Wednesday, October 28, 2009

Where Are We Again In This Financial Crisis & Recovery?

I have posted this chart before from Paul Kedrosky's excellent site. As the chart only looks at the recovery from the aligned lows of each crisis, the first year's recovery was most pronounced, and as usual when it recovers the naysayers during each of these periods were vocal. What is more significant is that the recovery carried on into the second year just by looking at the various charts - and that to the naysayers would be unthinkable at the moment. Markets have a nice way of shocking us - are we all drilled to look at the wrong indicators? I am still thinking 10,800 to 11,000 is easy for the Dow by year end. I would term the most appropriate indicators for each of these crisis were:

a) how much cash was thrown into the system - this crisis wins it hands down
b) how widespread / global were the effects - looks about the same for all except the depression
c) how concerted was the global effort - this crisis wins hands down again
d) how did interest rates behave or were managed - the tech crisis saw Greenspan dropping rates quicker than a bullet (and was the start of the financial mayhem in properties, packaged loans, and the leveraged derivatives on those assets); this time, most of the global central banks are still keeping rates very low coupled with massive stimulus left, right and center.

As argued before, its not that the central banks want rates to be low as that will fuel the property side for the less affected countries, and indirectly push liquidity into stocks when risk aversion mood drops - but its for the greater good because corporate spending, hiring, investments in R&D are not recovering fast enough. Hence they all will tolerate a seemingly higher and hard to justify stock market valuations for the sake of the real economy. The real economy is expected to catch up to equity valuations, maybe they will, maybe they won't. But when you keep rates low enough and you have glimmers of recovery, that will set the momentum.

Are we putting ourselves into another bubble, ... yes... but this one will last some time yet. Its the making of a bubble, we are nowhere near boiling point yet.

Tuesday, October 27, 2009

New York Roadshow By JP Morgan

J.P. Morgan's Malaysia Corporate Access Days

November 5-6 (Thu-Fri)

Grand Hyatt New York, 109 East 42nd Street at Grand Central Terminal, New York

  • Roundtable discussions, presentations and Q&A sessions with Malaysian government officials and regulators
  • 1x1 meetings with participating Malaysian corporates
Senator Tan Sri Amirsham Abdul Aziz, Chairman - National Economic Advisory Council
Dato' Ooi Sang Kuang, Deputy Governor,
Bank Negara Malaysia
Dato' Yusli Mohamed Yusoff, CEO,
Bursa Malaysia

Participating Corporates

Air Asia
(AIRA MK) - Dato Kamarudin Meranun, Group Deputy CEO

Axiata Group (AXIATA MK) - 1. Dato' Sri Jamaludin Ibrahim, President & Chief Executive Officer / 2. Dato’ Yusof Annuar Yaacob, Group Chief Financial Officer

Bursa Malaysia (BURSA MK) - Puan Nadzirah Abd Rashid, CFO

IJM Corporation (IJM MK) - Datuk Krishnan Tan Boon Seng, Chief Executive Officer & Managing Director

Public Bank (PBK MK) - Mr. Leong Kwok Nyem, Chief Operating Officer

Sime Darby (SIME MK) - 1. Azhar bin Abdul Hamid, EVP, Plantation / 2. Mohamad Hishammudin bin Hamdan, Group Head, Strategy & GBD / 3. Shariman Alwani bin Mohamed Nordin, Gp Head, Value Mgt & IR

S P Setia (SPSB MK) - 1. Ms. Wong Sheue Yann, Head, Corporate Services - Group Corporate Services / 2. Mr. Cheong Heng Leong - Manager, Investor Relations - Group Corporate & Finance Division

YTL Corp Berhad (YTL MK) - Tan Sri Dato' Dr Francis Yeoh, Group Managing Director

p/s photo: Chrissie Chau

Monday, October 26, 2009

Morgan Stanley Global Research Upgrades Malaysia

The influential Morgan Stanley Research has upgraded Malaysia and Egypt last week in the much followed Asia Strategy Report. Below are excerpts from the report:

Key changes in our country quant model this month are:

Upgrading: Malaysia and Egypt from equal-weight to overweight;
Downgrading: Peru and Chile from equal-weight to underweight.

Overweight countries are: China, Brazil, Taiwan, India, Israel, Poland, Malaysia and Egypt;
Underweight countries are:

Strong points for Malaysia in our model include a #1 currency ranking and #4 business cycle ranking. Relative P/Book has fallen to 1.0x due to recent under performance. Malaysia also gains in our model ranking this month, moving from #8 to #6. Strong points for Malaysia in our model include a #1 currency ranking (a combination of fundamental upside and a stock market consisting mainly of domestic demand, Malaysia ringgit earning stocks).

Malaysia ringgit is making steady progress against the US dollar.We also rank Malaysia’s business cycle score in the top quartile of EM countries in the model. Exports seem set to
trend up strongly from here, and Malaysia is one of the EM countries most geared to a recovery in global trade and commodity prices.

Due to recent under performance, the P/BR relative of MSCI Malaysia to the EM benchmark (now 1.0x) has fallen significantly. Malaysia is one of the least technically overbought markets in the asset class, ranking #5 on this metric. Moreover, the median GEM fund is running a significant underweight of 132 bps versus the benchmark, substantially higher than the average for the last five years.

Saturday, October 24, 2009

In Chinatown, Sound of the Future Is Mandarin

Its not just in New York, but in many other Chinatowns as well. Back in Sydney all I could ever hear 20 years ago was Cantonese. Over the past five years, you can hear Mandarin speakers competing for airspace with Cantonese. If you look at the immigration trend, it looks like Mandarin will win out in the end.Cantonese is older.

Mandarin is official. The written language is "borrowed" by the Cantonese and many words when read by Cantonese speakers are pronounced differently than when spoken, a result of the written language begin borrowed from Mandarin.

What is the difference between a dialect and a language? As someone once noted, a language is a dialect with an army and a navy! Language standards are set for political and economic reasons, not linguistic ones. Thus, Mandarin prevails. It is interesting to pointed out that when the Republic of China was founded in 1911 or so, the original founders such as Dr.Sun were of Cantonese descent. They had a 'home turf' advantage to establish Cantonese as the national language. In at least one of the ancient Chinese dynasties, a form of Cantonese was the lingua franca. By a random twist of historical fate, Mandarin was the language of the very last dynasty by the beginning of the 20th Century. After that the Chinese equivalent of "The War of Northern Aggression" was waged and won in 1949. Those two events enabled Mandarin's flimsy claim to be the "true" Chinese. The point is that there really was no one official authentic Han Chinese language. Sweeping away Cantonese and other Chinese languages isn't going to bring unity. The Beijing government and the Northerners hardly consider the people of the South to be fully Chinese. Standardizing on Mandarin merely makes things in the South more transparent and manageable to the central government.

Btw, Cantonese is a language and not a dialect, and you can include Fujianese, Teochew ... and the rest as well. The word "dialect" is often used to belittle a language that is in a weak position with respect to another one (for instance, people in the Spanish-speaking part of Spain often call Catalan a "dialect", and indigenous people in Africa, South America and Asia are also often said to be speaking X or Y "dialect"). The opposite also sometimes occurs: a dialect is called a "language" in order to separate it from its origin and avoid admitting what it really is. An example of this would be the movement in Spain to call "Valencian" a language, so as not to admit that it is a dialect of Catalan.


Published: October 21, 2009

He grew up playing in the narrow, crowded streets of Manhattan’s Chinatown. He has lived and worked there for all his 61 years. But as Wee Wong walks the neighborhood these days, he cannot understand half the Chinese conversations he hears.

Paul Lee, a longtime resident of Chinatown, near his home on Mott Street. He said that Cantonese “may be a dying language.”

Cantonese, a dialect from southern China that has dominated the Chinatowns of North America for decades, is being rapidly swept aside by Mandarin, the national language of China and the lingua franca of most of the latest Chinese immigrants.

The change can be heard in the neighborhood’s lively restaurants and solemn church services, in parks, street markets and language schools. It has been accelerated by Chinese-American parents, including many who speak Cantonese at home, as they press their children to learn Mandarin for the advantages it could bring as China’s influence grows in the world.

But the eclipse of Cantonese — in New York, China and around the world — has become a challenge for older people who speak only that dialect and face increasing isolation unless they learn Mandarin or English. Though Cantonese and Mandarin share nearly all the same written characters, the pronunciations are vastly different; when spoken, Mandarin may be incomprehensible to a Cantonese speaker, and vice versa.

Mr. Wong, a retired sign maker who speaks English, can still get by with his Cantonese, which remains the preferred language in his circle of friends and in Chinatown’s historic core. A bit defiantly, he said that if he enters a shop and finds the staff does not speak his dialect, “I go to another store.”

Like many others, however, he is resigned to the likelihood that Cantonese — and the people who speak it — will soon become just another facet of a polyglot neighborhood. “In 10 years,” Mr. Wong said, “it will be totally different.”

With Mandarin’s ascent has come a realignment of power in Chinese-American communities, where the recent immigrants are gaining economic and political clout, said Peter Kwong, a professor of Asian-American studies at Hunter College.

“The fact of the matter is that you have a whole generation switch, with very few people speaking only Cantonese,” he said. The Cantonese-speaking populace, he added, “is not the player anymore.”

The switch mirrors a sea change under way in China, where Mandarin, as the official language, is becoming the default tongue everywhere.

In North America, its rise also reflects a major shift in immigration. For much of the last century, most Chinese living in the United States and Canada traced their ancestry to a region in the Pearl River Delta that included the district of Taishan. They spoke the Taishanese dialect, which is derived from and somewhat similar to Cantonese.

Immigration reform in 1965 opened the door to a huge influx of Cantonese speakers from Hong Kong, and Cantonese became the dominant tongue. But since the 1990s, the vast majority of new Chinese immigrants have come from mainland China, especially Fujian Province, and tend to speak Mandarin along with their regional dialects.

In New York, many Mandarin speakers have flocked to Sunset Park, Brooklyn, and Flushing, Queens, which now rivals Chinatown as a center of Chinese-American business and political might, as well as culture and cuisine. In Chinatown, most of the newer immigrants have settled outside the historic core west of the Bowery, clustering instead around East Broadway.

“I can’t even order food on East Broadway,” said Jan Lee, 44, a furniture designer who has lived all his life in Chinatown and speaks Cantonese. “They don’t speak English; I don’t speak Mandarin. I’m just as lost as everyone else.”

Now Mandarin is pushing into Chinatown’s heart.

For most of the 100 years that the New York Chinese School, on Mott Street, has offered language classes, nearly all have taught Cantonese. Last year, the numbers of Cantonese and Mandarin classes were roughly equal. And this year, Mandarin classes outnumber Cantonese three to one, even though most students are from homes where Cantonese is spoken, said the principal, Kin S. Wong.

Some Cantonese-speaking parents are deciding it is more important to point their children toward the future than the past — their family’s native dialect — even if that leaves them unable to communicate well with relatives in China.

“I figure if they have to acquire a language, I wanted them to have Mandarin because it makes it easier when they go into the workplace,” said Jennifer Ng, whose 5-year-old daughter studies Mandarin at the language school of the Church of the Transfiguration, a Roman Catholic parish on Mott Street where nearly half the classes are devoted to Mandarin. Her 8-year-old son takes Cantonese, but only because there is no English-speaking Mandarin teacher for his age group.

“Can I tell you the truth?” she said. “They hate it! But it’s important for the future.” Until recently, Sunday Masses at Transfiguration were said in Cantonese. The church now offers two in Mandarin and only one in Cantonese. And as the arrivals from mainland China become old-timers, “we are beginning to have Mandarin funerals,” said the Rev. Raymond Nobiletti, the Cantonese-speaking pastor.

Kindergarten students at the New York Chinese School, where Mandarin classes now outnumber Cantonese three to one.

At the Chinese Consolidated Benevolent Association, which has been the unofficial government of Chinatown for generations and conducts its business in Cantonese, the president, Justin Yu, said he is the first whose mother tongue is Mandarin to lead the 126-year-old organization. Though he has been taking Cantonese lessons in order to keep up at association meetings, his pronunciation is sometimes a source of hilarity for his colleagues, he said.

“No matter what,” he added, laughing, “you have to admire my courage.”

But even his association is being surpassed in influence by Fujianese organizations, said Professor Kwong of Hunter College.

Longtime residents seem less threatened than wistful. Though he is known around Chinatown for what he calls his “legendarily bad” Cantonese, Paul Lee, 59, said it pained him that the dialect was disappearing from the place where his family has lived for more than a century.

“It may be a dying language,” he acknowledged. “I just hate to say that.”

But he pointed out that the changes were a natural part of an evolving immigrant neighborhood: Just as Cantonese sidelined Taishanese, so, too, is Mandarin replacing Cantonese.

Mr. Wong, the principal of the New York Chinese School, said he had tried to adjust to the subtle shifts during his 40 years in Chinatown. When he arrived in 1969, he walked into a coffee shop and placed his order in Cantonese. Other patrons looked at him oddly.

“They said, ‘Where you from?’ “ he recalled. “ ‘Why you speak Cantonese?’ ” They were from Taishan, he said, so he switched to Taishanese and everyone was happy.

“And now I speak Mandarin better than Cantonese,” he added with a chuckle. “So, Chinatown — it’s always changing.”

Friday, October 23, 2009

Obama Tightens The Screws On Firms That Were Bailed-out

PRESIDENT Barack Obama's administration is poised to order cash salary cuts of 90 per cent on average for top executives at firms that received the biggest government bailouts, according to media reports yesterday.

The seven companies that received the most government assistance at the height of the US financial crisis will each be required to cut the salaries of their 25 best-paid executives. The firms are AIG, Bank of America, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial.

Smaller companies and those that have repaid the bailout money, including Goldman Sachs and JPMorgan Chase, are not affected. These banks last week reported record quarterly profits and have set aside tens of billions to reward their staff. Goldman, for example, has earmarked US$16.7 billion (S$23 billion) for compensation so far this year, or more than US$500,000 per employee.

For the affected seven firms, the biggest cuts will be to the cash portions of the 175 employees' salaries, which will be slashed by an average of 90 per cent, and will mostly fall below US$500,000, the Wall Street Journal said.

- The 175 executives targeted by 'pay czar' Kenneth Feinberg are not only the highest-paid but also considered among the most talented and productive from seven companies that have received billions of dollars in taxpayer money.

Their base salaries will be slashed by an average of 90 per cent.

- That applies to the five top executives and the next 20 highest-paid employees at Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.

- Another 525 employees at the companies will also face new curbs on pay from Mr Feinberg, but those details have not yet been released.

- The government did not want to make executives return compensation already received this year, but the reduced pay levels will be the base for making decisions on salary in 2010.

- The executives will still be subject to compensation limits as long as their companies are receiving support from the government's US$700 billion (S$975 billion) bailout fund. Their total compensation was being cut in half, on average.

- Cash salaries will be limited to US$500,000 for more than 90 per cent of affected employees. Personal expenses for such perks as company autos and corporate jets will be capped at US$25,000 without approval from Mr Feinberg's office for higher payments.

- The pay restrictions for all seven companies will require any executive seeking more than US$25,000 in special benefits - things such as country club memberships, private planes and company cars - to get permission for those perks from the government. -- AP

How Sustainable Is China's Growth

  • China's economy expanded 8.9% y/y in Q3 2009, bringing the year-to-date growth rate up to 7.7% y/y. Industrial production (value added) expanded 12.4% y/y in Q3, up from 9.1% in Q2. Investment continues to drive growth with fixed asset investment grew by 33.4% through Q3, 6.4 percentage points above the rate posted the year previous. Consumption has held up, with retail sales climbing 15.1% through Q3 in nominal terms, or 17% in real terms. CPI fell 1.1% through Q3 but has climbed on a monthly basis. Exports and imports are likewise climbing on a m/m basis. (National Bureau of Statistics, 10/21/09)
  • The Outlook for Q4 and Beyond

  • The pace of growth slowed in Q3 to about 9.5% on an annualized q/q basis in Q3 from an estimated 16% pace in Q2. Industrial production growth picked up to 13.8% in September from 12.8% in August and 10.8% in July. Retail sales accelerated slightly to 15.5% y/y, roughly similar to August's 15.4% growth and consumer prices have continued to climb on a m/m basis falling only 0.8% y/y in September (from -1.2% in August).
  • Premier Wen Jiabao: "China’s economic rebound is unstable, unbalanced and not yet solid. We cannot and will not change the direction of our policies when the conditions aren’t appropriate.” (via FT, September 2009)
  • Minggao Shen and Ken Peng of Citi note that "domestic demand is still the main driver of current economic momentum in China. Retail sales are again accelerating after holding steady in the spring.The 15.4% y/y growth received large support from the housing boom, as construction materials sales grew 36.6%y/y, up from 25.8% in July" while other goods were merely stable. However, a pickup in exports (they fell on an absolute and seasonally adjusted basis from July) is needed for further growth momentum as other stimulus may have already peaked (09/ 11/09)
  • Economist Lu Ting, Bank of America-Merrill Lynch: Growth could reach 9% in Q3 and 10% in Q4. (via Bloomberg)
  • Flemming Nielsen of Danske Bank forecasts that "sequential growth in industrial production in China is slowing, despite the year-on-year growth in industrial production in August to around 13.0% y/y from 10.8% y/y in th previous month. This development will be consistent with GDP growth easing to around12% q/q in Q3 from more than 16% q/q in Q2. " (09/07/09)
  • Q2's reacceleration

  • Chinese growth accelerated to 7.9% y/y in Q2 2009, from 6.1% in Q1 (the slowest in more than a decade) as Chinese investment and bank lending continued to accelerate, and retail sales held up. Government spending and bank lending have contributed to faster growth despite weak exports. Q2's growth which analysts suggest was 12=16% on a q/q basis came was the first acceleration after seven quarters of deceleration. Investment (35.3%) and industrial production (10.7%) saw further increases on a y/y basis in June 2009, while construction rose for the first time in a year.
  • Economist Ken Peng, Citi: The annualized q/q pace of growth was around 11.8% from Q2, but the weakness in consumer prices indicates China is not out of the woods.
  • National Bureau of Statistics: Of the 7.1% real GDP growth in H1 2009, 6.2 percentage points (ppts) came from investment, spending contributed 3.8ppts and net exports took away 2.9ppts. (via Citi)
  • How Sustainable Is China's Recovery?

  • IMF: Expansionary fiscal/monetary policies, a rebound in capital markets/inflows, and the growth impulse from restocking helped China's economy to recover. The IMF forecasts 8.5% real GDP growth in 2009 and 9% growth in 2010. "With the recovery gaining strength, the policy challenge is to determine when and how to withdraw policy support while ensuring a successful transition to more balanced medium-term growth."
    (October 1, 2009)
  • World Bank: Very expansionary fiscal and monetary policies kept the economy growing respectably with a 7.2% growth rate is expected for 2009. China may not grow in the high double digits until the global economy recovers. Market-based investment will lag, and consumption will slow, meaning that the boost to growth may not carry through to 2010. (June 2009)
  • OECD: Because of China's policy responses, Chinese GDP growth is forecast to be 7.7% in 2009 and 9.3% in 2010, an upward revision from March forecasts of 6.3% in 2009 and 8.5% in 2010. (June 2009)
  • Morgan Stanley: "On a seasonally adjusted basis, the economy experienced a 5% rebound in Q1 2009, after the first q/q contraction (-0.5%) in almost eight years. Aggressive policy stimulus should bring further recovery in H2 2009, making China among the first to emerge from the global downturn. The recovery should be relatively 'job-rich' but 'profit-deficient,' especially in H1 2009, with those exposed to government-supported capex programs likely benefiting most."
  • Bank of Finland: "The massive increase in lending associated with the stimulus package could lead to imbalances in the Chinese economy, which might make economic policy more difficult and constrain growth. The current stimulus measures have only reinforced the investment- and export-orientation of the economy, while domestic demand continues to play a minor role." (September 2009)
  • ADB suggests China is not rebalancing away from investment-led growth, but is shifting investment sectors. China runs the risk of entrenched inflation and overheating in some sectors.
  • In Q1, government stimulus boosted investment and consumption held up, despite a fall in real incomes. Final consumption, investment and net exports contributed 4.3, 2.0 and -0.2 percentage points to GDP, respectively.

p/s photos: Kim Ahep

Thursday, October 22, 2009

Banks Bonuses & The Surrounding Anger

Who isn't appalled by bankers' bonuses!!! The underlying resentment is that they needed tons of taxpayers' money to steady their ships, and now that things are better, they want things back to normal?!

The general public is pissed off as there was no penalty when banks were raking in big profits pushing the very instruments that caused the financial decimation, if the financial crisis was caused by something or someone else, we may understand, but the culprits were themselves ... and when things go belly up, they go pleading to the governments for help, with a wink, wink... hidden threat that "if you don't, things will be a lot worse for everybody". You cannot hold the people to ransom, heads you win, tails you also win but a bit later.

Goldman has provided forty over percent of profits for bonuses to be paid in January 2010. Granted, Goldman is a different kettle of fish as they largely avoided the CDOs fallout, in fact they even profited from it by shorting the relevant instruments. Goldman also make most of its profits from proprietary trading, so one cannot really begrudge their hefty bonuses.

By right, its the shareholders who should be voting or complaining, if they wish to. If shareholders are not complaining, seriously, the rest of the world should not... really!!??
You can do what you like if you are a private company. When you are listed, you have added responsibilities. Naturally, one could say if a company behaves badly, shareholders should sell their stocks. If Warren Buffett were to pay himself 50% of all profits, I am sure Berkshire Hathaway shareholders would try and burn down his house, and sell down the shares.

So, where is the reality and principles involved here.
I would tend to side with market forces on this. As a listed company, I do think shareholders have a role to play - if you think Goldman pays too much bonuses, then sell the shares, why protest.

The other side of it is, if you actually relied on taxpayers money to keep afloat when things are bad, then you are not really just a normal listed firm, you are a firm that have been "bailed-out" by the people... when you most needed it. If you can operate without any help from the government or the people, then by all means do what you like. But when you are intrinsically somehow dependent on the people to save your butt every time you fuck up royally, then you have to NOT pretend that you deserve all the profits you made because its the people that sustained and resurrected the fucking markets for you.

Shareholders may not be so legalistic as to SELL on principles alone, unfortunately we are not in an egalitarian society, even though that would a lot nicer. Hence on principle, on fairness and the greater good ... banks should be more circumspect and practice self-restraint, because seriously... the next time you buggers go to the well, we are going to say fuck you too, and let a few more of you go belly up like Lehman.

The trouble with all this is that investment banks have become too big, and their flow on effects and consequences are very nasty if any of them fail. The G20 should try to cut them down to size. Bring back the Glass Steagall, separate the investment banks from the consumer banking side. Then limit the exposure each bank have to each investment bank in terms of funding. Then kill off the OTC markets on derivatives, all derivatives MUST be transparent, listed and properly regulated. There must be a regulator with teeth to watch the capital requirements on these transactions. Regulation on hedge funds must be increased manifold - sigh... I hate to be a financial policy strategist, its such a thankless task.

Anyway, at least some firms are trying to behave better, read the Finance Asia article on bank bonuses:


FinanceAsia: Credit Suisse on Tuesday announced revised compensation practices effective January 1, 2010, that will also be applicable to 2009 bonuses.

Credit Suisse is changing the mix of bonus and salary payable to managing directors and directors, such that fixed salaries will be a larger component of the overall payout for employees at these senior levels. Vice-presidents and below will not be affected. Bonuses up to $100,000 will continue to be paid in cash. Higher amounts will be subject to deferral.

For deferred compensation Credit Suisse is introducing two new instruments: scaled incentive share units (sisu) and adjustable performance plan awards (appa). Deferred compensation will be paid half in sisu and half in appa. Up to 50% of bonuses for MDs and directors will be payable in these two forms.

Sisu are similar to the incentive share units that Credit Suisse has been using for the past three years. Sisu are linked to a base share amount on a four-year pro-rata basis, which vests annually. The difference is that the holder is also entitled to additional shares, which vest after four years based on Credit Suisse's average share price over a four-year period as well as the return on equity (ROE) the bank has achieved. If Credit Suisse's average ROE over the four-year period is higher than a pre-set target, the number of additional shares will be adjusted upwards, and if it is below the target, the number of additional shares will decrease.

The appa has a notional cash value and vests pro-rata over three years. This is also linked to ROE -- it has a notional value that adjusts upward annually using Credit Suisse's ROE for that year as a multiplier. If the employee works in an area of the bank that has made losses, the appa will be adjusted downwards. For divisions that earn revenues, payouts will be linked to financial contribution. For shared services and support functions, payouts will be based on the financial performance of Credit Suisse as a whole.

This Swiss bank is also introducing minimum share ownership requirements for members of management committees and for the executive board, presumably to ensure that the net worth of senior decision-makers is linked to the performance of the firm.

Credit Suisse said the new guidelines are consistent with discussions at the Group of 20 summit which was held in Pittsburgh in September.

"At a time of strong focus on executive compensation, we are announcing a compensation structure that enables us to strike the right balance between paying our employees competitively, doing what is right for our shareholders and responding appropriately to regulatory initiatives and political as well as public concerns, " said Brady Dougan, chief executive officer of Credit Suisse Group.

Compensation for bankers is becoming a heated debate, especially in the US, where much of the population is reeling under recessionary conditions.

Earlier this year Morgan Stanley outlined a compensation plan that pays bonuses to executives over three years based on defined performance parameters for the individual and the firm.

On its third quarter earnings call on October 15, Goldman Sachs told analysts, according to a transcript posted on seekingalpha, that it was providing $5.4 billion, or 43% of revenues, for compensation and benefits for its 31,700 employees. Goldman highlighted that this was just a provision and bonus decisions would be made at year-end, but said the "accrual reflects our record year-to-date revenues in 2009".

"We're also cognisant of what's going on in the world and the pressures we're under and so we're going to try and balance those things as we work through the end of the year and we'll make our decisions as we get to year end based on the overall performance of the firm and our people," said David Viniar, Goldman's chief financial officer on the call. The third-quarter accrual was below the $6.6 billion, representing 49% of revenues, that Goldman provided for compensation in the second quarter.

Last month, at a Handelsblatt Banking Conference, Goldman Sachs CEO Lloyd Blankfein acknowledged that much of the controversy and anger regarding banker compensation was "understandable and appropriate". Blankfein went on to outline the principles governing compensation at Goldman Sachs, which include paying senior people mostly in deferred equity and evaluating performance over time to avoid excessive risk taking.

p/s photos: Melissa Surihani

Wednesday, October 21, 2009

VIX About To Breach The 20 Level After 287 Trading Days Above That

Why do we look at VIX indicator? As the market tanked, experts kept citing the VIX as a reflection of "risk aversion". Bespoke Group has written an interesting article as VIX is about to breach the 20 level - that is significant as the markets has never traded at 20 for 287 trading days. Is VIX as important when it is LOW? You bet your sweet ass it is. As volatility hit lows in February 2008 and again in October (the S&P 500 was breaching highs), and then in May and August of 2008. These were all market highs. Beware low volatility.

Bespoke Investment Group: The VIX volatility index slipped below 21 earlier today and currently stands at 21.15. This is the closest the VIX has gotten to 20 throughout the entire bull market, and marks a 75% decline from the closing high of 80.86 seen during the financial crisis.

The VIX has now been above 20 for 287 consecutive trading days, which is the longest streak since 1990 when our daily VIX data begins. In the bottom chart, we provide a historical look at the VIX along with all of its streaks of daily closings above 20. We've only seen two other periods where the VIX was above 20 for 200 straight trading days or more, and those ended at 239 days in June 1999, and 236 days in May 2003. In terms of market performance following these long periods of high volatility, the S&P 500 was on the verge of making a mutli-year peak when the VIX broke below 20 in 1999, but it did very well in the months and years following the drop below 20 in May 2003.



p/s photo: Jennylyn Mercado

Tuesday, October 20, 2009

HK's Economy Turning A Corner, China's Chugging Along

Twin rays of hope flickered through the economic gloom yesterday: Hong Kong's jobless rate has fallen for the first time in 13 months and pay levels are on the rise.

The number of unemployed during the July-September period fell by 7,700 - from 216,800 in June-August to 209,100. That means an unemployment figure of 5.3 percent against the previous 5.4 percent, which is modest at best.

But economists are cheered by the data. They see more falls in jobless figures unless there is another reverse in the wake of last year's crash. The good news about pay came after a Baptist University survey between July and September featuring 104 companies and covering 66,000 employees.

High on the list of key findings is the indication that people are likely to receive pay rises of 1.2 to 1.3 percent in the coming year. That is only a slight improvement on last year, when rises rounded out at 0.4-0.7 percent, but again it is seen as a turn for the better.

In 49 companies, researchers found, 3,000 employees were made redundant. But firms added 5,035 new posts, with the construction sector accounting for 38 percent of them. The figures were in tune with government data on employment, pointing to better job prospects in construction, information and telecommunications, arts and recreational and leisure services in particular. The jobless rate for the construction sector, which has been among the most troubled in recent times, dropped 0.7 percentage points to 9.4 percent.

Bank of East Asia chief economist Paul Tang Sai-on said an improvement in the trading sector is expected to support the labor market for the next three to six months at least. "Slower declines in trading volumes over recent months show that the core industry in Hong Kong is recovering."

Secretary for Labour and Welfare Matthew Cheung Kin-chung preached caution, however, pointing out that the recovery path may still be bumpy as the global economy remains unstable. "The government will remain vigilant."

Still, government officials say efforts to boost youth employment have begun to take effect, pointing to the jobless rate of 15- to 19-year-olds dropping by 2.7 percentage points to 25.7 percent.

Hang Seng Bank senior economist Irina Fan Yuen-yee attributes the employment improvement to a shrinking labor force - it decreased by around 7,400 during the three-month period - and the government's spending stimulus and subsidy programs for graduates.

Citi economist Cheng-Mount Cheng said: "We expect the jobless rate to remain elevated in the coming months when the labor force resumes expansion, but jobs are likely to become more plentiful."

China's economy expanded more than 7 percent in the first nine months, making Beijing's full-year target of 8 percent growth more achievable, according to the state planning agency.

Three days before official figures are released, Xiong Bilin, a senior official of the National Development and Reform Commission, said the mainland's gross domestic product for the first three quarters was around 7.1 percent. This was lower than a Reuters poll showing the average forecast was 8.9 percent.

CCB International said China's third- quarter growth would be about 8.9 percent, while consumer prices fell marginally by 0.8 percent from a year ago. But the investment bank expects inflation to rise 0.3 percent in September from August, reflecting a steady growth momentum. Fixed direct investment in September also rose, soaring 33.2 percent year on year and higher than the 22 percent in August, CCBI said.

In a bid to curb potential asset bubbles caused by overspending under Beijing's stimulus plans and ensure steady economic growth, the NDRC and nine industry department heads will try to prevent overcapacity in six sectors. They will do this by withholding approval for any new investment that does not follow procedures and is not in line with government policies.

The sectors are steel, cement, plate glass, coal chemicals, polysilicon and windpower equipment.

p/s photo: Yasuda Misako

Monday, October 19, 2009

Caijing, Richard Li & China's Bloomberg In The Making

These sort of business drama was not supposed to happen in China, of all places. Caijing, the top business magazine in China saw a power tussle by the senior employees against the invisible "government controlled media forces". Richard li, spotting an opportunity in crisis, jumped in and probably hired the whole sheng group that wanted to leave.

Excerpts from SCMP & The Australian: Days after a much-trumpeted world media conference in Beijing's Great Hall of the People, a mass of resignations at the country's most influential business publication, Caijing, has underscored tensions between groundbreaking journalists and the country's fast-growing government-controlled media groups.

Caijing general manager Daphne Wu Chuanhui and eight of her nine business directors have resigned amid rumours that editor-in-chief Hu Shuli may leave to start her own magazine. It is believed that up to 60 other reporters are also poised to leave. Staff at the magazine said something had been brewing for a while, but last month Caijing went to pains to release a statement saying such rumours were false and threatening to take legal action against people spreading false rumours. Caijing's public relations chief has resigned. The company declined to make any further comment.

The trouble at the magazine is threatening a potentially lucrative joint venture with Hong Kong media and telecoms tycoon Richard Li, who is planning a Bloomberg-like financial news service for the Asian market using content from Caijing. The group recently hired a raft of native English speakers but a number were suddenly sacked in recent weeks without reason or warning.

The South China Morning Post reported that Ms Shuli was battling Wang Boming, the chief of SEEC Group, which owns Caijing and wants to become China's "Time Warner". It said the Caijing editor-in-chief was frustrated that most of the advertising revenue collected by the company was being taken back by the parent company, leaving the company with a smaller budget.

Caijing was founded in 1998 by editor-in-chief Hu Shuli and former Wall Street banker Wang Boming, Caijing has emerged as one of the most aggressive investigative media outlets in China. It has taken on corruption, environmental issues and the government, apparently with impunity, earning it a rock-solid reputation both inside the country and internationally. But last week, bubbling tensions at Caijing burst to the surface, with the resignation of about 70 staff from the business side of the magazine, prompting news stories around the globe. Hu and Wang's Hong Kong-listed SEEC Group, which controls the magazine, is locked in a battle over the publication's finances and editorial content. By yesterday there was talk that Hu would leave after the November 9 edition of the magazine, taking the bulk of the editorial staff to start a new publication.

Part of that battle is connected with the potential windfall from Li's ambitious project, if he can grab some market share from Bloomberg and succeed where others -- such as Dow Jones' ill-fated Telerate -- faltered. Provisionally called China in Depth, and registered as Cai Business Indepth Limited, the business will compete with Bloomberg and Thomson Reuters to deliver real-time data and analysis of banks, traders and other financial professionals using a subscription model that will be delivered via terminals, the internet and mobiles. The venture is scheduled for a soft launch at the end of the month with full services planned for January next year.

Li last year tapped the aristocratic James Ogilvy-Stuart, a 17-year Bloomberg veteran, and other former Bloomberg employees are said to have come on board. Li has also bolstered the venture with proven talent, no doubt lured by heavy pay packets, bonuses and equity stakes. He has attracted former Pacific Century Cyberworks (PCCW) property finance chief Patricia Leung back as chief financial officer as well as grabbing investment banker Jeffrey Yap as head of research and content management. Former New York Times and Wall Street Journal foreign correspondent Craig Smith is listed as executive editor and has publicly enthused about the new business. Li's loyal lieutenant Richard Chen, a former employee at his father's Hutchison group who is chairman of PCCW's Great China division, has been named as company chairman.

Ogilvy-Stuart is instituting a Bloomberg-like internal culture, where employees accept a rigid management style in return for relatively high pay. Also, in classic Bloomberg style, the venture is providing free food and beverages to employees (to encourage them not to go out for lunch) and a data terminal for employees to take home.

China's stockmarket is already one of the world's biggest, having passed Japan's in July, and is now valued at more than $3 trillion. It's also very volatile, and the country's financial markets are only at the beginning of their growth. Li is betting that deep analysis of these markets will be something that investors are willing to pay up big for.

p/s photos: Penny Tai Pei Ni

Friday, October 16, 2009

Emerging Markets Traded Past Its All Time High Vs Developed Markets

How many indices do you want to monitor? Well, this is smashing pumpkins on your forehead significant. If you group all the emerging markets and count it as an index, it has just breached through its all time high against the developed markets basket.

We all know that emerging markets were not that badly affected, especially their currencies. The weaker dollar did help the emerging markets over the past few weeks as well. Do the emerging markets have any business pushing through its all time high against developed markets? Well, the key is a posting I made about two weeks back, on a new way to look at risk in emerging markets.

What that means is that developed markets which used to trade at a premium or rather emerging markets that used to trade at a discount, are now having the roles reversed a bit because trade surpluses, better country balance sheets, savings rate and monetary discipline among emerging markets - all equate to a more attractive picture. While global trade suffered, especially on exports demand by developed countries, many of the emerging markets are finding better trade terms trading with each other. Its not just developed markets that have their stimulus plans, the emerging markets stimulus plans worked better because there was no "massive wealth destruction" in emerging markets as there was in developed markets ~ e.g. foreclosures, negative equity in properties, many ill fated REITs in dire straits...

So, the Dow at 10,000 or not, emerging markets should still chug along. The 10,000 level looked like a psychological barrier but as I have explained many times, its the low rates and lower risk aversion couple with more M&A that are pushing matters along. Stop looking at the nascent recovery in the real economy.

The second table is even more interesting, it looked at markets that have surpassed their all time highs, not their 2008 highs mind you, but all time. Imagine breaching your all time highs months after the most severe recession since the Depression, pretty significant huh.

At the top of the heap, the Colombian market is already 11% higher than its previous all time high. Israel and Chile are just 13% away. Indonesia is only 16% away. Peru just 20% and Malaysia not far behind, just 26% away like Switzerland.

The BRICs had a spectacular run in 2007 and 2008, so its natural for them to be still some distance from their all time highs. Brazil still 30% away despite a very robust market for the past 6 months. India still 37% away. China a massive 44% away. Russia have its own problems and still 57% away.

The US is just 33% away, same as Singapore, but UK is still 43% away. Even the robust Australia is still 35% away, just like HK.

The economies that are really hurting, suffering the most from the financial fallout are those that are the furthest from their all time highs. Roubini, look, many markets have not run ahead of themselves, investors are not stupid, really! Ireland still 78% away from its all time high. Belgium, Finland and Austria still 60% away. Poland and Norway still 52% away. To get some perspective, 50% away for Malaysia means the index is hovering at 700-750 (I think, looking at the new index calculation).

The equity markets rally is not the same for everybody, there is discernment, there is still reward and punishment, there is still discretion and sanity.

Wednesday, October 14, 2009

Bloomberg Acquires BusinessWeek


Word is he's not too happy about this new ad created by the National Organization for the Reform of Marijuana Laws (NORML), but he says he will not try to stop it due to freedom of speech issues. (That plus the fact that he really said it.)

Bloomberg L.P. said Tuesday that it has reached a deal to acquire BusinessWeek magazine from McGraw-Hill Cos. Business Week is easily my favourite business magazine. For a long time it used to be Fortune as their write ups have more depth. However, over the last 2 years, my preference has been tilted towards Business Week as it takes a more global view instead of just a US-centric perspective. Its snapshots and sound bites are crisp and useful - they only need to get rid of the wasteful one pager economics opinion piece on page 7 or 9. I wonder what will happen to Business Week??? Bloomberg being Bloomberg, will keep Business Week running as it is. He should be integrating some of the content into the terminals. This is a significant move by Bloomberg as he was always the guru on "build it, don't buy" mantra. The fact that the editor of Business Week will report to Norman Pearlstine is a shrewd move. Norman was the chief as Time International before moving to Bloomberg, and would be highly regarded and deemed as acceptable "head" to the Business Week family. The good thing should be now we will get more analytics from Bloomberg database to illuminate the Business Week articles, and possibly have a more "market driven" bent on its articles.

Article by Tom Lowry on October 13/ Business Week:

Bloomberg LP, the global financial data and news empire created by New York City Mayor Michael R. Bloomberg, is the winning bidder for BusinessWeek.

Terms of the offer will not be disclosed by Bloomberg and BusinessWeek parent McGraw-Hill Cos. But knowledgeable sources say that Bloomberg’s cash offer is in the $2 million to $5 million range and that it has agreed to assume liabilities, including potential severance payments. It remains to be seen how much of the magazine’s 400-plus staff Bloomberg plans to cut, but reports of a planned scorched earth campaign are overblown, say sources. BusinessWeek editor-in-chief Steve Adler told his staff shortly after the deal was announced Tuesday that part of the deal guaranteed that McGraw-Hill benefits would be extended to employees for one year after the deal closes.

If the deal closes as anticipated by Dec. 1, it will be unprecedented for both buyer and seller. For Bloomberg, buying BusinessWeek will be its first major acquisition ever and a significant departure for a 28-year-old company nurtured on a “build, don’t buy” culture. “The BusinessWeek acquisition will yield huge benefits for users of the Bloomberg terminal, for our television, online and mobile properties,” says Daniel L. Doctoroff, president of Bloomberg LP and a former deputy mayor of New York City appointed by Mayor Bloomberg. “We couldn’t be more excited…We are not buying BusinessWeek to gut it. We are buying it to build it.”

The deal also signals a shift by Bloomberg into more consumer-focused media. “The reporting and analytical resources of Bloomberg and BusinessWeek are unparalleled in their ability to deliver timely, distinctive and credible content to an influential and highly sought-after audience,” says Bloomberg LP Chairman Peter Grauer.

BusinessWeek, launched 80 years ago, will give Bloomberg entrée to a much larger business audience of corporate executives and senior government officials, beyond what has been its sweet spot of catering to Wall Street and the professional investor community. And by broadening that reach, it will allow Bloomberg to deliver a new breadth of information that will help make its main business — data terminals — even more attractive to potential subscribers of those terminals. “We are uniquely positioned to preserve and build the market presence of BusinessWeek,” says Norman Pearlstine, Bloomberg chief content officer and a former editor-in-chief of Time Inc. and executive editor of The Wall Street Journal. “Our shared values and complementary resources give us the editorial and technological expertise, data, analysis and depth of reporting to create a new model for the business weekly.” Pearlstine will become chairman of BusinessWeek and serve as liaison between the magazine and the Bloomberg news staffs. A BusinessWeek publisher and editor-in-chief will report to Pearlstine.

BusinessWeek, whose logo will eventually incorporate the Bloomberg name in some still-undetermined way, will continue to publish weekly in print and around the clock online. The goal will be to substantially boost the magazine’s editorial pages. It still hasn’t been decided whether Bloomberg and BusinessWeek will maintain separate Web sites or be morphed together as one. The sites combined attract more than 20 million unique visitors monthly and log roughly 100 million page views. Combined revenues of the sites alone are $60 million. What's more, the BusinessWeek brand will be used aggressively to bolster Bloomberg TV, radio and mobile operations. Andy Lack, a former president of NBC News and more recently chairman of Sony BMG Music Entertainment, was recruited last year to oversee those multimedia businesses.

For McGraw-Hill, shedding BusinessWeek means parting with one of the most prominent brands in its stable of businesses. The transaction comes at a tumultuous time when much of McGraw-Hill's senior management is focused on the heavy scrutiny of its Standard & Poor’s credit rating unit. The magazine, for generations coveted as a company jewel by the founding McGraw family, first began publishing a month before the stock market crash of 1929. “I am very proud of the tremendous contributions BusinessWeek has made to The McGraw-Hill Cos. throughout its rich history," says Harold “Terry” McGraw III, CEO of McGraw Hill. "It is a truly outstanding franchise and the best source of business reporting in the world. We are pleased that we have reached an agreement for BusinessWeek to be acquired by Bloomberg, which shares the same high standards for editorial independence, integrity and excellence that have long defined BusinessWeek."

It is not clear how directly involved Mayor Bloomberg was in the sales process. When first elected in 2001, he vowed to maintain an arms-length relationship with his business. But sources say he is briefed on all major decisions at Bloomberg LP. A spokesman for the mayor declined comment and referred all questions about the sale to Bloomberg LP. The mayor is known to be a big a fan of BusinessWeek, as well as Aviation Week, another McGraw Hill publication (Bloomberg is a licensed pilot).

Bloomberg, who faces a re-election bid for a third term on Nov. 3, is a friend of McGraw’s, leaving one to wonder how often over the years they discussed potential deals between their respective companies. The two own houses not far from each other in Bermuda. McGraw-Hill approached Bloomberg about buying the magazine as early as February, according to sources, but Bloomberg passed. Even after formal presentations were made to numerous interested parties, Bloomberg re-emerged as a surprise contender. BusinessWeek President Keith Fox told the magazine's staff late Tuesday afternoon that his senior team held 25 meetings with prospective bidders and answered 420 due diligence requests throughout the sales process. He ensured his colleagues that there would be no layoffs between now and the close of the deal.

Started in 1981, the privately held Bloomberg continues to derive nearly all of its $6.3 billion in annual revenues from leasing data terminals to major investment firms. Subscribers rent the terminals for $1,500 a month and up. The company has 280,000 terminal leases across the globe. Since Bloomberg created a news service in 1990, under the tutelage of Wall Street Journal alumnus Matthew Winkler, it has continued to hire journalists, despite economic downturns, including most recently high profile editors and reporters from The Wall Street Journal and Time Inc. It now employs about 2,200 journalists globally at a news service, magazine, radio and TV stations. Bloomberg Markets magazine will continue to publish as its own stand-alone publication, say sources.

BusinessWeek will present Bloomberg with the rare challenge of having to integrate an outside operation. The company’s only other acquisition was in 1987 when it acquired a three-person operation in Princeton, N.J. called Sinkers, which published arcane bond data. BusinessWeek staff will be moved across town and into Bloomberg’s Manhattan headquarters by May 1. Officials from Bloomberg will begin meeting with the BusinessWeek staff in the coming weeks. (Bloomberg was advised by investment bank The Quadrangle Group. The sale was conducted for McGraw-Hill by Evercore Partners. The code name for the deal was Opera.)

Even though BusinessWeek has posted losses for several years, McGraw-Hill continued to invest in the magazine, including new redesigns and most recently by betting heavily on a social networking venture called the Business Exchange. McGraw-Hill has invested more than $20 million into the site over the past two years, but BX has fallen far short of revenue and online traffic goals.

At the same time, BusinessWeek was particularly hard hit by the Great Recession. Its losses this year are projected to be in excess of $40 million (a figure that includes certain overhead costs like rent). Revenues for this year are expected to be about $130 million. At its peak in 2000, BusinessWeek had a record 6,000 ad pages and operating profits of $100 million. Some analysts at the time valued the magazine at $1 billion.

As recently as this spring, BusinessWeek management presented the parent company plans to reduce costs drastically, including large staff reductions. But CEO McGraw and his board of directors made the decision to put the magazine up for sale instead. McGraw’s mantra to his investors has been that he wants businesses with “consistent, sustainable, earnings growth.” In the end, he clearly didn’t think BusinessWeek’s problems could reverse themselves as part of the parent, prompting a difficult decision for the CEO since he and other family members loved the cachet of owning BusinessWeek. Some analysts, however, have projected that by shedding the losses from BusinessWeek, McGraw-Hill could add as much as a dime to its earnings per share in 2010.

The sale of BusinessWeek also raises questions as to how committed McGraw-Hill will remain to the media business. In addition to BusinessWeek and several trade publications, the company owns four local TV stations affiliated with ABC and five Spanish-language channels. If those businesses are divested, the remaining major businesses will be S&P and textbook publishing. How long before the Street may wonder why these two businesses need to be together?

Bubble-looking For HK Luxury Condos

No matter how you cut, slice or dice the price HK$63,000 psf is a doozy. Yes, that is about $8,076 psf or RM27,400 psf. Much of the buying over the past few months have been by Chinese from the mainland. Article from The Standard.

Wednesday, October 14, 2009

Prices for luxury properties in Hong Kong are now firmly at a sky-high level, a fact confirmed yesterday as a developer slapped a price of more than HK$63,000 per square foot on a premium apartment in Mid-Levels.

That will make it the highest-priced penthouse in Asia - and it is not even on top of the building.

The top-of-the-pile tab was revealed as Henderson Land Development (0012) released the first price list for its residential project 39 Conduit Road yesterday. On it was the HK$357.7 million, 5,636-sq-ft duplex. That means a square- foot record of HK$63,473.

Another duplex, 5,131 sq ft and also on the 66th floor of the 88-story building, is listed at HK$311.4 million, or HK$60,696 psf.

In June last year, Sun Hung Kai Properties (0016) sold a 5,497-sq-ft penthouse at The Arch, atop Kowloon MTR Station for HK$41,100 psf - a record for Asia.

The pattern of soaring prices is setting off alarms as well as expressions of amazement.

Lui Hon-kwong, associate professor of marketing and international business at Lingnan University, warned of the danger of a price bubble in the property market, which is drawing huge inflows of cash from super-rich mainlanders.

"A price bubble is determined by the mainland government's policy direction," he said. "If it does not support people in investments, our property market will lose ground and prices will plunge."

Still, Eddie Hui Chi-man of Polytechnic University's department of building and real estate notes that the sale of expensive homes by Henderson is at the upper extremes of the property market and should not have a bearing on the mass market.

"Some super-rich people are chasing luxury homes like others collect paintings and wine because they are rare," Hui said.

"The property market is recovering ahead of the real economy, however, and people can afford mortgage payments."

Besides the two premium duplex homes, Henderson also set prices for 18 "regular" homes in the block - sized at 2,808 and 3,284 sq ft - from HK$73.4 million to HK$137.9 million. The developer's sales general manager, Thomas Lam Tat-man, said the company will set about securing sales as early as this afternoon.

Customers have shown interest in 20 to 30 apartments, Lam said. They are negotiating up to HK$70,000 psf for the most expensive unit.

The project has a total of 66 homes sized from 2,800 to about 7,600 sq ft, with two penthouses on the 88th floor still to be priced. Henderson has suggested it could be seeking a staggering HK$100,000 psf for the loftiest pair.

The firm intends to sell 40 percent of the homes this year, which would bring in about HK$4 billion. Lam predicts a 10 percent increase in prices for homes sold later.

Midland Realty regional sales director Jimmy Lee said the prices asked by Henderson will not deter buyers. "Housing supply in Mid-Levels is very limited and investors have long been waiting for new units."

p/s photo: Han Ye Seul

Tuesday, October 13, 2009

Jim Rogers Views Summarised - Oct 11th

Just an update on Jim Rogers and his views. This being his latest on his lecture circuit:

1. The 21st century belongs to China

According to Rogers, the 19th century was the era of the British Empire and the 20th century was the U.S.’ heyday. But the 21st century is China’s (though the rest of Asia is definitely going to get a boost too).

The reasons for this are many, but some points brought up by Rogers include the following:

  1. The Chinese want to live like we do;
  2. They are more eager to work;
  3. They are better at saving;
  4. There are 1.5 billion Chinese citizens (and 3 billion people in all of Asia), and we owe them money. They are, according to Rogers, “among the best capitalists in the world.”

There will be some setbacks, of course, Rogers says, but these are opportunities. “If you see setbacks in China, you should pick up the phone and get more involved,” he advised, before adding his favorite refrain, “The best advice of any kind that I can give you is to teach your children and grandchildren Chinese.”

China’s path to world domination started with Deng Xiaoping’s capitalist programs in 1978, and there hasn’t been any looking back since. Rogers views China’s dominance as nigh-on unstoppable except for one little thing: its water problem. There are parts of the country that are running out of water, and when the water disappears, Rogers points out, so does civilization. However, the country is acting aggressively to combat the problem, and he doesn’t view it as that much of a threat.

2a. Jim Rogers is not a Ben Bernanke fan

Yep, it’s a fact. No “Team Bernanke” shirts for Jim Rogers (who said to scattered applause during the Q&A session that if he was in charge of the U.S. economy he would “abolish the Fed and resign.”).

Rogers is appalled by the government’s actions—Bernanke’s in particular. The U.S. government’s strategy calls for the debasement of the dollar, he says, calling it a “horrible policy.” While he concedes it can work in the short term, it NEVER works in the mid- or long term.

“He’s going to run those printing presses until we run out of trees, because that’s the only thing he knows,” Rogers said of Bernanke.

Add that on top of the country’s rapidly growing astronomical debt, and Rogers believes you’ve got a recipe for disaster.

2b. The U.S. dollar is screwed

Consider this a corollary to point 2a. Its status as a reserve currency is teetering on a precipice, in Rogers’ opinion, and he’s not alone. In fact, so many people are selling dollars right now that he’s sitting tight, waiting for a possible—and ultimately unsustainable—rally in order to exit the market. Of course, if it fails to rally and just drops again …

“I’ll just have to panic and sell like everyone else,” Rogers said.

3. Commodities, commodities, commodities

OK, as mentioned before, there are 3 billion people in Asia, most of whom are aspiring to play the home version of the American Dream game show. And let’s face it: American society is largely about consumption. We like stuff―we buy it, we wear it, we eat it, we flaunt it, we sometimes even bedazzle it (yeah, Google that). So that’s a lot more consumption on the global level. Rogers notes that while consumption is expected to increase exponentially, not a lot of capacity has been added in the last few decades for a lot of commodities. Meaning, not a lot of new refineries have been built, and not a lot of new resources have been discovered or excavated for a variety of commodities.

In terms of oil, Rogers cites the fact that Saudi Arabia has not seen any new oil discoveries but has consistently said for the past two decades that its reserves are at 260 billion barrels (in which time it has sold 60 billion barrels). He also points out that farmers are a rapidly disappearing species. So to sum up―that’s a lot more people competing for diminishing resources (including the all-important energy and food). Basic supply and demand theory pretty much takes it from there.

“Commodities are the second-largest asset class in the world,” Rogers noted. And they are “the best anchor” for your portfolio, he adds.

Rogers says the typical life span of a commodities bull market is 18-20 years. We’re currently in year 11 right now. Yeah, it could end tomorrow, but that whole supply and demand imperative could also extend this bull beyond its typical time frame.

During the Q&A session, though, the conversation took a darker turn. One questioner asked if the increased competition for resources might lead to war, and Rogers allowed it was a possibility, though he hoped it would not come to that. He pointed out that when a rising power clashes with an established power, the result is usually war, and said that research consistently shows that resource shortages lead to war.

So, sure, commodities shortages might start World War III, but if you invest in the commodities themselves, you might at least be in decent financial shape when the shelling stops—and I’m not being flippant at all. War drives up the costs of commodities.

4. U.S. government bonds are the next big bubble

Well, would you lend money to us? Rogers says short-term bonds are probably OK, but he advises getting out of anything with a longer maturity. He calls it “inconceivable” that anyone would lend money to the U.S. for 30 years at the going rate, and notes that the U.S. was a creditor nation as recently as 1987.

“Now the U.S. is the largest debtor nation in the history of the world,” he said.

And for bond portfolio managers, he had some very pointed advice: “Get a new job.”

5. Protect yourself

The underlying theme of Rogers’ entire speech was that the world is changing, and here are some things you should know if you want to come out the better for it (and for your family members, clients, etc., to also come out the better for it) financially. Based on Rogers’ observations, it seems recognizing that change is a key step, but so is adapting to it (see advice regarding learning Mandarin, for example).

And in Rogers’ eyes, commodities are a good way to achieve this protection. No investment is certain of course, but right now, he thinks commodities look pretty darn good.

Best Comment Of The Night

Addressing one audience member’s question, Rogers asked if the young man were an MBA. The questioner admitted to holding an MBA and was promptly told he should swap his MBA for an agriculture degree from Texas A&M.

“You should become a farmer,” Rogers said.

That’s an old line for Rogers, but he added a new wrinkle. If you’re not going to become a farmer, you should open the first Lamborghini dealership in Iowa. Because with farmers closing in on extinction just as the world needs more food, that’s probably what they’ll be driving in a few years.

p/s photos: Keiko Kitagawa

Monday, October 12, 2009

Roubini's New Stance (I Mean Asserting His Old Stance)

This may have been a week old but now I am getting around to it. I didn't post/comment on it because Roubini said the same things. This time, he is sticking to his usual views but using it to reflect on the current stock market rally, saying that stocks have run ahead of fundamentals. My comments in colour.

Bloomberg: New York University Professor Nouriel Roubini, who accurately predicted the financial crisis, said stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors.

Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul yesterday. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”

Stocks have surged around the world in the past six months as evidence mounts that the economy is emerging from its deepest recession since the 1930s. The S&P 500 has soared 51 percent from a 12-year low in March while Europe’s Dow Jones Stoxx 600 is up 48 percent. The euphoria contrasts with the cautious tone of Group of Seven policy makers, who said after their meeting in Istanbul yesterday that prospects for growth “remain fragile.”

“The real economy is barely recovering while markets are going this way,” Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.”

‘Anemic’ Recovery

IMF predicts the global economy will expand 3.1 percent in 2010, led by growth in Asia, after a 1.1 percent contraction this year. That is still “anemic” and “very weak,” Roubini said.

U.S. stocks fell last week after manufacturing expanded less than anticipated and unemployment climbed to a 26-year high, fueling concern the economy is rebounding more slowly than forecast.

Gains in the S&P 500 have pushed valuations in the index to more than 19 times reported operating profits from the past year, data compiled by Bloomberg show. That’s near the most expensive level since 2004.

The performance of the U.S. economy is probably more sluggish than reflected in stock markets, risking a correction in equities, Nobel Prize-winning economist Michael Spence said last month. U.S. stock-market investors have “over processed” the stabilization of growth in the world’s largest economy, Spence said.

Creating Bubbles

The global equity rally has added about $20.1 trillion to the value of stocks worldwide since this year’s low on March 9. Governments have poured about $2 trillion of stimulus into the global economy while central banks have cut interest rates to close to zero in efforts to revive growth.

“In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”

Comments: Yes, there is a gap between the stock market valuations and the real economy. Is the gap justified, its debatable, I think it is. To have a second dip in 4Q 2009 or 1Q 2010 would require probably another big bank to need a bailout or risk failing - Citigroup??... probably not likely. To have a second dip, we might have to see some major central banks tightening too soon... again that is not likely. Central banks are more concerned about jobs and corporate spending, and as long as these two factors do not show significant improvements, we are not going to see any rate hikes. So far only the robust Australian economy have started to hike rates. Norway might follow suit but not the rest.

In fact the longer it takes jobs and corporate spending to recover, the better it is for stock markets - its silly but true. That means low interest rates will prevail, thus forcing funds flow into equities. Yes, it is more likely that we will see an expensive equity markets situation globally over the next two quarters rather than a second major dip like Roubini predicted. Yes, I agree this will be the second bubble in the making if left unchecked, but I see things coming to a head only mid-2010, and even then we have to see how the employment improvement scene is like.

The other point for my views is the willingness of corporations to tap funds to do M&A. This is brought on with a corresponding downturn in risk aversion. Too many companies have been sitting around (on piles of cash) not doing anything for the past 10 months. We have seen a trickling of major M&A activity over the past two weeks and that should pick up steam. Each time a major M&A deal happens, it energises that sector and subsequently the overall market as well.

p/s photo: Angelababy Yang Wing

Friday, October 09, 2009

Confirmed... My Favourite Chinese Restaurant In Town

Being in Malaysia, there is no shortage of Chinese restaurants. Being Cantonese myself and growing up on Cantonese food, I am partial to that cuisine when it comes to Chinese food. I love the hawker stalls and single dish operators, but when you want to have a very decent Cantonese/Chinese meal, cost comes to mind and as well as quality and taste. The Rasa Sayang restaurants have been doing great business in that niche market, you can even throw in Overseas restaurants. However, I am convinced Chef Choi in Jalan Ampang takes the top prize. For its location, setting, very ample parking, superb quality and amazingly decent prices... I am shocked that many have not discovered Chef Choi yet.

It even has a very snazzy website, unfortunately it does not have the prices of each dish. Let me assure you that they are decently priced, and they come in S, M and L depending on the number of guests you have at your table... very convenient.

Interestingly, I found that I was not alone, in fact highly popular and respected food bloggers have reviewed Chef Choi and came away with high distinctions. Read their reviews here:

Chef Choi's own website, and you can get the map there as well for its location. Wisma MCA, next to it is a Chinese temple, Chef Choi is next to that, and after Chef Choi is the always full (but I don't know why ... its not THAT good folks.. ) Pelita Nasi Kandar.

I love their soups as a starter, just take any of them, powsum-chicken is very good. You got to try their prawn coated in superior soy (tauchau) but ask how much it will cost per prawn first, the big headed prawn can be RM50-RM60 each, the smaller kind is RM20-RM30, one per person will do. I absolutely love the Chef Special Sang Mee, another must. Beware, the suckling pig needs to be pre-ordered, they run out very fast. For desserts, if you love almond tea like me, you will adore their papaya-almond tea. The mango cream is good as well.

Not paid by Chef Choi in any way.... please note that they have a promotion now which gives you 25% off the bill when you dine ala carte (i.e. not from the set menus), good till end of November I think.

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