GDP revision shows recession winding down

Enough said, it's time to take action. We had passed the pit of the business cycle, that's my analysis/prediction/gut feel whatever you put it and I had said it during recent a dinners with my ex-colleagues in SBS and SAF. They all believe otherwise. So I told them there is no point arguing, the result will be out soon and we can bet on it.

I had lately shared with 2 friends about an idiot-proof investment strategy which now is the right time to deploy. This strategy does not requires any analytical skill nor time to do close monitoring. I'll come to this strategy in my next sharing.

I never comment or pretend that I am a fortune teller based on hindsight, if you know me. All my blog sharing can testify that. The following is an excerpt from AFP:

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WASHINGTON (AFP) - – The US economy moved closer to emerging from recession in the second quarter, according to revised data Wednesday showing a smaller-than-expected 0.7 percent pace of output decline.
The figure for gross domestic product (GDP) was better than last month's estimate of a 1.0 percent drop, and stronger than the average estimate of private economists calling for a 1.2 percent annualized rate of decline.
The report appeared to confirm that the world's biggest economy was emerging from its long recession and rebounding from a hefty 6.4 percent tumble in the first quarter of 2009.
The latest data "sets the stage for an improved economic outlook for the rest of 2009 and throughout 2010," said Aaron Smith at Moody's Economy.com.
"The downturn appears to have concluded this summer, and the economy is on track to grow for the first time in more than year in the third quarter. The initial phase of growth is being driven by rapid recoveries in housing and manufacturing, diminishing drags from equipment spending and nonresidential construction, and government support."

US consumer spending up 0.2%

Excerpt from AFP (28 Aug 09):

WASHINGTON - US CONSUMER spending rose for the third consecutive month in July while incomes were virtually flat, government data showed on Friday in a report suggesting demand picking up amid the long recession.

The Commerce Department said consumer spending - which drives two-thirds of US economic activity - rose 0.2 per cent in July, in line with the average analyst forecast.

Personal income was up less than 0.10 per cent and disposable personal income - income less personal taxes - slipped less than 0.1 per cent.
The department said spending rose a revised 0.6 per cent in June, a hefty 0.2 percentage point higher than the initial estimate.......

Global economic recovery 'has started'

Isn't this what we have been waited for - global recovery. In fact, all the signs and symptoms suggested that we may have just passed the bottom of the business cycle - we are on the road to recovery. Well, that's what i reckon. But do not expect that thing will change overnight. Do not think that out of sudden businesses are reporting huge jump in revenue and profit, or consumer confidence and job creation skyrockted etc. Get real, it takes a bit of time to feel the positive impact - assuming no more big scandal or crisis. Trust me, many local companies still keep their "headcount freeze" policy intact.

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WASHINGTON - The global recovery from recession has begun but countries will need to rebalance their economies to make sure it is sustainable, International Monetary Fund's chief economist, Olivier Blanchard, said Tuesday.
'The recovery has started. Sustaining it will require delicate rebalancing acts, both within and across countries,' he said in an IMF article, released in advance of publication on Wednesday.
Mr Blanchard cautioned that predictable models based on past recoveries from recessions would not apply to the worst global slump in seven decades.
'The world is not in a run-of-the mill recession. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come,' he said. -- AFP

What Time Is It?

I’ve been hiding away from stock market for almost a year. I literally stopped updating on business/financial/economic news. It’s a total stop since early 2008. You only get to see some of my holiday pictures on my blog. But this is going to change now as I am back to business again! As you can see, this is my first article in 2009! But hold you horse!

Recently, a few friends had been asking me whether if “now is the time”? This is because, while some had made quick bucks from AIG or City Group, others were motivated with strengthening of indexes around the world.

The important question is – how to assess/predict whether now is the correct time? When is the correct time? Can any human being possibly know when is the correct time? Does holding an MBA in finance or CFA give you an edge in predicting the right time?

Answer is NO!

There is a way to predict the right time but unfortunately, this method is also not possible. That is to have the ability to read all investors’ mind. My point is indexes are just flashing numbers that reflects all investors’ action/decision. Unless you are able to read their mind, by looking at these numbers will not help you a lot unless you want to speculate. Furthermore, most of the time, the decision of these huge masses is wrong! I am not bragging. I always like to share with my personal friends one of my findings on stock investments – don’t follow the crowd, they make mistakes very frequently.

So if staring at the indexes is not advised, then what other better approaches? The answer, I would like to repeat again is the economic health especially of the world largest and most powerful country – the United States. Is U.S. economy on its road to recovery? Any convincing evidence? How about U.S. job market? Certainly high unemployment and low income will hit the manufacturing sector. And when U.S. manufacturers shrink their production output, Singapore manufacturers are going to suffer.

Recently a lady came to my company for an interview. She is an accounting professional currently working for a manufacturing company. Unfortunately, her company cut working days by a hefty 40%! That would mean a huge pay cut for her, temporarily. She has no choice but to find another company although she likes the working environment/culture in her present job.

The following are excerpts from the Business Times that hopefully will give you a feel of the economy.

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“As Wall Street put to bed the first four-week run of gains for the US stock market in nearly a year and a half last Friday, market strategists were already debating whether the nascent bull run can stand up to the challenge of an especially grim first-quarter earnings reporting season.

……. On Friday, stocks continued to rally despite another awful, estimate-beating employment report. The Dow Jones Industrial Average gained almost 40 points, or 0.5 per cent, to end at 8,017.59, its first close above 8,000 since Feb 9. The S&P 500 climbed eight points or one per cent, reaching 842.50 at the closing bell. The Nasdaq composite added 19 points, or 1.2 per cent, to 1,621.87.

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While a global recovery is possible in 2010, Mr Soros said the timing will ultimately depend on the depth of the recession. China, he said, will be the first country to emerge from recession, probably this year, and will spearhead global growth in 2010.

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The report comes after government data on Friday showed that the US unemployment rate rose to a 26-year high of 8.5 per cent, as employers slashed 663,000 jobs under the strain of recession.

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'The lead economic indicators have not shown any sign that there is a bottoming or a recovery, or there are no concrete signs of that,' said SIAS Research vice-president Roger Tan.

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'It's a bear-market rally because we have not yet turned the economy around,' Mr Soros, 78, said in an interview on Monday with Bloomberg Television.

….. Mr Soros said the banking system is 'seriously under water' with banks on 'life support'. 'They are weighed down by a lot of bad assets, which are still declining in value,' he said in the interview. 'The amount is difficult to estimate, but I think it's in the region of maybe a trillion-and-a-half dollars.'

S'pore PMI shrinks in Nov

Singapore's manufacturing industry shrank for the third consecutive month in November as new export orders slipped and the tech sector contracted on the back of a worsening global economy.

The Singapore Institute of Purchasing & Materials Management said on Tuesday its purchasing managers' index - a leading indicator for the manufacturing industry - stood at 44.3 in November, down from 45.8 in October.

A reading below 50 points indicates that the manufacturing sector is contracting.

The contraction was due to a fall in overall new orders and new export orders, as well as declining levels in production output, imports and employment.
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(Source: BT 2 Dec 08)

US manufacturing index falls in Nov

US factory activity fell in November to its weakest since 1982, according to an industry report released on Monday.

The Institute for Supply Management said its index of national factory activity fell to 36.2 in November from 38.9 in October, below economists' median forecast for a reading of 37.0.
A reading below 50 indicates contraction in the sector.

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(Source: BT 1 Dec 08)

What's The Weather Outside

I’ve not been contributing anything to my blog for weeks due to extremely poor market sentiment. Global stock markets are in very bad shape especially the Dow Jones. The economic outlook is still as gloomy and there seems to be no light at the end of the tunnel. US elected its first black President but could Obama really get US out of the recession threat? If you are sensible in your analysis, you should know that the Frederal Reserve has really done a lot to avoid a recession. I mean they used people’s money to bail out banks and financial companies and dropped interest rate to 1%. What else can be done? I think Obama may protect local industries and jobs. If this happens, in my opinion, the first victim will be China – China’s cheap import. Of course, China is not going to keep quiet. They will complaint to WTO and then bilateral relation will turn soar etc etc.

The following are some worrisome headlines in Business Times this week:

- DBS chops 900 jobs.

- The US unemployment rate bolted to a 14-year high of 6.5 per cent in October as another 240,000 jobs were cut, the government said yesterday. Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 per cent in June 2003.

- Shares of Las Vegas Sands Corp fell 29 per cent yesterday after the casino operator's auditor said in a regulatory filing that there are doubts about the company's ability to continue as a going concern.

- Planned layoffs at US firms surged to their highest in nearly five years during October, with cuts in the financial and auto sectors leading the charge as the economic outlook worsened, a report by outplacement firm Challenger, Gray & Christmas said on Wednesday.

- Australia's central bank cut its benchmark interest rate yesterday by a bigger-than-expected three- quarters of a percentage point as the global financial meltdown threatens to drag the country into recession.

I don’t intend to write a long story. But to my friends and colleagues reading my blog, my advice remains the same:

1) Avoid investment during this highly uncertain period. If you place your money with the bank, the value will be eroded due to inflation. Unfortunately, you don’t have a choice. If you invest it, chances are, you may make tremendous losses. I repeat again, you have to study the economy if you want to invest successfully. Monitor the US economy and its impact on Singapore. My bet, as of today, is we are heading to a global recession and hopefully not a DEPRESSION.

2) If you really want your money to work hard, you can consider our lovely CPF. CPF offers very attractive risk-free returns, which I had repeated many times in my blog. For more info, you can visit CPF website for updates.

3) As for job wise, stick to company with strong fundamental. Avoid joining company whose business has a strong correlation to the economy such the manufacturing sector and construction sector. Also avoid joining SMEs, sorry to my fellow countrymen. Let’s face it, we had heard of stories during previous economic downturn on how smaller companies “control cost” - cut in performance bonus, freeze annual increment, deferring the AWS, retrenchment etc. Also smaller companies may fold up.

Sentiment and confidence around the world is quite bad now. Employers' are holding back recruitment and now with retrenchment on the headline. And I bet that household are controlling their expenditures. Therefore you must understand that this may cause recession to become a self-fulfil prophesy. Not even Warren Buffett can stop it. Although Singapore will not be spared if US enters into recession, I strongly believe that we have great leaders governing the country, strong fundamental and solid reserve. We are certainly capable of surviving next recession.

Patience Is A Virtue

The following article from Business Times is an excellent report and I shared the same view. When you walk around city area or onboard a train, you will see adverts saying something like stock prices are low, hidden opportunity, this and that has strong fundamentals etc. I always laugh at it. It was all crap to me but I don’t blame the fund managers. This is because if people stop buying the funds and pull out their money, then the fund managers and analysts will be out of job soon.

The following is a good article especially to those with the idea of rushing into the market to buy while it is cheap. As always, how do you define “cheap”? Remember; always to take cue from global/local economy for your investment decision. The economic indicators are the leading indicators.

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Business Times - 02 Oct 2008

Time to buy? No - patience is a virtue

By R SIVANITHY

WHENEVER stock markets behave as they are now, it's tempting to ask whether it's time to 'bargain hunt'. Indeed, as each passing day brings a new low - be it 24, 25 or 26 months for the Straits Times Index - the temptation to buy probably grows stronger, aided no doubt by a steady stream of 'buy' calls from brokers, all and sundry.

So will it soon be time to buy? Maybe it will? And perhaps for the Straits Times Index, the fact that the 2,300 level has held twice in the past fortnight suggests this may be where there is strong support?

Our take, though, is that there is no need to rush and that patience is a virtue. Brokers and independent researchers have consistently under-estimated risks to the downside for the past year, so their 'buy' calls should be taken not with a pinch of salt but a bucket.

Analyst credibility aside, a major reason for saying this is that despite America's woes, and despite it triggering the biggest financial meltdown ever, US stocks have not capitulated yet. Even after Monday's 7 per cent collapse, the Dow Jones Industrial Average was down only 22 per cent this year and the S&P 500 down 25 per cent - much less than the 35-50 per cent falls suffered by other markets.

From its all-time high, the Dow's loss to 10,365 was 27 per cent and the S&P's loss 28 per cent - over almost a year, compared with the 20 per cent crash in one day on 'Black Monday' Oct 19, 1987.

Seen in this light, the current losses on Wall Street could justifiably be taken to be part and parcel of a normal bear market and not really that much cause for concern.

Why has Wall Street not fallen as much as other markets? One possibility is the huge amount of liquidity the US Federal Reserve has pumped into the system. But more likely, it's the still-lingering hope of a government-led bailout, despite the initial proposal being rejected.

If a modified proposal is cobbled together before the end of this week and if this is again rejected, the full-scale removal of a 'bailout premium' will see US stocks start to reflect their true fundamental values.

Furthermore, it is debatable whether any US Treasury-led bailout would have any effect at all. Recall that on Monday, markets went into a tailspin many hours before the US Congress voted on the plan. So, even if a second plan is pushed through and even if this does push stocks up, it can only be a matter of time before reality sets in with regard to the US market and its fundamentals. And once this happens, investors might just cotton on to the fact that US stocks are grossly over-valued.

Bloomberg's analytic service gives the S&P 500 as trading at a historic earnings per share consensus analyst estimate of US$51 and a forecast figure of US$83. With banks disappearing, unemployment rising, consumer spending shrinking, no growth to look forward to, no bottom yet in housing and a possibly vicious recession just around the corner, how likely is it that US corporations will report such a big jump in earnings?

As for the local market, Citi Investment Research warned last week that it is possible for the STI to fall to 1,800 - a warning many investors reckon is too pessimistic. But if the index were to drop to 1,800, that would only take it to a four-year low which, given the huge risks to growth posed by America's problems and the unpre-cedented nature of the present bank failures, is arguably within reason.

The upshot of all this is that risks are still tremendously high and that Wall Street is still heavily exposed to the downside.

Investors should also realise that even if the STI's bottom does lie at 2,300, this does not automatically mean the start of a new bull market - stocks can drift for years within narrow bands before embarking on any uptrend. As such, it is clearly not time to buy yet.

Stock Market Review - Oct 08 (Part I)

It’s about time we review SGX-listed stocks. We’ll take a look on their current status and look back on its performance few years back. I had spend a few days reviewing all the listed stocks and truth be told, most of them are currently cheaply priced. What do I mean by “cheap”? In 2004, local economy and stock market started to recover. I remember that in mid 2003, I saw the indicators and believed that we are going to bottom up. Before I quit the Army, I told my ex-colleagues that “I think it’s about time”. I launched my first wave on the tech stock/funds. And from 2004 – 2005, many stocks were lagging behind because Ms. Market was shaky; she wasn’t sure. Index was fluctuating without clear direction. As such, I spend considerable amount of time finding gems rather than following “road-runners”. I found quite a lot of it and I’ll share a few with you today. Some of my readers may have followed my recommendation and benefited from it. Appreciate if you can testify here.

In my opinion, right now most of the counters are priced at a level similar to 2005. No doubt still has room to plunge further, but really quite cheap comparatively.

The Index

As expected, STI could not hold its ground since late last year. When sub-prime woes were exposed, STI took a hit in around July 2007. However, in around September 2007, global market under-estimated the damaging power of US financial crisis, it continued to move up. And in around Dec 2007, with surging oil price, global market started to loss steam and it was “neither here or there”. And then I’m sure it’s GAME OVER. Thereafter I started to advise my friend to either hold or sell BUT do not give a single cent to Ms. Market – she is breaking down soon.

(Note: some of you may know that “Mr. Market” is a term used by Warren Buffet and his teacher Benjamin Graham to describe market behaviour. But I used “Ms. Market” instead as I find the market behaved like a girl – temperamental!)

In early January this year, STI was around 3,400 points. As at today, STI stands at 2,361.34. Approximately 1,000 points had been wiped out. So this proves my points that although there will be fluctuations along the way, ups and downs but overall it’s coming down. And unless you speculate, you will not make it if you invest along the way.

This is the downtrend of the business cycle.

Selected Stocks

1) AusGroup. Now this is really one of mine favourite stocks. I (and my all-time favourite analyst, BT Snr Correspondence, CFA Charterholder - Ms Teh Hooi Ling) found the gems before it skyrocketed. Hooi Ling visited AusGroup’s management in Australia and wrote an excellent report published on the paper. The stock was initially priced around $0.30 in 2006. And then it became a rocket surged all the way to around $2 almost non-stopped. And what is its price now? Unbelievable $0.265! What about its recent financial performance and position?

Business: supporting oil & gas industry.

Report: FY2008
Revenue: increased to A378.9m (34.8% variance)
Operating profit: dropped to A21.7m (23.9% variance)
NP: dropped to A14.4m (27.8% variance)
NP margin: 3.8%

Cash: A18.7m
Working capital: 1.61
LT debt to total capital: 28%
Basic EPS: A3.6 cents
PE: 7.36
NTA: A22.5 cents
Yield: 2.3%

Director’s remark: secured higher orders; expected FY2009 to be profitable.

My remarks: margin and yield is unimpressive. Profit may soften further but likely to remain positive. I do not expect oil price to stay below $1 next year. Overall performance and position looks fine.

2) Bonvest Holdings. This is yet another company which make me proud; make me scream. In 2005, Bonvest was a lager and I found this gems. I studied its businesses and strongly believed that it worth more than $0.55. However, Ms. Market has different opinion. So I bought in the share and within that year, I disposed it at $0.905 – too early!!! You must be shocked when I say “too early”. Yes, after I locked in my profit, Bonvest continued to surge to around $1.70!!!!!

“Wow, then you must have regretted and jump!”

No, remember that in investment, your greatest weakness is greed and fear. I’ve earned my money, I moved on. Bonvest is currently priced at $0.72. What about its recent financial performance and position?

Business: property development and investment, food and beverage, hotel ownership and waste management.

Report: 1H2008
Revenue: dropped to S$119.7m (28.1% variance)
Operating profit: surged to S$100m (238.8% variance) due to revaluation gain of $70.3m. Without it, operating profit should be around $30m (about the same as previous identical period)
NP: surged to S$86m for the same reason (266.2% variance)

Cash: S$89.5m (fat)
Working capital: 2.15 (healthy)
LT debt to total capital: 0.26% (extremely low)
Basic EPS: S$20.7 cents
PE: 3.4
NTA: S$1.65
Yield: N.A.

Director’s remark: challenging and competitive market. Minimal contribution expected from most of its business segments.

My remarks: You want to know how I feel now? I feel that there is a very beautiful lady standing right before me, single and available. And luckily you’ve stopped me otherwise I would have jump onto it like right now! I mean if you buy Bonvest now, you are paying S$0.70 for a company that worth S$1.65! Bonvest’s financial position and performance is very impressive although it may not be able to hold its ground in view of intense market competition and uncertain global economy. And that’s exactly why I’m not calling a buy but close monitoring. US economy is highly uncertain couple with high oil and food prices; we are really not sure where this is leading to.





…… To be continue

Crisis Surrounding Fannie Mae and Freddie Mac

Last Year afte the exposure of US financial crisis, while everyone were talking about this bank and that financial companies, I was asking around the impact on Gennie Mae and Fannie Mae. I know of these great mortage issuers in my study, although I don't really understand the detail. And especially the Gennie Mae, which is gauranteed by full faith and credit of the US Government, what if it also suffers huge losses?

.

I was asking some of my friends who are in the financial sector, none got the answer. Well, that's because we are not knowledgeable enough. But now, it seems that my worries are not unfound.

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Business Times - 14 Jul 2008

Collapse of US mortgage bank piles on jitters for markets

(An excerpt)

By ANDREW MARKS
NEW YORK CORRESPONDENT

IT looks like even Wall Street's usually unflappable equities traders may have become unnerved.

But who can blame them after the week that they have been through. There was a run on and near melt-down of mortgage giants Fannie Mae and Freddie Mac, new record highs for oil prices, and most shocking of all, the collapse of IndyMac Bancorp, a mortgage bank based in California.

On Friday, US banking regulators took control of the assets of IndyMac after a run on the bank by panicked depositors forced it to the wall, precipitating one of the biggest bank failures in US history.

IndyMac, which is due to reopen today under federal supervision, specialised in mortgages that often required minimal documents from borrowers. It is the fifth US bank to fail this year as a housing slump and credit crunch strain the financial system.

'It's very difficult to remain calm and reasoned when you get into this cycle of constant shocks to the system, of getting hit in the gut with just how bad the credit market is just when you start thinking that maybe the worst is over,' says Mark Nolan, an equity trader and sales analyst at Garvin & Company, in a reference to the crisis at Fannie Mae and Freddie Mac. 'The sense of doom people are sunk in right now makes me think back to my high-school Shakespeare: 'These are the times that try men's souls.' It makes it tough to go to work in the morning,' he says.

Indeed, the huge losses at Fannie Mae and Freddie Mac - the nation's two largest mortgage issuers responsible for a combined US$6 trillion of mortgages - have sparked fears of an outright government takeover. Such a move would protect the mortgages, but would wipe out shareholder equity. Thus the massive sell-off on the two companies, which both saw their share prices plunge by more than 75 per cent in three days.

US Is Still World Largest Economy

There is a good article in Business Times last week. I had frequently shared my opinion on global economy, particularly US and China with personal friends. The common question that people usually asked are projection on US economy and strength of China’s economy.

Make no mistake. I’m not an economist although I studied economy during my previous study and read financial news (almost) daily. But I’m still not an economic consultant. However, with basic economic knowledge, commonsense and reading of analysts’ report, I’m able to draw reasonably accurate conclusion. My ACCA lecturer Mr Fred Keer used to say “commonsense is the least common human attributes”. He is an extraordinary lecturer. I think he is back to UK.

My projection for US economy remains the same. Besides sub-prime issue, which was recently removed from the centrestage, inflation and skyrocketed oil price may soon lead US into a recession. So it is very uncertain now and stock market should be avoided at all costs. As for the China market, even if we add in India’s market, both of them still cannot replace our export to US and Europe. Not to forget that China herself is also a net exporter to US. This means that she will also be hit should there be a downturn in US economy. If China is affected, certain their demand for Singapore product/services will drop. I think that’s pretty commonsense. Don’t need an MBA to understand this.

There is an article on Business Times that concurs with my analysis, or the other way round.

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Growth in China, India can't offset US downturn

Advanced countries' weakness will hit growth in emerging markets: Fitch

By CONRAD TAN

(SINGAPORE) Emerging economies such as China and India are not big enough to offset a likely recession in the US and weakening growth in other advanced economies, the head of Asia-Pacific sovereign ratings at Fitch Ratings warned yesterday.

Since most developing economies are net exporters to the US and Europe, continued growth in emerging economies will not provide support for the developed economies that are still the dominant sources of world demand, said James McCormack, who is responsible for analysis and ratings of sovereigns in Asia.

While Fitch expects growth in emerging markets to continue to outpace that of developed economies, 'the fact that China and India are growing quickly doesn't mean the US is going to grow any faster', he said. 'It's not really going to help offset weakness in advanced economies. The trade flows suggest quite the opposite.'

Mr McCormack, who is usually based in Hong Kong, was speaking at a structured finance conference in Singapore organised by Fitch.

India accounted for just 2 per cent of global economic output last year as measured by gross domestic product at market exchange rates, according to the International Monetary Fund's April World Economic Outlook.

'And it's not a very open economy - imports are only 13 per cent of its GDP. So it doesn't really matter how fast India grows - it is not going to contribute to stronger growth in other markets,' said Mr McCormack. 'It doesn't import that much and it's just too small.'

China's contribution was six times larger, at 6 per cent of world GDP in 2007, he said. 'And it's a much more open economy as well.' Imports accounted for more than a quarter of China's GDP last year at market exchange rates, so faster growth in China should benefit those economies it imports from.

'But China is running very large trade surpluses with the US and the European Union. And that would suggest that China is a net supplier to those markets - it doesn't really demand very much from the US and the EU,' said Mr McCormack.

Collectively, the four so-called BRIC countries - Brazil, Russia, India and China - are running trade surpluses with the US and EU to the tune of more than US$500 billion, he said. 'What that tells us is that the trade flows are going from exports from the emerging markets to the advanced economies.

'So if there's weakness in the advanced economies, you're going to see weakness in the emerging markets. It's not the other way around, where you see strength in the emerging markets followed by strength in the advanced economies.'

If purchasing-power- parity exchange rates - the amount of currency needed to buy the same common basket of goods and services as one US dollar - are used rather than market exchange rates to measure GDP, China's share of world output in 2007 jumps to 10.8 per cent, while India's rises to 4.6 per cent.

But even by this revised measure, the 23 developing economies in Asia - excluding Japan, Hong Kong, Singapore and Taiwan - account for just 20.1 per cent of world output, less than the 21.4 per cent contributed by the US alone, according to the IMF report.

The UK and the 15 euro-area countries make up another 19.4 per cent of the world economy, while Japan accounts for 6.6 per cent of the total.

What Happen To Vietnam?

I almost started a business with a brother in Vietnam. I almost pump money into a Vietnam fund. I almost married a Vietnam girl..... ok I'm just joking. But what happen to Vietnam now? Its stock and economy is in trouble.

Two years ago, many people were excited with Vietnam. Its huge and young population, untapped market, political stability, cultured locals, economic revamp all pointing to one conclusion..... 2nd China!!!

And seriously two years ago, there is no reason not to believe so. All these were supported with economic data, demographic data and many analysts' reports. But things are all different now. Vietnamese inflation is a whopping 25%!!! Here in Singapore, we already felt the pinch of 5% inflation. Yesterday I bypassed a shop selling BBQ pork and rice dumpling. I enquired on the price and the lady boss replied S$3.50 per dumpling. I was shock and apparently she noticed my expression. On a normal day, a dumpling cost around S$1.50. So I smile at her and turnaround to leave the shop. Then she explains (while I was walking away) that "everything is expensive now due to rising prices". I almost wanted to turn back to correct her motherhood statement. Inflation is 5%, not 100%. The 100% inflated price of her dumpling was seasonal. Don't cover up everything by blaming it on the inflation, “I not stupid too”.

Anyway, a year ago, Lion Capital launched the first Vietnam Fund available to all investors. Everyone was excited and I almost bought it. I didn't merely because most of my spare cash was in the stock market then. I even recommended the fund to my friends. Luckily, they didn't invest in it. Now the fund's price crashed like can tin.

The following is a report in Business Time on Vietnam's economy.

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Business Times - 09 Jun 2008

Vietnam faces boom-and-bust cycle: analysts

(HANOI) Vietnam's economy, until recently a darling of foreign investors, has overheated and may be sliding into a boom-and-bust cycle that could require IMF-style assistance, analysts say.

The economy widely hailed last year as Asia's next tiger has been battered by double-digit inflation, a ballooning trade gap, a tanked stock market and worries about the currency and banking sector.

Credit rating agencies Standard & Poor's, Fitch and Moody's and several investment banks have revised downward their outlooks for Vietnam at a time when the spectre of a US recession could spell global trouble.

Aseambankers Research said that 'the worst-case scenario would be for Vietnam to suffer massive capital flight, triggering a balance of payment crisis and forcing the country to go to the International Monetary Fund (IMF) for help'. Analyst Adam Le Mesurier wrote for consultancy DSG Asia that 'an 'IMF programme' style policy response will be needed within six months', including monetary and fiscal tightening and a dong currency devaluation. Many investors and donors in Vietnam remain upbeat about the market of 86 million, pointing to strong exports - including that of food and oil - investment inflows, growing tourism, and the potential of its young workforce.

'It's too easy to get excited and claim that Vietnam has gone from poster child to problem child,' said EU chief country representative Sean Doyle. 'But I'm not sure it's very wise and very balanced . . . Vietnam, if it can keep steady, stick with the right policies, will be attractive.'

Nonetheless, the turnaround in investor perception has been stunning. Communist Vietnam's 2007 entry into the World Trade Organization (WTO) fuelled enthusiasm for the low-wage 'mini-China', bringing an influx of foreign cash.

Domestic investors gambled on a sky-rocketing stock exchange, the government went on a spending spree, and banks lent freely, fuelling rapid credit growth.

The wheels started to come off about half a year ago, when inflation hit double digits as the economy tried to digest US$6 billion in foreign direct investment (FDI) disbursed last year, or 8.4 per cent of gross domestic product (GDP).

Since the start of the year, prices have galloped - driven by global food and energy costs - to 25 per cent year-on-year inflation in May. Wage demands sparked 300 labour strikes in the first quarter alone.

'The wage-price spiral appears to be beginning. If it becomes embedded, it could make matters much worse,' said an HSBC report that predicted a rise to 30 per cent inflation amid hoarding of commodities.

Another alarm bell sounded when surging imports drove the trade deficit to US$14.4 billion in May, compared to US$12 billion for all of 2007.

The stock market has tumbled amid tighter credit and falling investor confidence, turning from the world's best to worst performing bourse. Last week, it crashed below 400 points, from its high of over 1,100 in March 2007.
Many investors have bought gold or offloaded their value-losing dong for greenbacks, briefly sending the black market rate in Vietnam to 18,500 to the US dollar last week, against the official rate of around 16,000.

Signs And Symptoms Of US Recession

The world largest economy's growth depend largely on its consumer demand. What if its people go jobless?

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Business Times - 07 Jun 2008

US jobless rate in May hits 5.5% (Excerpt)

Employers, worried about a sharp slowdown, clamp down on hiring

(WASHINGTON) The US unemployment rate jumped to 5.5 per cent in May - the biggest monthly rise since 1986 - as nervous employers cut 49,000 jobs.

The latest snapshot of business conditions showed a deeply troubled economy, with dwindling job opportunities in a time of continuing hardship in the housing, credit and financial sectors.

'It was ugly,' said Richard Yamarone, an economist at Argus Research.

With employers worried about a sharp slowdown and their own prospects, they clamped down on hiring in May, said yesterday's report from the Labour Department. The unemployment rate soared from 5 per cent in April to 5.5 per cent in May. That was the biggest one-month jump in the rate since February 1986. The increase left the jobless rate at its highest since October 2004.

The big jump in the unemployment rate surprised economists who were forecasting a tick-up to 5.1 per cent. Payroll losses, however, weren't as deep as the 60,000 that analysts were bracing for. Still, job losses in both March and April turned out to be larger than the government previously reported. Employers now have cut payrolls for five straight months.

The White House expressed disappointment too.

'Certainly this isn't a report that we wanted to see today,' White House deputy press secretary Scott Stanzel said. He acknowledged that the increase was higher than experts expected.

'It is a number that is too high in our view but it is lower than the average of the last three decades.'

The 5.5 per cent rate is relatively moderate judged by historical standards. Yet, there was no question that employers last month sharply cut jobs.

The government said the number of unemployed people grew by 861,000 in May, rising to 8.5 million. The over-the-month jump reflected more workers losing their jobs as well as an increase in those coming into the job market - especially younger people - to look for work, the Bureau of Labour Statistics said.

Analyst's View on US Recession

The following is an excerpt of Fundsupermart.com analyst's view on US recession. This is a clear and present danger.

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Recession Still Looks Likely For The US

The US economy grew an annualized 0.6% quarter on quarter in the first quarter of 2008, in line with economists’ consensus estimates. However, we could still see a recession unfolding, with the next two consecutive quarters registering negative GDP growth. First quarter GDP data can be subjected to revisions at a later date, and a downward revision could see the economy contracting in the first quarter instead.

Moreover, the “official” arbiter of whether or not we are in a recession is the National Bureau of Economic Research (NBER), which does not use the GDP numbers. The first quarter GDP growth was better than our expectations which bring us to make some revisions to our forecasts. In this article, we will also touch briefly on the US financial sector.

US Economy Grew 0.6% but Consumption Weakens Substantially

Domestic demand excluding inventories contracted for the first time since 1991. Positive economic growth was supported by the change in inventories and net exports. Consumer spending decelerated significantly, rising by only an annualized 1.0% quarter on quarter, the weakest performance since 2001. This softening was expected, in the context of falling employment, high inflation, restricted credit conditions, falling home prices, and wobbly equity markets.

The strong decline in consumer confidence (with the University of Michigan index hitting a 26-year low of 62.6 in April 2008) points to a further deterioration in the following quarter. The recently published preliminary confidence index for May on 16 May 2008 shows further deterioration.
During times of economic growth, the rising inventories actually signify the optimism of the businesses to build up their inventories in preparation for the increased demand. However, the current rise in inventories could be viewed as a lack of consumption by the consumers, such that inventories remain unsold and piles up. In the next few quarters, if consumption is expected to remain subdued, businesses would probably not be adding on to their inventories and there would be a good chance that the recession would take place even if it does not follow the definition of a technical recession.

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For full article, please check on Fundsupermart.com website.

US consumer confidence plunges to 16-year low

Business Times - 27 May 2008

WASHINGTON - US consumer confidence plunged to a 16-year low in May amid a stuttering economy and as surging oil prices pushed inflation expectations to an all-time high, The Conference Board reported on Tuesday.

The business research firm said its index of consumer confidence, which has slid all year, fell to 57.2 from 62.8 in April.

Most analysts expected a reading of 61.

The April reading of the consumer confidence index was revised slightly higher to 62.8, from an initial estimate of 62.3.

The index is seen as a gauge of future consumer spending, the driver of two-thirds of US economic activity. The last time the index was lower was in October 1992, when it stood at 54.6.

'Weakening business and job conditions coupled with growing pessimism about the short-term future have further depleted consumers' confidence in the overall state of the economy,' said Lynn Franco, director of The Conference Board consumer research centre.

'Consumers' inflation expectations, fuelled by increasing (petrol) prices at the pump, are now at an all-time high and are likely to rise further in the months ahead,' she said.

Both major components of the index dropped sharply in May. The present situation index, which measures how consumers feel about current conditions, fell to 74.4 from 81.9, a new low for the cycle.

The expectations index, which measures consumers' outlook for the next six months, fell to 45.7 from 50.0, also a low for the cycle.

The expectations index suggests 'little likelihood of a turnaround in the immediate months ahead', Ms Franco said. -- AFP

Marine Sector to Ride on Rising Oil Price

Business Times - 29 May 2008

Rising oil price boosts offshore marine sector
(Excerpt)

Soaring fuel price will benefit not just the big boys such as Keppel Corp and Sembcorp Marine, who have seen a surge in rig orders, but also many smaller suppliers and service providers of the offshore and marine exploration industry.

Market watchers say companies which will increasingly benefit from the high oil price environment include players such as offshore vessels specialists Swissco and Ezra; oilfield equipment services specialists Swiber and Ausgroup; exploration specialists such as China Oilfield Technology and even oil storage and distribution terminals builder Rotary Engineering.....

......Many investment houses, including Credit Suisse, see little relief from high oil prices on the horizon.

That being the case, companies playing the supporting cast in the rush for 'black gold' look set to ride an up-cycle for a while yet.

A combination of oil markets speculative activity, demand surge and supply crunch has seen oil price double from a year ago to new records at over US$130 pbl. This has spurred more intensive exploration activity globally, especially into more challenging offshore reserves which were previously considered unprofitable to tap.

US Is In A Recession Now!!!

I was supposed to continue my sharing titled “Should I Buy Stock Now”. And I did. I was about to finish my write-up (on MS Words) last Sunday and I was just halfway through in compiling basic data on REITs. However, I could not finish (and post) it because there is more bad news pounding all pointing towards US recession. Reported in Business Times on Monday:

“The market's fragility was on display last Friday, as the corporate news combined with more troubling economic data - the Chicago purchasing managers' index came in at 44.5, indicating the most severe contraction of the manufacturing sector in the Midwest since December 2001 - to send the Dow Jones Industrials down 315.79 points, or 2.5 per cent, to 12,266.39. The S&P 500 sank 37.05 points, or 2.7 per cent, to 1,330.63, while the Nasdaq shed 60.09 points, or 2.6 per cent, to 2,271.48………”

And we also have the oil price striking at historical high. The New York's oil futures for delivery in April surged to US$103.51 per barrel, above the previous record of US$103.05 on Friday. Is that all? No. The US dollar continued to weaken setting yet another historical low. Here in Singapore, current exchange rate with US dollar is something never seen before – S$1.393/US$1. The good news for us is that it is going to be cheaper to have a holiday in US. Weak US dollar and rising oil price propelled gold price closer to the US$1,000 an ounce mark on Monday

Is that all? No, damn!!! This morning, while I was onboard the bus to my office, I saw my mentor Mr. Warren Buffett delivering a message on the TV Mobile. He believed that the US is already in a recession. World-renowned investment guru delivering such a speech is just going to make the US recession becoming a self-fulfilled prophesy.

And the best thing is that I share the same view. Personally, I also believe that US recession had already started. The full impact will be felt soon, like in next quarter. As such, I really can’t continue writing on other possible (hidden) opportunities in equity investment. This is because if the US economy goes down, all the exporting countries will go down too and the relevant stock (or global) markets will crash like tin can. Thus no matter which company you buy during this period will only ensure that you sit on hefty unrealized losses.

To be fair to my friends reading my blog, I have to advise all to avoid the stock market for the short to medium term. And how long is this going to take? Unfortunately, nobody knows. Having said that, from now onwards, my sharing on stock investment or evaluation will be very limited until the situation turnaround. I will write more on economic issues and financial planning, which is more relevant during bad times.

Good luck!

Should I Buy Stock Now (Final)

Recently one of my colleagues casually asked my opinion about current stock market climate. According to him, he did not buy any stock. SO he asked out of curiosity. I replied that it is high uncertain now. Then he said that stock market is dangerous. And this is how I reply:

“Firstly, if you ask me whether you should learn about stock trading, then my answer is no. In fact, it will be wonderful if you never touch the stock market for this life. There are many other ways to invest or you can get a fund manager to do it for you. Notwithstanding my negative statement, the idea that stock market is dangerous is not totally correct. There are many successful investors (besides Warren Buffett) today and they don’t find stock investment in any way dangerous. Think about it. Driving a car is dangerous unless you got a license. While flying, if you get any passenger to take over the cockpit, that is dangerous. But if that passenger also happens to be a pilot, then the danger has dropped to zero! The truth is it is always the human beings that are dangerous. The tools itself is always innocent.”

You may wonder why I discourage that friend from learning about stock investment. Did I slap my own face? No I did no. I discourage him is because I had witnessed so many friends who turned greedy after they earned big bucks from the stock market. The stock market, like any gambling den, brings out greed in us. And when greed and fear took over, logic becomes malfunctioned.

Stock Recommendation

In Part I, I offered 3 options. In this part, I will share some tips if you love option 3. You choose option 3 because there isn’t any decent fixed deposit (or product of similar nature) that offers a rate that is higher than the inflation rate. In addition, you still hope that, with fingers crossed, US will resolve its economic problem and maintain its growth. Actually I hope you won’t choose option 3. But never mind about that. Firstly, to choose option 3, you must be bear the following characteristics:

1) Market may clash when US’s economic problem crystallized. You may have to wait longer than expected.
2) Stock prices may slide further but you are indifferent or you can accept that.
3) Your focus is more on securing reasonable yield rather than capital gain. Should there be any, it is a bonus.

Having said that, this will also mean that you avoid all tech stocks. Browsing through the SGX, many tech stocks are in bad shape now. This will be rule no.1. However, fortunately, there are still fundamental stocks providing reasonable returns. Personally, I recommend REITs. The reasons:

1) REITs have a mandate to distribute income.
2) The rental incomes are pre-secured, i.e. the tenants are unable to back off without paying for default. If a tenant defaulted and paid for damages, the landlord is still able to get another tenant. Price may be different but it is still secured.

The following are the performance of REITs, REITs-related funds or funds announced lately..........................................................

Should I Buy Stock Now (Final)

Recently one of my colleagues casually asked my opinion about current stock market climate. According to him, he did not buy any stock. SO he asked out of curiosity. I replied that it is high uncertain now. Then he said that stock market is dangerous. And this is how I reply:

“Firstly, if you ask me whether you should learn about stock trading, then my answer is no. In fact, it will be wonderful if you never touch the stock market for this life. There are many other ways to invest or you can get a fund manager to do it for you. Notwithstanding my negative statement, the idea that stock market is dangerous is not totally correct. There are many successful investors (besides Warren Buffett) today and they don’t find stock investment in any way dangerous. Think about it. Driving a car is dangerous unless you got a license. While flying, if you get any passenger to take over the cockpit, that is dangerous. But if that passenger also happens to be a pilot, then the danger has dropped to zero! The truth is it is always the human beings that are dangerous. The tools itself is always innocent.”

You may wonder why I discourage that friend from learning about stock investment. Did I slap my own face? No I did no. I discourage him is because I had witnessed so many friends who turned greedy after they earned big bucks from the stock market. The stock market, like any gambling den, brings out greed in us. And when greed and fear took over, logic becomes malfunctioned.

Stock Recommendation

In Part I, I offered 3 options. In this part, I will share some tips if you love option 3. You choose option 3 because there isn’t any decent fixed deposit (or product of similar nature) that offers a rate that is higher than the inflation rate. In addition, you still hope that, with fingers crossed, US will resolve its economic problem and maintain its growth. Actually I hope you won’t choose option 3. But never mind about that. Firstly, to choose option 3, you must be bear the following characteristics:

1) Market may clash when US’s economic problem crystallized. You may have to wait longer than expected.
2) Stock prices may slide further but you are indifferent or you can accept that.
3) Your focus is more on securing reasonable yield rather than capital gain. Should there be any, it is a bonus.

Having said that, this will also mean that you avoid all tech stocks. Browsing through the SGX, many tech stocks are in bad shape now. This will be rule no.1. However, fortunately, there are still fundamental stocks providing reasonable returns. Personally, I recommend REITs. The reasons:

1) REITs have a mandate to distribute income.
2) The rental incomes are pre-secured, i.e. the tenants are unable to back off without paying for default. If a tenant defaulted and paid for damages, the landlord is still able to get another tenant. Price may be different but it is still secured.

The following are the performance of REITs, REITs related funds or funds announced lately...................................................................................

When Inflation Is All Around Us

Inflation! Inflation! Inflation!

If you’ve been following the news, you should know that we are in an age of inflation. Many countries including Singapore are facing the pressure of inflation and worst still on basic needs – food, transport, housing etc. And doubly worst still, the poor felt it more than the rich. Recently I went back to office during Saturday to do some work. And then I was having a breakfast with a driver. I ordered my usual Nasi Lemak (Malay’s coconut rice) but the driver was eating bread. And it was suppose to be his lunchtime, as according to his schedule, he needs to have early lunch. I advised him to have proper meal especially when he is a frontline operator. He replied that the Nasi Lemak price when up by 20% so he rather take bread. In any case, he will be off-duty after next trip and he can eat at home if he is still hungry. When I looked at the price again, then I realized that it was indeed inflated by 20%.

And if you think that I don’t bother with the price because I am rich, get real! I banned a few food stalls near my place for inflating their price ferociously. Fortunately for me, not every stall adjusted their price. So nowadays I tend to patronize those stall that maintained their selling price.

“Isn’t that stressful as you need to monitor food prices and ban this stall and that stall?”

No really. I don’t deliberately monitor food prices but if I happened to find out, then I will make necessary adjustment. And anyway, I am indifferent when it comes to choosing food in the hawker centre. Rice or noodles, duck or chicken makes no different to me as long as the quality and quantity is reasonable.

The following are excerpts from Business Times to you a feel of the inflation problem worldwide.

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Business Times - 20 Feb 2008

Inflation in China hits 11-year high, set to rise further

(BEIJING) China's inflation rose to its highest level in more than 11 years in January after devastating snowstorms worsened food shortages, according to data reported yesterday, and analysts warned there might be sharper increases to come.

Consumer prices in January climbed 7.1 per cent from the same month last year, driven by an 18.2 per cent rise in costs, the National Bureau of Statistics reported.

Economists warned that despite efforts to ease food shortages, China faces pressure for prices to rise across the board due to higher wages and costs for coal, iron ore and other industrial materials………………

………….Surging food costs are a political concern for Chinese leaders because they hit the poor majority hard in a society where families spend up to half their incomes on food.

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Business Times - 20 Feb 2008

Higher food costs push up US consumer prices

WASHINGTON - Rising food costs helped push US consumer prices up for a second straight month in January by 0.4 per cent, more than offsetting a moderation in energy price rises as inflation showed signs of gaining steam, according to a Labour Department report on Wednesday.

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Business Times - 25 Feb 2008

S'pore's Jan CPI jumps 6.6%

SINGAPORE - Singapore's consumer prices rose 6.6 per cent in January from a year earlier, government data showed on Monday, as high food, transport and housing costs kept annual inflation at a 25-year high.

From a month earlier, consumer prices rose 1.5 per cent on a seasonally adjusted basis, the Department of Statistics said in a statement.