New Way To Look At Risk In Emerging Markets

As of the end of August, the MSCI Emerging Market Index have gained 48% year to date, while MSCI global equities have increased 18%. High global liquidity, improvements in risk appetite, falling core markets volatility (VIX), rebounding commodity prices and relatively stable emerging markets fundamentals in comparison to past episodes of crisis are behind the recovery. Moreover, EM countries' policy response to the crisis has been relatively aggressive, planting the seeds for a positive domestic demand story. However downside risks remain in place due to uncertainties about the shape of the global recovery, profit taking, revival of global risk aversion, and higher US Treasury yields. Moreover, corporates may post worse-than-expected earnings reports as Q2's improvements were largely driven by cost-cutting efforts not by a recovery in demand. Since it reached bottom in November 2008, EM equity markets have jumped 81%.

In August, EM equities lost some steam (-0.8% m/m vs. +14.6% m/m in July), lead by a correction in Asia ex-Japan (-5.3% m/m vs. +17% m/m in July), while Latin America (+3% m/m vs. 11.3% m/m in July) and EMEA (+5.1% m/m vs. 11.7% m/m in July) showed less buoyant performances. Increasing concerns about the global recovery, in particular concerns that China's government will start slowing down credit extension and companies reporting worse-than-expected earnings, as well as profit taking and higher risk aversion, capped these markets. In the same month, world markets increased 4.4% m/m vs.8.8% m/m in July.


Outlook:

• August 3, 2009: According to Michael Wang, emerging markets strategist at Morgan Stanley: “Previously, emerging markets were seen as a geared play on developed markets because of their dependence on exports. But this is different. Asia and Latin America haven’t had the fundamental problems in the banking sector that the developed world has had, so lending and credit growth has resumed rapidly and this is helping drive growth.” However, Mr Wang pointed out that “There is the possibility of an incipient asset bubble, particularly with regard to China, but that is not our base case scenario, which is still for them to go higher”.
  
• July 27: "Research by Société Générale's cross asset team argues it is time to sell because the price-to-book value of emerging-market stocks is now higher than those in the developed world. The only other time this valuation measure was at a premium to that of the developed world was from mid-2006 to mid-2007. Emerging-market equities fell by two-thirds in the 12 months to the start of November 2008.
• July 13: July 13: According to Citigroup equity strategist Geoffrey Dennis and Jason Press “The correction in regional equity markets has reached the expected 10-15 percent range.” “Although the mood has turned sour on worries over the timing of economic recovery, there is little more downside from here and expect regional markets to break out to the upside again later this summer.”
  
• The MSCI Emerging Markets Index may climb to 985 by June 2010 from its closing price of 743.72 on June 18th, Jonathan Garner, Morgan Stanley’s chief Asian and emerging-market strategist, wrote in a research note. Profits will rebound 28 percent next year after a 15 percent slide in 2009, Garner wrote. That compares with his earlier forecast for a 20 percent gain in 2010 and a 25 percent drop this year.
  
• June 15: Deutsche Bank AG said that Latin American stocks may drop 15 percent this summer (2009) because of increased share sales in Brazil, weaker China bank lending and the unlikelihood of a rebound in the U.S. economy in the second quarter.
  
• June 2: The surge in emerging-market equities may last another six months (until the end of 2009) as faster economic growth in developing countries prompts investors to keep shifting out of lower-yielding assets. Emerging-market stocks may keep on gaining as investors shift some of the $3.8 trillion in money market funds into equities.

Regional Performance:

Asia (ex-Japan): Asian equities have outperformed mature markets in 2009 thanks to continuous foreign institutional investor (FII) inflows amid diminishing risk-aversion among global investors and relatively resilient macroeconomic fundamentals. Markets have gained 46% YTD as of August 31 (78% since October 2008) with India (68%) and Indonesia (75%) as the best performers, and China (39%) and Malaysia (36%) as the laggards. Sri-Lanka posted an exceptional 131% gain due to the end of the 26-year civil war, a $2.5-billion loan agreement with the International Monetary Fund and the government's positive stance on reforms and liberalization. Asian markets have recovered 54% of the losses incurred in 2008 (peak to trough, down 59%).

Latin America: Latin American equities has outperformed the other emerging markets regional indexes by rising 59% YTD to August 31 (99% since it hit bottom in November 2008), with strong performances in Brazil (71%) and Colombia (55%). The laggards are Argentina (41%) and Mexico (34%). Overall, LatAm equities market have recovered 46% of the 2008 crash (peak to trough, down 68%).

Eastern Europe, Middle East and Africa (EMEA): EMEA equities market have gone up 42% YTD to the end of August and 77% since it reached bottom in March 2009. Turkey (66%) and Russia (59%) lead the mark, while Morocco (-3%) and South Africa (16%) have underperformed. EMEA stock markets have recovered 39% of the sharp correction induced by the global crisis (peak to trough, down 66%)

Recent EM market Dynamics:

• Latin American stocks reached a new 2009 high while Brazil's currency rose to the highest level in a year on Tuesday, after the improvement of the country's ratings. Brazil's real strengthened 1% to 1.799 per dollar, which was its strongest since exactly a year ago. The Latin American stock index rose 1.02% to 3,643.10, and the broader emerging markets stock index added 1.27%.
  
• Stocks from developing-nation dropped 0.9% after trading at the highest level relative to profits since 2000, according the MSCI Emerging Markets Index. (Bloomberg, 09/21/09)
  
• August 31, 2009: Emerging market stocks fell sharply by the end of August on concern a slowdown in Chinese lending will curb growth in the world’s third-largest economy.
  
• August 13, 2009: August 12th: Emerging market stocks contracted the most this month after Chinese companies reported worse than expected earnings and Russia's economy contracted by a record amount, creating concerns about an economic recovery. The MSCI contracted 1.4%. On August 3rd the MSCI closed above 855.47 on for the first time since the collapse of Lehman Brothers in September, as speculations of an easing to the global recession were bolstered by a positive report on U.S. manufacturing and rising commodity prices. In Asia, stock indices were supported by better than expected earnings from energy producers due to higher oil prices.
• August 12, 2009: Emerging market stocks contracted the most this month after Chinese companies reported worse than expected earnings and Russia's economy contracted by a record amount, creating concerns about an economic recovery. The MSCI contracted 1.4%. (Bloomberg) August 6, 2009: "Moody's reiteration, on Wednesday, of Mexico's existing sovereign credit rating (Baa1), with a stable outlook, does not alter Citigroup's view that the risk of a ratings downgrade is a threat to Mexican equities later this year. Accordingly, the positive market action in response to the Moody’s announcement (including a rally in the peso through P$13.00/dollar) may be overdone."
  
• July 28: "I wouldn't want to encourage people to invest in China and India who have never invested before," cautioned Jim O'Neill, Goldman Sachs chief economist. "Wait for a correction."
• July 28: "Investors around the world have been pouring money into emerging-market stocks faster this year than at any other comparable time on record, despite strategists' fears of a bubble. They plowed a record $35.5 billion into emerging-market stock funds in the first half, according to funds-flow research firm EPFR Global, whose data go back to 1995. By contrast, investors withdrew $61 billion from developed-market stock funds over the same period, EPFR said."
  
• July 8:“Risk aversion levels have risen across the board,” said Nigel Rendell, a senior emerging-market strategist at RBC Capital Markets in London. “While sentiment is still uncertain, emerging markets generally will be weaker.”
  

I Kinda Like Marc Faber

Even though he is know as Dr. Doom, usually bearish, he does talk sense most of the time. He is best known for the Gloom Boom Doom newsletter. He was a managing director at Drexel Burnham Lambert Hong Kong from the beginning of 1978 until the firm's collapse in 1990. In 1990, he set up his own business, Marc Faber Limited. Faber now resides in Thailand, though he keeps a small office in Hong Kong. Faber's company, Marc Faber Limited, acts as an investment advisor company concentrating on value investments with tremendous upside often based on contrarian investment philosophies. Faber also invests and acts as a fund manager to private wealthy clients. Faber is a regular speaker on the investment circuit, often quoted in the financial press for his non-conformist viewpoint and alternative investment philosophies.

By WSJ Staff

Economic provocateur Marc Faber joined a chorus of commentators picking on Paul Krugman’s recent state-of-economics magazine article. Krugman “thinks it would be very good to have another bubble in the world and deal with it later on". Krugman, the columnist and Nobel prize winner, has advocated a strong government stimulus and big deficits to jumpstart the economy.
Faber, a Hong Kong-based investor and author of the Gloom, Doom & Boom report, suggested Krugman’s piece, entitled “How Did Economists Get it So Wrong,” missed the mark. There wasn’t “a single word about excessive credit growth” in Krugman’s article, he said. “He should have written ‘How did I get it so wrong?’”

Faber’s view is that the collapse was due to the massive increase in credit stoked by the Federal Reserve. The Fed and academic economists such as Krugman failed to acknowledge that the borrowing boom would create economic chaos, he said.

Faber was speaking at the CLSA Asia Pacific Markets investor conference in Hong Kong. (Probably as the counterbalance after listening to Sarah Palin speak at the same conference).

Faber, is, to put it mildly, a pessimist. “You can’t find anyone more negative about the world than I am,” he said. “But stocks can still go up,” thanks to continued printing of money. He actually expects stocks overall to rise around 7% a year over the next decade, though in places like the U.S., much of that return will be eroded by inflation, brought on by the increase in the money supply.

The last few years saw the world economy in a synchronized boom, and then bust, a rare thing in economic history. Going back 200 years, capital flowed to some sectors or geographic areas, stoking bubbles, yet other places saw deflation as capital fled.

This latest bubble was different. “You have to give credit to Bernanke and Greenspan. They have achieved something no central bankers have achieved in history. They created a bubble in everything…The only asset that went down from 2002 to 2007 was the U.S. dollar.”

There was one place he said that didn’t grow in the final years of the latest bubble. That was Zimbabwe, which suffered hyperinflation and economic collapse at the hands of dictator Robert Mugabe. The African country was “run by a money printer, Mugabe, a mentor of Bernanke,” Faber said. (That's a bit harsh, I think Bernanke did well, maybe he could have just lashed at Greenspan alone). The crowd chuckled.

Faber told the audience to put money in Asian equities and commodities. He said gold is important, but buy real gold, not derivatives, and keep the gold outside the U.S. The U.S. confiscated gold during the Great Depression, he noted. He, like Warren Buffett, Nouriel Roubini and others, thinks the dollar is destined to erode, though Faber said it could rebound over the next few months as signs of deflation stick around. “The dollar in the long run is a doomed currency,” he said. “This is the short of the century…The government’s policy is to make it worthless.”

p/s photo: Misha Omar

Jamie Dimon, Sandy Weill, John Reed

I am giddy, usually most of the business and finance books I read are just above average. I am only starting to sink my teeth into a pretty good one in The Partnership - The Making of Goldman Sachs by Charles Ellis (updated and revised version), and guess what, another very exciting sounding book on my "hero" Jamie Dimon is to be out soon. Fortune magazine has been featuring excerpts from the book, and its voyeuristic and exciting (if business and finance is your porn diet). I am often amazed at what transpires between bigwigs when they decide to merge mega companies. How much of it is due to placating egos? The Citigroup that we know of now was made up of the acquisitive Travelers, led by Sandy Weill but with Jamie Dimon bringing in much of the growth and consolidation towards the last few major pieces of acquisition, in other words, the top guy really at Travelers. John Reed did well but was at the end of his career and probably wanted to go out with a bang but without shouldering the responsibility of seeing the whole thing through. Juicy, juicy .... now Sandy Weill almost acknowledges that firing Jamie Dimon was his biggest mistake. Hell yeah...

NEW YORK (Fortune) -- .... from journalist Duff McDonald's new book, Last Man Standing, Fortune offers up the account of an embarrassing confrontation that led to Jamie Dimon's ouster from Citigroup by Sandy Weill.

--Editor's Note: This story contains profanity.

Citicorp CEO John Reed didn't quite know what he was in for when he agreed to a meeting with Sandy Weill in early 1998. He thought Weill was going to ask him to spend $25,000 on a table at a charity dinner, or something of that sort. Instead, Weill proposed a merger of equals between the Travelers Group and Citicorp, a combination of the two firms that would sit powerfully atop the financial world. He proposed sharing the leadership role as co-CEOs, and splitting the board 50/50 with directors from both companies.

Reed did not reject the idea out of hand, and the two companies' deal teams agreed to meet at the Travelers' Executive Conference Center in Armonk, New York on March 20 and 21. Over the next two days, the deal teams hashed out much of the conceptual framework for a merger, including a name -- Citigroup -- and a plan that the company would have three main divisions: the Corporate Investment Bank, the Consumer Business, and Asset Management. Given the regard in which executives from both sides held him, Jamie Dimon would be president of the parent company, beneath co-CEOs Weill and Reed. But that was just a corporate job. When it came to operations, Dimon quite reasonably assumed that he would be put in charge of running the corporate investment bank, the same job he had shared with Deryck Maughan at Salomon Smith Barney. Instead, Reed suggested (and Weill agreed to) a power-sharing arrangement in which Dimon, Maughan and Victor Menezes, Citicorp's head of commercial banking, would be co-CEOs. (Weill first suggested Dimon and Maughan. Then Reed suggested the three-way power-sharing arrangement, so as to not alienate the Citicorp crowd by putting two Travelers people in charge. )

This was bad enough for Dimon, but what he did not even consider, given his place on the boards of Travelers and its predecessor companies, was the possibility that he would not be on Citigroup's board. So he was shocked when in mid-March, as Weill went over details of the deal, that he informed his long-time lieutenant, "Jamie, you're not going to be on the new board."

Dimon protested, making the argument that he would be one of the only presidents of a major public company not on its board. In other words, it was an embarrassment, a snub. But Weill was resolute. "We've decided." Frustrated as Dimon was with what he saw as the unfairness of the situation, he somehow failed to grasp the larger implication of Weill's remark. Weill had begun to dismantle what had been corporate America's longest-running, best-known, and widely lauded succession plan.

Despite Weill trying to sweet-talk him into believing that the president title meant he was well positioned, Dimon saw the empty title for what it was. "I should have left the company at that point. You'd think by then I might have figured it out, but I didn't. I accepted that too, didn't I? Sandy knows exactly how far he can go. I loved the company. It was my family. I couldn't leave them. But Sandy doesn't always think about just right or wrong; he thinks about his options down the road. The board decision was the sign, and I should have known better. But look, you live and learn."

Dimon and Maughan, who had been openly hostile before the merger, were now engaged in full-scale warfare. Salomon was getting destroyed in the bond markets -- it was during that fall that the collapse of hedge fund Long-Term Capital Management had sent global capital markets into a tailspin -- and Dimon criticized Maughan at every turn. While Dimon quite likely assumed that he would eventually work his way through this predicament and reclaim his position as Weill's heir, he was definitely playing with a weaker hand than in years past. Sandy had other courtiers now, including Maughan and general counsel Chuck Prince, the company's future CEO. (Mary McDermott, Weill's longtime head of public relations, remembers Prince as "the quintessential ass-kisser" during this time.) Finally, Dimon's constant nay-saying also hurt him in Reed's eyes, especially considering the nonconfrontational ethos Reed had so meticulously installed at Citicorp. (Both Reed and Prince declined to comment).

On the weekend of October 24, 1998, the 15-year partnership between Jamie Dimon and Sandy Weill collapsed in a way that almost nobody saw coming. The occasion was a five-day retreat for 150 top executives and their spouses at The Greenbrier, the luxury resort in White Sulphur Springs, West Virginia. During presentations by various business heads, Weill recalls being struck by the difference between a polished Maughan presentation and an "incoherent" one by Dimon, including "a strange analogy with the Peloponnesian War." Weill felt that Dimon's apparent lack of preparation was insulting and that he seemed anything but "presidential" as a result. Dimon's memory about the quality of his presentation is hazy, but the suggestion that his career be judged on one presentation at an executive retreat rankles. "Maybe I didn't give a good presentation," he says. "But do you think it's acceptable to judge a 15-year career on one presentation?"

Then, during a black-tie ball on Saturday night, Dimon and his wife Judy sat with Salomon Smith Barney capital markets head Steve Black and his wife Debbie. In a gesture that could have moved things in another direction entirely, Black turned to Debbie and told her he was going to ask Maughan's wife, Va, to dance as a peace overture. The couple went over together to where the Maughans were dancing, and he politely cut in. Maughan, however, failed to return the gesture, leaving Black's wife standing alone on the dance floor. Embarrassed, Debbie Black began to cry.

As if that weren't sufficiently "high school", the situation quickly devolved further. After comforting his wife, Black lost his temper, marching over to Maughan -- who is not a small man, standing some 6'3" -- and seized him by the flesh of his arm. "You fucking asshole," he said. "You can do whatever you want with me, but if you ever do something like that to my wife again, I will drop you where you stand."

Expecting a fight, Black was surprised when Maughan simply turned and walked away. Black had momentarily forgotten who wore the pants in the Maughan family. Moments later, an enraged Va Maughan came steaming across the dance floor headed right for him. Sticking her finger in his chest, she said, "Don't you ever talk to my husband like that again. You can't talk to my husband like that."

At this point, Dimon tuned in. "What was that all about?" he asked Black after Va Maughan had retreated. After hearing Black's side of the story, Dimon himself became enraged, and went off to find Maughan. "Deryck," he said, when he tracked him down. "If you snubbed her by accident, explain it. If you did it on purpose, that's a whole different thing." Once again, Maughan responded by turning away, at which point Dimon grabbed him and spun him around, tearing a button from his jacket in the process. "Don't you ever turn your back on me while I'm talking!" he shouted. "You popped my button!" was all Maughan offered in reply. (Maughan declined to comment).

Nobody came out of the night's events looking good -- not Black, not Dimon, not Maughan. And all three paid a steep price. Maughan would be kicked upstairs at Citigroup; Black would resign. (Judy Dimon looks back on the entire weekend as a bit of an out-of-body experience, the kind of thing you can't bring yourself to believe is actually happening.)

Remarkably, Dimon failed to see that the incident had sealed his fate. On Friday evening, October 30, he sat in his office with his assistant Theresa Sweeney and asked her what changes she thought would come out of a Sunday management meeting in Armonk. It was his belief that the management structure would finally be adjusted to his advantage at the meeting. It never crossed his mind that his own ouster was in the works. He was so oblivious that he had invited 100 Salomon Smith Barney brokers over to his apartment at 1185 Park Avenue on Sunday for brunch. Then Weill called, asking him to come up to Armonk early.

In Armonk, Weill and Reed sat Dimon down in a small conference room. "We've done a lot of thinking about the organization...and John and I have decided to make the following changes," said Weill. "Deryck is going to move to a strategy job, Victor will take the Global Bank, and Mike Carpenter will run Salomon Smith Barney." That last one threw Dimon for a loop, as that was his job. But Weill wasn't quite done. "And...we want you to resign."

Dimon offered only a one-word reply: "Okay." Weill asked him if he wanted to know why. "Nope," replied Dimon. "I'm sure you thought it through." Reed was stunned. "Is that it?" he asked. "Well, yeah," replied Dimon. "You've obviously decided."

In February 1999, Dimon filed with the Securities & Exchange Commission to sell 800,000 shares of Citigroup worth some $42.5 million, thus formally severing his ties with Citigroup...and Weill. Dimon also severed ties with most people he considered Weill partisans. A year later, he moved to Chicago to head the struggling Bank One. In 2004, he returned in triumph to New York in a merger that made him the CEO and Chairman of JPMorgan Chase. And five years later, he is a titan of the banking world, one of the victors of the financial crisis.

For his part, Sandy Weill retired as chairman of Citigroup in 2006. A retirement party was held in the Egyptian Room at the Metropolitan Museum, and the guest list included former president Bill Clinton and Saudi Prince Alwaleed bin Talal. Dimon attended, but kept a low profile. Although a few dozen people spoke in tribute to Weill's lengthy career, Dimon was not among them. He wore a regular business suit to the black tie event, and though he did greet people beside Weill for a bit, he left before the party got going. "You know what they say about cars that have been in a wreck?" muses a former colleague about the relationship between two men. "You can send them to the body shop, but they're never going to be the same."

Today, if and when the two men do run into each other, things are civil, but no longer warm. The days when they'd plan on drinks once or twice a year are over. Still, enough time has passed that each will grudgingly admit that the other has traits worth praise. "Sandy wasn't a mentor in the traditional sense," Dimon recalls. "In the sense of people giving you advice and sitting you down. That's what most people mean. I got none of that. Sandy was much more sink or swim and he just shed people left and right who didn't meet his standards, but it wasn't really a mentoring thing. He had a tremendous work ethic, and he was always thinking about how the world was going to change. He was brave and bold. I learned a tremendous amount from him. To do the deals that we did? I look back at those and think, 'God, Sandy, you had guts.'"

In December 2008, in his corner office in the General Motors Building, Weill was subdued. The markets were in complete and utter turmoil, and Citigroup, the company he built, was on the verge of being broken apart. A few blocks away, Dimon presided over JPMorgan Chase, the bank widely considered the sole standout of the financial crisis. During the interview, Weill came close to admitting the biggest mistake of his career: firing Jamie Dimon. "I think I made a very bad decision on succession," he said. Today, he only has the highest compliments for his one-time protégé. "Jamie obviously has far fewer blind spots than most people in this business. He's outperformed most of them."

Part two of two parts excerpted from Last Man Standing: The Ascent of Jamie Dimon and JP Morgan Chase, by Duff McDonald, to be published by Simon & Schuster on October 6, 2009. © Duff McDonald

Purchasing Managers Index - More Impetus For This Rally

Since March, every time the markets rallied, you get a growing chorus of naysayers calling it a bear market rally. Why bear market rally - it implies that it is temporary, shortlived, ... and usually those who called that were cashed up or failed to go long. We are in the 5th or 6th month of a 'bear market rally', I think its time people just stop calling it that. Its a recovery rally. A bear market rally implies things in the real world may get a lot worse. Actually, the worst is already behind us, and that in itself is a big statement. While I think the worst is behind us, it does not mean all is rosy. We have turned a corner but there are still a lot of people unemployed, even if you find employment it may not be at the same pay as before. Then there is the constructive employment which is people staying in their jobs even amidst pay cuts or no raise for the past 12 months. The markets are not hot enough for people to jump ship or trade their jobs for another position. That in mind, people are not spending big, generally. However you see plenty of invetsors willing to plow into new properties, mainly for investments in Asia. That has more to do with the very low interest rates which many are attempting to lock in the low rates and hoping to flip for the 10%-20%. Cannot blame them.



Back to a bear market rally, it is good to keep hearing it because that means its not frothy as many are still sidelined. I think we are ok till year end and even 1Q2010 before we get a significant pullback, even then its will be in the region of 10% and not the hazardous 20%-30% type of correction. Below was a significant piece in piecing together the substantiveness of a recovery in the US. The purchasing managers index is a very important leading indicator and that is headed the right way.

At the beginning of each month, the focus of attention of most economists in the United States is the non-farm payroll report. However, for those looking to see whether the economy has turned around, last week's reports on purchasing managers' surveys may have provided the more significant data.

The non-farm payroll report from the Labor Department showed that employment continued to decline in August. Non-farm payroll employment fell by 216,000 while the unemployment rate rose to 9.7 percent from 9.4 percent in July.

Despite the continuing decline in employment, the rate of contraction has moderated. Employment had fallen by 276,000 in July and 463,000 in June.

Still, if you are looking for indications that the US economy has stopped contracting, the employment report is providing little of it.

Rather, clearer indications that the economy has turned around came last week from the Institute for Supply Manufacturing. Its survey of purchasing managers in manufacturing generated a PMI of 52.9 in August, up from 48.9 in July. This marks a return to expansion for the manufacturing sector.

Perhaps even more impressively, the new orders index jumped to 64.9 in August, the highest level since December 2004, from 55.3 in July, thus marking a second month of expansion.

The August survey of purchasing managers in the non-manufacturing sector produced a less optimistic picture. The non-manufacturing index came in at 48.4, below 50 and thus suggesting continued contraction, although it was an improvement over the July reading of 46.4.

However, some sub-indices for non-manufacturing are showing that the contraction may already be coming to an end. The business activity index jumped to 51.3 in August from 46.1 in July. The new orders index rose to 49.9 from 48.1.

The ISM purchasing managers' indices had been somewhat timely in signalling a turn in the cycle at the start of the recession. Back in December 2007, both the manufacturing PMI and new orders indices had fallen below 50 simultaneously for the first time in the cycle while both the non-manufacturing business activity and new orders indices were above 50 for the last time in the cycle. December 2007 turned out to be the peak of the cycle.

So the recent improvements in the ISM indices certainly bode well for the economy. They are probably among the indicators providing the clearest signals yet that the recession in the US has ended.

p/s photo: Noryn Aziz

Selamat Hari Raya To All Muslims

Maaf zahir dan batin ....

Should We Worry About The Chinese Banks

Thanks to the current financial combustion, many of the usual top banks have been cut at their knees. Many China banks have been elevated up the biggest bank ladder. The strong equity run up over the past 6 months in China has pushed their valuations even further ahead of the rest. But just how solid are the Chinese banks. We all know that many of these banks still have tons of "unsettled loans to state owned companies". Their recent aggressive bank lending, exhorted by Beijing, meant that their loan portfolio cannot be too pretty.

China's banks posted relatively flat profit growth in H1 2009 as new lending more than doubled. The surge in liquidity meant that non-performing loans decreased as a percentage of assets (mostly due to an increase in the denominator). Regulators have indicated that lending standards will tighten in H2, which along with the need to meet new capital adequacy requirements could eat into profits. However, a shift toward longer-term loans and and shift of savers into demand deposits may increase the net-interest margin for banks, which fell in H1 2009 due to lower interest rates.

• ICBC, the world's largest lender by market value, posted a 2.9% rise in profit for H1 2009 on a 17% jump in total assets, dramatically slower than the 57% profit growth posted in H1 2008. H1 profit rose to RMB66.42 billion (US$9.72 billion) as the bank issued RMB865 billion in new loans (up 19% y/y). Non-performing loans fell to 1.81% of assets from 2.29% at the end of 2008. The bank's net interest margin fell 70 basis points to 2.25% on lower interest rates.
• John Foley, BreakingViews: "For now, ICBC's balance sheet is iron-clad. Tangible common equity is a healthy 5% of total assets. Loans are 58% of deposits." But a tide of liquidity may just be refinancing risky commercial loans, pushing off problems for later.
• FT's Lex notes that the increase in equity prices encourages a shift from term to demand deposits which cost the banks less and could improve interest margins in Q3. Moreover the effects of higher capital adequacy ratios will not come until late in 2009 or more likely early in 2010.
• China's second largest bank by market value, China Construction Bank (CCB), profit fell 4.9% from H1 2008 to RMB55.8 billion in H1 2009. CCB reported RMB29.55 billion (US$4.33 billion) in net income for Q2. Net fees and income increased as the bank set aside 7.8% less in provisions for bad loans. Net interest margin narrowed to 2.46% from 3.29% on lower interest rates.
• Much of the decline in NPLs of ICBC and CCB was due to write-offs and a higher recovery rate. CCB’s coverage ratio grew to 150% in Q2 2009, meaning it is the first big bank to meet the new capital restrictions which will be implemented in 2010, a step that should reduce its costs in H2 2009.
• Bank of China (BoC), the third largest lender, reported a 2.5% drop in profits for H1 2009, though Q2 saw a 21.5% increase over Q1. Its net-interest margin was 2.04%, down 68 basis points from H1 2008, and its net interest income fell 8.3% to RMB74.7 billion (US$10.9 billion). BoC had the highest exposure to the U.S. housing market at the start of the crisis. The bank still held US$2.2 billion in U.S. subprime investments at the end of H1 and its impairment losses on subprime-related investments stood at US$4.67 billion (down from US$4.84 billion at end of Q1).
• China's banking regulator noted that 12 small and midsize commercial banks saw net profit fall an average 19% in H1 2009.

How Much will Non Performing Loans Increase?

• The increase in NPLs may come in mid to late 2010 given that they tend to peak 12-18 months after a credit boom. However, the revival in property markets and increase in mid to longer-term loans may limit the deterioration of assets.
• Fitch: Loan growth is driven by monetary policy that encourages banks to expand loan portfolios. Banks make up for lower loan margins with expanded loan volumes and an assumption that stimulus-related credit losses will be covered by the central and/or local government. The increase in corporate loan portfolios and credit expansion may threaten the medium-term outlook for Chinese banks.
• Higher NPLs/credit costs will be driven by lower collateral values, declining recoveries and higher NPL formation levels. The sector’s 2009 NPL ratio may rise 74bps to 3.0%.
• Net interest margin expansion, a lower tax rate and fee income helped boost earnings in H1 2008
• China plans to make it easier for banks to participate in M&A, as part of encouraging consolidation and taking steps to liberalize China’s financial system by allowing banks to be less affected by the government’s interest-rate policy.

p/s photos: Kelly Lin

Hari Ini Dalam Sejarah - Happy MALAYSIA DAY!

Tuan-tuan dan puan-puan, mari kita belajar sedikit tentang sejarah negara kita hari ini. From Wikipedia:

Malaysia Day is held on September 16 every year to commemorate the establishment of the Malaysia federation on the same date in 1963. It marked the joining together of Malaya, North Borneo, Sarawak and Singapore to form Malaysia. The formation of the new federation was planned to occur on June 1, 1963, but was later postponed to August 31, 1963, in order to coincide with the sixth Hari Merdeka. Several issues related to the Indonesian and the Filipino objection to the formation of Malaysia delayed the declaration to September 16 of the same year. The postponement was also done to allow the United Nations team time to conduct referendums in North Borneo (now Sabah) and Sarawak regarding the two states participation in a new federation.

The formation of Malaysia was made possible through the introduction of the Malaysia Bill to the Malayan Parliament on July 9, 1963, and consent from the King on August 29, 1963. Prior to the formation of Malaysia, Singapore and North Borneo unilaterally declared independence from the United Kingdom on August 31, 1963, thus coinciding with the sixth anniversary of the Malayan independence.

Malaysia Day is not a public holiday. However, it is coincidental with the birthday of the Yang di-Pertua of Sabah, making the day a public holiday in Sabah.

Some may say that September 16 is a lot more important than August 31 because that's when the current Malaysia was born. I tend to disagree because August 31 was the liberation from British rule, even though it was just the peninsula, to me that was the key to the entire history and make-up of Malaysia. Yes, we must celebrate September 16 as well, seriously ... September 16 is certainly more important than New Year's Day, Labour Day and Wesak Day. It should be a national public holiday for sure. Surely our government realise that without East Malaysia, the peninsula would have been totally governed by Pakatan Rakyat since the last election - oops... said too much...

Nazir Razak's Interview

Nazir Razak, in my view, one of the top 10 CEOs Malaysia has ever produced in the past 50 years, was awarded the prestigious Lifetime Achievement Award by FinanceAsia for his contribution to Asian banking and finance. What makes a good CEO? If you trace the history of CIMB and Bank Bumiputra, you will appreciate the fact that he has put in plans to move the group continuously up the value chain by creating innovative products, taking calculated risks, drive at a meticulous utilisation of capital and enforcing strict minimum returns on operations. The culture and mindset is very progressive, he convinced the board of the need to pay for top talent and to reward them greatly when they perform.

Critics will say that the group has nurtured strong ties with the government to be the first in line for first bite at any cherries - but they still had to nudge Maybank aside. Investment banking is not based on ties alone, you have to think "value-driven", "value-add" and persuasive strategic motives, and add to that a strong network of international banks to raise funds instantaneously when needed. Cultivating ties is highly essential in banking, you must have the ability to knock on the doors of Khazanah, EPF, PNB EPU, etc... but in the end, you must also deliver something of value. Can other banks do it? Well, many give up even before they started, just look at most of the local banks, they don't even have a decent investment banking unit, so don't go around to say Bank Bumi Commerce is a favoured animal because you all have not put up any decent team or has any inkling what investment banking is all about.

In terms of market cap, it has just pulled away from Public Bank and is now just a few billion ringgit away from overtaking Maybank. To me, Bank Bumi Commerce will be the country's biggest bank within a year and will continue to stretch the margin over its competition - why, because of "the path" it has set itself on. Some may quibble on the highish valuations, but that's a deserved premium when you consider the assets, its market positioning, the staff and "the path".

The next challenges on his plate:
- is to ensure their foreign acquisitions maintain that standard, execution ability and deliverables
- grow the branding, penetration and market acceptance in retail banking
- it has established a good lead in Islamic banking and finance, now is the time to leverage and extend that lead, esp in sukuk and shariah funds management
- cultivate to be a premier force in local property lending and refinancing markets
- work through a cohesive strategy with Khazanah, PNB and EPF to increase the free float of listed GLCs
- look deeply into securitisation, get the central banks in Malaysia and Indonesia to be on the same page
- further elevate the research standards with a view on timeliness, effectiveness, results-oriented and out-of-box thinking on strategic issues
- there is still enormous opportunity in structured put and call warrants, think not just the top 30 companies, but overseas majors and indices including commodities, forget about basket warrants (they are difficult to follow and value)
- look at being a substantive distributor and placement agent for major Asian IPOs from China and Indonesia in particular, start cultivating strong ties

Below was the insightful interview with FinanceAsia.

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What has been the key to CIMB's positive financial performance over the past year?
I think the performance has been pretty consistent with the rest of Malaysian banks. This is fairly surprising to some people, as we have a fairly large business involving capital markets and indeed we are the most active in the global financial markets. We were able to achieve this in part because in 2008, the turnaround of our consumer banking business actually came through and therefore that was able to offset the 35% decline that we saw in our capital markets business. At the same time, we took rather big steps with regard to our counterparty risk positions and also managed our liquidity very prudently and so this helped insulate the firm from many of the global shocks.

What was the most challenging decision you faced during that period?
Actually, the most challenging decision I faced was whether to proceed with the acquisitions we had embarked on during that period. If you looked around in the region and elsewhere at the time, people were reneging on deals left, right and centre. And there were times when some people thought that finance was going to fall off the cliff. So it was quite hairy as we had M$5 billion ($1.4 billion) worth of acquisitions on the plate. We had to look at it all very carefully, steady ourselves and believe in our view, which is that this is for the long term and we can still create value even though valuations were off, relatively speaking.

What was the original motivation behind the strategy of acquiring more banks and becoming a regional player?
In the early part of 2004 we were a liquid, Malaysian investment bank that had 30%-40% market share, and when we looked ahead we were wondering where to go to grow? So we decided we had to look around regionally. And then we made this rather dramatic acquisition of GK Goh. Then we started looking around even more in the region and quickly we realised we were not going to get very far without a bigger balance sheet. At the same time, I looked at the way accounting was going -- mark-to-market accounting, etcetera -- where accountants lost their prudence and basically decided to go with anything that smoothed out earnings. That made it very difficult to be a listed pure investment bank. And the third thing that came into play was a convergence of interests. The GRC [governance, risk management and compliance] reform in Malaysia was just beginning, and the new Khazanah [the investment holding arm of the government] mandate came into play -- they were encouraging companies to re-energise themselves [and merge]. So we had a sister bank, Bumiputra Commerce Bank, that was in dire straits. There was a convergence of interests. The holding company of BCB hired McKinsey and asked them what to do. And when they came to me and asked me what I thought, I said to them, 'Look, for the first time as consultants you are actually going to get a solution. This is the solution. We merge the investment bank and the commercial bank and I will run it.' In the past, there had been overtures for me to just cross over and go run the commercial bank but I thought that lacked scale. The best thing to do was to merge the two entities, to merge the people. And all that came together in 2005. From a larger perspective this was also about economies of scale. I think a commercial bank needs a regional-level scale. We feel the right position for us is to be between mindlessly global and hopelessly local. And I think we've found that position.

How difficult is it to manage the transition from being a Malaysian bank to a regional player?
In some ways it is actually easier for us. Think about it -- is it easier for me to go to Indonesia or for a global bank to go to Indonesia? And in terms of solutions that we offer, do I understand the requirements of say the development of a rupiah-bond market better than a global bank, given the Malaysian experience in the region? I do. You must also remember that when we go into these markets we try very hard to make sure that it is not just CIMB, but rather it is a combination of CIMB and a local franchise coming together. As a result, people see us as local. If you go to Indonesia they see us as the old Bank Niaga franchise plus CIMB. If you go to Thailand they see us as the old Bank Thai guys plus CIMB. And even in Singapore they see us as the old GK Goh franchise plus us. In a way, we want to be seen as a local brand.

I do remember when you were making some of those early acquisitions a lot of people said: 'This isn't going to work'. Were your investors among those critics or were they on board from the beginning?
They weren't all onboard. When the group first entered Indonesia in 2002 the stock got panned and we lost about 25% in value when we announced the acquisition of Bank Niaga. Keep in mind this was at a time when some people thought Indonesia was in bad shape. We were the first -- and only -- people who bid for Bank Niaga. At the time the feeling was: 'Why are you going into Indonesia? Do you know what you're getting into?' So on and so forth... But since then we have proven that we can do business in Indonesia, and indeed in general, that we can do business abroad. But you know we have been very careful about winning investor confidence. One of the things we do is that every time we do a transaction we take investors through, in quite a lot of detail, every step of what we plan to do and why we think this is a good transaction. We actually show the books and explain the synergies.

What's the importance of Asean as a region and how has that changed with China's growing economic and political power?
I think, in many respects, we are a microcosm of what Asean is all about. I think the individual Southeast Asian countries on their own will struggle unless they come together as an asset class and as an economy. I see a lot of upside, specifically with intra-Southeast Asian trade and travel, if we come together. So we have to come together from the external perspective, if you like, because when investors look across their options they need the size and potential of a 600 million population investment choice. And then you have China. Asean has a lot to offer in the new global landscape given our proximity and connections to China. And I think we are very comfortable with that point. When [Ming Dynasty admiral] Cheng Ho came to Malaysia he dropped off a princess for our royalty to marry in view of building relationships. When the Portuguese came we got invaded. We prefer the Chinese approach.

What is CIMB's strategy in China? I know you already have a presence there.
I think it's going to be very step-by-step. We see ourselves first as a regional bank, but you have to have some operations in China. We have to facilitate our companies that are investing in and doing business with China. And the ability to do that is strengthened when you have some presence in China. So our first step, is a very tentative step, it is a small investment in a bank in Yingkou [in Northern China]. First we will see how we do and then we will go back to our shareholders and let them know how we want to move forward longer-term.

There is a view that Malaysia is still overbanked. As banking sector libereralisation opens Asean markets to foreign rivals, how well placed is CIMB to compete?
We've seen different stages of liberalisation over the years. If you play it right, liberalisation is always an opportunity for stronger banks to become even stronger. When we were an investment bank we saw the liberalisation of that industry actually strengthened us, while the smaller, more marginal players struggled to survive. I think in [commercial] banking it won't be dissimilar, I don't disagree that we are overbanked. I don't know what the right number [of banks] is, perhaps five or six, rather than the nine today. For us, our strategy is to become very regional so I don't think we're going to play a big part in any consolidation.

How important, longer term, is investment banking to CIMB group?
You know we are very strong believers, despite what some people say today about the concept, in the universal banking model. I think there are very strong synergies between capital markets, treasury and retail. At the heart of the franchise is just this -- this model, which is very powerful. But it is very tough to manage. From the beginning I've always said it's all about the ability to manage both traders and tellers in one organisation. Can you get them to talk together and work together? In that regard, we think it is very important to be strong in both areas.

What has to happen, or at what point do you think you will have achieved your vision of CIMB?
In 1996 we had a clear vision of what we wanted to be. We announced a mission statement that we wanted to be the No. 1 investment bank in Malaysia. In many respects that was achieved and that is why we have had to move on. Now, that vision statement is to lead in regional universal banking in Southeast Asia. We are far from it. To be there, we would have to be really seen, in terms of earnings, in terms of customers' attitude, in terms of shareholder composition, as a truly regional bank. Today, yes, we have the best regional platform but we are still predominantly a Malaysian bank. The transformation will take several years, but it will happen. I am on the record as having said that by 2015 Indonesia will make up a bigger component of our business than Malaysia. But we also want to be seen -- be it by the international investor or the Thais or the Filipinos -- as a truly Southeast Asian franchise.

The global banks have been badly shaken by the financial crisis, but Asia's banks have been relatively unscathed. Was this a result of good luck or good judgment, or both?
I don't know whether you describe it as luck or judgment but a lot of it is because Malaysian banks and regulators learnt very hard lessons during the Asian financial crisis. I know some people say we caused this current crisis because we all started saving like hell -- but if you look at the way we are regulated we are all clearly operating based on a very strong memory of what happened. And today, I don't think a couple of weeks can go by without Bank Negara speaking to Bank of Thailand or Bank Indonesia about CIMB -- and I think years go by without the Fed speaking to the state regulators in Europe.

We have seen the consequences of poor oversight and regulation of the financial services industry in the developed market. What lessons do you think this current financial crisis presents for banking industry reform in Asia?
If the global financial crisis had happened say five years later, the damage in Asia would have been worse. I think it is for us, at the very least a sanity check. For the world, it is forcing a very hard look at finding out what is the right way of banking. But one of the difficulties is, we obviously have to agree on what were the causes of the crisis and move on from there. Yes, there were causes that were outside banking per se, but there has also been under-regulation of global banking. There has been the issue of globalised networks that are governed by a wide variety of domestic and local regulation. That doesn't work. But yet, can anyone really see a global regulator? How do we deal with this? But it's absolutely required that we do deal with this. If you look at the leverage or arbitrage that was going on, it was incredible. I can't for the life of me understand how banks were 50 to 60 times leveraged. But they were able to do it because they were regulated in one country and leveraged in other markets and their primary regulator didn't know about it and couldn't see it quite clearly. All this has to be dealt with, otherwise this crisis will happen again.


p/s photos: Marsha Milan Londoh

Buffett Made $1 Billion In Paper Profit From BYD

There are a lot of benefits when you are Warren Buffett, a lot more people want you to invest in their companies. Of course, you have to achieve a lot before you get to where Buffett is. It is true that when you have "made it" the money making will get a lot easier. To be fair to Buffett, he has a lot of bankers showing him deals or alerting him on interesting companies all the time. Plus he has the capital to do things immediately, I remember being shown deals that I thought would be more than decent but would have had to go around trying to convince people with money to invest in them - its a drag. By the time you line up some interest, there will be issues on how to get the commission and then who gets what and among how many people - its really a drag.

Back to BYD, it probably took a lot of foresight and guts to invests in BYD because no matter how good the battery is, there are plenty of competitors out there. The technology could be surpassed in the blink of an eye. Even when you have a great product, you still have the bigger hurdle of latching onto the genuine critical mass buyers, i.e. the Chinese government or any of the major automakers, bearing in mind that most of the carmakers also have been developing their own specialised battery product. Not an investment for the faint hearted.

Battery and electric car producer BYD Co plans to list itself on the Shenzhen Stock Exchange next year with a 100 million share issue to raise funds for its new energy vehicle projects, according to a senior company official.

The Hong Kong-listed company, partly owned by US billionaire Warren Buffet, got the necessary shareholder approval for the public float at the annual general meeting held in Shenzhen on Tuesday.

"We expect to complete the entire listing procedure before Sept 7 next year," Wang Jianjun, deputy general manager of BYD Auto Sales Co Ltd, told China Daily.

The company had last year toyed with the idea of a mainland public float of 58.5 million shares on the Shenzhen or Shanghai bourse. The present plan to raise funds is a revival of that proposal which was put on hold after China suspended IPO approvals for nearly a year due to the global financial crisis.Proceeds from the issue would mainly be used for funding the company's lithium-ion battery production, automobile research and development, expansion of products and parts, as well as a solar battery program, with the rest to be used for working capital needs, said Wang.

"BYD will focus on the development of electric cars in the next few years and would make further efforts to lower costs and improve the performance of BYD electric vehicles, to popularize it among Chinese consumers," he said.

BYD will also start selling its F3DM plug-in hybrid cars to individual consumers from next month.

The hybrid model also figures in the first batch of new-energy vehicles that have got regulatory approval for production and sale from the Ministry of Industry and Information Technology.

"We are applying for the government subsidy for our F3DM, which qualifies for the highest level of as much as 50,000 yuan per unit," said Wang. "The subsidy will help promote the sales of clean vehicles."

BYD's Chairman Wang Chuanfu said earlier this month that billionaire Buffett is contemplating increasing his 10 percent stake in the company. Buffett had acquired the 10 percent stake for $230 million last September.

Since the deal was announced, the automaker jumped fivefold in Hong Kong trading helped by Buffett's investment and rising demand for fuel-efficient vehicles. Buffett's Berkshire Hathaway Inc has also earned a $1 billion paper profit from its investment.

BYD aims to more than double vehicle sales this year to 400,000 units. First-half sales more than doubled to 176,814, helped by demand for the F3, China's fourth bestselling car, according to the China Association of Automobile Manufacturers.

Most Expensive Cars

World's Most Expensive Cars
What is the most expensive car in the world? The 1931 Bugatti Royale Kellner Coupe was sold for $8,700,000 in 1987. However, that car and many alike will not be included in this list because it is not available on the market today. It is hard to imagine someone would actually spend 8 million dollars on a car instead of using it for something more productive.


1. Bugatti Veyron $1,700,000. This is by far the most expensive street legal car available on the market today. It is the fastest accelerating car reaching 0-60 in 2.6 seconds. It claims to be the fastest car with a top speed of 253 mph+. However, the title for the fastest car goes to the SSC Ultimate Aero which exceed 253 mph pushing this car to 2nd place for the fastest car.


2. Lamborghini Reventon $1,600,000. The most powerful and the most expensive Lamborghini ever built is the second on the list. It takes 3.3 seconds to reach 60 mph and it has a top speed of 211 mph. Its rarity (limited to 20) and slick design are the reasons why it is so expensive and costly to own.


3. McLaren F1 $970,000. In 1994, the McLaren F1 was the fastest and most expensive car. Even though it was built 15 years ago, it has an unbelievable top speed of 240 mph and reaching 60 mph in 3.2 seconds. Even as of today, the McLaren F1 is still top on the list and it outperformed many other supercars.


4. Ferrari Enzo $670,000. The most known supercar ever built. The Enzo has a top speed of 217 mph and reaching 60 mph in 3.4 seconds. Only 400 units were produced and it is currently being sold for over $1,000,000 at auctions.


5. Pagani Zonda C12 F $667,321. Produced by a small independent company in Italy, the Pagani Zonda C12 F is the 5th fastest car in the world. It promises to delivery a top speed of 215 mph+ and it can reach 0-60 in 3.5 seconds.


6. SSC Ultimate Aero $654,400. Don't let the price tag fool you, the 6th most expensive car is actually the fastest street legal car in the world with a top speed of 257 mph+ and reaching 0-60 in 2.7 seconds. This baby cost nearly half as much as the Bugatti Veyron, yet has enough power to top the most expensive car in a speed race. It is estimated that only 25 of this exact model will ever be produced.


7. Saleen S7 Twin Turbo $555,000. The first true American production certified supercar, this cowboy is also rank 3rd for the fastest car in the world. It has a top speed of 248 mph+ and it can reach 0-60 in 3.2 seconds. If you are a true American patriot, you can be proud to show off this car.


8. Koenigsegg CCX $545,568. Swedish made, the Koenigsegg is fighting hard to become the fastest car in the world. Currently, it is the 4th fastest car in the world with a top speed of 245 mph+, the car manufacture Koenigsegg is not giving up and will continue to try and produce the fastest car. Good luck with that!


9. Mercedes Benz SLR McLaren Roadster $495,000. A GT supercar, the SLR McLaren is the fastest automatic transmission car in the world with a top speed of 206 mph+ and reaching 60 mph in 3.8 seconds. It is a luxurious convertible with a really powerful engine, which results in outstanding performances and style.


10. Porsche Carrera GT $440,000. A supercar with dynamic stability control and a top speed of 205 mph+ and it can reach 0-60 in 3.9 seconds. The Porsche Carrera GT applies the absolute calibers of a true racing car to offer an unprecedented driving feeling on the road.

Me Doggie At 4.5 Months Old

My doggie at 4.5 months old .... the bulldog has been mistook as an aggressive and unfriendly dog. That cannot be further from the truth. Their faces may have caused some opportunist to use their image as "warning guard dog signs" but they are actually incredibly friendly and loyal.

Marketocracy Portfolio Update - 10 September 2009

For the period ended 31 March 2009, my Marketocracy fund beat 97.8% of the participants. Thankfully, the record for the period ended 30 June 2009 saw my fund improving further to beat 99.5% of the participating funds.

On a year to date basis, the S&P 500 recorded a 16.48% return, while the Nasdaq secured 30.65% and the Dow notched a 8.78% return. My Marketocracy portfolio obtained a 69.36% return.

SMF	m100	S&P 500	DJIA	Nasdaq

Sigh... I should really get back to fund mgmt ... ok head hunters, email me at malaysiafinance@gmail.com

http://malaysiafinance.blogspot.com/2009/07/marketocracy-portfolio-updated.html

recent returns vs. major indexes
		MTD QTD YTD SMF 4.08% 12.73% 69.36% S&P 500 1.31% 12.91% 16.48% DOW 0.54% 13.02% 8.78% Nasdaq 2.55% 12.28% 30.65%

recent returns
		RETURNS Last Week 7.00% Last Month 4.12% Last 3 Months 4.13% Last 6 Months 87.67% Last 12 Months 36.33% Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception 22.04% (Annualized) 19.30% S&P500 RETURNS Last Week 3.92% Last Month 2.87% Last 3 Months 9.94% Last 6 Months 38.13% Last 12 Months -13.30% Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception -15.31% (Annualized) -13.69% RETURNS VS S&P500 Last Week 3.09% Last Month 1.25% Last 3 Months -5.81% Last 6 Months 49.54% Last 12 Months 49.63% Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception 37.35% (Annualized) 32.99%

alpha/beta vs. S&P500
		Alpha 39.70% Beta 1.19 R-Squared 0.81

turnover
		Last Month 19.34% Last 3 Months 98.41% Last 6 Months 306.59% Last 12 Months 375.59%

Symbol Price Shares Portion of Fund Inception Return BAC $17.04 4,000 5.58% 46.99% MGM $10.09 8,000 6.61% 49.73% ACTG $9.23 9,000 6.81% 44.69% BDD $12.29 5,000 5.03% 36.56% F $7.39 10,000 6.06% 25.02% QSII $57.18 1,500 7.03% 14.44% JEC $46.42 1,500 5.71% 11.05% KBW $29.74 4,500 10.97% 9.54% STAR $25.31 3,500 7.26% 5.92% PLD $11.32 8,118 7.53% 2.61% PHM $12.38 8,000 8.12% 0.72% LOW $21.72 3,500 6.23% -0.14% NYB $10.75 6,000 5.28% -1.88%