Thursday, March 31, 2011

Takeaways From Major Oil and Gas Seminar

For the majority of investors, we are usually not privy to some of the more important "investor meetings". There was a major event a few days ago which may explain a lot what is happening in the days and weeks ahead. (Taken from CIMB research summary).

Spotlight on asset ownership & marginal fields

Asset ownership and marginal field development were the main industry takeaways from our recent Malaysia Oil & Gas Day
1) Asset ownership: More companies are scouting for assets to achieve sustainable earnings growth. Among the six featured companies, Perisai (PPT MK, Outperform) is the most aggressive with its asset base expansion.
2) Marginal field development: SapuraCrest (SCRES MK, Outperform) and Kencana (KEPB MK, Outperform) are ahead of the pack but other service providers, including Dialog (DLG MK, Outperform) and Petra Energy (PENB MK, Not Rated), are catching up.

We remain OVERWEIGHT on the oil & gas sector, with the potential re-rating catalysts being the Economic Transformation Programme (ETP) newsflow and more contract awards. Our top pick is SapuraCrest.

CIMB Malaysia Oil & Day 2011

Our Malaysia Oil & Gas Day conference on Tuesday was as well-received as our inaugural event in 2008. Some 90 fund managers and buy-side analysts attended the conference, indicating healthy interest in the sector generated by the high oil price environment and the sector’s prominence in the ETP.

Asset ownership

An increasing number of Malaysian companies are going into asset ownership, breaking away from low-margin services and volatile project-basis type of operations. This demonstrates the companies’ commitment to consistent and sustainable earnings growth where there is less chance of margins being compromised or order books going through a prolonged dry spell. During the company presentations, we learned about the race for bigger fleets of pipelay barges and drilling rigs as the demand for these assets is intensifying. In the marine support segment where there is an oversupply of 5,000 AHTS vessels, companies are now eyeing workboats and

Figure 1: Featured companies / Company Representatives

Chew Eng Kar - Director, Corporate serv ices
Ngau Sue Chin - Manager, Corporate finance

Zainol Izzet Mohamed Ishak - Managing director
Yeo Peck Chin - CFO

Petra Energy
Kamarul Baharin Albakri – Ex ecutiv e director & CEO
Ahmadi Yusoff – Ex ecutiv e director
Chung Chee Onn – Financial controller
T. Thiruchelvam – Manager, Group corporate communications
Alicia Ann – Senior ex ecutiv e, Group corporate communications

Petra Perdana
Shamsul Saad - Managing director
Dato' Henry Kho - Ex ecutiv e director
Francis Koh - Ex ecutiv e director
Soon Fook Kian - GM, Corporate finance
Abdul Ghani Hamat - Senior manager, Corporate affairs

Petronas Dagangan
Rozaini Mohd Sani - GM, Finance
Ahmad Kushaini Ramli - Senior Manager, Strategic Planning
Mohd Zaki M Isa – Senior Manager, Financial & Management
Muhammadiah Muhammad - Manager, Strategic Planning
Nur Asy irin Ibrahim - Business Analy st, Strategic Planning

Rohaizad Darus - CEO
Zulkifli Abd Rani - COO
Azmi Arshad - CFO
Aliza Ashari - Deputy CFO
Sazly na Sapiee - Financial controller
Datuk Kris Azman Abdullah - Ex ecutiv e director (Sapura Group)
Chow Mei Mei - Ex ecutiv e director (Sapura Group)
Azlan Asidin - Ex ecutiv e director (Sapura Group)
Sy ed Hasan Alsagoff - CFO (Sapura Group)

- Perisai’s asset base is undergoing radical improvement. The company started FY11 with only one revenue-generating asset, namely pipelay barge Enterprise 3 (E3). However, going by the corporate exercises in 1Q alone, it will end the year with 10 assets, namely the E3, Intan’s eight vessels (two AHT vessels, three AHTS vessels and three crew boats) and Garuda’s jack-up rig, Rubicone, which is being converted into a mobile offshore production unit (MOPU).

- In Feb 11, Petra Energy, which is 29.6% owned by Petra Perdana (PETR MK, Underperform), indicated that it may raise funds via the capital market but did not mention the type of the fundraising and the timeline. At our event, management disclosed that the fundraising could involve a rights issue to finance the expansion its current fleet, which consists of three workbarges and two workboats.

- Petra Perdana currently has 25 vessels. In Jun 11, the company will accept delivery of a 300-men workbarge, Petra Odyssey, which has yet to land a contract. One of the company’s newer vessels, Petra Superior, which is also a 300-men workbarge, has been booked for a Petronas Carigali job. Currently, workbarges can fetch charter rates of about US$20,000/day, lower than US$25,000/day a few years ago.

- SapuraCrest does not discount the possibility of adding another pipelay barge to its current fleet which consists of a deepwater barge Sapura3000 and shallow-water barges LTS3000 and Quippo Prakash. The new barge could come in handy if the company succeeds in its bid for a Petrobras contract that requires the deployment of a pipelay barge. Management did not specify if the fourth barge will be a deepwater barge or a shallow-water one. For the drilling business, management stressed that a 6th rig is possible only if there is a contract. Currently, the 51:49 SapuraCrest-Seadrill JV owns five rigs.

- Debt-free Petronas Dagangan (PETD MK, Outperform) sits on a cash pile of RM1bn. Management is on the lookout for suitable assets for acquisition to strengthen its retail network, which goes beyond the petrol stations and includes bulk depots and bunkering facilities nationwide. We understand that Shell may exit East Malaysia’s LPG market where it is trailing behind Petronas Dagangan.

Marginal field development

The ETP projects that have been announced so far, i.e. marginal field development, Pengerang tank terminal and Tanjung Agas industrial park, have kept up the excitement level in the sector. The project that has created the most buzz among the service providers and investors alike is marginal field development, which gives players such as SapuraCrest and Kencana a shot at moving up the value chain from service providers to developers and producers. At the event, SapuraCrest updated us on the Berantai contract and a few companies talked about their efforts to get a piece of the action in marginal field development.

• SapuraCrest has started on the transport & installation works required for the Berantai contract, helped by its in-house pipelay barges. Management indicated that some contribution from the contract is expected to be booked in 2HFY1/12. To recap, on 31 Jan 11, a consortium comprising Petrofac (50%), SapuraCrest (25%) and Kencana (25%) secured the 9-year, US$800m Berantai marginal field contract. SapuraCrest is in charge of the transport & installation portion of the works required under the contract. Kencana will undertake the engineering, procurement, construction and commissioning (EPCC) portion.

• Perisai’s RM210m Garuda acquisition will give the company access to a MOPU. The new asset will help position the company to offer solutions for marginal field development. With the MOPU to be delivered in 2H11 and a Petronas licence clinched in late Feb 11, Perisai is strategically placed to bid for marginal field projects.

• Petra Energy also aims to become a marginal field partner over the long term. The rights issue it is mulling over may be the first step in that direction. The company said that the proceeds will be used to enhance its financial capability and support Petronas’s initiatives.

Current Prices / Target Prices

Dialog 2.31 / 2.67
Kencana 2.61 / 3.40
Perisai 0.88 / 1.40
Sapura Crest 3.69 / 5.12
Wah Seong 2.09 / 2.50
Petra Perdana 1.09 / 0.87

Wednesday, March 30, 2011

Petra Perdana Looked Very Interesting

Sometimes when your fundamentals are not so rosy, you can still be attractive provided you are in the right sector. Petra Perdana (7108) is such a counter. The share desperately needs a strong and influential shareholder, and the pick up in volume and share price over the past week looked very persuasive.

The bad parts: Petra Perdana reported a RM70.3m core net loss for FY10 (vs RM13.7m core net profit in FY09) due to lower vessels utilisation, decrease in charter rates, higher mobilisation cost and increase in lease rental due to 7 new deliveries of vessels in 2010, impairment losses on receivables and impairment loss on property, plant and equipment. The company also reported a lower revenue (-57.9% yoy) because of the divestment of Petra Energy in December 2009. FY10 net loss of RM71.5m was steeper than market expectation of RM45.5m; core net loss of RM70.3m came in below our expectation of RM64.2m due to lower-than-expected contributions from Petra Energy arising from the cost overruns in its Kemang project.

In view of the anticipated increase in Malaysia and regional oil & gas exploration and production activities, the potential is strong that their vessel utilisation rates and charter rates are set to recover slowly in 2Q-3QFY11. 5 out of Petra’s 15 new vessels are currently bidding for contracts, while most of its 8 older vessels are currently on standby mode.

M&A opportunity and/or potential strategic tie-up with other oil & gas companies will lift investor interest in the stock and along with that a re-rating in its share price. Indications are very strong that there will be a new controlling shareholder soon. Its their strategic assets which will complement a much bigger boy in the industry.

Stock Data
Issued shares (m) 450.1
Mkt cap (RMm) 407.4
Avg daily vol - 6mth (m) 6.04
52-wk range (RM) 0.74 – 1.59
Est free float 77%
NTA per share (RM) 1.06
P/NTA (x) 0.85

Major Shareholders: (%)
Nam Cheong Dockyard 9.1
Lembaga Tabung Haji 9.2
Amanah Saham Wawasan 2020 5.6
Koh Poh Wat 5.0

Looking for RM1.35 ...

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Gimme A Ninja Joe Anytime

OK, this is not such a big secret but has a very cult following. Its Ninja Joe Pork Burgers. They tasted better than stuff you even get in Macau or HK, seriously. But let's get the good stuff out first then the bad stuff.
.... Look at the picture above, how to go wrong: bacon, cheese and crisply fried pork chop!!!

I think they are in Tropicana Mall, Mid Valley, Sunway ... why the burgers are so good: its fried to a nice crisp on the outside and still very juicy on the inside. Actually, just plain is best or black pepper, although they have a multitude of sauces.

Its a Malaysian owned operation. Ninja Joe could easily be the next J & Co. or Yoshinoya BUT:
- the store decor is deplorable
- the bun could be a lot better
- decent slices of tomatoes / cucumber please
- the menu is too complicated
- why the mini burgers???
- too many silly sauces, know what is good and stock to it, don't try and give too many choices so as to hit many customers, it results in confusion
- your drinks menu tries to be exciting but fails, do you even know what you are trying to project??? you call yourself Ninja Joe, do the drinks reflect that??? its all over the place

Ninja Joe

If you know what you do best, stick to it. I think you can franchise it even if you just have ONE product. If you are the owner and you want someone who knows their way to establish proper food franchisors and product branding and management or you want to sell the whole thing, please drop me an email.

Despite all the misgivings, the pork burger is still too damn good to ignore. Have one then tell me.

Tuesday, March 29, 2011

Dilbert@Malaysia by SDali, A Compilation

Dilbert's Mashup Top Bar
Dilbert's Mashup Top Bar
Dilbert's Mashup Top Bar
Dilbert's Mashup Top Bar
Dilbert's Mashup Top Bar

Dilbert's Mashup Top Bar

Launch Day For The Solianos' Pusaka - A Biased Review

Today is important to The Solianos and Leslie Loh, we are all so excited to want all Malaysians to listen to the album. Its not about making money or anything superficial, its because we think we have more than just an album. Its an immediate must-have, a classic ... I can say that confidently.

I am not in the music industry even though I have a role as Executive Producer - its a long story but I am so glad to be involved in some minor way for the creation of the album. The launch has been greeted by willing participants once we told them what we were doing. The launch will be emceed by Mahadzhir Lokman. The guest list is nothing short of stunning. We are expecting a strong crowd of close to 300 people, some of whom include Pak Lah (who will officially launch the album) and his wife Jeanne, Ahmad Merican (the composer of Tanah Pusaka), Yong Ming San (The Star's chairman) and many CEOs from various big corporations and many many friends and relatives of the soliano.

My very biased review: quality of recording, excellent audiophile quality, the sound is so clear, the bass, the voices, you just want to play it louder and louder. Mahadzhir Lokaman's intros to four of the songs were apt and tells a wonderful background to the significance of it all.

Mulanya Di Sini - Breathing beautiful harmonies into the classic and chosen as well to signify the start of their new journey as recording artistes. The horns kept pumping and charging the song along with gusto, bringing a Latin feel to the number.
Tudung Periuk - Who dares to record Tudung Periuk? Every Malaysian knows how to hum the song. Hearing The Solianos play this live was what started this all off. You never knew that this song could sound soooo good. 7 parts harmonies people, I think this song took the longest to record, makes your hair stand as they say.
Kasih Sayang - A wonderful jazzy composition by the late Alfonso Soliano. Beautifully sung by isabella and Irene.
Tanah Pusaka - Those of us in their 30s-50s would remember this "national patriotic song" but you won't believe the jazzed up version. Its full of joy, even a bit of doo-wap and bebop. Its melodic and the tempo hooks you up instantly.
Gadis Idamanku - Most Malaysians loved this song, possibly the most popular song composed by Alfonso. Loved this version, delivered with the assuredness of knowing thats how Alfonso would have wanted it sung and harmonised. Highlight number one. Many would just buy the album for this one song.
Getaran Jiwa - To be honest I twitched when they wanted to do this song, as many have done this to death. But I was wrong, this was punched full with wafting melodic harmonies left right and center, and Tricia's solo was like warm honey melting on butter.
Di Bawah Sinar Bulan Purnama - This will take people off guard. The more you listen to it, the more hooked you get. Its country blues, haunting, melodic and sooo intoxicating.
Widuri - Again, another song that I thought they should not do. Well, Ador arranged it in an almost big band attacking the melody lines, which brought new fervour to this tune. Plenty of room for their harmonies to shine here. Pretty good.
Airmata Berderai - Surprisingly, this IS MY FAVOURITE TRACK. What a heart tilting composition by Alfonso. Just the piano carressing the song and Isabella singing holding back tears all the while. I dare anyone not to have tears in their eyes when they listen to this timeless melody, heart wrenching lyrics, made for anyone who have lost someone dear to their lives. Reflective, personal and oh so mesmerising.

There, how more biased a review can you get. If you wish to get an early copy of the CD come today between 6pm-7pm, Bentley Studios, The Curve or else wait till April 11th when they hit the stores. Or you can come to the Glorious Years concert on April 9th to get The Solianos CD which I am sure will be sold then as well.

Monday, March 28, 2011

Dividend Yield Stocks, Strong and Weak Ones

The Edge did a good summary of decent dividend yield stocks, usually smallish companies, which include Uchi Tec, Panamy, Wellcall, NCB, PowerRoot, White Horse, NTPM, LTKM, UAC and DXN. These shares tend to be fairly consistent and pays out high dividend, prompting their average dividend yield to be in the vicinity of 5%-9%, a very attractive level considering the deposit rates.

Of course there are those long term dividend yield stocks like Nestle and Guinness. These are pure dividend plays as the controlling shareholder is another much bigger company elsewhere. Research and development reinvestment are done at HQ, so they are another kettle of fish.

Part of the issue I have here with high paying dividend smallish stocks is that they are usually owner operated. Most did well to bring the business up to a certain level, after that they just stick around because they own the company. Entrepreneurs may NOT all be excellent professional managers. Being really smart is to know how to take the company to the next level. The key is to hire people smarter than you. Many are just blinded with the ego part. Mah Sing is a great example of hiring well, so too is CIMB. They have this rubbish connection with wanting control. Why would you want 50% of a stagnating company when you can have 30% of a company that is multiplying in value? Herein lies in many small companies not willing to use debt/new shares issuance / warrant bonds to invest strategically to move to the next level. Organic can only get you so far, and usually ends up in mush and foilage.

I am all for good dividends, provided its sustainable and after sufficient reinvestment. These businesses are usually providing strong positive cash flow. The controlling shareholder does not want to sell down their stakes, so what better way than to pay out good dividends.

However, there are pitfalls and traps with high dividend stocks as well. This is particularly so when we are talking of small or young companies (less than 10 years). Go through each one and you will find that some things may not be as wonderful as they seem:

Hanis Zalikha

a) Management's compensation - Owing to good cash flow, steadily growing profits, some management (who are also controlling shareholders) may tend to overpay, at times way over pay themselves for the size of the businesses they are running. There are no hard and fast rules, but a CEO for a company that is between RM100m-300m in market cap and/or generating RM30m-50m in net profits should be paid between RM500,000 to RM1,000,000. Anything more than that is unacceptable. What's worse is when there are two or three EDs on board and each may be on RM800,000 x 3 = RM2.4m. It says a lot about how management view their worth in the company and how they are actually managing it. I am all for setting good growth stretch targets and rewarding accordingly, but not when they get a fat salary package for doing nothing much, especially for businesses that are almost self running.

b) Reinvestment - Some companies make RM40m and declare RM35m as dividends. Are they so confident that their businesses are already so solid that there won't be fresh competition around the corner, or that their products will always be in demand. All products need to improve, efficiencies need to be claimed every year either via cost or technological advancements. Failure to reinvest properly will surely doom the golden goose.

c) Next Level - If management is paying out high dividends, does that mean that they have done all they can. Isn't the business scalable? What about investing downstream or horizontal integration? Its scary when management thinks that this is it, no next level. I don't know about you, but stocks are for growth, capital growth. If I really just want dividend yields, there are plenty of REITs, now thats seriously for dividend yield seekers. I certainly expect more from good stocks, and you all should too.

So, you should really examine their business models and see whether it is naive to payout such high dividends.

Sunday, March 27, 2011

Relevance Of Slumdog Millionaire To Asia

Came across the DVD of Slumdog, rewatched it and still thought this was a brilliant movie. However I still remembered how many Asians were deriding the movie as exploitation or showing poverty porn. First and foremost, its a bloody good movie, pass me the papadams. Secondly people, its a movie. Thirdly, its fiction, although it was based on 'real events' and 'real people'.

Why is it that when a movie portrays disturbing images on the screen, there will be citizens and politicians yapping that its a dishonour, a disgrace, a slap in the face to national pride and/or to national dignity. People, its a MOVIE. The only kind of films that you may get offended if they portray your country or its people wrong is IF its a DOCUMENTARY - repeat after me, D-o-c-u-m-e-n-t-a-r-y, now go look it up in the dictionary. If its a documentary, its should be like a snapshot of history, go and refute it if it never happened or did not paint a full picture.

If its not a documentary, then its a movie, even if its based on real events, its still a movie. You may not agree with the story being told, but you cannot stop others from enjoying them. Asian nations have this huge bloody chip on their collective shoulders - every time a movie comes out that ruffled their senses, be it a swipe on some shoddy past history or capturing pockets of disenfranchised people/community or highlighting corruption and other bad behaviour of certain people, etc... Asians will protest that it paints its people, its country and/or its history in the wrong shade.

I mean c'mon... Zhang Zhiyi in Memoirs of A Geisha also got complaints??!! I agree when Japanese government totally whitewashed the Nanking Incident from their history books, that you should be angry, you should never alter history. Do you think any film makers will even dare do a picture about King Bhumibol of Thailand? If you do, you better never step foot in Thailand. If you asked me, I would like to make a movie about how Thailand basically negotiated with the Japanese, and sold their neighbours (Malaysia and Singapore) to the abattoirs when they allowed Japanese troops to cut through Thailand and into Malaysia and Singapore in exchange for the country not to be attacked by the Japanese - pragmatic yes, reprehensible, a bigger yes.

In the West, the most amount of protests will come after every religious movie. Doesn't matter if its Jesus or Moses, there will be people disagreeing. Disagree ok, go and rant and rave at home or to your friends, why take to the streets? By doing the latter you are trying to impose your your beliefs on others, the same way if you don't agree with gays and lesbians lifestyles, there is no need to go to the streets, if you don't agree to some being Buddhists, does it mean you go to the streets as well? You can argue your case but remember there is a line in presenting your case and stuffing things down other people's throat.

If Slumdog Millionaire was TOTALLY FICTITIOUS, i.e. these slums never did existed, I doubt very much it would have been such a big hit. Its the knowledge that these things are present even till today, its that gritty bit of reality that not many want to face up to, its the desperate lives of many that the rest wants to get out of their minds, its the hordes of begging children crowding you when you go to work every day - you want to desensitise yourself from the realities in order to carry on your daily lives. You cannot seriously be empathetic every day, every hour, every minute with the down-trodden, the poor, the sick, the broken... when they are around you all the time - its an open wound that no one wants to see and be commented on, look at the pus!

The detractors called Slumdog "poverty porn", c'mon... so if its Rambo then its "violence porn", if its a chick flick would it then be "romance porn"? Global audiences might be accustomed to thinking about India in terms of a country divided by extravagant wealth and dismal poverty, but Indians themselves still seem uncomfortable with that reflection. That seems to be the crux of the matter, Asians generally are not yet comfortable to see their surrounding, their people or history being portrayed in a not too flattering manner - misplaced pride or lack of self identity or lack of confidence in national identity or ...

If there were movies about the going-ons in Petaling Street or Jalan Tuanku Abdul Rahman after midnight, we should be OK with it, if there is a movie about police corruption or brutality in Malaysia, we should be OK with it ... but I rather want it to be called a documentary though!

Good movies will cause people to be entertained, great movies will cause people to reflect and remember. Slumdog should be the catalyst where the people responsible may finally do something to help eradicate or at least reduce the abysmal poverty in India. These slums cannot be allowed to exist in this day and age, its inhumane, our pets have better lifestyle. The slums are not just in India, its everywhere, in the Philippines, Thailand, Indonesia and even Malaysia. We should not close an eye to injustice, we need to uphold human dignity.

The scenes where children are maimed or blinded to be better beggars was a stark reminder to all Asians, because we all know its true and not just in India. There have been too many cases of kids being kidnapped by gangs, smuggled to another country and have their limbs amputated to be beggars - you know and I know its out there but to be forced to come to terms with it is not something we want to confront. The poverty in the movie is tainted with the infernal caste system and religious bigotry - both being huge issues in many countries. Be open, start to deal with it, open up people's minds about it - education and information.

Bollywood star Amitabh Bachchan said: “if SM projects India as a third-world, dirty, underbelly developing nation and causes pain and disgust among nationalists and patriots, let it be known that a murky underbelly exists and thrives even in the most developed nations.” Yes Ami baby, we all know that, its not just India, don't go nationalistic on people.

There is the chasm between a country’s self-perception and projection and any reasonable measure of its achievements - in particular China and India, both countries are proud and yet coming to terms with globalisation and being an economic force at the same time. Trying to find their feet amidst the global stage - be open, take a backseat to reflect and don't take things personally.

Many Bollywood filmakers derided Slumdog as pandering to Western curiosity - hey, to film the slums probably cost Danny Boyle very little, its right there, no artificial stage or backdrop, its there ... the bloody song and dance (which I loved) at the end of the movie probably cost a lot more than the all the filming done in the slums! Fact - around half of Mumbai's population live in slums and authorities in the state of Maharashtra have long been under pressure to improve conditions there.

The movie has a lot of relevance to Asia as a whole because this continent has more than its fair share of social injustice, plenty of disenfranchised groups, desperate poverty .... Slumdog is not just a movie about India.

That's the serious bit, back to the movie, its a bloody great movie. It has the underdog factor, gritty mini-stories within the movie. A truly great movie will make you feel empathetic with the main characters - Danny Boyle did a marvelous job, you feel for the characters, you know what they were thinking, what their priorities were, why they kept on going.

Yes its a bit about love but more than that, its about the triumph of the human spirit against adversity. In life, we all will face our fair share of adversity, some more than others, that's a given and a definite. How each of us respond to them, is still up in the air. As bad as things are in this world, God will give you the armory and grace to face them: "My grace is sufficient.

Saturday, March 26, 2011

US Home Prices To Fall Still

Gary Shilling is to be respected, he has a great read on housing market in the US and has been correct for more than 20 years. If its true, basically interest rates will be kept very low for an extended period, which is good for all stocks.


Last October, when everyone was jubilant about the housing "recovery," Gary Shilling of A. Gary Shilling & Co., predicted that house prices would fall another 20%.

In the five months since, house prices have resumed their decline.

In his most recent research note, Gary sticks by his "20%" decline prediction. We've included a summary and updated charts from his argument below.

Housing: Great Expectations vs. Reality

Last spring, many believed that not only was the housing collapse over but that a robust rebound was underway. Investors were crowding into foreclosed house sales and bidding up prices in California, often the bellwether state for new trends.

The tax credit of up to $8,000 for new homebuyers that expired in April spurred buyers and promised to kick-start housing activity nationwide. TheHomeAffordable Modification Program was trumpeted by the Administration to help 3 million to 4 million homeowners with underwater mortgages by paying lenders to reduce monthly payments to manageable size and then paying homeowners to continue to make those payments.

But then a funny—or not so funny—thing happened on the way to housing recovery...

Yes, with mortgage rates so low, houses look "cheap."

With low mortgage rates and collapsed house prices, the National Association of Realtors’ Housing Affordability Index has leaped to all-time highs.

But when you don't have a job, old measures of "affordability" no longer apply...

It’s also become clear that the NAR’s Housing Affordability Index in the earlier post-World War II years is not relevant to today’s conditions. Back then, unemployment rates were usually much lower than now and the current threats of layoffs, wage and benefit cuts and being forced into part-time jobs were almost nonexistent. Who ventures into homeownership if he doesn’t know the size of his next paycheck or even if he’ll have one?

Also, with almost a quarter of all homeowners with mortgages under water with their mortgage principals exceeding the value of their houses, many can’t sell their existing abodes even if they wanted to buy other houses.


Unemployment is declining, but job growth has hardly been robust

Mortgages delinquent 30 days, many of which will probably end in foreclosure, have risen lately. They peaked in the first quarter of 2009 at 3.77%, then fell to 3.31% at the end of 2009, but have since risen to 3.51%, according to Tom Lawler.

He goes on to observe that 30-day delinquencies are linked to initial claims for unemployment insurance, which fell last year but subsequently leveled off and are now rising. Also, the delinquencies are rising as weak borrowers with modified loans again miss payments. Fitch Rating believes that 65% to 75% of mortgages modified under HAMP will redefault within 12 months.

And the number of people unemployed per job opening is coming down, but it's still very high

And those who are unemployed have been unemployed for a very long time

True, there are some hopeful signs. The percent of mortgages past due has begun to fall...

And, last spring, thanks to the tax credit, sales of existing homes skyrocketed. Alas, the effect was temporary.

The revival of home sales early [last] year proved to have less follow- through after the tax credit expired in April than did the previous expiration last November.

Existing home sales subsequently fell to a new low, so the tax credits had only “borrowed” sales from future months with no lasting impact.

And since last year's happy uptick, prices have begun to fall again...

Most importantly, the number of houses for sale is still abnormally high... and house prices, like everything else, are a function of supply and demand.

As we’ve stated repeatedly in many, many past Insights, excess inventories are the mortal enemy ofhouse prices. And those excess inventories are huge.

Notice that, over time, new and existing inventories listed for sale have averaged about 2.5 million. So, we reason, that’s the normal working inventory level and anything over and above 2.5 million is excess.

At the peak of 5 million reached in October 2007, that excess was 2.5 million. It subsequently fell but with the recent jump, the total is 4.0 million, implying excess inventories of 1.5 million.


That’s a lot considering the average annual build of 1.5 million houses. So the inventories over and above normal working levels equals one year's average demand. But wait! There’s more!

As noted earlier, as foreclosures pick up with the ending of the mortgage modification-related moratorium on lender takeovers, “shadow” inventory will become visible as many of those bereaved of their abodes join friends and family.

Furthermore, if we take the Total Housing Inventory numbers published by the Census Bureau at face value—and Tom Lawler, a very careful housing analyst concludes that it takes more than the faith of a mustard seed to do so—there are a lot ofhousing units that are likely to be listed for sale as owners give up trying to wait out the housing bust.

Recently, my wife told me of a friend who finally listed her house for sale right after Labor Day and got nary a nibble in the following three weeks. Then she was further discouraged when two other similar houses in her neighborhood were listed.

And then there's the "shadow" inventory--including the still-massive number of foreclosures.

The Administration’s HAMP initiative, introduced in April 2009, has been a huge disappointment...

But while mortgage modifications were attempted, lenders and servicers were basically forced by the government to suspend foreclosures. Now, as that program unwinds, foreclosures will again jump. Ironically, foreclosure rates have moderated recently because lenders tightened their standards in mid-2008 when housing and mortgages were in free fall. In 2009, two-thirds of all FHA- guaranteed new loans were to borrowers with credit scores over 660, up from 45% in 2008.

Nevertheless, lenders have been loosening in recent months. In January, Fannie initiated a program that allows first-time homebuyers to put down $1,000 or 1% of the purchase price, whichever is greater. In the first half of this year, credit card companies sent out 84.8 million offers to American subprime borrowers, up from 43.7 million a year earlier. In the second quarter of this year, 8% of new car oans were to borrowers with the lowest rank of credit scores, up from 6.2% in the fourth quarter of 2009.

And bank-owned houses (more future inventory)

Already, Real Estate Owned by lenders due to foreclosures—perhaps the most hated term among bankers—is climbing. Estimatesare that a major share of the 7 million houses that have delinquent mortgages or are in some stage of foreclosure, as well as those yet to come, will be dumped on the market, adding to the already huge excessive inventory glut. Some 4.5 million loans are now in foreclosure or at least 90 days delinquent.

And the folks who aren't selling because prices are still weak

Between the first quarter of 2006, the peak of house sales, and the second quarter of this year, the number ofhousing units, net of teardowns, conversions to non-housing uses and other removals, rose 5.7 million.

Of that total, 1.1 million were added to the pool of vacant units listed for rent or sale, 2.8 million were occupied by new households and so on down the list. Of the 1.3 million increase in those Held Offthe Market, the 1.1 million rise in the “Other” category is the one of interest. This component has leaped from the earlier norm of about 2.6 million to 3.7 million in the second quarter.

This rapid rise, coinciding with the collapse in housing, suggests strongly that many of these houses are indeed shadow inventory, units withheld in hopes ofhigher prices but highly likely to emerge from the woodwork sooner or later.

If we assume that half the 1.1 million increase since the housing peak in the first quarter o f2006 are shadow inventory, the total excess jumps from 1.5 million to 2 million at present, and is likely to rise further.

So, the question is, how long will it take us to absorb all that excess inventory? Some analysts think 1-2 years. Gary Shilling thinks 4-5 years. Why? First because household formation is still lower than it was during the boom

Many believe that household formation and, therefore, demand for either owned or rented housing units is closely linked to population growth. A Beazer Homes official said recently that demographics would normally produce household growth of around 1.5 million a year.

But note that those trendless series are extremely volatile, ranging from a peak of almost 2.3 million at annual rates in the current cycle to less than 500,000 recently. Household formation is similarly volatile, not surprising since a household is defined as one or more people living in a separate dwelling unit and not in jail, college, an institution or an army barracks. So household formation is affected by the lust for house appreciation, income growth, employment prospects, family size, mortgage availability and all the other factors that determine the desirability of owning or renting.


The homeownership rate (percent of households that are homeowners) continues to decline, probably headling back to its long-term average.

Back in the salad days of 10% annual price appreciation, a homeowner and/or investor who put down 5% enjoyed a wonderful 200% return on his investment per year, neglecting taxes, interest and maintenance. But that hapless homeowner who bought at the peak lost all of his downpayment six times over as prices fell 30%.

No wonder that the homeowner rate, which spurted from its 64% norm to 69%, is now back to 66.9% in the second quarter and probably on its way back to 64%.

More people are choosing to live with their parents. As they lose their jobs and houses, many Americans are "doubling up"--moving in with friends and relatives. This further reduces demand for housing.

Of course, homeowners thrown out of their abodes by foreclosures can continue to be separate households
by renting houses and apartments, but many of those and other discouraged folks are shrinking
households—and adding to vacant housing units—by doubling up with family and friends.

The Census Bureau reports that in the last two years, multi-family households jumped 11.6% while total households rose a mere 0.6%. Those aged 25-34 living with parents—many of them “boomerang kids” who have returned home—increased by 8.4% to 5.5 million. Not surprising, 43% of those were below the poverty line of $11,161 for an individual.

And now everyone knows that house prices CAN actually fall, so they're no longer rushing to get in on the the most amazing investment ever.

Most of all, the NAR’s Housing Affordability Index is largely irrelevant today because in contrast with the earlier post-World War II years, prospective buyers know that house prices can, and do, fall.

Who wants to buy an expensive asset with a big mortgage that may be worth much less shortly? And the financial leverage created by a mortgage magnifies the risk tremendously. Someone who buys a house with 5% down sees their equity wiped out if the price falls only 5%. So the fall in house prices and mortgage rates, which have driven up the NAR’s measure of affordability, have been offset by stronger forces.

So, too, will any future increases in the affordability index in all likelihood. The Fed may embark on further purchases of mortgage securities, which could reduce mortgage rates further, but the central bank will probably only act in response to additional economic weakness that will discourage homebuyers. The further declines in house prices we foresee will make them cheaper, but also convinces prospective owners that they are even worse investments.

The rebound in house prices is also suspect and may have peaked out. Furthermore, both the previous decline and subsequent reversal probably overstate reality. Earlier, the many sales of foreclosed houses or by distressed homeowners tended to be lower-priced houses and, therefore, depressed average prices. The recent swoon in Los Angeles house prices compared with the early 1990s drop suggests this is true. Conversely, the recent rebound may be overstating reality since, as our good friend and great housing analyst Tom Lawler has noted, the homebuyer tax credit may have induced some to pay up to beat the deadline and to favor higher priced “traditional” house sales over “distressed” homes.

Tom also points out that the Case- Shiller price index for July, which showed increases in 13 of the 20 metro areas (not seasonally adjusted), was based on transactions from April to June and, therefore, included tax credit- related settlements in May and June. Also, seasonally-adjusted data reveals declines in 16 of 20 metro areas and a small 0.1% fall from June to July. Another Home Value Index compiled by Zillow reports that prices nationwide fell in July from June, the 49th consecutive monthly fall. That puts them down 24% from the May-June 2006 peak, similar to the 28% drop in the Case-Shiller index.

On a positive note, housing starts are still at a startlingly low level, which means less new inventory to absorb.

THE BOTTOM LINE: Gary Shilling thinks house prices probably have another 20% to fall.

This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%.

This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890.

We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.

Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline, but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders,whichwillfurtherdepress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.

Even prices in New York City have resumed their fall!

If house prices DO fall another 20%, a lot more homeowner equity will be wiped out. And that's not good news for banks. Or the economy. Or, for that matter, future house prices.

At that point, the remaining home equity of those with mortgages would be wiped out on average. That, in turn, would impair already-depressed consumer confidence and their willingness and ability to spend, to say nothing of residential construction.

In California, epicenter ofthe housing boom-bust, construction jobs dropped 43% from June 2006 to June of this year, compared to a 28% decline nationwide, and the unemployment rate in the Golden State jumped to 12.3% in June, far above the 9.5% rate nationally.

The essay was excerpted from the latest monthly research of Gary Shilling of A. Gary Shilling & Co.

Album Review By Hi-Fi Unlimited

March 26, 2011

A Tour-De-Force Pusaka

We (a couple of us with a few hifi dealers) just came back from a listening session at ML's house on his latest audiophile project: The Solianos "Pusaka"- remembering Alfonso Soliano.

One word sums up our feelings: Sensational.

Firstly, we would like to let you know that this recording is done at KL's most expensive studio in TTDI, The Ark Studios. It is the same studio used by Jacky Cheung and George Lam in their respective audiophile albums recently. You could detect the same tonal color and airiness, that is the hallmark of this famous studio, except that Pusaka's recording is way better than either Jacky's or George's. We seriously think that is because of ML's expertise here and no other reasons.

Secondly, this is most likely the first Malay audiophile album in the world and the first of its genre in Malaysia that is being mastered by Doug Sax, ML's favourite mastering guru from The Mastering Lab. Doug Sax also mastered JZ8, another best-selling album from Pop Pop Music.

What's can we say but to congratulate ML once again for the fantastic sound! The same Doug Sax's signature sound is evident in Pusaka too. It is very thick in the mids, very airy and analogue sounding, very musical and the best thing is, it yearns to be played loud and louder! The louder you play, the more sensational the sound gets, without a trace of breaking up or edginess or harshness. We notice the same trend in JZ8 recording too.

Doug sax is way better than Bernie Grundman in the areas of density (Cantonese is "Mutt Dou"), midrange seductiveness and sheer musicality. His mastering may not have the dynamism of Bernie but its winning edge is the musicality, which makes Pusaka such a gem to behold.

Musically, this is the most ambitious and most outrageous from ML's production to-date. It is not just jazz per se, it is Latin, Samba, Cuban, Bossa Nova, Swing... a testament to Arranger/Music Director and maestro Salvador Guerzo's superior musicianship. Salvador is the son-in-law of Alfonso Soliano, the daddy of the Soliano family and Jazz Giant to whom this album is dedicated to.

Salvador's arrangement is fascinating and a work of pure genius. He is probably the best arranger in this genre in Malaysia. He incorporates plenty of dramas and breath-taking attacks in his arrangement, making every song sounds like a roller-coaster of high-drama and excitement. Really, we haven't heard Freedom's "Mulanya Disini" (a pop hit in the 80s by Freedom led by the late Dato Seha) or Bob Tutupoly's "Widuri" (An Indonesian classic ballad ) being played like this! The Solianos totally turn the table upside down with Ador's amazing arrangement, leaving everyone of us breathless and totally in awe.

We haven't even mentioned the wonderful multi-part harmonies of the Solianos, which is another winning aspect of this album. Imagine you can pin-point 7 voices singing in different notes in the soundstage, how could you beat that? The 3 females vocalists, Isabella, Irene and Tricia are wonderfully soulful and yet having their own distinctive tonal signature. We love their voices to bits.

We wouldn't go on and spoil your pleasure in discovering this album. Suffice to say, this is an instant classic the way it should be.

Pop Pop Music has hit the bulls-eye again for the 2nd time, we are damn sure. This wave is gonna be bigger than 2V1G.

In fact, one of the dealers said this to ML at the end of the listening session: "The album's repertoire, arrangements and musical presentation are extraordinary impressive!".

It is about time we have a timeless audiophile classic by a Malaysian music label.

How To Buy The Solianos Album Early!

do you want to own a piece of history?
do you want to own the first vocal harmony album by a musical family who sings and plays the instruments?
do you want to own the first malay jazz audiophile album in the world?
do you want to own possibly the best-sounding malaysian album?
presenting to you "pusaka" from the most talented musical family in malaysia!

look at the glorious artwork of pusaka! this is our most elaborate and sophisticated inlay design to date, thanks to the immense talent of our graphic designer, manjii hwang!

manjii has spent weeks to do his research on how to present solianos in their most glorious state. his choice of colours is spot-on and photography from pacino wong (you studio) perfectly complements the artwork. so far, the feedback on the inlay design has been great.

there are two version of pusaka:

1) premium edition: wooden box, with a inlay booklet, velvet lining inside. limited to 1,000 copies only. retailing at RM69.90. this is a fully imported version.

2) normal edition: normal plastic jewel case, with just a cover sheet (no inlay). this is the economy edition. retailing at RM39.90. the cd is imported but packaging is done locally.

for those who want to buy at cd stores, stocks are estimated to hit the stores starting 11th of april, 2011!

important: please direct all email inquiries to

p/s failing all that, if you want to grab the CD before they reach the stores, go to Bentley Studios @ Mutiara Damansara, Tuesday March 29th (album launch) between 6pm-7pm.

Friday, March 25, 2011

Fresh Developments In Video Case

March 25, 2011
Mahti suspected that Shazryl (left) was acting out of spite for Anwar. — file pic
KUANG, March 25 — A retired policeman claimed today that Datuk Shazryl Eskay Abdullah had approached him to secure the services of ex-special action unit (UTK) officers, ostensibly for Monday’s screening of a sex video implicating Datuk Seri Anwar Ibrahim.

Mohamad Mahti Abdul Rahim, who was the late Tan Sri Megat Junid Megat Ayub’s bodyguard, said he had met the businessman last week.

“He asked me to help him find four former UTK officers. When he said it was to attack Datuk Seri Anwar, I told him I didn’t want to know anything at all,” he said.

Former Malacca chief minister Tan Sri Abdul Rahim Thamby Chik had admitted yesterday that Shazryl, Perkasa treasurer-general Datuk Shuib Lazim and himself were collectively the mysterious “Datuk T” behind the 21-minute sex video that was screened on Monday.

Mohamad Mahti, who had worked for the former domestic trade and consumer affairs minister for 18 years, said he did not want to be involved despite having known Shazryl since the 1990s.

“But now that all these accusations have happened, I feel I need to reveal the truth. Datuk Eskay is a Si Kitol,” he said, referring to the character in Malay history who betrayed the Sultan of Malacca to the Portuguese for his own benefit.

Anwar did not testify on Shazryl’s behalf in the latter’s RM20 million lawsuit.
Mohamad Mahti said that Shazryl had known Anwar since the latter was a minister in the 1990s.

He said that Shazryl was likely motivated by his anger at the opposition leader for not wanting to testify in a suit for an alleged RM20 million in commission he claimed was owed to him for securing the deal to build the “crooked bridge” from Singapore to Johor. “Whether this tape is real or not I don’t know, but this is a low and deceitful thing to do,” he said.

Mohamad Mahti said that he first met Shazryl when the latter was a physiotherapist for the Badminton Association of Malaysia (BAM) in the 1990s.

“Datuk Megat had a muscle tear and Shazryl was recommended to me, so I introduced him to Datuk Megat,” he explained.

“But when Datuk Megat had cancer and even when he passed away, Eskay never once visited him,” he said.

He said that Shazryl now operated five fertiliser factories in Thailand and had become close to Abdul Rahim because he was the chairman of the Rubber Industry Smallholders Development Authority (Risda) and Shuib because he was the father-in-law of Rural and Regional Development Minister Datuk Seri Shafie Apdal.

“He is also trying to get close to Felcra chairman Datuk Tajuddin Rahman so that he can secure deals to sell the fertiliser,” he said.

“I am available if the police or even the Malaysian Anti-Corruption Commission want to question me. If Eskay wants to sue me, go ahead. I have no worries,” he said.

He added that he was not being asked by anyone to make these claims, pointing out that “if I was paid, we would hold the press conference in an air-conditioned hotel.”

Mohamad Mahti was also a witness in Shazryl’s RM20 million suit, where he testified that Shazryl had received a letter from Megat Junid confirming the deal to build the RM460 million bridge, a project that has since been abandoned.

Shazryl and Abdul Rahim have been detained by police earlier today in relation to the sex video.

Anwar has denied that he is the man in the video, claiming that it is a political attack by Barisan Nasional.

The black-and-white video was allegedly taken on February 21 at a hotel room in Kuala Lumpur.

It begins with footage showing a man the trio claim to be Anwar, a woman with East Asian features and another unidentified man in the room.

The second part, recorded from four slightly different angles, showed the man receiving oral sex from the woman and then having sexual intercourse with her in several positions.