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Showing posts from January, 2010

The Volcker Rule

Despite the mostly good corporate earnings, with many beating analysts' estimates, couple with a surprising GDP perk up in 4Q2009, the markets had trouble turning around the bearish trend. Methinks it has a lot to do with the uncertainty with respect to the Volcker Rule. Although you will find pundits giving many other reasons for the current downtrend. The market got hints that Obama was mulling some banking reforms, and you could see the south ward bent from then onwards.

The NYT had a good article on the Volcker Rule, my comments in colour:


New York Times / Dealbook: Obama is pushing hard for stricter financial regulation, promising in his first State of the Union address that he would not sign a bill that “does not meet the test of real reform.” This has left Wall Street wondering how much Mr. Obama’s regulatory proposal, known as the Volcker Rule, will cut into its profits. The proposal, named for Paul Volcker, the former Federal Reserve chairman, would limit a …

Must Watch This: The Blind Side

In our cynical world and hardened hearts all around, it was gratifying to watch a movie that lifts our senses. Its a feel good movie but never milks the audience for tears. What makes this so wonderful is its a true story. The other bit which makes it so enticing was that it was based on the book by my favourite author Michael Lewis - yes, the same guy who wrote Liar's Poker, Moneyball and The New New Thing.

Sandra Bullock was amazing in the dramatic role and should finally win the coveted Best Actress Oscar this year. Remember to wait for the credits as they will show photos and video snips from the real life family members of the characters. Quinton Aaron was spectacular too as he brought sensitivity and allowed us to empathise with his character.

The story was all the more amazing as it wasn't just Sandra's character that did the right and noble thing, but that all of her family members got on board as well - and that is not a common thing.

Its a very good movie when it …

What A Speechmaker ... What A Leader

As I am writing this, Obama is only halfway through his State of the Union address. At a time when Americans have kind of lost track of Obama's vision and "change" mantra, they have a kind of disconnect to the whole thing. At a time when the media cast doubts over Obama's plans to tax the banks, impose new regulations to control them, at a time when Main Street thinks the government is losing its fight to reprimand and teach Wall Street a lesson ... it wasn't easy for Obama.

I have posted on how and why Obama is such a great speechmaker - you can learn most of it, but you cannot learn how to connect. He is not only charismatic, he does not seem artificial at all. In the end, you trust him more because he connects all the dots of your concerns.

Obama's speech is genuine sounding, he made sure that he connected to the everyman in smaller towns, just count the number of small towns he mentioned. He also did not gloss over the realities, that he knows things are no…

My #1 Black Swan In 2010

While the whole black swan thing sounds interesting, how are we to make a conscious effort to incorporate it into our analysis? Let's look again at Taleb's thesis:
... the existence and occurrence of high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations. Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as "black swans"—undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War 1, and the September 11 2001 attacks as examples of Black Swan Events. To a large extent, the subprime crisis is another prime example of a Black Swan.

"What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its ou…

The Hype Surrounding Black Swans

No, we are not talking about the beer. Investors who read a lot would have come across the quite audacious yet thought provoking book by Nassim Nicholas Taleb. You can summarise the book with the line: The Impact of The Highly Improbable.

The Nobel Laureate Daniel Kahneman proposed the inclusion of Taleb's name among the world's top intellectuals, citing "Taleb has changed the way many people think about uncertainty, particularly in the financial markets. His book, The Black Swan, is an original and audacious analysis of the ways in which humans try to make sense of unexpected events."
Before the discovery of Australia, poeple in the Old world were convinced that all swans were white, an unassailable belief as it seem completely confirmed by empirical evidence. The sighting of the first black swan might have been an interesting surprise for a few ornithologists (and others extremely concerned with the coloring of birds), but that is not where the significance of the s…

Country PEG Ratios

The folks at Bespoke Research have put up an attractive piece on PEG ratios. Ratios are very useful especially when comparing things across countries and industries - it makes them comparable.

The PEG ratio is the P/E ratio over the growth rate, and a PEG of less than one is generally considered good, according to Bespoke - however, guys, that is almost none existent. For example if a country is looking at GDP growth of 20%, can we safely try to find the markets at just 20x PER. Generally if you can even get a figure of 3, that is very decent already.That is we are talking of GDP growth rates and not company earnings growth rates. Even the very robust China markets only showed 10%-12% GDP growth in their robust years, so the 1/1 things never will exist.In this regard, they have created "PEG" ratios for a number of countries using the P/E ratio of each country's main equity market index along with 2010 estimated GDP growth rates. Just as with stocks, the lower the country…

Bernanke's Likely Weapon Of Choice

This is my prediction for Bernanke. He will raise fed funds rate very very soon. Just because of that, it does not mean that it will be bad for equity markets.

But lets go back to why it will happen very soon (by February I think). Most developed nations' central banks have been reluctant to move the low interest rates regime up because the Main Street has been showing nascent growth. What Bernanke wants to see are corporate spending on R&D and hiring - both not really evident yet. Despite the tons of liquidity being poured into markets, many banks are just sitting by idling.

The Fed has had to maintain a low fed funds rate for obvious reasons, but look at the chart, banks are earning very decent net interest margins by lending to the system, and not to clients. High ranking officials have been calling the banks to lend more aggressively, but that does not seem to be working.

Bernanke's hands are being tied a lot more now that many of the banks which received funds from the …

Making Sense Of The Risks & Rewards Of Owning UC Rusal

None of what's written below is original. All have been culled from various business publications:

... at the core of Rusal’s pitch to institutions is this claim on how it wants to invest in its $2.6bn flotation proceeds: Rusal has deliberately positioned itself to exploit the urbanisation and industrial growth of China and now claims that it can put aluminium on to the docks at Shanghai more cheaply than its Chinese rival, Chalco.Rusal’s secret weapon over rival producers, says the paper, is an abundance of “stranded” hydroelectric power in Siberia that cannot be moved far afield and is sold cheaply to local industry.the indebted company sources nearly 80 per cent of its energy requirements from hydroelectric power in Siberia, unlike its rivals which are dependent on fossil fuels. That means Rusal’s flagship smelters, which generate nearly 80% of the company’s total output (an estimated 4.3m tonnes in 2009), do so at an average cost of $1,338 a tonne.This puts the company in the …

Cookies To Die For - Festivity Gifts

I look forward to each Hari Raya and CNY celebrations for the past few years because a good friend of mine will be making her famous almond shortbread chocolate cookies for sale. Exceptionally good! 20 pcs ~ RM 19.00. Contact Nooraini 012-3859815.

How The West Was Won & Lost - Why Has This Not Been The Headline For The Past Week???

Almost every major international papers have made this their headline news for the past few days - well, not in Malaysia apparently. With two gigantic Free Trade Agreements (FTAs) entering into effect on New Year’s Day—China- Asean and India-Asean—Asia’s economic interlinking has taken off. Asia has for long been divided into self-contained sub-regions like South Asia, West Asia, Central Asia, Southeast Asia and East Asia. Now, Asean’s two path-breaking FTAs with Asia’s second (soon to be first) largest economy, China, and third largest economy, India, enmesh the fortunes of South Asia, Southeast Asia and East Asia into a mosaic. Together with the currency swap agreements among South Korea, Japan and China, these FTAs signal a definite turn towards Asian countries viewing each other as valuable partners, markets and investors. For decades, the target of reference for Asia’s leading economies was the West. The FTAs couldn't have come at a more ironic time. Now China is about the ma…

China Moving To The Big Stage

Jan. 9 (Bloomberg) -- China took a “big step” toward opening its capital markets by approving stock index futures, paving the way for increased investment in the world’s fastest- growing major economy.

The China Securities Regulatory Commission said yesterday it may take three months to complete preparations for index futures, agreements to buy or sell an index at a preset value on an agreed date. The government also approved margin trading and short selling, when investors seek to profit from declines in shares, according to a commission statement on its Web site.

“They’re taking a big step forward in developing their capital markets and allowing people to express their positive and negative views on stocks,” Invesco said in a statement. Invesco, which invests in China as part of its Asia Pacific business that had $26.8 billion of assets as of Sept. 30. “You’ll have more people participate in the market and thus greater efficiency.”

Increased investment in Chinese equities may help nar…

What Could Endanger The Markets In 2010

What could cause problems in 2010, these are all IFs. Pays to keep track. If Bernanke gets itchy and push down 10-year US Treasury yields again, that could put more oomph to the already excessive liquidity in the system. Bernanke could be scared into doing so if jobless numbers do not show signs of improvement. The funds will try to play the liquidity game yet again, piling into crude oil, gold and this could really create a swift liquidity bubble again.

Japan is the best bet for calamity in 2010. Things may suddenly turn focus on their huge fiscal measures and their imbalances with respect to their public debt. Already the public debt is at a staggering 225 per cent of GDP. What could start the cascade is a big dip in the value of the yen, which may require stabilisation by raising interest rates. Any kind of rates rise will push debt service costs up the roof. The country will flip from deflation to early bouts of hyperinflation. The yen may crash to 130 yen to the dollar ... whi…

This Is Really Funny Stuff!!! Kudos To Zach Galifianakis

"Funny or Die" is a web comedy portal launched by Will Ferrell and Adam McKay. Its been getting good viewership thanks to some of its "exclusive" content. As the founders know a lot of people in the comedy business, they have no problem getting many of them to put their stuff up or even create original content for the site.

The funniest stuff is a series of interviews conducted by Zach Galifianakis. In the sketch-talk show, he is the self-absorbed, politically incorrect, with deviant sexual fantasies, awkward, insensitive and rude talk-show host. The guests he interviewed were smashing as well, basically they too have to act brilliantly as "themselves on a talk show". The end result: magic.

Those who are easily offended, go to another site now.

Zach interviews Michael Cera (from Superbad and Juno):…

Wait For It - Shaolin Temple IPO!!!???

Its started out as a media scoop when some of the international media agencies started reporting of an IPO by Shaolin Temple.

HONG KONG, Dec 31 (Reuters) - China's fabled Shaolin Temple, the birthplace of kung fu immortalised in countless martial arts films, may help drive home a Hong Kong IPO soon. The government of Dengfeng -- home to a mainstay of kung fu films for decades -- plans to float shares in local tourism assets ranging from hotels to a cable-car service, many of which thrive on the monastery's fame, the South China Morning Post reported on Monday. But the monastery itself -- known in the West as the training ground for David Carradine's character Kwai Chang Caine, or "grasshopper", in the 1970s hit television series "Kung Fu" -- doesn't plan a listing in the short term for fear of besmirching its reputation, the newspaper said. "To become involved in such a highly risky business is against the spirit of Buddha," abbot Shi Yon…

Asset Class Returns As At 31 December 2009

REITs have continued to climb, a sure sign of sustained bottom fishing, which may explain the still subdued recovery in real estate in the US. This kind of sustained bottom fishing is important as it will enable funds to tap new investors or old ones to put in fresh capital to take advantage of a recovering sector. As in any recovery, you need to see fresh capital re-emerging. Uptrend boosts confidence, and a bit of confidence is a lot more powerful than a spreadsheet or power point presentation.

Emerging markets equity closed off the year very well. Developed markets equity continue to suffer from a perception of delayed recovery, and subsequently a lack of fresh funds flowing into those markets. What was surprising, or not really, was the sell off in US bonds and emerging market bonds. This is a strong indicator - it shows that risk aversion has continued to ease, and more importantly investors are preparing funds to obtain higher returns in the first quarter of 2010 (i.e. equity).