Simple Value Investor

Talk about bread or just stick to Breadtalk. Buy $0.56

2012-04-21T10:58:00.000-07:00

After a week of extremely boring market movement, I decided to make things even worse by going home early on a Friday night. Talk about being masochistic, I am every bit a masochist as I am an egoist. Haha. Believe me when I say it was only quiet on the markets front but on the current affairs side, we had such an uproar in Singapore on the list of sex offenders and this has provided plenty of talking points in a week that could put anyone to sleep.

This week lets have a casual post on some of my thoughts on the market. Every time earnings season starts, it reminds me how another quarter has passed by and suddenly we are closing quickly onto the month of May and almost half the year has gone by. Earnings have been strong coming from the banks which have all outperformed from the pick up in trading activities. Bellwethers have looked good so far. Microsoft, Mcdonalds, etc have all done well and the markets should be cheering right? Of course they should, but market's is also constrained by one particular stock which is ironic. What stock is that? Give it an educated guess. The answer is of course APPLE. Ironically, this has been the stock that pushed the S&P500 up strongly over the past 3-4 months. It also saved last quarter's earnings season by reporting out of this world results. However as this quarter's earnings announcement draws nearer, APPLE has fallen from its lofty perch of $630 to $578 as I am drafting this post.

Why would a stock like Apple stifle the upside of major indices? Well Apple accounts for close to 20% of the Nasdaq 100 and 4.5% of the S&P500. A weighting not seen by any company since 1999, when Microsoft Corp had a 4.9 percent weighting. Apple is the largest holding for many money managers, to say nothing of the billions of dollars in index funds of which Apple is a core holding. The question here is whether the strength in the other large cap stocks can mitigate any of the weakness in Apple. Now that the great Apple is showing some weakness with this current 10% drop, it is starting to look a little weak technically. The reason for this weakness? The company has probably run up to much too fast. Also an indicator of the possible end of Apple's solid end is the ludicrous expectations of analysts. We have seen crazy proclamations of $1000 stock price when the stock is currently trading at close to $600 per pop. This in my view is what we call complacency. When an analyst puts a target price on a stock at more than 60% upside from current levels is ludicrous but to put it at 60% upside after the stock has hit an all time high, that is just insanity. Bear in mind that Apple is already valued as the most valuable company in the world. Above Exxon and when a consumer electronics company is more valuable than the largest oil company in the world....what does that mean....? Remember when did gold make its turnaround? When analysts started predicting $2200-$3000 target price while the spot price was $1800.

French elections are over this weekend and the run off if any will be May 6. This is going to be an important event over this weekend because we are looking at the possibility of radical reforms should the front runner Francois Hollande come up tops. In my view, in the current situation we are in, it would be best if the incumbents win in their respective elections. Why? Because they will all be in their 2nd and final terms and that would mean that they do not need to think so much about their political careers going forward. There is not going to be a 3rd term, thus they will be able or even willing to make the necessary decisions to help the economies to get back on their feet. As I have mentioned many times, the problems the US and Eurozone are structural and they will need political leaders to make very tough decisions. If we have new leaders, they will be too caught up with the longevity of their political careers thus they will find it hard to make unpopular decisions. Who can blame them? Also they may make radical moves that may hurt the overall economy in the long run and cause market volatility in the short run.

The other day I was looking at a company which I always found interesting but did not understand enough. But now that I have looked at the company I am going to put my neck out that this is a company that has one hell of a future. At its helm, is a CEO whom I have nothing but utmost respect for. It all started when I graduated and came back more than 10 years ago. My friend asked me whether I had tried the latest sensation in Singapore, I was bemused as to what was the latest craze after the bubble tea debacle and she said.....pork floss bun. Have to be honest, when I heard that answer, I just thought that Singaporeans fascination with food had fallen to new depths after falling in love with bubble tea and now a pork floss bun? By now most of you should be able to guess which company I am talking about. Breadtalk the bakery sensation that took Singapore by storm more than 10 years ago is a company which I have been looking at it since IPO in 2003. From 2003 till present, Breadtalk has delivered more than 150% returns to shareholders so far and I believe it will continue to do well as long as the current management is in place. In the years, they have grown across 16 countries, with more than 400 boutique bakeries, 40 food atriums and restaurants, supported by global staff strength of 6000 employees. For those of you that think that Breadtalk is just a bakery company, think again. I believe in the company because of the vision of its founder of being a versatile food and beverage player. Under its stable of restaurant brands, they have Ding Tai Feng, Toast Box, Food Republic and Ramen Play and I would challenge anyone to try to get a seat in Ding Tai Feng during lunch or dinner. Good luck on that front. The company has not rested on its laurels and expanded to other restaurant concepts to try to diversify away concentration risks from its core bakery business. Most of the time when a company diversifies away from its core business, there are execution risks but if they do not veer too far away from their core capabilities, the risks are significantly lower. That is where Breadtalk has been so successful in their expansion into other businesses. Now they have started to dabble a little into retail space investing through their investment in Perennial Retail Trust's revamp of Katong 112. They have also bought into 10% of Chijmes with Perennial. Both are good acquisitions in my view. Currently, the company is generating a very nice S$45 million operating cash flow consistently on a yearly basis and they are putting the money to good use. That is what I love about companies that have consistent cash flows from operations, they can put the money to good use and grow the value of the company outside of their businesses. That is the same for all of us, investing our free cash into investments that deliver returns so that we can grow our wealth. For those that are depending on their work to add value to their wealth will have to work harder and longer. As for valuations, the company is not trading at a cheap valuation of 14 times p/e but I believe this is a good entry point as there has been a lot of selling by funds on this stock and the price is still holding up well. I believe that investors in this stock should try to be patient as this is one for the long term but it will be a steady path as long as the management remains intact. Key man risk is an issue but George Quek still looks pretty healthy to me. Thats all I have for this week. Have a great week ahead! Best, SVI

This week was about DBS doing national service. What are your thoughts?

2012-04-07T00:35:00.000-07:00

These days I have not had much time to post due to work and personal commitments. The lack of momentum is affecting my train of thought so why don't I just write whatever I feel like writing today. Be it about the markets, asset classes or even about life. Like I always tell my protege, I love thinking about life and how it really sucks. Haha. Just kidding. Lets get back to reality and maybe some of my passing thoughts or even sarcasm.

The past two weeks have been good for two of my favourite stocks. Auric pacific and QAF. Both of which are still strong buys on my list but I know many of you are too impatient to wait and like higher beta stocks. Over my investment career, I have always liked the under the radar kind of stocks to achieve my alpha and it has worked. So I beseech all of you to consider taking the patient approach to investing and you will see the returns. Be it over 2 - 3 years.

One stock that has moved weaker over the past two weeks has been Dukang which I can only attribute it to the fall in Baijiu prices in China over the past month. The mainland distillers have also suffered in terms of stock price performance so it should not be looked upon as a company specific move.

Was screening the for stocks in Japan recently and for those who know me will understand why I have been so bullish on Japan over the past two years. No thanks to the earthquake and ensuing nuclear fallout, the Japanese market recovery stalled. I believe barring any acts of god that we are on the way to a multi-year recovery in Japan and am looking to put some money there. Problem that I am facing is the weakness in the Yen. I do believe that it is a catch-22 situation because one of the key reasons that I am bullish on the Japanese market is the anticipation of a weaker Yen. Found a couple of stocks which made me interested but I am still trying hard to translate their info from Japanese. When i finally graduate from my Japanese classes I will tell you guys more.

IPOs are all coming back, with the explosive debut of Cordlife and now we are going to see Bumitama Agri make its highly anticipated debut. For me, when there is a flux of ipos coming to the market, it is a signal that a correction is coming. Ipos tend to come in when the market has a sustained rally and when it becomes overbought in the short term. Market volumes have also come down in March and early April. If you are looking to trade be wary, if looking to buy and hold, take this opportunity to buy.

In recent times, it has gotten tougher for me to find anything worth writing about because most of the good penny stocks in Singapore has been sieved out and it is getting harder to find undervalued gems. I am currently looking to accumulate more of the ones I picked so far and probably venture out to foreign markets. Suddenly, I am starting to sound more like Temasek, moving out of Singapore into foreign markets to establish a foothold. The main difference is that I will not have other vehicles for which I can hive off my assets at an attractive price to. For those following the news, will know what I am talking about.

Many of my clients who hold DBS in their stable of stocks have been asking me about what I think. Even the guy whom I play badminton with asked me whether it was a good move or not. For those who have been working with me will know that I have never been a fan of DBS for a very simple reason. Poor management....There is without a doubt that by valuation, DBS is very attractive compared to the other two banks but I would have to put a discount on its valuation for the fact that DBS is country owned and thus may not be thinking so much for its minority shareholders. Their track record for acquisitions has been as good as Whitney Houston's choices in life. Suicidal. That is why over the years whenever DBS is linked with any acquisitions, the stock always takes a hit. For me, this is a clear illustration on why top fund managers steer clear of state owned companies because they have to tend more to the state's interest than minority shareholders. Just ask Sinopec and Petrochina.

Right at this moment, DBS shareholders understand how K-Reit unit holders felt when Ocean Financial Center was bought by K-Reit from Keppel land. Talk about getting F*$ked up your butt. All I can say is, try not to touch companies with poor management record. Leopards will never shed their spots.

Now there are talks on the European crisis rearing its ugly head once again and this time they are talking about Spain once again. The yields are no doubt moving higher at this moment but the speed of the rise and the levels are no where close to what we saw in August last year. The market is not silly and it understands that the Euro crisis is not even close to being solved. The problems underlying are structural and it will take time to solve. This is exactly what the ECB bought with their Long Term Refinancing Operations...TIME. Now the market is watching the moves which the governments will take to address these structural issues and time is of the essence. If the moves are right and the markets are convinced, more time will be given. The biggest danger the world faces now is complacent thinking which will lead to passive behavior in terms of structural reforms proposed. The election cycles are just starting now with the May elections for France, followed by the US and soon Germany. Will the fear over losing their political careers lead to passive behavior by the incumbent governments? That is something which I would advice to monitor closely.

Still too busy with work to look at the company which I wanted to look into. Will write more the next time. Have a good week ahead!

Best,

SVI

Some thoughts before I leave. Reiterating some of my earlier calls.

2012-03-24T00:21:00.000-07:00

Gonna be away next week and I figured that if I do not put anything in writing this week, nothing will come out for at least a month. Blogging consistently this year is really going the direction of my dieting plans. Inconsistent is the word.

Correction or not? That is the question. The market momentum has slowed down significant compared to the past two months. March has been a range bound month so far and there are times which you just wonder why the market was even open for trading. We have reached some psychological resistance levels and there have not been any catalysts to push the market higher. The comfort which take from all this is the fact that the market remains resilient and the volatility has been low. Plenty of predictions on a weak April as market participants start to price in a possible "Sell in May and go away" scenario. All I know is, corrections at this point in time is healthy and I do hope it comes. Liquidity driven rallies can get out of hand and as long as there are pullbacks, it still signals some legs to run. Really have no idea when the liquidity will be drained so I am still going to continue to maintain my stance from the start of the year...keep an open mind.

Two large houses came out to call for a "sell" on bonds this week. Now that is some gutsy call because this is afterall an asset class that has thrashed the performance of equities over the past 20 years. This is what I call a generational call and it is something I believe very strongly in. In my investment life, I have never bought a single bond or even bond funds. Even though the returns have been good but I believe that bonds are a negatively skewed asset class where you do not have upside and just be happy with a fixed yield. So if nothing happens you get a coupon payment, if something happens you lose everything. Does not sound like a fair trade to me. Especially when the supply of bonds have increased exponentially this year to date, I am getting really concerned. How much did Genting Singapore raised through its perpetuals two weeks ago? S$1.8 billion. Why would a company that is net cash by more than S$1 billion be raising money with a 5.1% yield? That is because they believe that money is cheap at this moment and going forward, their 5.1% will look like a bargain. Anyway, we shall see whether this generational call will pan out or not. I am in the same camp as those guys, so lets just see.

Since my last post two weeks ago, more has been said about oil prices hurting the economy. We have even seen China raise prices at the pump for the second time in 6 weeks. President Obama has been criticized for not handling the the rise in oil prices, now he is pressurized into speeding up the Keystone pipeline approval. The funniest part of the news flow was the rumor that the US and UK had released supplies from their special oil reserves. Now the question on everyone's head is whether higher oil prices are going to hurt the fragile economic recovery we are currently in. It is really funny when you hear about how one single commodity price can hurt the global economy. Any truth to that? I am sure there are two sides to that story.

From my experience, I would like to say that rising oil prices have not hurt the global economic growth in the past 10 years. Bear in mind we saw 150 dollar oil price in 2007-08 but it was not oil that hurt us, it was the man made subprime problem that hurt us. The last time oik prices hurt the general economy was the oil embargo in the 1970s. Since then, there have not been any oil price related significant slowdown to growth. Important thing to note is the speed of the rise rather than the price it reaches. If there is a nice gradual rise over time, expectations can adjust accordingly but if there is a sharp spike, it will be detrimental consumption.

Did any of you read about the rumor of a coup in China? That was pretty funny I have to say. It did however bring some jitters in the market as netizens on Weibo (China's micro-blogging website) claim to see large numbers of military police in Beijing and the whisper was that the military had moved in to "protect" the much loved Bo Xilai. In the end, there was no truth in the rumors of such a coup. But I would advise not to take this Bo Xilai debacle lightly. What this situation has brought to light is the possibility of China's political party being split into factions. The world has attributed China's rise over the past decade and a half to political stability and the party to stay in power long enough to make long term plans and execute them. The Chinese now have to prove to the world that the stability remains and this issue with Bo Xilai is a one off and there is no deep wedge driven in between the different factions. For me, this is a very important issue to continue to watch because we should not underestimate the possible repercussions that may stem from it.

So the last few picks have started to do well. Centurion is showing some movement, Genting Hong Kong has delivered more than 25% returns (translating into 25 years of interest). Of course, my favourite Sarin and Wheelock have been doing well too. Sarin is really one that I am very proud of, considering it is the only stock I have ever written twice on. I would write a third post on it but I am worried that you guys will just stop reading the blog due to its repetitiveness. Repetitiveness is not a bad thing, especially if it has worked. You will realise that my selection of stocks has always been about valuation and the sustainability of the business. There are still more picks to come but I would advise on adding to more positions in LMA, Genting HK, Genting Singapore and Centurion. For those who love Sarin as much as I do, they can consider adding more of it. I have absolute faith in that company, so I would continue to add to it as long as they continue to lead in the cutting edge of diamond grading technology.

Genting HK's results were sterling and what impressed me most is how they are trying to reduce the share premium to prepare itself for possible distributions going forward. The cashflow generation of the company is now at a different level and I believe this is sustainable due to the turnaround in the Star Cruise ops and their revenue generator in the form of Resorts World Manila. I am looking forward to another 2 quarters of solid earnings over the next 6 months and the stock will clearly be re-rated.

Genting Singapore had a great Friday after the first two licences for junket operations were approved. I do not really care for the junkets because I felt that the stock was undervalued and underappreciated in the first place. What this is proving to be is how analysts love to go where the wind blows. Downgrading a company that generates such cashflows from operations so consistently is just being myopic. I am hoping the stock performance will prove all of them wrong. Continue to like the stock, in fact I am considering selling one of my properties to go "all in" with it. Hahaha. Now that would be radical wouldn't it. I continue to like this company and believe in its long term story.

Currently, I am thinking of a certain company that will be listing in Singapore in the near future and no it is not Cordlife. Will share more as I do more research on that company.

Till then have a great fortnight ahead.

Best,

SVI

The year of the Dragon. Could it be the year for Dragon Oil? Buy 6.39 Sterling Pounds.

2012-03-11T07:41:00.000-07:00

Have posted for more than two years and this is the first time I am going to be posting while carrying a dog in my arms. A real challenge especially for a person who does not type fast in the first place. So if there are plenty of typos, do not blame me.

First of all, I would like to congratulate my favourite feng shui master whom I know is a great follower of this blog. Your Fragrance holdings is making you richer than ever. Next meal is on you. Please do not tell me that you are a poor man. After two stock splits and now a spin off....you are really rolling in the dough, considering the large quantity you bought from the beginning. You have my respect. Doing all your own field research and on the ground work and finding a gem like this. Impressive. The stock has probably delivered 300% over the past few years for you. That is almost equivalent to Apple's stock. Do let us know your next pick when you get one.

Over the past few weeks, I have been really busy researching on oil companies for my own portfolio. Learnt a lot about the industry and it has been a rather enriching experience so far. As you should all know by now, I have been a big fan of oil and I have never been more bullish about the black liquid than right now. Why? Because technically from the charts, oil looks like it has plenty of momentum to move up. Some may argue that China's slow down will affect the demand for oil. I would like to say that I disagree with that notion because the Chinese will take every chance to stockpile on oil inventories as and when they have the opportunity too. A lot has been said about the tensions in the Middle East affecting the price of oil. Throw in the sanctions the Europeans are looking to impose on Iranian oil exports, looks like oil is going to be the center of attention over the next few months.

I have gone around to all my analyst friends for some ideas on which oil companies to look out for. They came back with Keppel and Sembmarine. Talk about original ideas. I do not understand how simplistic some people can be when it comes to investing. Resting on their laurels on finding a stock that will meet the actual criteria set out. So as usual went to the good ole Bloomberg to screen for oil stocks that look interesting to me. Finally, I found one that is really a dream come true for people looking for upstream oil exposure. Whats more, the name of the company is really a clear sign of things to come for this year. The name of the company? Dragon Oil.

Dragon Oil plc is an independent international oil and gas exploration, development and production company. Their principal producing asset is the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan. Turkmenistan formerly also known as Turkmenia, is one of the Turkic states in Central Asia. Until 1991, it was a constituent republic of the Soviet Union, the Turkmen Soviet Socialist Republic (Turkmen SSR). Turkmenistan is one of the six independent Turkic states. It is bordered by Afghanistan to the southeast, Iran to the south and southwest, Uzbekistan to the east and northeast, Kazakhstan to the north and northwest and the Caspian Sea to the west.

Turkmenistan's GDP growth rate of 11% in 2010 ranks 4th in the world. It possesses the world's fourth largest reserves of natural gas resources. Although it is wealthy in natural resources in certain areas, most of the country is covered by the Karakum (Black Sand) Desert.

The Group’s headquarters are located in Dubai, United Arab Emirates. Emirates National Oil Company Limited (ENOC) L.L.C., a company ultimately owned by the Government of Dubai, owns approximately 51% of the Company’s ordinary share capital.

The Group develops the oil reserves in the Cheleken Contract Area in accordance with the terms of the Production Sharing Agreement (PSA). Under the PSA, Dragon Oil Turkmenistan, as operator, was granted a production licence for the exploration and development of oil and gas resources in the Cheleken Contract Area for a term of 25 years from 1 May 2000 and an exclusive right to negotiate an extension of not less than 10 years.

Dragon Oil has had the privilege of working with Turkmenistan for 12 years now, having invested more than US$2 billion in expanding the oil production in the Cheleken Contract Area, and as such, is one of the largest foreign investors in Turkmenistan. The Group is producing from a significant number of new and old wells and has an aggressive development programme comprising drilling of new wells and an ongoing workover programme. The average daily gross field production has increased from approximately 7,000 bopd in 2000 to over 61,500 bopd of average daily gross production in 2011 with the exit rate of 71,751 bopd at the end of 2011.

The Group has over 1,100 employees of which approx. 1,000 are working in Turkmenistan and a majority of whom are Turkmen nationals with over 100 employees based in Dubai.

Dragon Oil had as at 31 December 2011 proved and probable oil and condensate reserves of 658 million barrels and 88 million of oil and condensate contingent resources, 1.5 trillion cubic feet of gas reserves (corresponding to 250 million barrels of oil equivalent) and 1.4 trillion cubic feet of gas resources.

The group trades at a forward p/e of less than 7 times and has more than US1.8 billion cash on their balance sheet. This is an oil company that still has plenty of growth, but trades at a valuation that is only appropriate for an oil major like Shell, Exxon or Total. I like the fact that this is a company that is run by the UAE government (trust me, they know their oil business) and operating in an area that is still rich in oil. The reserve replacement for the company has also been very impressive over the years. Replacing their reserves at a fast rate while still generating so much cash through their increase in production over the years.

Dragon made its first steps down the M&A route last month as it made an early stage approach to buy Cameroon focused explorer Bowleven before dropping its interest shortly after, without making a bid. The company has indicated that they want to invest their cash hoard with more acquisitions going forward.

With US$1.8 billion cash on their books, Dragon Oil presents a healthy debt free balance sheet. Management continues to evaluate M&A opportunities with a target price of US$200-500 million and a minimum size of 50 million barrels of 2P reserves (probable and proven reserves added together).

Underpinned by strong drilling results in 2011, the company produced 61.500 barrels per day, up 30 per cent year-on-year. At this rate, the company will probably achieve its production target of 100,000k barrels per day within the next 3 years. Bear in mind, this is one of the up and coming oil companies out there and I prefer it to Tullow Oil which is now a favourite of many analysts for its exposure to African assets and their high success drilling rates. The valuation however leaves much to be desired. Oh did I mention that Dragon oil pays a nice dividend too? Close to 3% yield at the moment.

For their growth and the quality of their asset, I believe Dragon oil deserves a higher valuation. If you are a big believer of oil like I am, then this is a company for you. If you are bullish on oil, why won't you want exposure to the direct oil producer? For those who are looking at the oil service providers, I do not consider them as direct beneficiaries of higher oil prices. For me, its time to move to upstream players rather than downstream or even integrated oil companies.

Ok thats all I have for this week. Till the next.

Have a great week ahead.

Best,

SVI

Dormitory business..boring but lucrative. Buy Centurion Holdings, one for the future $0.195.

2012-02-26T00:37:00.000-08:00

Another two weeks have flown by and I have once again not been consistent in my posting. Time really has to slow down a little for me to find enough of it to do more research. Markets are still resilient even though the pace of its rise has been slowing down. Earnings have been pretty bad for the large caps but the market continues to be strong. The picks I have given have done pretty well in terms of earnings so far. Silverlake, LMA, Sarin, Dukang etc have all produced results that have been stronger than expected in spite of the poor economic conditions. I continue to like these stocks and recommend you guys to accumulate them.

This week, I want to write about a company which has been pretty much on my mind. I believe that it will deliver good earnings over time. This is a company that just came out of a Reverse Takeover and it is still in its teething stage. Profits have not come in at this point as it is still in the midst of shedding their loss making business.

Centurion Corporation Limited, formerly known as SM Summit Holdings Limited, owns and operates dormitory assets, as well as a storage disc manufacturing business. The Group’s dormitory assets currently include Centurion Dormitory (Westlite) Pte. Ltd. the owner-operator of Westlite Dormitory located at 18 Toh Guan Road East and 45% of the issued share capital of Lian Beng-Centurion (Mandai) Pte. Ltd. which owns a piece of freehold industrial land in Mandai, of approximately 18,700 square metres which will be developed into dormitories on part of the land. In addition, it is also involved in the business of manufacturing compact discs, digital versatile discs and data storage.

With various expansion plans in place, Centurion looks to gain a strong foothold in the growing workers accommodation industry in the region. In line with its growth strategies, the company is actively seeking to enhance its current assets in the midst of its development and acquisition of new projects, aiming to be one of Asia’s leading providers of quality workers accommodation and professional dormitory management services.

Lian Beng-Centurion (Mandai) Pte Ltd, 45% held by Centurion and 55% by Lian Beng Group, intends to launch the sale of 141 units of its ramp-up industrial building to be developed on the freehold Mandai Land1 in the fourth quarter of 2011. The Mandai Land has been divided into three plots for separate developments as below:

- The first plot will be developed as a workers dormitory with a capacity of approximately 4,700 beds.

- The second plot will be developed into a ten-storey ramp-up multiple-user general industrial building with a total of 141 units and a canteen.

- The third plot may be developed as workers dormitory or industrial spaces.

Construction of the ramp-up industrial building on the second plot of Mandai Land is expected to commence in Q4 2011 and likely to be completed within 15 to 18 months. The average selling price per square foot for the units is expected to range between S$650 and S$700.

Centurion is embarking on the acquisition for a Tuas dormitory as part of the Group’s acquisition growth strategy to be a dominant player in providing dormitory accommodation and services to foreign workers. The acquisition will add 8,600 beds to the Group’s portfolio, which will immediately raise the profile of the Group as a dominant independent dormitory operator, enable the Group to enjoy economies of scale in its operations and provide the Group with the necessary infrastructure and platform with which to widen its customer base. As the Tuas Asset is an operating dormitory, the Proposed Acquisition will bolster the company’s revenue from this financial year.

This acquisition can be used to leverage on the customer base it will gain as a result of the acquisition. The Tuas Asset is presently utilized by an existing set of customers, which the Group will absorb upon completion. It will be able to tap its enlarged customer base to promote and fill up its other dormitories when development and upgrading works at such dormitories are completed and become operational in the Company’s financial year ended 31 December 2013 or 31 December 2014. Increasing the number of its existing customers will facilitate the Group’s future marketing efforts and possibly improve the rate at which the Group is able to fill up upcoming vacancies at its dormitories.

Centurion has also been active in Malaysia with two acquisitions over the past two months and it has also identified 6 dormitory projects in Malaysia as potential acquisition targets. All six projects are located within or in proximity to key industrial and manufacturing hubs in Johor, Southern Malaysia and comprise completed dormitories, projects under construction, vacant land and factories for conversion to dormitories. The two successful acquisitions will add approximately 9,000 beds to the Group’s Malaysia dormitory portfolio. These projects which consist of completed dormitories, projects under construction, vacant land and factories for conversion to dormitories, are expected to add approximately 33,400 beds to the dormitory assets portfolio of the Group. In addition, Centurion is also actively pursuing opportunities in China to acquire or build dormitory projects either independently or in partnership with third parties.

I understand that this is still a work in progress company but in my view, it has every chance of becoming a major player in a very niche business. There is a need for additional capital raising in order for them to fund their targeted acquisitions but over the longer term this is a company that has the potential to reward its shareholders handsomely. The way the company is out there looking for acquisition targets, I would not be surprised if they hived off the assets into a dormitory Reit. The yields on such a Reit will really be quite attractive from the research I have been doing on dormitories. Apparently, it is a very lucrative business with yields of above 7% from the services provided.

I like the company's exposure to Malaysia because there is going to be a lot of changes in the southern part of the country with the development of Iskandar Economic Region and many other infrastructure projects coming up. All these projects are going to need plenty of foreign workers to work on them. Housing for these workers will be in great demand and I believe that the company shares the same vision.

One possible headwind facing Centurion in Singapore could be the Government's drive to lower our dependence on foreign workers but I really doubt it will hurt the business at all. Show me Singaporeans who are willing to do the work which foreign workers have been doing for us at the same cost and I will be impressed.

Overall, I like the story behind this stock and it is not expensive at current price as the company is still very much under the radar and I guess investors are still pretty oblivious about how profitable the dormitory business can be. Technically, the company's stock price hit a new high two weeks ago after which it pulled back and I believe this is not a bad level for entry.

Ok thats all I have for this week and lets hope next week's LTRO does not disappoint the markets. Have a great week ahead!

Best,

SVI

Unprecedented liquidity injection leads to simultaneous asset bubbles forming. I call it FOAMING.

2012-02-12T09:40:00.000-08:00

Been too busy these days to post regularly and it makes me feel bad that I have not been disciplined enough to do so. The markets have been wonderfully kind to investors in January and we have seen some ridiculous moves on certain obscure stocks like Yoma, IEV etc. Very impressive moves especially considering Yoma rose uninterrupted from 8 cents to 58 cents in a span of a month and a half. Wish I was in it, but it was not to be. These kinds of moves only happens once in a long time so it was another missed opportunity for me. Well thats life.

February has started off in bullish fashion and markets have been on a tear. Small caps, mid caps, large caps, you name it, they have had a great run up. The US markets have reclaimed their 2011 highs after just 5 months. European markets have been a little more subtle but they have also done well over the past two months. Asian markets being the high beta play among all regions have outperformed. How did we end up here? Considering the talks of a doomsday event occurring in 2012 have been rife at the start of the year and here we have the best market performance for the month of January since 1987. That is why I love financial markets, the excitement and its unpredictable nature makes one look forward to every trading day.

So what is the reason for this strong bullish like rally? Like my good colleague was saying earlier this week. "It feels and looks like a bull market." Any betting man would not have placed bets on such a bullish move happening in the market at the beginning of the year. In my humble view, it boils down to just one word...liquidity. Liquidity, that is the key word for the investment world today. My ex boss used to say, liquidity is the most fickle element in financial markets as it can be here today and gone tomorrow. But before we get too worried about liquidity disappearing into thin air, bear in mind that the guys turning the liquidity taps in the world are not too interested to turn them off any time soon. So I really do not think liquidity is going to dry up any time soon.

Why do I say that? This is going to sound like its a conspiracy but I do think it is logical so lets see what you think. Central bankers are given a mandate of controlling consumer inflation and ensuring the employment numbers look decent. With the key gauges on how well they are doing their jobs being the very questionable Consumer Price Index and Unemployment rate, their course of action is clear. Focus on the CPI and try to stimulate the economy into creating more jobs. So what do they do? They inject liquidity into the banking system with their creation of QE and LTROs.

If you tell me that the ECB did not instruct the banks out there who took money during LTRO part 1, to pump the money back into the sovereign bond markets, I will tell you that you are very naive. It is by no coincidence why the sovereign yields of Italy and Spain have fallen so significantly since LTRO was introduced. This will make it look like there are more buyers of Italian sovereign bonds and making the market place look more real with more than one buyer and that being the ECB. However the truth is, the financier for all the buyers of such bonds remain the ECB. This action has brought a false sense of security to investors and injected the much needed optimism into the markets.

With all these QE and LTROs going on in the developed markets, the amount of liquidity sloshing in the markets is unimaginable. I would put the figure to be more than 4 trillion dollars and if you factor in the multiplier effect plus the increased velocity of money in the system, we could be seeing much more than that. What is possibly going to happen here is asset bubbles forming. Yes you are reading it right. Not a bubble but bubbles. Usually when there is an excessive move in a certain asset class, we will witness a bubble forming and eventually bursting. We have seen a few in recent decades, Japanese property bubble, Tech bubble, Subprime bubble etc. What do we know about them? They all happened at different periods. My conjecture here is that we are going to enter into a period of concurrent forming of bubbles if liquidity continues to be pumped in so freely. I will term this as "FOAMING". Whereby the asset classes will all move in tandem and inflate into bubbles thus causing a foaming effect and we all now how foam dissipates in the end. The little bubbles will all burst together just like how they were formed.

Why are the central bankers doing all these actions when they know that this will cause asset bubbles? Because they are not judged by Asset Inflation but Consumer Inflation. There is no API (Asset Price Index) so they are pretty safe. Asset price inflation will create a money illusion which in turn will create a wealth effect for market participants. Why won't consumer inflation rise as asset inflation occurs, you may ask. The reason being that asset inflation will only help the rich and the extra liquidity in the banking system is only going to go into the coffers of the wealthy who are credit worthy and are willing to take the risk of leveraging up to invest. The "marginal propensity to consume" for the wealthy is significantly lower than that of their "marginal propensity to invest". I believe that the central bankers are trying to inflate assets to such an extent that people will get the impression that everything is hunky dory and forget that Spain has a unemployment rate of more than 40% amongst their younger labor force.

Consumer prices will remain tepid as the poor do not have the money to consume more so the central bankers are going to report low CPI numbers and probably give themselves more room for further liquidity pumping activity. I personally regard these liquidity moves as short term fixes and basically trying to sweep all the problems under a rug and hope that the rug sticks. What worries me is that they have opened the equivalent of the "Pandora's box" for the financial markets. If I am right, they are going to have a big problem down the road when they finally decide to withdraw the liquidity they have made available to the markets.

Excerpt from Wikipedia: Pandora's box is an artifact in Greek mythology, taken from the myth of Pandora's creation in Hesiod's Works and Days.[1] The "box" was actually a large jar (πίθος pithos)[2] given to Pandora (Πανδώρα) ("all-gifted", "all-giving"),[3] which contained all the evils of the world. When Pandora opened the jar, all its contents except for one item were released into the world. The one remaining item was Hope.[4] Today, to open Pandora's box means to create evil that cannot be undone.

So you may ask, which assets will inflate first? Of course, it is natural for the inflation to happen in the safest assets first, which is of course high grade bonds where investors can leverage on the low interest rates till 2014 (thank you, Ben Bernanke) and earn the yield spread. After that we will have to move to the assets that has no real science to valuing them. Things like commodities. Why? Because commodities are valued more on perceived value than actual value metrics like price earnings ratios or price to book ratios. There is no way to determine accurately what the price of a bushel of wheat is worth in terms of price. When there is no valuation metric for the asset, it is easy for people to use nice convincing stories to justify ever rising prices for that particular asset class.

Whatever I have written today is not something that will happen over the next few months, I believe this whole process of FOAMING will take years and it is important to bear this in mind while investing now. We have no choice but to try to ride this wave because I believe that asset prices will go through what I call above trend inflation and if we do not try to ride this wave we will be left behind as the value of money continues to depreciate implicitly. This is the situation that can be most aptly described as "damn if you do and damn if you don't".

Ok it is getting a little late. Will try to post more regularly, I promise.

Have a great week ahead!

Best,

SVI

LTRO, QE3 and low interest rates till 2014. The perfect recipe for asset inflation.

2012-01-28T08:40:00.000-08:00

Starting a post these days is getting tougher and tougher. Juggling between work, studying and stock picking is just a little overwhelming. Did you guys like Genting Hong Kong? It has done well since the last post, but so did the rest of the market. The most common question posed to me these days is "why is the market so bullish when nothing has changed?". Bad news is still in the market but investors are just choosing to ignore everything. On the positive side of things, we have seen Bernanke doing his best to boost markets by increasing transparency on his policies. There was also the Long Term Refinancing Operations done by the ECB, that has really been the real reason to why the market has come back so strongly.

Remember my first post of the year? I did say, we have to keep an open mind this year as this will be the year of unusual uncertainty. I bet most people did not expect the year to start off with such a bang. Corporate earnings season has not been great at all. Plenty of profit warnings have been issued and revenue growth for many large corporations have disappointed. This should not come as a surprise as the global economy has indeed slowed down and demand for many products have slowed down. How long is this rally going to last? I would say that the market is technically overbought at this moment and a short term correction may come soon. However with all the talk about QE3 and interest rates being held at this ultra low level till late 2014, the ECB out to do another LTRO by the end of Feb, the market should hold up pretty nicely.

Fact of the matter is, the rally is purely liquidity driven and it has nothing to do with fundamentals. Valuations are cheap no doubt, but earnings can be expected to moderate over the next couple of quarters. What we are witnessing here is once again distortion in the markets due to unprecedented amount of liquidity being pumped into the markets. I commented to one of my colleagues the other day, that we should just throw all our finance textbooks out of the window as the normal relationships between asset classes are no longer applicable. Distortions from these actions from policy makers and central bankers are going to cause new books to be written on economics and finance as new lessons will be learnt from these actions. Honestly, I personally am worried about what the world will become once the dust settles.

Giving an educated guess is all I can do and what I want to say is that the growing divide between the rich and the poor is going to be even larger by the time this debacle is over. Why? Asset inflation is going to be the key words to remember. Consider this....are you really getting richer because of the asset price increase or are you only keeping up with inflation as the money supply is doubled, tripled, quadrupled etc. When our grand parents bought their flats over 30 years ago, they paid 20-50k for their flats. Now those same flats are going at more than 500k. Is it because they were astute and made the right decisions to invest in property or is the price of the property just a clear reflection of inflationary pressures and destruction of our purchasing power? Just because your net worth doubled over the past 10 years does not mean that you are richer, it just means that the money supply has doubled and your asset has inflated. Now lets just think about what is happening at this time. I honestly think that asset inflation is only going to make the wealthy richer as they have the means and ability to invest their money but for those who only earn enough to save a menial sum, things are going to get worse. They will not be able to invest their money in those assets as prices just get overly exorbitant and their savings will only keep losing their value. That is why I believe the divide will get even more obvious.

So you may ask, why I think the LTRO has worked in calming the markets when Greece is probably still going to default. The fact of the matter is, no one expects Greece to not default. The question is whether it is a disorderly or an orderly one. The default is something that has been pretty much priced into the markets and even if it defaults, the market is still going to be fine. The worry is how the rest of the problematic countries like Portugal, Spain or Italy going to be affected by this. Does a Greek default signal the possibility of other Eurozone countries defaulting? What we are seeing in the European sovereign debt markets is that yields are falling. That is a good sign but there is no guarantee that is it sustainable. Why are the yields falling? That is because the LTRO has allowed the European banking system to attain refinancing which would have not been available and some of the cash injected in the system is going back into the sovereign markets. Throw in the fact that this move has removed the worries over the banking system and significantly lowers the risk of a systemic meltdown in the banking system in the short term. The market is currently relieved that the banking system is safe for now.

I do not deny that a systemic meltdown has been averted but risks still remain as this is just another kick of the can down the road. Nothing has been solved. The question is whether to join in the market cheering or to sit on the sidelines. This is really the million dollar question. Is it too costly to really just sit back and watch everything unfold? As I mentioned earlier, asset inflation is happening now and if you do not get in, will you be left behind? This is really a "catch 22" situation.

Personally, I have been very cautious while at the same time taking opportunistic bets on the market. I am a momentum trader and my broker commented that I seem to like buying at day highs for the counters I trade in. Momentum trading has helped my returns over the 4 weeks. But I am seeing the momentum slow down for the time being. The fact that I am involved in the market every day is very helpful for my own portfolio as I can actively monitor and adjust my positions but for those of you who are not staring at the monitor 24/7 like me, it is a lot harder. My advise is still to go for the companies which you believe are cheap, trading at a good level, sustainable in terms of earnings and you are willing to hold over the next few years. I know plenty of people are bearish on the property counters right now, but I feel the property counters have pretty much priced in the possibility of a property market slowdown, but plenty of them have strong balance sheets and trade at a good discount from the NAV and RNAV. Capitaland is one of these companies. Wheelock is also another. Buy and accumulate these counters slowly and you will be rewarded over the next few years. I am pretty sure.

Just wanted to put some of my thoughts into writing for this week. Nothing much more to say. Will post more regularly after I finish with my exams. Have a great week ahead and Happy CNY to all of you!

Best,

SVI

Genting Hong Kong. Buy US$0.315. A Philippines growth story.

2012-01-15T06:19:00.000-08:00

How do we start off the new year? With a bang! The market has been cheering since the new year started. Like I said in my previous post, we have to keep an open mind. Why is the market in such a cheery mood? Has anything changed since the end of 2011? The answer is no. I start off every new year with big ambitions on how I am going to make my life so much more meaningful but what happens in the end? Still chasing money with no meaning to anything. Why did I say this out loud? Because that is how the markets are feeling. They want to start off the new year on a positive note and put the horrible 2011 behind them. Not off to a bad start so far, but the question is all about the sustainability. I certainly hope it is because it will be because my job depends on it.

Decided to come out with my first stock pick for the year. The last two have been pretty good considering the market condition so lets try to make it a good start for the year.

The first pick I am going to give this year is one that is very close to my heart. Maybe it is due to my love for vices. The first stock which has caught my eye for this year is....Genting Hong Kong. For those of you who know me, will know that the Genting group is one that is very close to my heart. Over the past 2 years, I have written on both Genting Berhad and Genting Singapore. So why not just make it a nice trio?

Genting Hong Kong, formerly known as Star Cruises Limited, is a leading global leisure, entertainment and hospitality enterprise, with core competences in both land and sea-based businesses:

Star Cruises - Asia-Pacific

Norwegian Cruise Lines (NCL) - A 50% joint ownership alongside Apollo and TPG.

Star Cruises together with NCL is the third largest cruise operator in the world, with a combined fleet of 18 ships cruising to over 200 destinations, offering approximately 35,000 lower berths. This has been a drag on their earnings over the past years however after restructuring and redeployment of their cruise ships, capacity and occupancy has risen and it really is quite impressive.

Resorts World Manila (RWM) - Manila, Philippines; joint partnership with Alliance Global Group under Travellers International. Resorts World Manila is Genting Hong Kong's first foray in a land-based attraction and what an attraction it has been. RWM opened its doors to the public in August 2009, and is one of the premier leisure brands under the Genting Group, representing a flagship integrated leisure and entertainment complex featuring 3 hotels including a six star all-suite Maxims Hotel, an iconic shopping mall, 4 high-end cinemas and a multi-purpose performing arts theatre.

Headquartered in Hong Kong, Genting Hong Kong has a presence in more than 20 locations worldwide with offices and representation in Australia, China, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Sweden, Taiwan, Thailand, the United Arab Emirates, the United Kingdom, the United States and Vietnam.

Resorts World Manila at Newport City continues to extend its leisure, hospitality and entertainment offerings into its second year of operations. Remington Hotel, the resort’s third hotel offering catered towards the budget conscious traveller, is expected to open its 712 rooms during the second half of 2011. In November 2010, Travellers Group purchased 13,777 square meters of land adjacent to the existing Marriott Hotel for the purposes of constructing a convention centre, which is expected to be completed in approximately 18 months. A fourth hotel of five-star calibre is also expected to be completed within the same time frame.

NCLC Group continues to look forward to the two new Project Breakaway ships, scheduled for delivery in the spring of 2013 and 2014. The two new vessels will join the five existing ships, Norwegian Epic, Norwegian Gem, Norwegian Jade, Norwegian Pearl and Norwegian Jewel, in offering “The Haven”, an exclusive suites complex which offers passengers an additional level of privacy and luxury, complete with a private courtyard and pool area, restaurant, bar and concierge lounge. So if you have the time or the money, do consider going for it. After reading through their offerings, I cannot help but to consider whether I have the resources to go for one of those cruises.

Profit for the Group in 1H 2011 was US$61.8 million, increased 445.6% compared with US$11.3 million in 1H 2010.

Contributions from jointly controlled entities, Travellers International Hotel Group, Inc. and its subsidiaries Travellers Group and NCL Corporation Ltd, during the period were US$25.7 million and US$12.3 million, respectively. Share of profit from Travellers Group increased US$15.5 million from the same period in 2010, while share of profit from NCLC Group was US$12.3 million in 1H 2011 compared with a share of loss of US$18.7 million in 1H 2010

EBITDA for the period improved 21.8% to US$61.5 million, compared with US$50.5 million for the same period in 2010. Capacity days increased by 10.8% from approximately 0.8 million to 0.9 million capacity days due to the full operations of m.v. SuperStar Libra in 1H 2011

Total revenue increased by 22.9% from US$184.7 million in 1H 2010 to US$ 227.0 million in 1H 2011 mainly due to the 32.2% increase in gaming revenue from 1H 2010. If we look at Genting HK, its fortunes turned around when Resorts World Manila opened in 2009. GHK and its Philippine partner Alliance Global Group will reportedly start building their second gambling resort called Resorts World Bayshore next year following the success of Resorts World Manila, currently the largest casino in Philippines. Resorts World Bayshore will measure almost 40ha and feature some 2,500 hotel rooms as well as leisure, retail, gaming, and entertainment facilities. No doubt, the building of 3 other casinos in Manila is going to affect the growth of Resorts World Manila but I still believe the gaming market is still going to grow and it will continue to generate sustainable profits over the long term.

Another thought that crossed my mind is the possibility of spinning off Resorts World Manila as Genting Philippines. It probably will happen but maybe not in the near future. With Genting's vision of internationalizing its brand, it will not come as a surprise to me if that happens. What do I mean by this? 3 years ago, we did not have Genting Singapore or Genting Malaysia or even Genting Hong Kong. There was only Genting Berhad, Resorts World Malaysia and Genting International. Now we are looking at a possible Genting New York and Miami in the near future. We already have Genting Malaysia and Singapore. So will you be surprised if there is a Genting Philippines?

Clearly on a valuation basis, Genting Hong Kong is not cheap because it is trading at 20 times 2011 p/e but if you believe in its growth story and considering net profit for 1H2011 has grown 330% excluding one-off gains. Of course this is not sustainable but a 20% growth rate over the next 2 years is very possible and that would make its current valuation pretty reasonable. Throw in the expansion plans in Manila and further fleet rationalizations and refurbishments, the company should continue to grow. With a gearing ratio of 0.14 times as of end June 2011, the company will be able to further leverage to finance their expansion plans and that will also mean that the company should be able to weather the current economic slowdown easily with no financing issues. Lastly, I have a lot of faith in Genting's management and their track record has been impeccable.

I have always loved the gaming business. There is plenty of growth and demand for casinos in Asian markets because of the gambling nature of Asians and throw in the strong demand for money laundering activities (you know what I mean), gaming is a great growth industry. I know this is not exactly the most socially responsible industry to invest in but my view is social responsibility does not go well with investments. So its better to make money through socially irresponsible investments and use some of the profits to do some charitable donations.

Thats all for this week! Have a great trading week ahead.

Best,

SVI

Bleak market outlook for 2012. Keeping an open mind will be the best strategy.

2011-12-31T20:40:00.000-08:00

Happy new year to all of you. What a great way to start a new year for me, having a sleepless night once again and what better way of making use of useless sleep time to post the first blog of the new year. Maybe the cause of my insomnia is the constant thinking of what is in store for us in this new year. 2012 is supposed to be a year full of ominous predictions and many people believe this is going to be one bad year for financial markets. Are we really in for a bad year in 2012? How will it compare to 2011? Lets us first look at how 2011 closed out.

The STI index closed 17% lower for the year, that is close to bear market territory. The index closed at 1,257.60 on Friday, the last trading day of the year, compared with its 2010 finish of 1,257.64. But the performance belied the roller-coaster ride that stocks took in 2011 - one of the most volatile years in the market's history. Stock indexes outside the U.S. fared poorly. The Stoxx Europe 600 index lost 11 percent. The MSCI Asia-Pacific Index slid 17 percent this year, and the MSCI All-Country World Index fell 9.4 percent. Each gauge dropped on a yearly basis for the first time since 2008. Making 2011 a year which many of us would like to forget. Chances are 2012 will not be much better.

When I started thinking about 2012, I cannot help but to think of the movie "2012". Armageddon is a word that came to mind too. For those of you who believe in the Mayan prophecy of the end of the world coming in 2012, good for you, but it is very unlikely. On the other hand, the Mayans may be wrong on the world coming to an end with the world exploding into chaos with the tides rising and the earth collapsing below us, but they may be right that the world as we know it will come to an end. 2012 will be a year of many events.

The US elections are at hand and it promises to be an interesting one. It will not be a clear cut re-election for President Obama even though the Republicans are finding it hard to find a credible candidate. The uncertainty over this coming elections will cause the US markets to be a little turbulent towards the end of the year with the elections drawing to a close. Some market watchers believe we will see some sort of QE3 measure implemented in Q12012 as the US economy starts to show the lag effects of a severe slowdown in Europe but there are others that believe the Fed will not implement any QE measures to maintain its independent stance and not look like it is supporting any political agenda for the benefit of this elections. I tend to believe that some sort of QE will be implemented within the first half of the year. But when that is announced, I believe the market will not react well to it because the market has learned that the effects of QE on equities are temporary. So do not be too happy when you hear the Fed implementing QE3.

We will also see the default of Greece in 2012 because they will need plenty of refinancing which they cannot get. The Eurozone will finally see that Greece is beyond help and no matter how much bailout money will given, it will not lead to Greece coming out of the deep recession it is in.

Downgrades of all the shakier Eurozone countries will come hard and fast. The Eurozone will realise that their efforts are futile and the EFSF and the ESM are just stop gap measures. With the downgrades, the collective credit rating of the EFSF will be just go down the drain. Only when that happens, Germany will have to make the decision to make or break the Eurozone.

The EU will have plenty of refinancing needs within the first half of 2012, the question here is, will there be enough demand for their debt or will borrowing costs be pushed up before all of the debt is refinanced. If we see starkly higher borrowing costs, that will cause the negative feedback loops to strengthen and spark off another round of weakness in the market. With regards to the European economies with the exception of Germany, I really do think a deep recession is around the corner. The European markets are already pricing that in, the only question is whether the Eurozone survives this ordeal.

The Euro closed the year at close to year lows and that to me is a bad sign for the things to come for the Eurozone markets. As long as the Euro continues to be weak, European markets will still be jittery. The USD dollar should continue to look strong for at least Q12012 as investors continue to move out of the Euro. Even though gold has done well in 2011, registering 10% gains for the year but that is not reflective of the current sentiment towards the precious metal. If I were a betting man, I would bet against the yellow metal for 2012 as deflationary worries starts to plague the market as a result of the weak global economy.

China will face a conundrum on whether to loosen and face inflationary pressures? Do you think they will structure another RMB depreciation to help their faltering manufacturing sector? I personally think if the Chinese start to lower their reserve ratios and even go to the extent of lowering interest rates, the RMB will probably weaken against the USD and the one directional trade which the world had so much faith in will backfire. Now the key risk here is a hard landing in China. I do not think that a hard landing is very likely. Especially when the Chinese government manipulates their economic numbers blatantly. In reality, there is a good chance of many many manufacturers going down and a hard landing in this sector is very likely. Whether the Chinese will allow the truth to hit the presses, that is another question altogether. The best barometer of the Chinese economy will be to pay attention to the Australian economy. Australia has been a beneficiary of the Chinese miracle decade of growth and should China go into a hard landing the Australian economy will reflect it. Australia has not experienced a recession in the past 12 years and should it face recessionary pressures, it will be a reliable reflection of the true state of China's economy. So if Australia starts to look shaky, that will mean that the Chinese economy is in a hard landing scenario.

Hopes for emerging markets like BRIC countries to help prop up equity markets are not not realistic as they are all looking at their own set of problems and social tensions are expected to affect political stability in these countries. We will be lucky if these emerging market countries weakness does not accentuate the whole problem.

Corporate earnings will probably stagnate. Companies will start to disappoint in their earnings especially the highly cyclical sectors. Valuations will start to rise as companies start to show weakness and that will probably be the next leg down for the market. Avoid highly cyclical sectors like commodities trading, shipping, technology etc. Concentrate on those that are brick and mortar like tobacco, fast food, alcohol, gambling etc. I know what you are thinking, this guy sure loves vices. I have to admit, this is not exactly socially responsible investing but concentrating on sectors where demand elasticity is low and not affected by economic growth. Just look at Cafe De Coral in HK, Macdonalds, Altria, British American Tobacco, Diageo, Las Vegas Sands etc. These companies have been trading close to their highs in spite of all that is happening in Europe and around the world. The reason is these are high margin businesses which have been around for the longest time and are expected to be around for many more years to come.

One thing that makes me concerned is how unified the consensus is on the weakness of stock markets in 2012. Normally, when most analysts believe in something together, it tends to be the opposite. Remember how the Yuan was expected to be a one way trade against the USD this year? What about the sure bet on the USD depreciating against Asian currencies for the year 2011? How did that pan out? This is the only factor which I cannot reconcile with my outlook for 2012. I am bearish but I am really concerned that the rest of the world feels that way too. When bets is overly weighted to one side, the opposite tends to happen. Just ask Manchester United last night, who would have thought that the bottom club can beat the defending champions on their home turf.

The facts of the current situation paints a bleak picture of 2012 and any rational investor would steer clear of risky bets and lay low for some time. Whether the market behaves rationally will be a different thing altogether. Rationality in the market is a rare commodity and the only thing that we can be sure of is human sentiment determines the direction of the markets and when it comes to human emotions, it is never rational. No matter how the market performs this year, we have to bear in mind that there is often a disconnect between the state of economies and performance of markets. So we have to keep an open mind because consensus on a one directional bet often ends up as being a wrong call. The key to navigating 2012 will be to keep an open mind and not be too overly biased towards any direction. There is no doubt that the year starts off on a shaky footing for global markets, but lets do not get too carried away. We can always expect politicians to do more to appease the markets in the short term. Profiting from these situations can be quite rewarding. Long term measures to solve the debt issues for good will not come and muddling through this crisis will be the best scenario for 2012.

Have a great new year everyone! Remember, performance in markets are not the main determinants of whether we have a great year. It just means that we should be more prudent and play it safe for the year.

Best,

SVI

Kulim Berhad a beneficiary of the privatization of QSR. RM$3.98

2011-12-18T00:28:00.000-08:00

After two weeks of not posting, the market is pretty much where it was when I left. The much awaited Santa Claus rally has not materialized and much to chagrin of investors, things still look like a complete blur. Over the past two weeks, plenty has happened, we had a very nice little EU summit which made David Cameron public enemy number 1 in Europe. He is starting to look a lot like Margaret Thatcher but I have to say that he really made me look at him in a different light. It takes massive balls to do what he did and he showed the world he had enormous ones. The EU summit's proposal for a new treaty was initially well received however as the week went by the conviction behind is started to look a little shaky to say the least.

Global markets have welcomed the new additions of high profile IPOs like Chow Tai Fook (twice the size of Tiffany's!), Chine New Life Insurance, Zynga and Groupon. All ended underwater and it should be seen as a barometer for the weak sentiment in the markets. Volumes have been extremely thin and it looks like only institutional and proprietary players fooling around in the markets. The next two weeks are going to be key to see how the new year will play out. I have a sneaky feeling that things are going to be really volatile before the new year begins.

Quietly but surely, the Euro has fallen to year lows with the ECB lowering interest rates once again. This is definitely not the end of the Euro's weakness because more easing measures can be expected down the road. More Eurozone countries are going to get downgraded over the next one to two months as Moodys and S&P put the finishing touches of their reviews for those countries. Euro weakness will be a good gauge of how the markets are going to move. Also bear in mind, Gold has lost quite a bit of its luster. In my view, gold is going to go through a tough run because technical charts show that the precious metal is unable to rebound convincing and it has revisited their lows once again. Looks like a lot of unwinding by investors to take profits to cover for losses on other positions.

In this post, I would like to focus more on something that is of great interest to me. The privatization of QSR and KFC which was announced over the past 3 trading days. I believe those who have been following this blog will know that QSR was one of my favourite picks and once again another stock has been taken private amongst my picks. Sigh. The reason why I am sighing is because these are the companies that really have great potential to deliver great returns investors and once they are taken private, investors are not given the opportunity to really benefit from them.

The current offer for QSR from Johor Corp and CVC capital is at an attractive price of $6.80 which values QSR at 17 times p/e. That is not expensive because if we look at the other companies like Jollibee of Philippines, Cafe De Coral and the Little Fat Sheep of Hong Kong, they all trade at more than 20 times p/e. Also these are companies with less brand equity compared to KFC. If I were a shareholder, there is no way in this world I would take this offer but I am pretty sure because of this poor sentiment, the offer will be accepted. Now all we can hope for is for another competing offer to be tabled. This is a possibility but not one that I am too optimistic about.

One thing that still baffles me is how this will affect Kulim. Kulim is a wonderfully managed plantation company that owns more than 50% of QSR. Johor Corp owns more than 50% of Kulim. The question is, now that QSR and KFC will be held under a special investment vehicle in Massive Equity Sdn Bhd, what happens to Kulim's stake? Will Massive Equity be paying cash for the stake or will it be exchanged for other things. I have been looking at Kulim and this is one company that has had a fantastic track record and have extensive businesses outside of their core plantation business. If Johor Corp continues to use Kulim as the holding company for the privatized QSR, Kulim will continue to benefit from the KFC franchise. Which means that this is a good opportunity for investors to switch from their QSR holdings to Kulim.

Currently, there is some speculation that Kulim's stake in QSR will be swapped with Johor Corp for more plantation assets. That is something which I am not too keen on. I would prefer for a cash settlement or a continuation of Kulim as a stakeholder of QSR. Kulim currently trades at 9 times 2011 earnings which is very decent with very strong cashflow. If their QSR stake is bought over in cash, that would mean they would net more than RM1 billion in cash. Which could mean a nice special dividend for shareholders. They do not need the cash and have more than enough to pay off most of their debt. Therefore, a nice dividend of close to 80 cents per share is not out of the question. Throw that in with the normal dividend yield of 4.4%, we are looking at close to 25% yield for the coming year. Of course that is not sustainable but still a very attractive yield that will keep the price stable at least through the next few months.

The key reason for Johor Corp's move to privatize QSR and KFC is because they have a growing debt burden and with this restructuring, they will be able to benefit for KFC's strong cashflow to meet their debt burden. This is one of the key reasons to why I have been very positive on these companies because their predictable and stable cashflows are their key attractions. Remember, in situations like the one we are in today, stable and predictable cashflows are the most important when we are buying companies. Forget growth for the time being as we will be seeing stagnating growth for the next 1 to 2 years.

Well that is all I have to say for this week. Have a great Christmas and will be back with more of my thoughts for next year.

Best,

SVI

This slump won’t end until 2031? An interesting article which I read.

2011-12-13T22:56:00.000-08:00

Had no time to write anything the past 2 weeks because I was travelling. Read a good article which was pretty interesting. Do take a read. Will be back soon.

Best,

SVI

http://www.marketwatch.com/story/this-slump-wont-end-until-2031-2011-12-14?link=MW_home_latest_news

No more options left on the table for the Euro Zone. We can only await the inevitable End Game.

2011-11-27T08:16:00.000-08:00

Updating this blog on a weekly basis is really getting tough especially when there is really no stock to recommend and every week it seems like the big issue lies in Europe. Lets hope this crisis does not last as long as I believe it will or else we will have to close off this blog cos there will be nothing much to write about.

Over the past week I have really wondered whether the weather is the best predictor of the markets these days. It rains on a daily basis and the markets seem to be taking its cue from the gods. The S&P500 registered close to a 5% drop over the past week, European markets seem to be on the next "down" wave. Asian markets are also falling extremely quickly and it will not be surprising if we revisit the Oct 4 lows soon. Should it be breached, we would have practically reached a nice double top formation or for some markets a nice head and shoulders pattern which spells plenty of trouble.

This week, I would like to throw in a belief of mine which I formed over the past couple of weeks. That is, I believe it is too late....Really too late. Have you guys ever had any experience with a situation where it reaches a point of no return. The problem is that the situation was still manageable if you had taken the bitter pill and nipped things in the bud but due to your indecisiveness and unwillingness to take short term pain, it evolved into a situation which cannot be contained and an eventual write off occurred. I am afraid that is where Europe is right now. In one of my posts a couple of months ago, I offered a few possible solutions that I thought was possible to bring the markets back to life and resolve this European Sovereign debt crisis but it is my conjecture now that the time for those solutions have passed and the end game is inevitable.

An analogy I would use would be the case of a couple whose marriage is not doing so well. It all started with a minor disagreement on whether to have kids or not. Both parties cannot agree but they believe a solution will be arrived upon over time because they are still young. Neither are the sort that like confrontations and would prefer for one of the parties to change their minds over time. So as time passes with no proper preparation or discussion, both parties continue to drag on with the problem till the point where age is catching up and time is running out. Desperate times call for desperate measures, however due to both parties not focusing much on the problem and taking for granted one party will compromise, they both have drifted apart and the marriage is no longer reconcilable. You get the drift? If you had diabetes and have an open wound that does not heal, it would be better to amputate, either that or lose even more by dragging it on. That is exactly what is happening in Europe now.

I believe even if Germany agrees with Eurobond issuance now, it will not be enough anymore. Why? Because confidence has dwindled to the extent of investors not willing to take up German Bunds offered during auctions. Italian 3 year yields crossed 8%. Belgium bond yields rising more than 1% in a week. All the Eurozone core countries are starting to look shaky. All eyes are on the rating agencies as they threaten further downgrades across Europe. Considering there were a few headlines that even described the Eurozone as "Europe's junkyard". By the time this crisis unfolds completely, we will have plenty of junk rated bond issuers. So even if they decide to leverage even more or have a joint Eurobond issuance, it will not be of any use because only god knows how much will the borrowing cost will be. Options have run out and it is time the Eurozone leaders wake up to the reality that the Eurozone will either have to break up or to consolidate and keep only the core healthy countries. Even Merkel has admitted that if Italy defaults, it will be the end of the Eurozone.

Currency markets in my view have been a great barometer of how the equity markets are going to perform. The Euro and AUD has shown lots of weakness this couple of weeks and it is very obvious that risk taking is off the table. The Euro is at year low and the stock markets are probably going to follow in its footsteps. The cost for European banks to fund in USD rose to levels not seen since Oct 2008, that is a sign that the interbank market has frozen up. Guess what? Oct 2008 was right after Lehman collapsed on 15th Sept 2008. That gives us a good idea of how much tension there is in the markets today.

There was even an article in the Italian press that the IMF is preparing a 600 billion Eur loan for Italy. That alone is more than all the money loaned to Asia during the Asian financial crisis in 1997. Are we facing another "Lehman moment" in Italy's case? I certainly think so.

November has been a bad month for most asset classes and that includes gold which many investors believed that it would be a safe haven but they seem to have forgotten that there is a lot of speculative money in this asset class which means that it will be part of the deleveraging process of market participants. Selling out of their profitable positions to pay for their loss making ones. Do expect more weakness in all risky assets over the next few months.

Remember my comments about the recent IPOs? Well they have gotten back to more reasonable prices. I really do hope not too many people got caught with those junk issues. Even the blockbuster IPOs for this year like Hutchinson Port Holdings are dead in the water. Looks like Li Ka Shing has pulled another fast one on investors. Selling out at the right time at the right price. He truly lives up to his reputation of a great investor. We are seeing lots of weakness across the Singapore market but be patient, it is not time to buy yet. Time your entries according to the market levels. Do not be deceived by the individual stock prices and focus more on the index levels to get your entry levels right. At this moment, I expect the STI to test its year lows before attempting a lame rebound. So trade wisely. Nothing much more to say on the markets, just that it is time to be fearful because people are still not fearful enough.

Best,

SVI

Contagion in Europe looks more likely. At least that is what the bond markets are telling us.

2011-11-20T08:49:00.000-08:00

Took a nice break last week, away from work and markets. Was too lazy to blog but that does not mean that there was nothing to talk about. In fact, there was so much happening that the market had a tough time digesting all the information. The past two weeks have not been great for the markets and things look like it is only going to get worse before getting better. Lets try to dissect one issue at a time.

Two weeks ago, we witnessed something which we have not seen for some time. Two governments falling. Believe me when I say this is just the beginning. Governments will fall as the world tries to get its act together. My question is, will these new governments really make a difference? Spain goes to the polls this weekend and the opposition looks like they will win a landslide victory. That makes a third new government installed in Europe in 2 weeks. In one of my previous posts, I mentioned, as governments fall, what is to stop the new governments from making radical decisions to prove their worth to their people? If that is the case, will they have the same kind of commitment to the Euro Zone? All can be said is that political risk is one that cannot be quantified and do not underestimate this.

Finally, the press is talking about Italian yields. That is close to a month too late. Yields shot all the way up to 7.47%. That all happened so quickly, the market was taken by surprise. Since that day, the markets have not been able to climb back up. The underlying weakness is obvious and we have since seen the worse week for the S&P500 since September. Yields being temporarily high is not something which should concern us because Italy does not need to refinance so much over the next few months. What the yields tell us now is that the markets are freezing up. How do I know that? Last week, there was an auction for Spanish 10 year bonds which saw the bonds sell at 6.96% yield. You may be asking why would that be something that interest you? Well the secondary market for Spanish 10 year bonds was trading at 6.60% yield. So you could buy in the primary market and sell it immediately for a nice little profit.

The reason to why there is such a big difference between the primary and secondary market is because the ECB is in the secondary market supporting prices but they do not have the mandate to buy bonds directly from primary auctions. What it tells me is that the secondary market for European sovereign bonds has frozen up. If the ECB stops buying, the yields are going to shoot through the roof. Now what we have here is a liquidity problem more than an insolvency one. However, if liquidity is withdrawn for a long period, a solvent entity can become insolvent. So continue to watch the yields closely.

One thing that makes me worried is how the French 10 year yield is at 3.66% while the German 10 year yield is at 1.85%. The spread between the two bonds are too high for comfort. Considering how both countries are rated AAA, the difference in yields may be indicating that the contagion is really here. Germany has a bond auction that was not even fully taken up last week. This shows how thin investors' confidence are on Euro Zone debt. There is also the EFSF which the world regarded as the ultimate solution for the Euro Zone debt crisis. Now the debt that has been issued by the EFSF is trading below par. That is a worry, this is a bond that is backed by all of the Euro Zone...including Germany and France. Rated AAA and trading below par. The market is obviously not regarding it as AAA. If this goes on, one has to wonder how much can the EFSF raise from investors to provide a large enough backstop for the Euro Zone. Looks like the sovereign bond markets in Europe is shedding blood while equity markets continue to meander and hope for the best. Remember "Hope is not a strategy".

While Europe is in a mess, things in the US looks brighter as most economic indicators continue to be positive. However the MF Global bankruptcy close to two weeks ago could have further reaching repercussions than we think. Of course MF Global is no Lehman, but many banks are on the hook from MF Global's demise. Be it in the form of lawsuits for selling MF Global notes or as creditors. US financials have performed really badly over the past couple of weeks. Many of them are trading close to their 52 weeks lows and one has to admit, things do not look too bright for them going forward.

One possible tricky situation for this week is the debt plan which the US debt "super committee" is supposed to come up with by 23rd of Nov. Well considering it is Sunday night and both democrats and republicans still at an impasse. This should not come as a surprise because the world knew that the formation of this "super committee" was just a delay of time tactic. The committee faces a Wednesday deadline. But members would have to agree on the outlines of a package by Monday to allow time for drafting and assessing by the Congressional Budget Office. Thus if nothing is out tomorrow, the market would not be too pleased. The US should really try to get this out of the way as soon as possible or the recent memories of the impasse they had earlier this year is going to resurface and cause more duress to the markets.

For our Singapore market, we have had a few interesting IPOs which behaved rather interestingly, rallying on pure speculation as both catalist counters are not exactly exciting in their businesses or even growing. We are seeing plenty of IPOs over the last few weeks as companies rush to list their businesses before the next downturn in the markets come along. Be very careful when dealing with these IPOs because they are really ridiculously priced. Earnings season for Singapore companies have also disappointed, illustrating the weakness in the global economy. Plenty of brokers are trying their best to release reports on when earnings will recover. My gut tells me that earnings will continue to be weak as long as the Euro Zone debt problem persists on.

Of course one of the few companies that have done pretty well during this earnings season has been LMA which I covered in the last post and Sarin did fantastic too. So both my favourites are still holding up pretty well.

Ok that is all I have to say for this week. I continue to remain bearish on the market and maintain the worst is yet to come.

Have a great week ahead!

Best,

SVI

LMA International an under-appreciated global market leader. Strong buy $0.33

2011-11-07T03:34:00.000-08:00

Took the weekend off to relax and not think too much. That is why this post is a little later than usual. Just crossed the 30,000 hit mark this week and I would really like to thank all of you for reading so consistently. Been tracking the blog for a few months and readership has been climbing steadily. It is no facebook but I am still very happy with the response so far. Interesting thing is how the blog gets more than 120 hits per day but I have 24 followers. I am really impressed by how many times you guys are reading or maybe re-reading the posts.

Last week was an interesting one with Greek Prime Minister George Papandreou coming out with the insane idea of calling a referendum on the Greek bailout plan at the beginning of the week and making a U-Turn by the end. Talk about being fickle. Latest news is that he is going to step down for a new coalition government to be formed. One really has to wonder, do these politicians know what they are doing? This is a person who graduated from the London School of Economics and supposedly smart enough to lead a country. Yet he could come out with ridiculous ideas like opening up a referendum that is almost certain to fail. Thank god he had the decency to make a U-Turn on that decision while at the same time all his credibility went out the window with that. Now that Papandreou has stepped down, the spotlight falls on Silvio Berlusconi of Italy. Political careers are on the line now and most of these politicians are scrambling to save their skins. Rest assured, governments will start to fall and the Greeks are just the first domino to drop. Political revamp is something which we have to keep a close eye on, as new politicians come into power and their ideologies may not be aligned to what is pertinent in keeping the Eurozone alive.

There was an interesting talk by the insightful Russell Napier (Author of "Anatomy of a bear") last week and he said at this moment there is only one indicator that matters in determining the direction of markets now.......Italian yields.....What have I been saying all this time????? Told you so. As I put the finishing touches of this post, Italian 10 year yields stand at an all time Eurozone high of 6.34%. Not a good sign. Throw in the fact that 2 year Greek yields are at 100%!!! The sovereign bond market participants are obviously not too optimistic at this moment. Equity investors? They are optimistic as ever before. This is one confusing market situation and that is what makes things so interesting.

Would like to give my two cents worth on the strong debut of Parkson Retail in Singapore. I do not know why but it seems like Singaporeans sure like retail companies a lot. The last 3 have done extremely well. We had Sheng Siong, Zhongmin Baihui and now Parkson Retail. Parkson has risen more than 30% since its debut. Crazy considering this company is trading at close to 25 times p/e. That is just nuts. Of course it is still far behind Zhongmin Baihui's valuations. I would love to ask all of you to look at Zhongmin's financials when you are free. For those who can tell me why the company has risen so much with no profits. If you like retail, look at Isetan instead, which has plenty of value and owns close to 1/3 of Wisma Atria rather than buying speculative plays like Parkson and Zhongmin. My view is do not touch Parkson because all you need is to cross the causeway and see how many people there are in Parkson stores. Almost next to zero....Do not let crazy speculation catch you out. This is a game of musical chairs and you don't want to be left without a chair when the music ends.

Been so focused on the European situation over the past few weeks that I have ignored talking on the stocks which I like. So I have decided to focus more on a company which I feel is an undervalued gem and could easily become the next privatization or buyout target. LMA is the global market leader in airway management with its innovative portfolio. LMA's airway devices are recognised globally for their proven quality and used extensively in anaesthesia and emergency care. Their products are marketed in more than 100 countries through an international distribution network and have offices in North America, Australia, Germany, Italy, Singapore, China and Canada.

LMA designs, manufactures, markets and distributes the innovative LMA laryngeal mask airway range of devices for pain free administration of medication. Designed by renowned British anesthesiologist Dr. Archie Brain, the LMA airway was first introduced to the market in 1988. It was the first effective product to offer significant advantages over traditional methods of airway support during surgical procedures and life-saving interventions.

Currently, LMA's product range is the most comprehensive airway management system available in the market. There was even a report that estimated their devices have been used more than 200 million times worldwide and without a single reported fatality attributed to its use. Backed by a strong research and development team, their product suite has been consistently updated and ensures that the company remains the market leader.

Just a week ago the company announced that its wholly-owned subsidiary, LMA North America, has signed a sole source supply agreement for Laryngeal Mask Airway products with Novation, the leading healthcare group purchasing organisation in the United States. LMA North America has been a contracted vendor of Novation for the past seven years. The latest agreement will take effect beginning 1 January 2012. This is a testament to the company's strong relationship with its key customers and product suite.

Last week LMA announced a record performance in net sales for the first nine months of 2011. Net sales increased 16% to US$92.7 million in 9M 2011 on the back of above market growth in the United States and continued demand for its flagship product LMA Supreme across the world. EBITDA and net income grew 47% and 118% to US$15.8 million and US$16.2 million in 9M 2011 respectively.

What impressed me most was the sales of LMA Supreme were up 45% in 9M 2011 as compared to the previous year, with notable performances in China, Europe, Australia, and Brazil. Overall, growth in International markets was further enhanced by the contribution from Vitaid Limited and foreign exchange gains.

Gross profit rose by 17% to US$55.0 million in 9M 2011 over US$46.9 million in 9M 2010. Gross profit margin stood at 59% in 9M 2011, in line with the Group’s expectations. LMA ended 9M 2011 with a healthy level of cash and cash equivalents amounting to US$21.3 million as at September 30, 2011 and no debt. The Group remained cash positive with US$13.4 million of net cash provided by operating activities in 9M 2011, up 9% from US$12.3 million in 9M 2010.

What I like about this company? Too many things: 1) Market Leader in laryngeal masks, 2) Strong balance sheet with a net cash position, 3) Consistent operating cash flow, 4) Strong growth, business is growing due to the streamlining of operations over the past 3 years, 5) Good management, 6) Cheap valuations of less than 10 times p/e, throw in good growth numbers, it becomes a bargain, 7) Growing its presence in more markets.

I really do not think the market is going to be strong over the next 6 months but I am still willing to buy LMA to wait it out because there is no way to say when people will sit up and realize that this is truly a gem of a company. That is all I have for this week.

Have a great shortened week ahead!

Best,

SVI

Euro Summit a major success! Then why is 10 year Italian yields back at 6%?

2011-10-30T09:39:00.000-07:00

I know what you all are thinking. The bull market is back. Technical signs look good for the various indices, especially the Dow and S&P500. This all came on the back of the "comprehensive" plan that was conjured up by Eurozone leaders during last Wednesday's Eurozone summit. One has to wonder why the market rallied that much when the plans that came in were way below expectations and sketchy to say the least. Well what can I say, this is what makes the market interesting. Unpredictable and irrational to say the least. First thing that came to my mind was how right my good pal "Earn Money Online" was when he said that his fengshui indicators showed that October was going to be a positive month. Boy was he on the right track! Never get into any disagreements with Fengshui masters.

Now that the markets have shown its strength, it is time for me to admit that I was wrong about it's short term direction. Do I think that we are back on the right track? I really do not think so. The signs are still ominous in my view and what the Eurozone leaders have done over the past week was once again another kick the can down the road move. This is the 3rd plan conjured up over the past 2 years to solve the sovereign debt crisis and it would be foolish to think its the last. The measures that have been announced do not address the real issues which led us to this situation. The politicians seemed more interested to find ways to appease the financial markets than to think of how to resolve the underlying structural problems.

Why am I so sure that the crisis is not over? Look at the Italian bond auctions on Friday. They did not manage to sell all the debt they put up for sale and throw in the fact that they were selling it at yields that were all time highs since the Eurozone was formed. If the market was so convinced that the sovereign crisis is behind us, why was a 6.06% 10 year Italian bond auction so badly covered? Two days after the Eurozone summit, we have seen Italian and Spanish bond yields rally, it does not truly reflect optimism does it? I do not deny, I had my doubts about whether I was right to continue being bearish on the markets, but the more research I did, the more convinced I was right. So be patient. I am sure that the markets will reach a point which is cheaper than what we saw on Oct 3rd, 2011.

In the mean time, I know it is hard to sit on your hands while the markets rally, but trust me, the rally will stall very soon as we approach the upper boundary of the current trading range.

I am not going to dissect the various measures proposed during the Eurozone summit because they really are not worth speaking about. The amounts were too little and most of the measures defied common sense and logic. All I can say is, if a 50% haircut is considered voluntary and does not trigger a CDS payoff, then who in the world is ever going to pay an arm and a leg to buy CDS protection? Do you know how much was being paid by investors to insure against Greek debt before this deal was done? Desperate times calls for desperate measures, these include totally screwing with the system. Now I will question the validity of checking CDS spreads for risk aversion going forward. Giving the Greeks a haircut of 50% on their debt means that their debt to GDP will be around 120% by year 2020. Does that sound a little high to any of you? 2020 seems like a really long time away.....God knows how many of us will still be around to see that day. Throw in the fact that the whole of Greece is no longer functioning and their economy is shrinking by 5% this year alone, what makes you think they will be able to honor the other 50% of their debt.

Portugal and Ireland will probably need to get haircuts in 2012 as their debt loads look too heavy considering their current turtle like growth rate. What do you think the haircuts will be? Lets not even consider Spain and Italy in the picture, or else it will get too depressing. Looking on the bright side, Portugal at least has the option of selling Christiano Ronaldo to Singapore, to aid us on our goal to finally reach the World Cup finals by 2030. Poor Ireland...no talented footballers to sell to help them cope with their deficits.

Now moving on to the banks. Yes I know what you are thinking, they are going to be recapitalized. That is good news. But considering the fact that companies in Europe are the most dependent on bank financing for their businesses, this is going to kill them. Why? Because the banks are all going to be shrinking their balance sheets to conserve their cash. Every 10 dollars invested in Europe, 8 bucks is borrowed. Do the math, without the banks lending freely, business investments in Europe is pretty much screwed.

Anyway, its now in the middle of the night on Halloween, it is not wise for me to stay up too late. Not going to keep writing too much about how silly the Europeans are, at the risk of me bumping into any supernatural entities. Have a great week ahead!

Best,

SVI

Owe too much money? Don't worry, leverage up to bail yourself out. That is Europe's suggested solution!

2011-10-21T11:01:00.000-07:00

Today is of those days when I decide to take a day off and sit down to look at the market from a personal perspective rather than for work. It is amazing how a day off can help a person regain some perspective about not just the market but also his life. As expected, the markets this week have been rather tepid while waiting for the Euro summit to takE place this Sunday. Expectations of a magic bullet are as high as the discontent amongst the Greeks as rallies turn violent and pictures of protesters are splashed across news channels.

For those of you who loves to watch dramas and movies, I would strongly recommend forgetting about your HBO and tune in to CNBC instead. Last night for example was a great example of how the twists and turns in the news coming out of Europe is just as intriguing as an episode of CSI or 24. If you had watched CNBC last night, you would have seen that the night started off with the EFSF discussion guidelines being leaked out to the press and brought some relief to the market. Following closely after that piece of good news, was the German finance minister commenting that germany and France had come to an agreement of an accord with regards to the new enlarged EFSF. Just when the markets were cheering this piece of news, an newspaper in Germany released the news that Merkel had cancelled her scheduled speech to the parliament with regards to the new EFSF plans. What a damper! Shortly after that, news of then possibility of another euro summit meeting being held next wednesday to finalize all the plans just got the whole market confused. Imagine that! All that in one night! Being very much a couch potato myself, I skipped a couple of my favorite movies on HBO and was glued to CNBC till 2 am.

Jokes aside, this week is ending on a strong note with plenty of investors wading into the market in the hopes of a strong plan being announced by next wednesday. Plenty of short covering happening here too. Speculation in rife with regards to the possible moves that may be implemented and they do sound interesting. But what really worries me is that the summit has been postponed twice already. I am not in the camp of believing that the countries are reaching agreement on what to do to resolve this mess. Even if they are in agreement, it does not mean that the compromised solution will be sufficient to solve it.

Last week, I mentioned that Italian 10 year yields are close to 6% once again and that worried me. This week, we touched 6% once again. The equity markets seem to be pricing in a solution to the Euro crisis but the credit markets are telling me another story. If we are so close to resolving everything, shouldn't the sovereign bonds be reflecting some of that? Well they are obviously not. One reason I can think of is that the participation in bond markets tend to be institutional investors while equity markets have substantial retail presence. That is why I believe that the smart money is still staying in the sidelines and not buying into the resolution story.

It is also interesting to note that Moody’s Investors Service downgraded Spain’s credit rating Tuesday and warned that France’s rating could also be at risk, citing both nations’ vulnerability as Europe struggles to manage it is persistent debt crisis. A hit on the French credit rating would seriously undermine the effectiveness of any bailout backed by AAA debt holders of Europe.

Another important thing to look at the composition of the EFSF to understand where all the money is coming from. It is ironic that Spain and Italy make up 12% and 18% of the contributions to EFSF. If only such a simple solution existed, the underwater U.S. homeowner would have loved to bailout himself. France is also a significant 20% which implies a hit on French credit rating undermines the EFSF. If France gets downgraded, the number of AAA rated countries backing the EFSF will drop to a pathetic number. Credit investors are also acting as if the EFSF is not a AAA rated issuer because its bonds are all trading at close to 100 basis points above that of similar dated German bonds. So if France gets downgraded the EFSF bonds will need to have higher yields to attract investors.

In my opinion even if a solution is announced over the weekend that is received well by the market, it will not be long before we are back to square one and another PIIGS-driven European crisis is front and center once again. Sweeping our problems under the carpet has never solved any problems and this will not be any different.

In conclusion one has to be skeptical about the European bailout plan and one has to keep in mind that we can’t solve a crisis which was caused due to excessive leverage by re-deploying leverage. Using more debt to solve debt issues will never be a solution and this is exactly what European leaders are proposing to do. You would have thought that they would have better sense to know that structural issues are not solved by throwing money at it. Lets hope they will wake up and acknowledge the need to assist these nations to improve structural competitiveness rather that pushing them to go through more austerity measures and thereby causing their economies to contract even further. Sigh....it is worrying to see that the guidelines on the plans being discussed in this Euro Summit does not address the real issues that are underlying this crisis.

Well all the best for the coming week!

Best,

SVI

Optimism is great, reality often disappoints. Skeptical on what the Eurozone leaders can deliver.

2011-10-16T08:39:00.000-07:00

October....it has always been an interesting month for markets and it looks like this year's October is going the same direction. Markets have brought hope once again with a nice rebound over the last two weeks. Glad to finally see some reprieve and it certainly brings a lot less stress for work. The rally came on the back of optimism that the European leaders finally get it. They have finally gotten their act together and show more urgency with regards to solving the Eurozone crisis. Merkel and Sarkozy claimed that they have come to an agreement on to recapitalize the banks using the EFSF. I don't know whether you guys noticed, but they did not even give any details on what they intend to do. Also bear in mind how different their mindsets were, going into their meeting. Sarkozy was all for recapitalizing the banks while Merkel insisted that the EFSF should only be used as a last resort measure. So I really wonder where they will meet in terms of a compromise of what to do and to what extent.

Things are expected to be thrashed out on the 23rd of October when the Eurozone summit is held. Speculation is that they will be arguing for EFSF guarantees provided to around 25% of new bonds issued by troubled euro-zone governments such as Italy and Spain. The summit was meant to be held over this weekend but the they delayed it because it was obvious that the Eurozone leaders could not hammer out a deal on time. Lets hope they have more to offer given this delay. The G20 group of leaders have put more pressure over this weekend on the Eurozone leaders to do more during this summit so that should generate some positive sentiment tomorrow. There is however a danger of the summit disappointing the market since it has already started to price in plenty of positive news coming out of it.

Personally, I really do not think recapitalizing the banks is the solution to this crisis because this is a sovereign crisis and not a banking one. The only worry is for liquidity to freeze up and bring us to a repeat of 2008. The underlying problem is the sovereigns and this problem is not going to go away. We are facing a structural problem and it is going to take a great deal more to stop it from getting worse. I am glad that they are finally doing something for the banks to prevent any from going under or causing a widespread panic. But should things get any worse for Italy, Spain etc, fear will resurface. I do not know about you but I am getting nervous as Italian yields are pushing higher once again, getting close to 6% once again. This shows that fears are starting to show in the sovereign debt market.

There is also talk of increasing the amount of haircut on the Greek bonds which private investors have to take. This is once again a sore point because in July, there was already a proposal to take an haircut of 21% on the Greek debt holdings. At the beginning, most private investors and banks were pretty receptive towards this proposal but now there are talks of revising the level of haircuts to 60%. Do not think private investors are going to take to that too well. Not that they have any choice on the matter. The biggest issue I have with this development is how the other peripheral countries that have debt issues react to this proposal. If you realize that the bank has just given your friend a discount on his debt, wouldn't that you ask for one yourself? That is my worry. I believe that the deeper the haircut given, the higher the chance of moral hazard and unhappiness amongst the highly indebted countries.

The IMF has also brought up the suggestion that their funds be expanded to deal better with the current economic crisis but the Americans and Germans have rejected this proposal. Not surprising because they have too much problems and obligations on their own. Contributing more money to the IMF is not going to sound too appetizing for them. In my view, bullets are starting to become a rare commodity for these countries and they have to be rationed. This is not a good sign. Now there is talk about expanding the EFSF in terms of size and how they may use it to provide up to 20% insurance on sovereign debt. How much will that mean? Is it possible for the Germans to pump much more into the the EFSF? Especially after the trouble they had in contributing their initial share to the EFSF, what are the chances for them to inject significant amounts into the facility? The German citizens are not going to be too happy about it.

Last year when the stock market advanced after its summer correction various bond spreads began to contract to signal credit risk was easing. Credit risk began to pick up again in the middle of this year just as the stock market was peaking. Please note, however, that while the S&P 500 has been in a trading range since August, each rally we've experienced has not been confirmed by easing credit spreads, leading to a subsequent failure to breakout of the trading range in each case.

Since the S&P 500 peak this summer, we have just witnessed one of the largest uninterrupted rallies, and since we have seen virtually no improvement in credit spreads, I think this rally is highly suspect and investors should remain cautious.In addition to bond market credit spreads not confirming the stock market, neither are bank overnight lending rates which continue to rise even in the face of a sharply rising stock market. Back in June 2010 overnight lending rates peaked as credit risk began to stabilize and then in July and August overnight lending rates plummeted and global financial risks began to subside. This time around overnight lending rates for European and U.S. banks continue to climb and show no sign of stabilization. My inclination is that if the credit and interbank markets do not start following the direction of the stock market rally, I would be highly skeptical of this rally.

Would also like to throw in my view on the Occupy Wall Street movement which hit a new high by the coordinated movement across the world this weekend. This is really the era of the social network. There is no chance this could have happened 10 years ago. I bet the Chinese central govt is glad they barred Facebook access in China. What this movement shows is the growing discontent of the common folk in the street and their resentment towards the powerful and rich. Have you read the demands of the protesters? You should. Interesting read. Do not underestimate the effects of these protests because they could have long reaching consequences, so keep a close eye on it's progress.

Thats all I got for this week, it is going to be an interesting week ahead but do thread carefully as the markets seem to be pricing too much expectation of an European resolution. I seriously doubt it because betting on humans to put aside their self interests for the greater good is something that is not in our nature.

Have a great week ahead.

Best,

SVI

Remembering Steve Jobs and congratulating Heng Long.

2011-10-08T09:55:00.000-07:00

Steve Jobs is dead....although it did not come as a surprise, it was still extremely sad when the news finally broke. Many articles have been published on his life over the past few days and I would strongly recommend anyone to read them because it gives us a good insight on how he lived his life. It was one of passion, focus and strong belief that he was making million's of lives better off with his innovative ideas. After reading about him so much over these past few days, it has really made me more reflective about how my work does not make anyone better off. In fact, considering how the markets have gone in 2008 - 2011, we really cannot blame the general public for having such a bad impression of banks.

Really was not in the mood to do anything this weekend nor write anything. Have really been in a more reflective mood. Markets have maintained their volatility this week, with most markets hitting year lows before staging a nice rebound till the later part of the week. Hope some of you managed to profit from it. I cannot deny that stocks do look cheap by valuations after such a steep drop and they have mostly priced in a recession going forward and if the European situation can be stopped, then this is a pretty good level to get back in.

Now it all depends on whether you all think that there is a way to resolve the Euro crisis. This week we saw the ECB do more by extending one year loans and increase their buying of covered bonds. This is to prevent the liquidity crunch in the European banking system. This is not a solution but it should provide some reprieve for funding needs of the banks. We also have witnessed the first European to technically fail. The breaking up of Dexia should be viewed as that because the bank could not operate under normal circumstances and the creation of a good and bad bank out of Dexia just brings back fond memories of 2008 doesn't it?

If you studied finance, you will know risk is one of the core topics for any financial courses. For the longest time, academics have been trying to find means and ways to quantify risks and even categorize them in to systematic, idiosyncratic and systemic risks. Reduction of risks have been the focus for the longest time but what this year has shown is that there are some risks cannot be reduced. In order to reduce risks, risks needs to be quantified, but how does one quantify political incompetence? I am not worried so much about other risks in the market but I am more concerned about the political situation.

As citizens of a country, we tend to look at things from our own nation's perspective and we tend to vote with that in mind. Can you imagine? During our last elections, we had full employment, strong economic growth and growing income but yet we were disgruntled enough to cause the worst ever result for our beloved PAP. Now put yourselves in the shoes of the Germans, French, Italians etc. You will not be thinking of how the Eurozone is going to do, you will be thinking from your own country's perspective. Now put yourselves in the shoes of the politicians. Do you think for your own country or do you think for the whole Eurozone. The problem therein lies in the fact that both are more interlinked than the people think. Having to juggle between your own citizens and the citizens across the whole region is really a big task. That is why I have the feeling that things are going to be tough to solve.

As for stocks in Singapore, I have been looking for companies that have been sold down to ridiculous prices but I still find lots of risks to the downside in terms of earnings. My current criteria before choosing any company is the sustainability of its earnings. During this time, we really need to be forward looking and also the business's ability to weather this coming storm. Take for example, I will not be buying into contract manufacturers or even companies that are very much dependent on volume rather than margins. Have shortlisted a few companies which I would very much like to accumulate during this time but they are definitely not at prices which I feel comfortable with. As for the names, they will be revealed in due course and some will be names which I have mentioned before.

To end off this post, I would like to say I am very proud to see that one of my favourite companies have been offered to be taken private. Not only is it being taken private, it is bought by one of the most admired companies in the world, Louis Vuitton Moet Hennessy. Congrats to those who bought into the stock when I called for it. Pity that we will not be able to benefit from Heng Long's growth going forward. But I do look forward to buying some nice croc products from LV going forward.

In the mean time, let us honor and remember the great Steve Jobs and what he has done to change our lives and his passion is something which we should try to replicate in our own lives. Not the biggest fan of Apple products but I do admire the company that he has built. Like what Steve Jobs said, "Live every day as if it was your last. Stay hungry and foolish." I hope I can do so too.

Best,

SVI

SPV for the EFSF? Leveraging to buy thrash. That spells trouble.

2011-10-01T12:35:00.000-07:00

Finally, the 3rd quarter is over. What a quarter it has been. We have seen most major equity markets get hit so badly, leading to many of them trading in bear market territory. Many market watchers were speaking on CNBC last night, on how glad they were in seeing the 3rd quarter come to an end. The question I have is, do you really think that the 4th quarter will be any better?

This week we saw a nice rally in European stocks at the beginning of the week because European leaders promised to do more to solve the sovereign crisis and there were talks on establishing an special purpose vehicle to issue bonds to raise money for purchase of sovereign bonds of the PIIGS countries. There was also a proposal floated around on using the remaining EFSF to recapitalize the banks. Seems like a lot of ideas for what little is left within the EFSF, whether they will work or not, remains to be seen.

Of all the plans, I feel that the SPV idea is the one which the market cheered most on. Taking Tim Geithner's advice to leverage on the EFSF to solve the current debt crisis. At the beginning, European leaders turned down Geithner's idea but now they seem to woken up to the merits of his plan. For those people who know me, will know that I will always rationalise things. Imagine this, if you are left with 1000 dollars in your bank account and you decided to leverage on this money by placing it in a margin account. Lets say you leverage it 10 to 1, and bought into small caps stocks which are running into cashflow problems and may need more money, what do you think will happen? For me, when you are leveraging good money to buy toxic debt, that is always a recipe for trouble.

You really have to give it to the Americans to come out with a plan to use debt to buy bad debt. Haha. Speaking of trying to add oil to fire. Cannot really blame the US for trying to get the Europeans to stabilise everything. The current sovereign crisis in Europe is hurting the US's plan of implicitly devaluing the USD. The USD has rallied against most currencies, this is really not good for the US and its massive debt burden.

There is speculation on the amount to be put into the SPV. Considering the 440 billion Euros in the EFSF is only left with no more than 250 billion. How much do you think they will place into the SPV? From what I see, at least 200 billion has to be used for recapitalization of the banks, how much is left? 40-50 billion? Speculation is that the EFSF has to raise close to 1 trillion to be able to stem this crisis from spiraling all the way to hell. That means that the EFSF will need to leverage 10-20 times to 1. So what kind of credit rating should be assigned to bonds issued by EFSF? AAA? If they are able to rate it as AAA, we will really have to stand up and clap our hands on how the credit rating agencies are able to conjure up such ratings. I have my reservations on the viability of this plan.

There was a client who asked me, what should we look out for, to determine when the market will turnaround. I honestly think that if we end up with a short term myopic plan to stop this crisis, we will face the same problems within the next 12 months. Anything less than a press of the reset button, there is no way we can come out of this crisis. We have gone past the point of no return. Adam Smith's invisible hand is the only way to do it. Let free market forces get rid of the excesses we have built up over the past 20 to 30 years. Interventions are all sugar pills placebos for cancer treatment. Nothing is going to change.

This week is going to be interesting as we start an new quarter. October has never been a good month for the market and throw in the technical charts. I will not be surprised if the US hits a new year low in this month. We shall see won't we? Economic data coming in has been borderline positive but I feel they still do not reflect the effects of the weakness in Europe and the negative wealth effect from the market capitulation, this could tip the economic indicators to negative territory. This coming week's employment numbers should shed some light.

Are there any stocks to look out for in this market? Personally, I have been trying to find any interesting stocks and something to position for the market recovery. Still not time yet. So I am not going to write anything specific at this moment. Thats all I have for today.

Have a great week ahead.

Best,

SVI

Come on baby, lets do the twist! Is it going to work? Doubt it. While Europe is still sleeping on its problem.

2011-09-25T07:17:00.000-07:00

Seems like a long time since I last posted? Where did I go? Ran to the mountains to stay away from the market? Nope. Was doing something important for my career and lets hope things turn out well. Lets get back to where we left off shall we? The market as we speak is at its year lows and in my view, it will get worse. Cannot help but feel a little sense of deja vu of 2007 before everything became critical and banks started to fail in 2008. I had some bad comments from a reader in my last blog but I hope that the movements of the market has vindicated my views and trust me, if my views could move the markets like he said, I would not be even bothered to write any more, too much money to be made elsewhere.

Lets start from the beginning. Like I said in the last post, Europe is the big problem. It is still the problem and I do not see it going off any time soon. Funny thing that came into my head the other day. What happens when you are in a marriage where a party makes all the money and the other party spends all of it? Obviously, one side will be a little happier than the other. But the good thing about marriages these days is that you can get a divorce easily. In fact, divorces are so common these days that it will soon be unfashionable not to be a divorcee. That shall be left for a totally different conversation altogether. Why was this used as an analogy? Its because right now, Europe is divided between the bread makers and the dough takers, I really like these terms I just thought up. Germany, France, Holland etc vs PIIGS. Sometimes one would wonder why in life there are so many coincidences. PIIGS? If that is not the ultimate irony of things, I really do not know what is.

The Euro Zone is clearly a marriage that is turning ugly, if you thought Donald Trump's divorce was tough, this is going to be the mother of all divorces if it happens. How unhappy would you be if you realised that you are in a marriage that cannot be dissolved? This is exactly what is stated in the Maastrict Treaty in signed in 1992. No one can be kicked out of the Euro Zone, only if the member opts to leave. If you are the party in a marriage that is taking all the money and spending it, why would you ever want a divorce? What about those guys who are making all the money? They would love to leave but even if they did, it will not make a difference because the consequences would still be severe in a different way. If I had to write on more detail of what can happen if Germany decides to leave the Euro Zone, it will take a month or two and possibly publishing a book.

The markets are currently moving up 1 to 2 percent on up days but plunging 3 to 4 percent on down days. This is the classic consolidation pattern awaiting the next leg down. Things are still not close to reaching the point of pandemonium that is why I would quote the great Capenters song ;"It's only just begun" seems rather apt in this case. The way the Euro Zone politicians and central bankers are dragging this issue further down the road, the future sure does look bleak.

What really scares me more today than in 2008 is the fact that we could identify the crisis of 2008 as a banking crisis, this time round it will be a challenge for anyone to try to differentiate between it being a banking or sovereign related crisis.

Speaking about deja vu, in Sept 2008, we had Dick Fuld, CEO of Lehman going on CNBC to tell the world that Lehman was well capitalised and there was nothing to worry about. This time, when I saw Frederic Oudea, CEO of Societe Generale on CNBC saying the same thing, that really got me worried. Have you seen the price of Soc Gen's stock? It is depressing. That is pretty much the same for Commerzbank, Unicredit, RBC Dexia and all other European banks to maybe just a lower extent. Will there be another bank failure? Depends on how you define a bank failure. Bankruptcy or Nationalisation? Hahaha.

Things are moving too slowly in Europe and Greece is just the first chip to fall. 2 year Greek bonds are currently trading close to 60% yields and just last week, they were trading at 80% yields. What that means is that the market is pricing a more than 90% chance of a Greek default in the next 2 years. I think it will not take so long, we could see it come as soon as March 2012. I am not worried about the Greek default, I am more concerned with the Italian yields creeping up to close to 6% once again. Currently, the equity markets are pricing in a recession in Europe plus a Greek default. But things are not looking good with Italy too and that has always been my fear because there is no way the Euro Zone will be able to bail Italy out. With Berlusconi and company so indecisive on their austerity measures, investors are getting increasingly worried about things. Throw in the fact that borrowing costs are rising, the increased burden is not going to do well for a country whose growth is already stalling.

When Greece defaults eventually, the market will rally and it will cheer the end of this uncertainty that hangs over all investors heads but whether it will be sustained or shortlived will depend a lot on whether the situation in Italy and Spain gets better or deteriorates. By the looks of it right now, it looks like it will be a long drawn out affair. So lets cross our fingers and hope for the best.

Moving on to the US, the banks there are not doing much better too. Goldman below $100, Bank of America moving ever closer to a bankruptcy protection on its Country wide unit (stock hitting close to $6), Wells Fargo getting downgraded....things are not looking good. Double dip recession? I think it is only common sense that the market is pricing in a good chance of one. I know what people are saying that stocks are looking cheap but is it really? Earnings can disappear really quickly and P/E ratios will become infinity. So do not be deceived by the talks about valuations. Unemployment numbers are coming in at zero. Zero! When did that last happen? Not negative nor positive, but zero. Recent economic data coming in looks bad, sentiment bad, Federal Reserve outlook....bad. The US market has held up very well in September because of the hopes of a QE3 and when the news of the Fed's operation twist came about, the market dropped a whopping 5% in 2 days. Talk about an anticlimax.

For those who love history, would know that the Federal Open Market Committee action known as Operation Twist was done in 1961 when the Twist was really popular. Their intention was to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. It performs the 'twist' by selling some of the short term debt it purchased as part of the quantitative easing policy back into the market and using the money received from this to buy longer term government debt. In many economists view, the twist was a failure in the 1960s and for the the Fed to resort to it now, that really does not give anyone much confidence. I personally think that the Fed is running out of ideas on what to do to help boost the US economy, even though good ole Ben keeps stressing that he still have plenty of tools to help the economy. Resorting to the twist looks like a sign of increasing desperateness. How will this turn out? Don't look great at this moment. Things could get worse if the troubles in Europe spills over to the US, then things will get even worse.

In Singapore, the STI has hit fresh intraday year lows on Friday and rebounded off them. Be prepared for further weakness because the path of least resistance is down. We are seeing plenty of weakness in commodity related counters and many stocks have hit fresh year lows too. Not a pretty picture at all. 2500 points look like a very possible target in the short term. Hong Kong looks even worse. Breaking the 18000 point marks with ease and slicing through 17000 with ease. The low for the Hang Seng in 2009 was the mid 15000 points. That is just an illustration to let you see how close we actually are.

Technically, all equity markets look awful, as they keep making lower highs and lower lows. The 2nd wave of the sell down has started. Good news is that the 2nd waves are not the worst, they tend to be a little milder than the first wave. Gold has taken a big move down after hitting record highs, this is mainly due to the raising of the margin requirements by the CME. Still believe that this is a temporary move backwards. Overall, confidence in currencies are going down the drain and I think that the CME is doing its part to try to prevent too many people from moving away from currencies into Gold. For the longest time, central bankers have been against gold as a store of value and they have been pushing people into believing that currencies are better because there is an yield on them. The tables are turning now because interest rates are so low therefore the yield is negligible and thus gold becomes attractive once again. The last thing politicians want is for the world to stop believing in the paper notes they hold and start loving that yellow metal once again. Why are they so worried about speculation in gold? It has always been a store of value, why would you worry about the prices going up? Have you ever heard of margins being raised on currencies? Conspiracy theory?

This is my first post in a very long time. I will be updating it on a consistent basis going forward as my projects have ended for the time being. So stay tuned as I try to find a way to maneuver in this market condition.

Best,

SVI

Short selling bans to help Europe? I seriously doubt so. Just look back into history to see how it did in 2008 for the US.

2011-08-13T09:34:00.000-07:00

No time this weekend to write but I encourage all of you to read this article contributed by Chris Ciovacco. It speaks volumes about how I personally feel about the market. It is a very insightful article which speaks the truth about our current market situation.

Just want to add my two cents worth on the short selling bans imposed by the several European countries. Just look back at September 19th, 2008 when the SEC banned short selling in the US. What happened next? Two days of rally on short covering....what happened next? The market collapsed. Lets hope history does not repeat itself this time.

Here is the link.

http://seekingalpha.com/article/287155-stock-market-parallels-to-2000-and-2008-should-not-be-ignored

Till next week.

Best,

SVI

1932 or 1974? Not 4D numbers. They are possible scenarios for the markets.

2011-08-07T23:51:00.000-07:00

Took some leave to stay home and relax over the long weekend. Guess what happened? The direct opposite. Conference calls, frantic smses, private calls etc. This is the life of an investment professional in today's world. Who said we were overpaid?

Markets have been hammered today, oops I meant the last 12 days. What happens now? Panic? As investors scramble to sell out of their positions in anticipation of a market meltdown. Whispers of history repeating itself. Some even mentioned deja vu. I cannot help but feel the same way. The question I have been asked most the past week has been, "what positions can we take to be defensive?". I guess the answer depends on the extent of this sell down. Why? If this is just considered a mid cycle correction, I would say to move in defensive sectors and high yield stocks. But is it really just a mid cycle correction? If this is the situation of a global contagion stemming from the European debt crisis, there is only gold and silver. When a global meltdown occurs, correlation analysis and diversification goes straight into the crapper. In the 2008 crisis, we still had the US treasuries to run into. Now that they are not even considered safe, investors are really running out of places to hide.

Over the weekend, I read some reports by well known strategists and they were all suggesting for investors to move into high dividend yield stocks and Reits. Immediately, it occurred to me how many silly people are in our industry. The S&P has just downgraded US debt and long term interest rates may start to move up. What that means is that the interest burden for real estate related plays are all going to get hit, esp Reits. These are vehicles that hold close to 40% gearing levels and they are all going to have to pay more financing charges going forward. What happens to their yields? Down of course! It is perfectly illustrated in the Singapore market today with Reits like Suntec and Capcomm falling more than 5%. There goes your yield!

Idiots.

Some strategists were citing valuations and how S&P500 stocks have outperformed consensus expectations during this current earnings season. No doubt they are right about the facts but they are using backward looking indicators to judge the market. Remember, p/e ratios can change drastically and valuations go up into smoke when there is panic. Sentiment is key and if it is negative enough, p/e ratios can trade at ridiculous levels for some time. Markets are dynamic, thus backward looking indicators are useless in this markets.

Yes yes, I know what you are thinking. Employment numbers are positive and unemployment rate in the US has fallen last month. Utter rubbish. This is still too small a change and the reliability of these numbers are questionable. Do not expect this number to be anything but a passing thought in this market.

In my previous post, it was mentioned that the ECB backstopping Italian and Spanish bonds would help. This is exactly what the ECB has indicated they will do. However, there must be strong conviction behind this move or else we will fall back into the spiral very quickly. As I write this post, Italian bond yields are falling. Lets hope this will bring some relief to the markets which are badly in need of one.

Of course, there is also the Bernanke statement tomorrow. Expect dovish comments and he is definitely going talk about how the Fed still has plenty of bullets left to boost the economy. QE3 hopes will also help to prop up the markets, but it is going to be short lived because more details will be needed to really bring hope to investors hearts.

Personally, I think we will test bear market levels eventually but it will not fall in a straight line. I believe in the Bernanke put and probably some Merkel put too. But it is obvious that intervention by central banks and govts have only short term effects with no long term solutions. After more than 100 years, Adam Smith's invisible hand theorem still looks like the correct thesis. Bear in mind, the psyche of investors are still weak and vulnerable. "Fond" memories of 2008 still remain fresh in their minds.

If we fall into another meltdown similar to 2008, I am afraid that we will be in a similar position to 1932 during the Great Depression where the market recovered momentarily before crashing to new lows. How long did it take for the Dow Jones Industrials to recover to its pre-depression highs? 25, but that was because deflation came into play? In our case, there is a higher chance of a money supply driven inflation with low to negative growth. Not trying to scare you guys but if we enter into a stagflationary phase, which is a very likely scenario, it could take more like 8 years for the markets to recover. This is taking the experience from the 1974 stagflation crisis.

So lets hope I am wrong. I hope so. However, I would like to state that I have already protected my gains for the year by moving into 70% cash. Also if you were looking to buy into any stocks, look for cash rich companies with no gearing....literally no gearing.

Ok gotta go relax a little by watching some comic relief on CNBC.

Have a good week ahead....if you can.

Best,

SVI

Focus on Italy and Spain. Repeat after me....the magic number is 7%

2011-08-03T08:04:00.000-07:00

This week let me start with a question to all of you.

Where can you find 4 over qualified investment professionals talking rubbish?

Answer: CNBC

Sitting in front of my tv watching idiot after idiot going on global network tv spouting absolute trash, pushed me to writing a post even though I have so much on my plate.

The US markets are currently registering their 9th straight day of negative returns and everyone in the world is pointing to the debt ceiling "soap opera" and weak US economic data as the key reasons to why the market has been so weak.

Utter rubbish. If you felt that there was a chance that someone was going to either get downgraded or default on the debt, what would you be looking for? Higher interest rates to compensate for the risk you are taking by lending money to them right? If your answer is not the same, please take a course finance 101, either that or quit investing.

Look at the US Treasury 10 Yr yields! They have been trending down since 9 days ago, does that seem normal for a country that may default. For the better part of 2 weeks, I have kept my mouth shut about how stupid the press are, on focusing on the US political drama rather than the important developments in Europe.

Not going to spend too much time writing this note because I fully expect all of you who are interested in the markets to be watching the same things as I do. Look at the Italian and Spanish 10 yr yields. They have risen significantly and now they are both teetering on the brink of possible insolvency as the debt servicing burden starts to become too heavy for these two gigantic European economies.

Bear in mind, both Italian and Spanish Yields are now trading at 6.22% and 6.36% respectively. Credit default swaps are getting more expensive for them and their spreads against the German Bunds are at all time highs since the Eurozone was formed. Why am I mentioning all this? Because the magic number is 7%. Why 7%? Should I just let you guys guess? Nope? Ok. 7% was the level when Greece started asking for help from the European Central Bank. Bear in mind, the amount of outstanding debt which Spain will need to help servicing is equivalent to Greek, Portuguese and Irish debt all added together. Italian debt is even larger. Get the picture now?

Am I concerned? Yes. I hope to God that I am wrong. Trust me, that does not happen often considering how much satisfaction I get when proven right. But the last thing I want to see is a re-enactment of 2008. In my meetings with my clients in the past, Spain was always the wildcard which I felt would mean all bets are off if it fails. A double whammy in the form of Italy and Spain is really something that scares me.

What can be done?

1) The European Financial Stability Facility (EFSF) gets additional 2 trillion worth of funds to backstop all European debt needs.

2) Blanket Guarantee by the ECB on all Eurozone member bonds. A buyer of last resort for all bond issues.

3) Break up the Eurozone

Options 1 and 2 are going to have short term effects on the market but it will bring some confidence back into the markets and also deter speculators from taking bets on an eventual default by Italy or Spain or both.

Option 3? Unthinkable. If it happens, we are really going to see 2008 all over again. Don't want to even think about the possibility of that happening.

Lets hope we see a strong and high conviction move by the ECB or EFSF to support Italy and Spain soon.

Earnings have been robust for the S&P500 companies this earnings season but it has absolutely no effect on the market. Guess what, even more job cuts. Just in the banking sector alone we are going to see more than 50000 job cuts. Bad signs...

Ok thats all I wanna say this week. Will not be updating regularly due to additional commitments for the moment. Have a good time ahead!

Best,

SVI

Short note before a tough week ahead. Default by the US? Not a chance in my view.

2011-07-24T08:04:00.000-07:00

What a week it has been. Markets have rallied (told you so) back to levels close to their year highs. Japan is back to its post quake highs (told you so too) with Japanese mutual funds leadings all gainers in the mutual fund space. Fortune always favors the brave. Expect much more to come, this is just the beginning. If you looked at the markets 3 months ago and compare it to today's levels, you would never have guessed that the world has been dealing with a global slowdown, US debt ceiling and Euro sovereign crisis issues. Magic? Thats what excess liquidity does to markets. When has the world seen such money supply growth in developed countries? Never. Liquidity is here to stay for some time.

What that means is inflation is going to be a lot stickier. How much has rice risen this year? 70%? Pork? 49%? Diamonds outperforming gold? Now that is what I call inflation. Yogurt for more than $3 bucks per small pint...at cold storage...so much for cheap healthy living. What should we buy in such a time? Gold, silver and platinum? Nope... The fallacy of gold being a great inflation hedge is something which investors have to learn. Gold has underperformed inflation for the longest time in the 90s and it is still trying hard to play catch up. Go check, you will know I am telling the truth.

I do not have all the answers on this, but personally, I am going to buy into some of my golden stock picks because of their underlying value which will eventually outperform inflation when their time comes.

QAF has just started moving, Heng Long has resumed its uptick, QSR Brands have broken out of its consolidation phase, STX OSV hitting new highs on a daily basis, Sarin delivering solid gains as raw diamond prices rise, Keppel T&T delivering solid growth in their profits etc. These are companies which I feel are still undervalued and should continue to perform well over time.

Was asked by a friend of mine to review my call on Tat Hong some time ago. So here it is. Tat hong as been the subject of downgrades over the past year and its stock price has fallen close to 35% over the past 12 months. Earnings have been dropping due to lower margins caused by more intense competition, weather issues in Australia and delays in shipments no thanks to the Japan earthquake. Why is Tat Hong facing so many headwinds? Bad luck or bad timing? A little bit of both, I would say. Tat Hong is in the middle of restructuring its business, acquiring new businesses and adding to their stakes in JVs. In normal situations, this would mean a lengthy gestation period and teething problems. However, I have personally met Tat Hong's management in the past and I was impressed by their professionalism and enthusiasm in managing their business. However, what should you do if you are down by 35%? Buy more or sell out? For me, I would buy more, but not everyone is the same. If there is a better opportunity this is staring you in the face, take it. If not, hold on. I think the turnaround should be soon. Remember KS Energy? They had a long gestation period and what happened now? 2 large contracts in a span of a month.

Sarin too has a blip before moving up. How long did it take for Sarin to move since my call? 1 year? To me, that is already fast. Bear in mind, when I make a call, I always have the long term in mind. We should always look at returns from a percentage point of view. My target is 10% per year, so if my stock stagnates for 5 years and suddenly within a year it doubles, it would still mean that it has hit my objective. Picking stocks is what I try to do all the time, one thing I never like to do is to time the market. Do not own a crystal ball and never will. Good things come to those who wait.

This coming week will see the market get jittery over the US debt ceiling situation as the deadline draws close. Do not worry, buy on weakness. There is no chance they will allow a default. If they do, we are all dead anyway. So no downside. Hahaha. Gotta go cos its getting a little late.

Have a great week ahead!

Best,

SVI

Commemorating my 100th Post - Keppel T&T - Buy $1.365

2011-07-17T09:03:00.000-07:00

The world is definitely evolving. It is moving so fast, it is so hard to catch up. Considering the fact that there have been so many events happening this week, it is fast becoming extremely difficult times for investors. This week, we had the scare on Italy, Moody's ridiculous report on Chinese companies, US debt ceiling disagreement, Moody's placing US debt on ratings review and European stress tests.

Madness. Social media, internet, tv, newspapers etc are making information so easily accessible that markets are starting to react to everything as they come online. Isn't the internet an amazing tool? Who would have thought that the internet would be such a great tool? Or has it gotten to stage where it has become detrimental? I really wonder if too much information is detrimental to investors and their decision making process.

Not to worry, all the problems that are cited are not that big a deal. Trust me. The media is having a field day with this but I still think that they are blowing things up. All I can say is, there are that many people who are not that bright in this world. They trust everything they read, which is the dumbest thing to do. Trust your own judgement and also think through how much bullshit there is in the news.

This is my 100th post and I would like to commemorate it with a stock pick. A long time has passed since I picked a stock for this blog. It is not because there have not been any ideas, but the truth is, I have become more choosy on the stocks I pick. STX OSV has been a good pick, hitting a new high and now that Och Ziff capital has bought 20% of the company, it makes me even more positive on the stock. Patience in this stock has really paid off for the guys who listened to me earlier. KS energy on the other hand has been really a sad story. After the mandatory takeover offer, the company has announced two huge contracts. I will once again beseech shareholders to not sell their holdings. The integration is over and the company is finally going to deliver. Sell it and you will really be giving up a very good company.

I need to say, this is probably the last stock pick I will have for the next two month because I will be very busy and the postings will become more irregular. SO lets make it a good one.

Keppel Telecommunications & Transportation Ltd (Keppel T&T) is a subsidiary of Keppel Corporation Ltd. Headquartered in Singapore, Keppel T&T offers integrated services and solutions in two core businesses: logistics and data centers. It traces its origin to Straits Steamship Company Ltd, which was established in 1890 as a partnership between British and Chinese interests at Malacca to provide regional and coastal shipping services. Today, Keppel T&T has operations spanning 12 countries in Asia Pacific and Europe.

Through its subsidiaries Keppel Logistics Pte Ltd, Keppel Logistics (Foshan) Limited, Keppel Logistics (Hong Kong) Limited, Keppel International Freight Forwarding (Shenzhen) Limited and Keppel Logistics Sdn Bhd, Keppel T&T offers one-stop, integrated logistics solutions to help clients manage their entire supply chain--from the inbound movement of raw materials to the delivery of finished goods.

Operating world-class facilities with state-of-the-art IT infrastructure in Singapore, China, Hong Kong, Malaysia and Vietnam, they deliver logistics solutions that are tailored to meet clients’ specific needs.

As a strong testament to their operational and service excellence, Keppel Logistics clinched for the third consecutive year in 2009 the FMCG & Retail Logistics Service Provider of the Year (Singapore) Award , as well as the Domestic Logistics Service Provider of the Year (Singapore) given out by Frost and Sullivan.

Through its subsidiaries Keppel Data Centre Holdings Pte Ltd and Citadel 100 Datacenters Limited, Keppel T&T owns, acquires, develops and manages high-availability data centre facilities for an international clientele. They help companies ensure smooth business and IT operations by providing highly resilient and energy efficient data centres that are reliable and cost-efficient for their customers.

Keppel T&T hold stakes in a portfolio of companies that helps contribute to the profitability of the Group.

M1 limited is a leading integrated communications service provider and it provides a full range of voice and data communications services over its 2G/3G/3.5G network, as well as fixed and mobile broadband. M1 also provides international call services to both mobile and fixed line customers. It has partnered operators globally to provide its customers coverage and roaming services in over 230 countries and territories.

Business Online Public Co. Ltd (BOL) provides full-service business verification support: company's information search, creditability check, business analysis and debts collection. Established in 1995, BOL has been cooperating with Department of Business Development, Ministry of Commerce to provide basic information on more than 720,000 companies registered in Thailand.

Computer Generated Solutions, Inc. is a leading global provider of end-to-end, technology-enabled business solutions, including ERP, SCM, PLM, WMS, CRM, portal, e-commerce, application development, project services, e-learning, training, staffing, call center, and global sourcing solutions.

Founded in New York City in 1984, CGS currently serves North America, Europe, and Asia with 20 global locations and 2,500 employees worldwide. CGS enables mid-market enterprises, Fortune 1000 companies, and government agencies to drive business transformation and improve operating performance by adapting and implementing advanced technologies.

Advanced Research Group Co., Ltd. is a leading information and knowledge provider in Thailand offering fully integrated information resources associated with state-of-the-art information technology to enhance the potential of individuals, businesses and organisations in making informed decisions.

Anew Corporation Ltd is an associated company of Advanced Research Group. It is a holding company of:

* A-Net Co., Ltd
o Thailand's third largest ISP. Anew holds a 53.32% stake.
o Customers include the general public and corporate clients. General businesses and educational institutions are the major corporate clients.
* Business Online Co., Ltd
o A business information services related firm, in which ANEW holds an 80% stake. Dun & Bradstreet holds the remaining 20%. This company focuses on the provision of company information, most notably in the credit rating field.

SVOA Public Company Ltd and its associated companies are the distributors of leading brands of office automation, computers and peripherals. The company also provides consulting services and full-service computer installation to customers.

Keppel's earnings have been very consistent driven by strong warehouse occupancy, growing strength in Data Center business and earnings contribution from M1. The key growth engine will come from its Data Center business as they add on more capacity. M1's earnings is not expected to grow much in Singapore's saturated mobile market. No doubt, the increased use of smart phones has led to increased revenues from data streaming services but that also cannibalized some of the mobile usage. Therefore it does not deserve any re-rating in my view.

In terms of margins, the teleco and data center business looks very attractive. High margin businesses are something which I like. The expansion in their data business will be very beneficial for the top and bottom lines. It is more a matter of capacity than utilization rates. Over the last two years, I have become a big believer of cloud computing and data center services that is why I have spent some time looking into Keppel T&T.

Having a strong shareholder in Keppel Corp (owns close to 80% of shares) gives extra credibility to Keppel T&T. I do like the company for its business. Current valuations on the company is around 15 times p/e which is not considered excessive considering the potential of its data center businesses. The company's operating cash flow is very consistent and I expect it to grow at a good healthy rate going forward.

The risk to this company is that they have a current and quick ratio of below 1. Short term debt has grown quite substantially over year due to acquisition of a subsidiary. Since the borrowings are listed as short term, I expect Keppel T&T look for refinancing soon. Either that or a cash call of some sort will happen. However, this is really one to keep an eye out for. So for investors who are looking for some exposure to the fast growing data business, this is one to invest in.

Ok have a good week ahead!

Best,

SVI