over the next 20 years.

Just consider the sub prime mess so far and we are just talking of US$1 trillion here. The social security and Medicare unfunded liability is supposed to borne by a growing base of tax payers. We know that is not going to happen as A…

Insightful Comments On Oil

I am glad that there are plenty of intelligent readers out there and their comments on many issues are quite enlightening. Here are a few on "oil strategy" which is worth reproducing here:

Jackie Lee said... Special bulletin - Last week various analysts said there was talk that Mexico, the world's fifth largest oil producer, was hedging its bets - the country was said to be signing contracts to deliver oil several years into the future at today's prices. Essentially, it was betting oil prices have peaked. One analyst, speaking on background only, said he had confirmed Mexico was locking in futures contracts. He said it was being done at the behest of the Mexican government, eager to balance a long-term budget, rather than a bet by state oil company PEMEX, that prices will fall. But could Mexico's move inspire similar steps from other oil producers, and cause oil prices to fall further? "Absolutely," said Neal Dingmann, senior energy analyst at Dahlman R…

Independence Of Accounting Firms

The Saga: The external auditor, BTMH, for Oilcorp Bhd has refused to amend the company's 2007 annual audited accounts despite an independent verification report. Horwarth, the firm hired for the independent report, has said that the value of a long-term contract, which was in dispute by the company and its external auditor, was RM110 million.

Oilcorp had argued that the contract was worth RM110 million. However, Baker Tilly Monteiro Heng said it was worth RM90 million due to a RM20 million variation order. Securities Commission (SC) has directed Baker Tilly Monteiro Heng (BTMH) to carry out additional work on the audited accounts of Oilcorp Bhd for financial year ended December 31 2006 and 2007.

The SC has exercised its powers under Section 320 of the Capital Market Services Act (CMSA) 2007 to call for an investigative audit on the accounts. "In accordance with the CMSA provisions, all public listed companies are obliged to assist auditors as directed by the SC," an SC sp…

Oil Price Strategy Update

The call to short the bugger at US139 now looks really good. As I am posting this Nymex Oil is at US123. Assuming I am holding the short position at US139, what do I do now? Take profit? Let it ride? For reasons why I called for the big shorting, please reread my posting a few weeks back (June 8, 2008). The reasons are still valid.

Suddenly now you don't hear about oil supply being unable to meet growth in demand. Why suddenly so quiet? This is an important lesson, the media and market pundits pander to try to explain the trend and take the current price as "god-given correct prices". Hence truth is exaggerated at any point in time, if there is truth at all.Now its demand destruction to the forefront.

If I shorted at US139, I'd be pretty happy to ride along as I am waiting for US120 to be broken, which to me, will be a very huge sell signal to most chartists. At US119.90 I would be doubling up my short position. Why don't I double up now at US123 you might ask. Wel…

As If Jessica Alba Was Your Girlfriend

This place has been around a bit and is being discovered with utter joy. Its like you have managed to get Jessica Alba as your girlfriend, and now introducing her with glee to your friends. I am certainly not the first to discover this restaurant. Had the unbelievable set lunch at just RM22++ which was ridiculously priced (they could have charged me RM40++ and it would have still been worthwhile). It was so good, I had to go back twice to make sure I sample most of the things on the menu, they all sounded so good. So, went back for another lunch but ordered a la carte, and went back again at night this time for the degustation` menu (a sampling of almost everything on the menu).

Max is an ex-lawyer who found something more fulfilling to do. He has worked at a number of 5 star international hotels as chef and decided to do something on his own. For the food quality, its probably 30%-40% cheaper than at other similar outlets such as Cilantro (closed for renovation), Third Floor or Lafit…

Popular Demand, Just For The Guys - Haruna Yabuki

Bailout Starts In The US In Earnest

The catalyst for higher equity prices appears to be that President Bush will sign Congress’s housing bill, which solidifies support for the mortgage guarantors Fannie & Freddie, both of which are rising sharply. Even troubled banks like Wachovia Corp was up 6.2% after a 29% gain on Tuesday on the back of a quarterly report which detailed major losses at the firm.US Treasury Secretary Paulson was confident that Congress would approve his housing rescue plan this week and so far they are moving forward as planned. The plan is to pass the Housing Bill before August recess that includes provisions to extend credit lines to Freddie and Fannie, Treasury purchase of equity stakes and a new regulator. Bill would extend FHA guarantees to refinance $300 bn fixed-rate mortgages for 400k homeowners w/ negative home equity as lenders take a 15% hair cut on principal; its cost would be recovered by profits of Fannie, Freddie and FHA fees on lenders/borrowers with some adjustments. White House:…

Correlation Between Oil, Commodities & USD

hei DaliYou conclude that dollar will be weakening. But oil is dropping, resulting in dollar strengthening. How you justify your analysis?

Comments: My thesis on dollar weakening has nothing to do with oil. For too long oil has been rising on the back of a weaker USD as most commodities are priced in USD. This is the speculators mantra, that commodities deserve to go higher because dollar is weakening as they are priced in USD. That has only some truth in that statement, which has been overplayed for what its worth to the benfit of speculators in commodities. Naturally as the oil is starting to fall along with other commodities, the reverse correlation will hold for a while.

My reckoning on a weaker USD going forward has a lot to do with the bailouts necessary to be undertaken by the Treasury and The Fed (read below). Do not be blinkered by knee jerk reactions - such as this, and the recent sell down in CPO (which has quite different fundamentals to oil). The USD will resume its downt…

Paulson's Revealing Comments

WSJ: The stability of Fannie Mae and Freddie Mac is key to erasing underlying uncertainty in U.S. financial markets and making way for an economic recovery, Treasury Secretary Henry Paulson said Tuesday, while voicing confidence that Congress will approve a rescue plan for the mortgage giants this week. "Because of their size and scope, Fannie and Freddie's stability is critical to financial market stability," he said in a speech at the New York Public Library. "Their continued activity is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in our financial markets and financial institutions." Mr. Paulson's speech comes a little more than a week after the Treasury Department unveiled a plan that would increase the government's US$2.25 billion credit lines to Fannie and Freddie and allow the government to buy an equity stake in either company. Lawmakers on Capitol Hill are expected to wrap the pro…

Best Beef Noodles In Town?

Some of my friends commented that when the market is no-good, I will blog about food or music. Not true, not true. I have been mentioning this in some chatbox before, this is too good to keep it a secret. Shin Kee beef noodles have been around but I only manage to get to it recently. Its addictive, now I'm there on a weekly basis. Its really just a bloody tiny shop on Jalan Tun Tan Cheng Lock. Yellow on the outside. The owner consider herself as a beef noodle specialist - and how arrogantly right she is. You know the food is good when they only open from 10.30am to 3.30pm, closed on Wednesdays. They are also open at night at the back of Hong Leong Bank Berhad along Petaling Street's night market.

If you were to compare with the famous beef noodle store at Tengkat Tong Shin, Shin Kee is superior in every way, seriously. The minced beef and the sauce is finer, the essence of beef is better. Go for the lowshuefun (they sell out quickly) or the yellow mee, I prefer the latter. …

Thoughts On Roubini's Thesis

Below is Roubini's thesis on the current implosion. My thoughts in PURPLE.This is by far the worst financial crisis since the Great DepressionMay be pretty bad but not actually the worst. We have to remember that Roubini is speaking mainly from a US perspective. Even so, the 70s oil crunch and hyper inflation was a lot worse for the US. Interest rates went to nearly 20%, can you believe that. Roubini's version of the worst financial crisis basically rests on the huge implosion within the US and the rippling effects through the global economy. I tend to think that its VERY DIFFICULT to have the worst recession since the Great Depression because the US economy and the global economy is so so much bigger now. Yes, things are also quite inter-connected but the sheer size of pockets of world economy would ensure that the whole world would not die if USA really implodes big time. The pockets in global economy being sustainable enough in size (Asia, Australia, parts of Europe, L…

Roubini Thinks It Will Be The Worst Since The Great Depression

Nouriel Roubini: As I put it in the interview: ``This is a systemic financial crisis, there is no end to it,'' Nouriel Roubini, professor of economics and international business at New York University, told Bloomberg Television. ``It's a vicious circle between a contracting economy and greater credit and financial losses feeding on the economy.''Regular readers of this blog are familiar with my views. But here is a summary and significant extended update of my views that this will turn out to be the worst financial crisis since the Great Depression and the worst US recession in decades…This is by far the worst financial crisis since the Great DepressionHundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bustDozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bustSome major money center banks are also …

Wine Buffs Or Winos - Must Read

Don't you love it when the pretentious get it up the proverbial place. This would be a lovely early Christmas present to those snobs and pretentious bastards. The brilliant thing is that the book is entirely based on a real event. Hardy Rodenstock created a fake wine and managed to sell millions of dollars of it. Malcolm Forbes, the publisher of Forbes, paid 105,000 British pound for a bottle of Chateau Lafite 1787, yup thats the fake. Well, pretty much in line with the quality of Forbes the publication (yes, i think Forbes the magazine is very third rate) - same owner, same product, same line of thinking ... Even the very much smarter Marvin Shanken, the publisher of Wine Spectator and Cigar Aficionado, bought a half bottle of Rodenstock's wine for US$30,000.

The book is to be made into a movie, yippee ... its brilliantly funny, smart, deception-ladened, making smart people to turn into lunatics, what more you want in a book. The book is called THE BILLIONAIRE'S VINEGAR, …

Fannie & Freddie Had A Big Fall

Market Watch Sunday July 13: In a dramatic statement released Sunday, the White House and Federal Reserve moved to give the mortgage giants the capital they need to survive the depression in the housing market and turmoil in financial markets that had left them dangling over a cliff.
Of most immediate importance, the Fed's board of governors voted to open up its emergency discount window to Fannie and Freddie. In addition, Treasury Secretary Henry Paulson announced that he will seek Congressional authorization to by stock in the two companies and increase the government's credit line. At the moment, each company may borrow only $2.25 billion. In return for the capital, Paulson said that the Bush administration would ask Congress to grant the Fed a "consultative" role in the capital standards of the companies. The housing rescue package that is nearing final approval by Congress would put in place a strong independent regulator for the companies is slow…

Infra Spending In Emerging Markets

Merrill Lynch & Co. has raised its annual infrastructure-spending estimate for emerging markets by 80%, as developing countries try to keep pace with fast-growing economies and large cash reserves, BusinessWeek reported.Investment in infrastructure, which the firm sees as the long-term solution to inflation, will rise from $1.25 trillion to $2.25 trillion annually over the next three years. And China, the Middle East, and Russia will account for 70% of infrastructure spending. The report from Merrill Lynch pointed out that Xstrata PLC recently predicted emerging markets would spend $22 trillion on infrastructure in the next 10 years.“That estimate is among the highest we’ve seen,” the report noted, “with an implied run rate of $6.6 trillion over the next three years.”The report basically puts to rest the potential slowdown from emerging markets. Just looking at the demand side for building materials and commodities, we can expect prices to remain firm despite some slowdown in dev…

Chinese Strategic Buyers For CPO Companies?

According to a recent Reuters report, some refineries are overflowing and need to stop operations as there is no real additional demand to take away this surplus.Malaysia’s June palm oil stocks surged 9.8 per cent to 2.10 million tonnes, the highest in at least 25 years, as the production cycle shifted to a higher gear amid a slowdown in shipments.Palm oil output in Malaysia, the world’s second-largest producer, rose 4.9% to 1.53 million tonnes in June, according to a median estimate of five plantation houses. Overseas demand for palm oil, used mainly in soaps and chocolates to biofuels, dropped 3.4% in June to 1.15 million tonnes.June’s palm oil reserves would be the highest in the past 25 years, or since 1983, historical data from industry regulator Malaysian Palm Oil Board (MPOB) showed.Although palm oil prices have eased roughly 22% to RM3,489 (US$1,060) from a record high of RM4,486 in March, demand from traditional consumers India and China remained lacklustre.A decline in expor…