Property stocks hammered

I've been a bull on certain properties, but certainly not all. Here is Sunway and SP Setia. I don't necessarily recommend these companies as their property mix is weighted toward the high end.



If we should see Sunway and SP Setia start to stabilize, then counters like SPB will have a bit of the sector stigma lifted.

SPB develops housing with a much lower price point than its peers.


Be patient until the property sector as a whole stabilizes before buying select property counters.

Checking the EWMs once again

What we can gather from the EWMs and the market is most of the buying has been locally based. On the last 4 days, the market has opened higher while almost no buying has gone on during the US trading session.

Buying only occurring during Malaysian time

In fact, a lot of the US trading session has been about profit taking as indicated by the red lines.

US EWM traders have been selling down

Generally in a healthy market, we would want to see the international investors buy in through the EWMs as well as during the local hours. The selling makes me think the international investors have been early to the party and taking profits as local investors pile in the market.

The other possibility is that the international investors have been primarily out of the rally, but with the selling, it looks like they have taken part in the rally.

I'm not too encouraged by the technicals at this point.

Genting Party, MAS, Shell

Genting apparently blew out earnings in Singapore. Look for MAS tomorrow might drop a bit. Revenues were up 26%, but reported a net loss.

Might be a value trap. Look out.

MAS

Look to see how MAS performs tomorrow. This will prove to be a test whether MAS has truly bottomed or not.

On Shell Refining, I'm pleased to say that the stock didn't fare too bad in light of the loss on stocks. Revenue was up and that seemed key to what investors were looking for. They did very well in fact. A rally on a loss in EPS is really an odd sight.

Shell Refining

Buying, but not from typical international investors

Overnight Malaysian ETFs didn't produce the same positive jump in the FBMKLCI today. If you would have told me that the Malysian Index would closed up 10 points today, based on the previous nights' investor appetite, it's not a bet I would have taken.

Some money managers seem to be committing more money towards Malaysia through local brokers. Perhaps some of the emerging market hedge funds are receiving new inflows.

Lackluster price action on the Malaysian ETF based in US

Subsidy plays still has legs, Fed's message about monetization

Plus highways' rally on earnings upgrades means that the subsidy play areas still have room to run or at least will stay resilient if the market pulls back. After looking at the price action and news of various subsidy plays, the subsidy theme still seems quite strong.

World markets have been selling down on the news that the Fed will not liquidate the assets acquired during the financial crisis. This would keep liquidity in the system at the current level.

The market would rather hear the Fed acquire more assets, unfortunately they put out mixed signals. The Fed indicated that they would not give new money and that it is basically in the government's hands to fiscally stimulate the economy. At the same time, they said they stand ready to help out when needed.

The market is looking for more direct monetary action. An individual has to look no further than the effect on the markets when the fed started acquiring mortgage assets in 2009. Anything less seems to be a disappointment.

Revisiting AHB holdings and Shell

Looking at Shell's loss, especially after talking positively on the stock, I have to go back and take a look at what went wrong. I read that Shell Refining does most of its business in Malaysia. It has a massive industrial cracker which refines the oil. It has no stake in the retail ops, though I suspect that the Shell retail operations get most of their supply from Shell Refining.

Herein lies the issue. Prices are controlled at the pump and Pemandu pays out the petrol subsidies there. Shell Refining I don't think will get as much revenue upside as say the retail ops which will see an immediate upside in revenues as subsidies get lifted. Gasoline demand is ineleastic so a small price increase won't decrease consumption much.

So perhaps Shell isn't a great play on the subsidy lifting scheme but they are generally a well run company. They still pay dividends and make steady money. At any rate, subsidy lifting is a non event for the company.

ABH. Now this is stock for you risk takers out there! After a second look at the company, they do have a large number of receivables and land which probably could be securitized in the event of a liquidity crunch. If businesses are spending, which they are judging by the growth of business loans, this company should reap a massive windfall.

Current ratio is over 1.37 from the latest report. The directors costs are ridiculously high though, taking up half a million. Their employee wages run at 2.3 million.

The company has options in the receivables. It has not securitized those items. Inventories are higher year over year which means if revenue picks up, the company has the ammo to capitalize on increased business demand.

But the premise for buying ABH remains the same. If you are a company looking to spend some money on capital expenditure, and you don't want to fork over half a million for state of the art equipment. You would spend a much smaller sum on office furniture that would make your workers more efficient, or fit more workers in a smaller space, therefore making your office space more efficient.

Quiet time

While we have had a combination of risk on and risk adverse trades, I'm still undecided on the direction. If one were to look at the overall strength in government bonds and Japanese Yen, I would be tipped in the bearish direction. Equities are hanging around at this level not giving up much ground either.

USD/JPY with yen strengthening and usd weakening

Bonds still resilient the last few days

Note the charts are in a 30 minute and day intervals top and bottom respectively.

Something tells me money mangers have put their money back in not wanting to miss the boat. But we all know the majority of money managers don't beat the market. Regardless of money being put to work by managers, the market will go where it wants to go.

The USD/JPY weakness is probably the most concerning event at the moment as the Japanese Yen reaching new highs does not inspire confidence for risk assets. If you are a trader that believes once the yen breaks to new highs against the dollar, it will put continued upward pressure, then this is the next target trade now that the EUR/USD has already quite handily breached the 1.30 mark.

Malaysian business services sector

I'm not too hot on the Malaysian business services yet. Loan growth in the area is quite anemic but if you would like to play the business recovery, stay away from anything that requires massive amounts of capital spending.

Businesses won't be induced to spend a lot yet, but they will be wanting to do some small capital expenditures on items that are of good value. Companies still need services and may be induced to spend as products need replacement. I did come across an office supplier AHB holdings but I'm concerned about potential cash problems. They did an SPA sale and lease back for some of their land and this should allay their finances for a while.

Last quarter's revenue did double from the previous year. So it has revenue momentum.

The outlook is good if the company can solve its current liquidity problems, but the stock could very well be worth zero if it has no money to pay its creditors. Overall, though the environment is lacking for business services companies in Malaysia.

End of the month

Today was a rather choppy day in the international markets. With the data out of US, I thought we'd be up past 1100. But you never know as we barely made it. GDP is backwards looking while ISM and consumer confidence are more forward.

People are too concerned with the technicals whether we finish above a certain number and not enough with how the market is doing overall. Today the bulls managed to pull something out of thin air. The macro numbers helped a bit but the bears are still strong. Three days in a row, I'm leaning towards the bear stance.

A couple of days may not make the market but we better be wary of whats going on. FBMKLCI still seems to be in a strong position given the market turmoil of the last few days. I'm not really all too joyous about the current situation, but props have to be given to the Malaysian market given the general weakness in international indexes.

Recap of this week's market action

Monday for the S&P was bearish: good macro data, closed down. Tuesday was also bearish: bad macro data, closed down. Bulls did try to rally in spite of data but were promptly shot down. In a bullish market, you want to see the bulls rally in spite of bad data and vice versa for a bearish market.

Bears: 2, Bulls: 0. Bears could push the market down more but we'll just have to see. Perhaps they are waiting for tomorrow's macro and Thursday's job numbers.

I'd be moving to the sidelines temporarily. Get in the more stable names.

The EWMs didn't look too great either. No longs were willing to step in. Foreign investors are definitely selling down. I'd be moving over the sidelines at least. Today the FBMKLCI did hold even despite the sell off. But don't look for local investors to buy when foreign investors sell out.

Berjaya Retail sounds like an interesting counter

Retail counters have certainly been lacking in Malaysia. We have Aeon and Parkson. Aeon lacks valuations at this level, although this part in the economic cycle would indicate increasing revenue for retailers.

Parkson has a lot of exposure to China. Depending on the situation, it could be a positive or negative: Positive if their stores in China do well, negative if they don't. The analogy is tongue in cheek, but that brings me to my next point. Invest in things you know and you'll get less surprises.

If you want exposure to retail, you would probably want it in a Berjaya Retail or a Suiwah. I do own shares in Suiwah just for disclosure purposes. We're in this patch of the economy where low end retail stores will most likely outperform. Seven-Eleven with low product prices compared to a Jusco or Parkson, stands to do well in this slow economy.

The Singer products are also not terribly expensive compared to many electronic products out there, so the brand fits in with catering to the low end consumer. Plus the 50% dividend payout isn't too bad either. This is a name I could look to get into.

Much ado about foreign investors

Chart of the day for the EWMs, the easiest way for a foreign investor to get exposure to the Malaysian markets.

Thinkorswim EWM charts

Foreign investors haven't been net buyers or sellers during the pullback from $12 to $11.7. In fact, they have more or less been even. Yes, I'm surprised the market didn't back down off $12, but that just means we have upward momentum until we reach a price point where sellers come back in.

I don't think we are reaching new highs for the year for the overall indices. Malaysia may reach $12.30 which would translate to roughly an additional 1-1.5% or 1360-1370. The risk/reward trade off for ewm shorts are becoming more prevalent at this level and into the 1360s.

Uncharted territory

The Malaysia FBMKLCI finds itself at uncharted territory but without the European and US markets with it.

What is disconcerting today is the high fliers of the FBMKLCI have not been leading the market higher. We are talking about an Axiata or a Public Bank. Public Bank came out with "stellar" earnings yet the market yawned.


We see Genting and MISC, one of the under-performers of the FBMKLCI finish as gainers.

Underneath, we see KFC, KPJ both having problems leading the market. KFC opened at 11.5 to finish at 11.1. KPJ also opened higher then closed lower.

Nestle, perhaps the most dramatic of the high-fliers closed strongly off the highs.



Then, you get an under performing stock like AMMB closing up .6%. While the US close on Friday showed a lot of strength, this is a new week and keeping things in perspective of where the FBMKLCI is in relation to the other indexes will be key. The FBMKLCI is trading at highs while other world indexes are not. Don't buy everything out there.

Subsidy Lifting plays

If you want to get in the subsidy reduction play, companies like Petronas daganan, Shell, PLUS, Petronas Gas, Tradewinds, Tenaga are all ways to play the subsidy lifting scheme. When subsidies get lifted, inventories that the companies hold are now worth a lot more at market value. Not only that, future revenue will come in higher, which in turn creates chances for higher profits.

Certain names like Petronas Gas, Plus pay more of a dividend while people with more stomach for risk would certainly want a Tenaga or Tradewinds. A Petronas Daganan or Shell would certainly be a middle ground.

Sugar shortage news is bullish for sugar refiner Tradewinds. The market didn't trade up on the news, though. When the government lifted the sugar subsidy greater than expected, Tradewinds started to take off.

Bursa monitor to include local trading commentary

Bursa Monitor will now have a "Fast Money" type feel of a trader in addition to the material on this site.


We will tell you what is hot and where the trading momentum is. Currently we are recruiting for contributors to the site. Email bursamonitor@gmail.com if you would be interested in a trader like commentary.

Fast Money is an American financial stock trading talk show that began airing on the CNBC cable/satellite TV channel on 2006-06-21. Since October 10, 2007, it has broadcast every weeknight at 5pm ET, one hour after the close of trading on the New York Stock Exchange.^[3] The show originates from the NASDAQ MarketSite in New York City.

China floating is more about the Euro than bowing down to US pressure

From the WSJ:

A Chinese central bank adviser gave an upbeat assessment on the euro's long-term outlook and said global financial markets may have overreacted to the European sovereign-debt crisis.

Li Daokui, an academic adviser to the People's Bank of China, also told a financial forum on Friday that a major appreciation of the yuan is "impossible" because China's international payments are relatively balanced.

He repeated the official stance that the yuan float will be in two directions.

His views may not necessarily reflect the central bank's thinking, though he is at a position that his view can be heard by decision makers.

The comments came after the yuan rose to a modern-era high against the U.S. dollar on the eve of the Toronto summit of the Group of 20 industrialized and developing nations. Many analysts said the yuan would return to gradual gains in the week ahead, as Beijing won't be willing to see sharp rises in the yuan hurting local exporters.

A week ago, China removed its peg to the U.S. dollar, in place for nearly two years, returning the currency to a managed-float system that references the yuan to a basket of currencies that includes the euro. China's officials have said the move will help ease the pressure on the yuan to appreciate against the euro amid the euro-zone debt crisis.

China does what it wants for their own sake and doesn't really care about international pressure. They see the potential for the Euro weakening against the US dollar to threaten their exports. If they remained pegged to the US dollar, they lack tools to combat the Euro decline!

China moved to a float why? in order to have the flexibility to manage their currency against the Euro, NOT because the US wants to brand them a currency manipulator. Perhaps the Euro might rise in this case. I believe currency traders have caught on this idea. Euro shorts better be careful!

China's peg was released on the weekend, Wednesday Euro rallies while stock markets fall.

This is shaping out to be a battle royale! China and US versus the EU. Is China taking on more than it can chew in managing its currency against both US and Europe?

Malaysia won't go bankrupt, manufacturing exports!

From The Business Times:

Malaysia will not go bankrupt like Iceland and Greece following the nation's success in maintaining its debt level under control and prudent measures taken to reduce debt rate, Prime Minister Datuk Seri Najib Tun Razak told the Dewan Rakyat today.

He said the federal government's financial position will be carefully planned, constantly monitored and strictly controlled with full responsibility.

"The deficit level is expected to dwindle while the debt level will be kept under control in the medium-and long-term.

"These measures will help ensure the debt level and the federal government's deficit will not increase to the extent of jeopardising the country's financial capacity to repay its debts," said Najib, who is also Finance Minister, in his written reply to Lim Kit Siang (DAP-Ipoh Timur).

Kit Siang had asked Najib on the actions taken to ensure Malaysia would not suffer a similar fate like Iceland and Greece and become a bankrupt nation, requiring a bailout from regional and international communities.

The prime Minister said Malaysia's debts dwindled to RM233.92 billion last year as compared with RM236.18 billion in 2008 although the percentage rose slightly.

I sincerely hope so! But asia in general is pretty lucky that their property prices aren't as bubble-like as Europe and the employment rate is pretty good. Wages are of course low, but looks like China's people are getting paid a lot higher. Operators in the factories here don't get paid that much. I'd say with the salary raises at a lot of factories, minimum wage here is starting to look up.

I would say that the electronics sector here in Malaysia is quite competitive and worthwhile now! come to Malaysia! You get a more electronics manufacturing capable work force than China! Not only that, more people speak English than your export-oriented manufacturing country!

Game Theory at work, US and Europe!

Game Theory, more specifically the Nash equilibrium, Prisoners Dilemma is alive and well in the world. Europe is doing what is best for itself and US is doing what is best for itself. They can both cooperate for better gains but they won't even though it may be in their best interest to do so. (i.e. printing money the way US wants it done)

Apparently US needs help outside of itself to get the economy going again. If Europe won't cooperate with money printing, kiss Geitner's and Bernanke's money printing based solutions goodbye. Of course, they could print even more money, but it is hard to justify buying more assets to debase the currency as there is no crisis. Let's see where Bernanke goes with this.

Anyways, like I said before the US swap lines are open, but the ECB isn't using them. The swaps mean the US gets ECB bonds, Europe gets US Treasuries. ECB in turn, buys crap assets such as sovereign bonds with US money. If the ECB is gone sometime in the future, guess who will own the crap sovereign debts!

Positive on MISC and even MMHE (long term)

When MISC lists MMHE, it will obviously be good for MISC shareholders, but overall I think both should do well over a long period. One of the most expensive parts of doing business in the natural gas business is the building of huge LNG ports to convert the natural gas to liquid form. This is no small feat and is very costly from a fixed cost point of view.

Recently, there has been a breakthrough converting the Natural Gas to LNG on a ship. The FLNG vessel will then offload the LNG to a tanker for transporting to places around the world. This platform goes from rig to rig converting Nat gas to LNG and offloading it to a tanker.

Some advantages include:

• Smaller fields can be developed, that were previously unfeasible,
• Less red tape
• More share of the Natural gas pie for shipbuilders and rig construction.
• Less fixed cost for ports on land.
  
• More natural gas for everyone.

This is good for both MISC and MMHE. Petronas, MISC, and Mustang has also started a joint venturel on constructing a FLNG vessel. It will be expected to be in operation by 2013.

disclosure: long MISC.

BJ Toto needs to grab the low hanging fruit

BJ Toto has quite a number of outlets around the country. They should leverage their assets by conducting other transactions outside of gaming (perhaps bill payment, etc), so they can increase revenue with little risk. Maybe perhaps they are not allowed to do that by the government, as I do not know their arrangement.

During certain non-peak periods of the day I'm sure they can accommodate other types of products using their wide distribution network.

disclosure: long BJ Toto.

Euro short Top kill successful

Maybe BP should take a page from the short Euro FX traders on how to do a successful top kill.

Buffet's oil spill

Warren Buffet is getting grilled on the Television. It's maybe coincidence of timing, but basically Moody is BP and the oil spill is the financial crisis. Now Americans can properly visualize how horrible Moodys has been! Short Moodys if the SEC has any gonads to go after them!


--------------------------------

Update: After watching the hearings, I've got to say that I'm less than enamored at Buffet's character. His oracle-ness aura has faded away. I remember one question concerning Goldman Sachs and "due-diligence." Basically the answer was we got to depend on the government I guess. I mean seriously, do you want someone like that managing ur money?

Someone who just chucks 5 billion on decent terms? who doesn't "check" the hood? But now, It's come back to haunt him in this hearing! Sorry, I'm not sure if the 5 billion was worth it if Berkshire drops 5% in market cap!

ECB slow pokes, get ur shorts on!

From The NY times:

The European Central Bank said Monday that it had spent 26.5 billion euros buying government or corporate bonds since it began the debt purchases May 10, an amount that some analysts still consider inadequate to stabilize the euro zone’s financial system, Jack Ewing reports in The New York Times.

“The central bank has massive firepower but is not deploying it yet,” Silvio Peruzzo, an analyst at Royal Bank of Scotland, said in an e-mail message.

The disclosure Monday, in a routine announcement on the central bank’s Web site, indicated that the bond purchases in the week ended Friday were a relatively minor 10 billion euros, or $12.4 billion, after purchases of 16.5 billion euros the previous week. The bank has not disclosed what kinds of bonds it has been buying.

Yields on paper issued by Greece, Portugal, Spain and other highly indebted euro-zone countries have plunged since the central bank began the purchases. But though the purchases have achieved their goal of halting a sell-off of sovereign debt, the amount is still small compared with the total volume of bonds in circulation.

In a report issued earlier Monday, analysts at Royal Bank of Scotland estimated that European banks, insurance companies and other institutions hold some 2 trillion euros in government and corporate debt from the so-called peripheral euro zone countries.

LOL....I think every trader is calling the ECB on 25 billion in purchases so far for the month, cuz they are slow-walking the buying process. Come on, short Euros are going to come at them with everything they have. Still got 970 billion Euros to go!

This is the Fed Reserve Balance sheet.

Fed Balance Sheet (source: zero hedge)

You can see how ridiculously responsive the Fed was at QE. Thus we had a big rally! Come on ECB! Do it for the love of Money!

Euro FX futures

Central bankers play follow the bernanke, request liberal use of swaps

From the NY times:

South Korea is proposing that central banks set up a permanent arrangement for foreign-currency swaps to help address the type of funding shortages that emerged during the global financial crisis.

“Broadening and institutionalization” of such measures could help establish “a global financial safety net,” the governor of the Bank of Korea, Kim Choong Soo, says in the text of a speech to be delivered Monday in Seoul at a conference of central bankers.

Mr. Kim’s proposal comes five days before finance chiefs from the Group of 20 nations are scheduled to gather to discuss strengthening efforts to prevent financial crises. The U.S. Federal Reserve chairman, Ben S. Bernanke, who is among the officials scheduled to speak at the meeting, has opposed currency swaps as a “permanent service,” seeking instead to pressure banks into better managing their funding needs across different currencies.

Mr. Kim said his proposal could reduce the need for emerging economies to hold large quantities of foreign-exchange reserves as insurance at a “substantial” economic cost.

Wow, we're talking about Korea suggesting to the US to use more swaps. Well, if they want to bail out Europe, other countries are going to ask for their share as well.

But Bernanke isn't in much of a position since he let the genie out of the bottle with use of swaps during his tenure. Not calling him rascist or anything, but what the hell, exports to Asia are just as much as exports to Europe. If Asia is in trouble, it is in US' company's best interest to bail them out. Asian countries won't need to hold as many reserves which is good for US exports.

US Exports to the world by region

That is the main reason why Europe is getting bailed out. I say Asia should hold one currency together so they don't need to carry as many reserves and dump US dollars so Asia currency and wages can go up.

Then people in Asia can take holidays in Europe and US for Cheap!

Quantitative easing, everyone is doing it!

I'm not bullish on US stocks for a major reason, I think growth will slow. The only avenue of growth for companies is through exporting (i.e. Weak dollar) which is what James Altucher of Formula Capital is arguing for a bull market. I agree with him in a perfect world where the world's interest is the US' interest...... however,

James Altucher of Formula Capital is a moron. I watched some of his videos on CNBC. His whole bullishness is predicated on what is going to drive stock market profits is the low dollar. He fails to consider one huge monkey in the room, China. China is NOT going to sit by idly while US and Europe trash their own currency. China will devalue their yuan and join in the race to the bottom.

So, until China decides to devalue the yuan, the markets will do alright. But, once the devaluation happens, the stock markets sell off. The US dollar will appreciate, and guess what, the profits of US companies will go with it. That is why I'm not bullish on US stocks. In this case, there is nothing the FED can do. They can ease even more, but I think they won't once China shows the US they have the gonads to wreck their own currency and go toe to toe with US in the trashing of their own currency.

In simple terms, the Yuan will not go up against the US dollar, stock investors will see this (they don't now) and slash their growth estimates for stocks, thus sending markets back down into correction or a bear market.

Honestly, I don't even think central governments care about gold. So what if it goes to ten or twenty thousand an ounce? Honestly, they will care more about what is happening with their economic well being and whether people are working than what happens if some shiny metal is worth ten or twenty thousand bucks an ounce.

Why housing defaults matter

The US has a problem in over-leverage. The banks are leveraged on a capital ratio of 1:12.5, in other words, they keep some 8% in reserves. If a bank has 10% reserves, housing defaults that would decrease their reserves by 3% would put the bank in seizure territory. If the company is public, the stocks will go to zero when seized.

Looking at the following graph, we can see how quickly the default rate has jumped 2% in over a year. Say, 2% defaults result in decrease of reserves by .75% on average, then it only takes 6% of homes defaulting to get the 3% decrease in reserves. We have some major problems.

Housing default (source: calculated risk)

Bank problem list is at 767, up from 653 in March. This problem list has NEVER decreased. More banks seem to be eligible every time I see the FDIC's press release. They are slow-walking the bank seizure process.

If by now the banks can't get their housing delinquencies under control, this year, another wave of foreclosures is going to happen due to the second wave of housing interest rate resets. I doubt anyone believes with another wave of resets happening that the default rate will get lower.


As you can see, the loans which will experience payshocks start increasing around now, through June and July, then pretty much into next year and into 2012. Option Arms default rates are just as bad as subprime.

Banks will write these assets off..and when they do, rest assured their reserves will decrease, and stock prices will go down. Either that or we will have another 5 trillion of QE by the Fed.

To buy or not to buy, Malaysian stocks

The market is around 1250 right now. I'm not a buyer at this time. Lets see where the next month goes. My feeling is three part-

ONE. Liquidity is still there, so eventually prices will run up in the longer run. Bailouts will keep coming, the second wave of housing problems are starting to hit (hence second round of Quantitative easing), the Euro is facing just the beginning of their member states' problems, and the US will likely need to bailout their states that overspent.

TWO. We will have had only the first negative month. Perhaps it will subside to the upside the next month, but maybe not if momentum players have anything to say about it.

THREE. Equities may not go up forever. They are capped by economic growth, dividends payouts, and input costs. The things that can go up, however are bond yields as investor concerns over the "stealth default" through inflation, and commodities as more money chases fewer goods.

Wow...KLCI down 22 points this morning

The KLCI is down 22 points to 1281. 22 points isn't much compared to the heydays of 2008, but the market thinks it's time for people's memories to refreshed on what volatility is.

75000 S&P futures seller found

Looks like they found the culprit. If you can't find it here, try zerohedge. A trader selling 75000 E mini futures. 75000 *50 *1150 = $ 4,312,500,000. It appears they found some counter party to then take the other side and sell short sell 4.3 billion dollars of S&P stock. That may be enough to do it.

It's a bit ridiculous. Anyways, you heard it here first how leverage can absolutely wreck the market. The truth is, if someone wants to sell the futures, how can it be manipulation? There's no limit on how many futures one can sell in one go, although the authorities maybe should put limits. Remember though, that if there is a huge unwinding of leverage from liquidity being drained, there's not much one can do.

A reluctant gold bull

With the ridiculous money printing and moral hazard going on in almost every industrialized nation, I'm now a gold bull.

It's tough to love such a metal which has value only as people give it. It doesn't have much use besides jewelry, but I have to be alarmed by what in the world is going on with trillion dollar bailouts of countries, banks, and other corporations.

I doubt many of the gold pundits could have predicted how ridiculous countries have gotten with fiscal irresponsibility, but it seems everyone is pulling the nuclear option and monetizing debt these days, Euro, UK, and US. With this, I'm not surprised gold isn't even higher.

With this much money running around, metals, gold, etc seem to be the biggest no brain trade of a lifetime. I foresee the UK getting the shaft next as people tire of giving the Euro a beat down, that is until Spain, Italy, and the rest of the PIIGS fall under the same situation as Greece. Then we might see capitulation and the end of a currency.

The US has now reopened SWAP lines with other currencies in effect, also torpedoing the US dollar by helping bailout the Euro. Will the treasury recognize the losses when a Euro is gone?

disclosure: long gold.

Dow Crash of 10%

While it is interesting how the media try to spin 10% drop in the DOW on Friday as an error or mistake, the truth is that it doesn't take much for the market to do that. The 1987 crash didn't really have many events causing the 20% drop.

The latest reason seems to be a huge amount of options were bought causing a major bank to sell a lot of stock when they wrote the option. This is one of the more likely reasons.

Another possible reason is the selling of futures which equates to the counter party hedging their futures position with stock. The counter party needs only put up some margin, while the seller buys the stock to hedge. A 20% margin would equate to 5 times the margin amount of selling power. This is another way to create some massive selling power.

I mentioned earlier that the buying of futures could cause a massive rally. I also mentioned what could happen if the futures weren't rolled over, massive selling power. Options buying and selling have the same dynamic. Writers buy or sell the underlying position to hedge against the buyers.

I would think the real reason behind the crash would probably be a dynamic of either futures or options. All this talk about high frequency trading, mistaken orders, failed circuit breakers probably are not the root cause despite what is mentioned in the media.

High income nation, what it'll take

So, we want to be a "high income nation" as quoted from Najib. But unfortunately, this feat will take more than just a strong currency. Malaysia unfortunately doesn't have the intangibles of a high income nation.

Work culture. Generally the work culture here isn't much like that of a high income nation. Great work cultures are a thing of beauty which encourage and reward ingenuity and realize people have lives outside of work. It is no wonder why many Malaysians living abroad in western countries don't want to come back to work. All things equal, yeah working life in western countries is much better.

Can Malaysia "think outside the box"? in terms of workplace productivity?

Next, we have economic and educational policies. Malaysia's economic and educational policies still need major revamping. First, an even playing field needs to be out there. Racial divides need to be cut down in terms of business. Next, the culture of education needs to be stronger in terms of creative thinking and be neutral about racial issues, promote secular ideas.

Religion is something that should be really cut out of media and not encouraged to involve anything of national importance. It would also be nice if the mosques do not blast prayers on the loudspeakers. Religion should be private and or congregate within the confines of the religious facility. A lot of economic progress has been put in slow motion because people cannot make impartial decisions affected by race and religion.

On GST in Malaysia, blinded by other country's GST successes

GST may be just another sales tax, but my opinion is that it is sort of an attack on small company formation and outsourcing. It is true GST is used in a few countries, and rational logic would say, ok it works there without the country going under, therefore, yes Malaysia should be fine.

But the truth is, GST hasn't really been tested in a developing country such as Malaysia which many of its industries are reliant on manufacturing exports. GST is used in Australia, New Zealand, Hong Kong, Singapore, and Canada where the income is relatively high on a Gross national income basis and the economy is fully developed. It is true, Australia and New Zealand do export quite a lot of items, but their products are mainly natural resources and agricultural goods, relatively low on the value chain of manufacturing.

Malaysia does not have a high national income per ca pita and the economy is not developed. Costs do matter as the country is a manufacturing export based economy and is in competition with worldwide exporters.

Services are built around the manufacturing sector. E&E exports are very dependent on the structure of the economy. In A GST structure, companies will outsource less and build up the value chain more to avoid the taxes. A lot of small time vendor services will be much more costly as companies toward the end of the value chain rethink their outsourcing strategy.

E&E will suffer the most cost increases as their whole structure is based on outsourcing. The number of parts involved in the products is quite dependent on outsourcing costs. If the products become too costly, the end manufacturers will vertically integrate, killing thousands of vendors which compete for their business.

If you are in the camp that small businesses drive economic growth, then yes, GST will hinder economic growth.

Astro shareholders should accept offer

Astro is going private:

IT has finally happened. Astro All Asia Networks will be taken private, putting to rest rumours that have been been brewing over the last two years, with continuous denials from company officials. Not surprisingly, it has happened at a time least expected.

In a style similar to the RM16bil privatisation of Maxis Communications Bhd in 2007, Ananda Krishnan is taking his pay-TV company private at a price of RM4.30 per share, equivalent to a RM8.5bil deal.

The reason? The same as when he took Maxis private; going private would provide a more conducive shareholding and operating structure given the company’s future high capital expenditure (capex).

Astro’s estimated capital requirement is between RM3bil and RM3.5bil. Half of that will be for the domestic market, while the other half is for its overseas markets in the Middle East, Australia and North Africa.

The article came out a few days ago, but is significant for shareholders. Unfortunately, the shareholders will be bought out, many at a significant cut to the highs. The good thing is, they should take it, if Astro wants to lever up its balance sheet for future expansions into risky markets, then it's all good.

At this time when TM is coming into the market and offering HD quality TV to homes everywhere, (Word is they are coming out with 40 channels in the official trials) Astro wants to use its cash flow here to expand in services elsewhere. Ok! If they want it that way!

Shareholders should be glad Ananda is willing to buyout the Astro shares at a fair price. It's not horrible, but not great either. Perhaps Astro should be listed as a growth company instead of a dividend paying one. They might not get a huge IPO following, but at least there will not be any conflict with future shareholders who will know what they are getting.

Zeti hints at higher interest rates, why this is significant

From the Business Times:

Bank Negara Malaysia said it may increase interest rates further to avert asset bubbles and discourage risky investments by people seeking better returns, even as inflation will likely remain "modest" this year.

"We will review the conditions at our next monetary policy meeting and work toward further normalising if necessary," governor Tan Sri Dr Zeti Akhtar Aziz said in a March 12 Bloomberg Television interview in Kuala Lumpur. "Inflation will continue to be modest and therefore it would not prompt us towards tightening, but that does not preclude that we will continue to normalise interest rates."

"Certainly the first half of the year, all the signs are pointing to stronger growth" as domestic demand and investment recover, she said.

Inflation of about 2 per cent would be considered "modest", Zeti said. Malaysia's consumer prices rose for a second month in January, climbing 1.3 per cent from a year earlier from an average 0.6 per cent in 2009.

Should price gains accelerate further to 3 per cent, for example, "we would begin looking at what are the sources of inflation because if it was demand-induced then" the central bank would look at "tightening" monetary policy, Zeti said.

Zeti refrained from raising interest rates in 2008 when consumer prices rose as much as 8.5 per cent in July and August amid soaring oil and commodity prices, saying inflation wasn't driven by higher demand and would ease as global growth slowed.

Malaysia's policy makers aren't "inflation targeters", she said last week.

While the rise in interest rates is not insanely surprising, given many other countries are currently tightening, the tone used in explaining the rationale of the interest rate moves point towards moving in a different direction that other central bank uber money printers.

For one, the bank has openly stated that it is not an inflation target-er, and is willing to repay back the savers who have been sitting patiently financing the Malaysian economy through this difficult time. This is excellent. This is a central bank that is willing to break from the crowd and not just follow inflation and economic data like a mindless lemming.

They are willing to raise interest rates and acknowledge savers which is fantastic given the ridiculous amount of money printing by everyone out there. Countries that have raised interest rates are doing so because of what inflation data tells them, following in the footsteps of the US; not because they want to compensate savers. While interest rate increases do give investors confidence, the knock on these central banks is that they will just as likely reverse actions if the data tells them to. Rarely is data ever stable especially given the current volatile economic conditions, so what currency investors crave is foresight on what a bank will do. Foresight that the bank will act accordingly to data is about as stable as an earthquake.

In a world where every central bank is hell bent tunneling in on economic growth, the Malaysian Central bank has taken a refreshing change in tone. This currency is going up, and the economy should be decent. If you want to break from the pack, Malaysia central bank is a prime example. Nothing says confidence like a country that is willing to acknowledge it will do something different from the money printing crowd and defend the savers and spending power of its currency, even if the economic recovery isn't as strong.

The Edge Malaysia v. Business Times v. Star Newspaper

Frequently, I quote various publications for content fodder.

I use the Business Times for the majority of the posts v. The Edge Malaysia and The Star for good reason. The Business Times, in my opinion is the easiest to read Malaysian business publication. The Star news paper is next, but it gives you the runabout when going to the business section while the Edge has content but personally i don't think much of the way they present their information.

For instance, in the Business Times, I click on "Today's newspaper"and BOOM, I get the latest stories and yet do not get bogged down with too much content like the Edge. It's easy to scan their site. I feel their articles are generally more relevant and of greater substance than the Edge Malaysia site which just spits out article after article in the politics and business section. The headlines are not informative and sound quite useless.

The Star Newspaper, to be fair isn't a business publication, as they cater to many audiences. The business site is just an extension of the main newspaper. I would rate theirs better than the Edge Malaysia and not as good as the Business Times.

On the other hand, the papers of the Edge financial Daily and the Edge is quite good. Unfortunately the website leaves much to be desired.

Thoughts on high speed train travel, skybus might expand to Bandar Utama

The Business Times posted an interesting article on the skybus service possibly expanding its services to Bandar Utama and Sunway.

"We have ferried more than 4.5 million passengers since LCCT was opened on March 23 2006," he said.

After one-and-a half years of service, SkyBus - which is one of two LCCT bus service providers operating from KL Sentral - was appointed as budget airline AirAsia Bhd's official bus.

The tie-up has enabled AirAsia passengers to enjoy an online bus fare of RM6.50 for one-way trip, instead of the normal RM9 one-way ticket.

SkyBus is now looking at carrying passengers from Bandar Utama to LCCT.

Chris said the service will start in the second quarter this year.

He said the company has also received invitation letters from the management of Sunway Pyramid and Genting Theme Park as well as other bus terminals to transport budget airlines passenger from their terminals.

Currently, SkyBus controls 20 per cent of traffic to LCCT. With more routes being opened in Klang Valley, its market share its expected to increase.

I've taken the economical route of going to kl sentral, sitting on the bus to the LCCT, and taking one of Air Asia's cheap flights to Penang.

Basically it costs me RM9.00 for the bus, RM15 for the taxi, and some 60 bucks for the flight. So this comes out to about RM85 for the entire trip. Not only do we have to consider the financial impact, but the opportunity cost in time taken. We're talking about 3.5 hours for a trip to Penang which normally takes about 4 hours to drive, not a great bargain there. (1 hour bus ride, 30 min taxi ride, 1 hour flight wait, 1 hour travel time)

High speed trains have a couple of interesting advantages that I only realized because of how ridiculous the costs I paid to get to the the airport in terms of time and money spent.

First and foremost, the high speed trains will most likely stop right in the middle of the city, at KL Sentral, so the only extra cost paid for is the taxi ride to the station. The bus trip is cut out, saving some one hour of time. You get to the train station 30 min before, one hour later you are in Penang or Singapore. (20 min taxi ride, 30 min wait for train, 1 hour travel = 2 hours of time spent)

In Singpore the train would arrive at a more convenient location so you would save on time spent traveling from the Singapore airport to your place of abode. Taxi costs in Penang are also outrageous, so you would save on costs there as well.

High speed trains have their demand for places with a 1-2 hour flight time. A 3.5 hour ordeal to fly to Singapore or Penang is quite ridiculous given that it equates to roughly half a working day. On the other hand, 2 hour travel time for train is much more tolerable. People commute 1 hour to work anyways, what is an extra hour?

If the US is stock buying futures, what does that mean?

This is to follow up on the previous post that the US government may have been buying futures to artificially increase the stock market. In the following, I give a hypothetical scenario if the government had bought futures, and when the positions expired, what would happen.

Suppose the US government may have put bought index futures at some date a couple of years away. Given a margin requirement of say...10%, 100 billion worth of futures over 6 months would translate into some $1 trillion of buying power.

When people buy these futures, the sellers will have to buy the index to hedge their positions. They would buy 1 trillion dollars worth of stock so they might deliver these to the government some years away.

So, what happens when the government closes out their positions by offsetting at some earlier date. Well, the opposite happens, there will be no buying power and a lot of shorts. In fact, all the institutions which took the other side of the trade don't have to hold their stocks any more and will more likely sell the positions. As we approach the futures date, we will get a lot of selling, to the tune of a trillion dollars of selling power in the stock market.

When closing out futures contract, the government could theoretically take delivery, but that would translate them into putting up even more money for the basket of stocks they take delivery for. This won't happen. I don't know how the treasury could justify a hundreds of additional billions to congress just to purchase stock.

The last option is that they could roll over the futures position to an even further date. The government would close out, the counter parties sells one trillion worth of stocks, and reopen, the counter parties buy another one trillion worth of stocks. Nothing much except a flat and choppy market would ensue in this case.

Either the treasury/fed could perpetuate the positions or close them out.

Possible manipulation on the stock market by US government?

Usually I tend not to write about this kind of speculative thing, but I find this rally fishy and evidence presented by zerohedge, although circumstantial, shows most of the rally since September 2009 has taken place in the after hours. The data might be coincidence, but yes, the US government boosting stock prices through buying futures would be a perversion of government intervention in free markets and this is showing the world that the stock market can be gamed through the futures market.

The world has believed that investing is something that is based on the performance of companies and economies. If they have to account for whether or not the government will buy or sell futures to game the market, then basically they will have wrecked decades of faith and trust by the public in markets. More people will know that the market is really a gamble and investing will have become a thing of the past. Why would people invest in the market if they know that it can be manipulated?

Of course, this after hours manipulation might just be nothing but an anomally but hopefully this thing gets sorted out or people will just lose faith.