Saturday, June 27, 2009


  1. A Better India, A Better World - N. R. Narayana Murthy.
  2. Outliers - Malcolm Gladwell.
  3. Fooled by Randomness - Nassim Nicholas Taleb.
  4. Your first $1M, Making It In Stocks - Dr Michael Leong.
  5. Chinese - English Dictionary.
  6. Negotiation - Gavin Kennedy.
  7. Guide to Organisation Design - Naomi Stanford.
  8. Random Walk Down Wall Street.
  9. Security Analysis - Benjamin Graham.
  10. The Intelligent Investor - Benjamin Graham. (Chapters 8 & 20)
  11. Prisoner of the State.
  12. Richest Man in Babylon.
  13. Depression Economics - Paul Krugman.
  14. Snowball.
  15. Where are the Customers' Yacht.
  16. Value Cost Averaging.
  17. Hot Commodities - Jim Rogers.
  18. Investment Biker - Jim Rogers.
  19. Common Stocks, Uncommon Profits.

Remembering Farrah

Friday, June 26, 2009

Zhao Ziyang's ideas hold lesson for China leaders

Business Times - 26 Jun 2009


THE publication of the secretly recorded memoirs of former Chinese Communist Party leader Zhao Ziyang, who spent the last 16 years of his life under house arrest for opposing the crackdown on student protesters in Beijing's Tiananmen Square in 1989, provides a rare glimpse into how elite politics works in China.

The memoirs show that, as widely suspected, Deng Xiaoping was the one who decided to call in the troops even though he was formally not the head of state, of the party or even of the government. But he was the country's supreme leader, which reflected the abnormal state that the country was in at the time.

Mr Deng made an ineradicable contribution to China after he came to power following the death of Chairman Mao Zedong. Mr Mao had put his personal imprint on the country from the establishment of the People's Republic of China in 1949 until his death in 1976.

Under Mr Mao, China supported revolutionary movements around the world and within China, there was one political campaign after another with millions of deaths. Mr Deng himself was purged twice by Mr Mao during the Cultural Revolution, and so had much time to meditate on what was keeping China backward at a time when other Asian societies were moving forward. And so, in 1978, he changed the country's course so that modernisation became the central task of the Communist Party.

Class struggle, like world revolution, was jettisoned. When the student demonstrations erupted in spring 1989, Mr Deng saw them as a threat to the party's monopoly on power. He did not hesitate to call in the troops to crush the peaceful protests. And when his right-hand man, 69-year-old Mr Zhao, refused to go along, Mr Deng got rid of him as well.

Mr Zhao was put under house arrest for the remainder of his life, until his death in January 2005. During this period of enforced idleness, Mr Zhao was able to ponder China's past, present and future.

Mr Deng, when sidelined by Mr Mao, developed a vision of China as a modern country under the control of the Communist Party. Mr Zhao, under house arrest, also thought long and hard about the country's future direction. Interestingly, his conclusion was diametrically opposed to that of Mr Deng. While Mr Deng wanted China to remain a one-party state, Mr Zhao concluded that China's only possible course was democracy.

In his secretly taped memoirs, Mr Zhao said that in 1989, when he was the party leader, he did not 'think that the Communist Party's ruling position should change'. However, he did think that 'the way it governed had to be changed' and, instead of 'rule by men', there should be 'rule of law'.

However, after years of contemplation, his position changed radically. 'The Western parliamentary democratic system', he decided, was superior to Communist Party rule. 'Almost all developed nations have adopted a parliamentary democracy,' he wrote. 'Why is there not even one developed nation practising any other system?'

If China does not adopt such a system, he argued, it would be faced with problems such as commercialisation of power, rampant corruption, and a society polarised between rich and poor. All this, of course, is contrary to Mr Deng's vision for China, which is shared by the country's current leaders. To them, a parliamentary system with checks and balances must be avoided at all costs.

But even if China's leaders today cannot accept Mr Zhao's ultimate conclusions, they can learn from some of his other ideas. Mr Zhao pointed out that the Chinese Constitution is good but the problem is 'there were no laws in place to support its implementation. That is why many of the citizens' rights defined in the Constitution could not be realised'.

That is an accurate description of the situation today. The Constitution, for example, declares in Article 35: 'Citizens of the People's Republic of China enjoy freedom of speech, of the press, of assembly, of association, of procession and of demonstration.' This sounds very good in principle; in practice, however, Chinese citizens do not enjoy such freedoms.

No laws have been enacted to implement these principles. Beijing has in recent years highlighted its support for human rights by putting into the Constitution a clause that says: 'The State respects and preserves human rights.'

However, saying it is one thing, putting it into practice is another. Legislation is needed to ensure that rights and freedoms stipulated in the Constitution are observed in real life.

If China's leaders are willing to accept this one idea from Mr Zhao, it would greatly improve the lot of the Chinese people.

The writer is a Hong Kong-based journalist and commentator

Expats in Asia, Mid-East best paid: poll

Business Times - 26 Jun 2009

One-third of expats in Russia earn over US$250,000 a year

(SINGAPORE) Want the good life despite the dire economy? Head east, according to a survey showing some of the world's highest-paid expatriates live in Asia and the Middle East.

A third of all expats in Russia - the highest proportion in the world - earn more than US$250,000 a year, followed closely by expats in Japan and Qatar, according to the 2009 Expat Explorer survey, commissioned by HSBC Bank International, the offshore financial services arm of HSBC Holdings.

Between a third and a quarter of foreigners working in Hong Kong, the United Arab Emirates, Thailand and India earned annual wages of more than US$200,000, while countries such as Malaysia, China and India, were ranked among the cheapest for accommodation.

'Asia is home to the highest paid expats in the world, with one in four expats earning more than US$200,000 per year,' said the survey (http: explorer). Russia was ranked the number one country overall for expats in terms of wealth. The rest of the top nine were all in Asia and the Middle East.

Building a nest egg is one of the perks of expat life for many people, and the survey showed that Saudi Arabia, Russia, Qatar, India and the United Arab Emirates were the top five countries where people have increased their savings.

But the global economic crisis has taken a heavy toll on expats in Britain and the United States, where close to a quarter are considering returning home, compared to just 15 per cent overall, due to the high cost of living, lack of savings and lower wages.

Generous salaries are also relatively scarce in Australia and Belgium, the survey showed. More than 60 per cent of expats in both countries earn under US$100,000, making them the poorest expats wage-wise when compared to a global average of 35 per cent.

'We have seen some interesting trends in terms of how expats are reacting to the credit crunch, but what is also interesting to see is that they remain a wealthy group of individuals,' Paul Say, head of marketing and communications for HSBC Bank International, said in a statement.

'Over half the expats surveyed are actually earning US$100,000 and over - no mean feat particularly in the current climate.' Expat Explorer, now in its second year, surveyed more than 3,100 expats from various nationalities living in 26 countries.

HSBC said it was the largest survey of its kind.

More than two-thirds of expatriates worldwide said the credit crisis had changed the way they spend their money, with luxuries and day-to-day spending the most affected. Nearly 40 per cent said they were saving more for a rainy day.

Over half of the expats in Japan - the highest globally at 53 per cent - said they were cutting back on holidays and other perks, while almost one in two expats in Thailand and Hong Kong - the second and third globally, were also scaling back.

In contrast, two-thirds of expats living in Qatar said the global financial crisis would not change their spending attitudes at all, followed by more than half of those living in Bahrain, which HSBC said indicated that some oil-rich Gulf Arab states have not been hit as hard by the downturn.

Expats in Saudi Arabia, Brazil and Russia were also the least likely to cut back on luxuries, the survey showed.

Those polled in the survey were chosen by four main criteria: annual income in excess of US$200,000; a monthly disposable income in excess of US$3,000; an increase in saving while working abroad and having at least two luxury items in the country they live in.

The survey was conducted between February and April 2009\. \-- Reuters

Millionaires' club culled by economic crisis: study

Business Times - 26 Jun 2009

(PARIS) The number of millionaires hit a three- year low last year as the financial crunch wiped out years of lucrative investment, shrinking the ranks of the very richest by a quarter, a study said on Wednesday.

The joint study by investment group Merrill Lynch and French consultancy Capgemini said the number of millionaires - termed 'high net worth individuals' or HNWIs - fell by 15 per cent worldwide to 8.6 million.

The ranks of ultra-HNWIs - those with investable assets of US$30 million or more - fell by nearly 25 per cent.

'The unprecedented declines (in the crisis) wiped out two robust years of growth in 2006 and 2007, reducing both the HNWI population and its wealth to below levels seen at the close of 2005,' the companies said in a report.

'World equity markets lost a decade of gains, and volatility reached record levels. Our 2008 findings show HNWIs began to lose trust in the markets, regulators, and, in some cases, their financial advisory firms.'

'It was the most well-off people that were the most affected by this decline,' said Martina Weimert, an associate director of Capgemini in France, in a statement.

More than half of the world's millionaires were in the United States, Japan and Germany, the report said. China overtook Britain to rank as the country with the fourth biggest headcount of millionaires.

The total wealth of people in the HNWI class - those with a million or more dollars' worth of investable assets - declined by a fifth to US$32.8 trillion in 2008, down from US$40.7 trillion the previous year.

The financial wealth of Asia-Pacific millionaires will surpass those of North Americans by 2013, driven by economic growth in China and US consumer spending, Merrill and Capgemini said.

The value of millionaires' assets globally will resume rising by 2013 and climb to US$48.5 trillion, the report said. -- AFP, Bloomberg

S'pore wealth chart shrinks by 22%

Business Times - 26 Jun 2009

Globally, high net worth individuals' wealth falls 19.5% to US$32.8t in 2008


(SINGAPORE) The number of wealthy Singaporean individuals fell 21.6 per cent to 61,000, largely due to losses in the equity and property markets, according to Merrill Lynch and Capgemini's latest wealth report.

Merrill Lynch head of advisory for South Asia Kong Eng Huat reckons that the combined fortunes of the well-heeled in Singapore could have fallen by about 20 per cent last year from US$379 billion previously - in line with the 22.3 per cent contraction seen in the region.

He said that 2008 was an 'unprecedented year because of extraordinary volatility and distress in the financial markets, and this impacted the size of the wealth of high net worth individuals (HNWIs)'.

Globally, the combined wealth of the world's HNWIs - defined as those with investible assets of US$1 million - fell 19.5 per cent to US$32.8 trillion in 2008, but should recover to US$48.5 trillion in five years. The ultra-HNWIs - those with investible assets of more than US$30 million - suffered an even sharper drop of 24.6 per cent in combined fortunes as 'they were more aggressive and highly leveraged'.

The world's real GDP had expanded only 2 per cent in 2008, against 3.9 per cent in 2007.

However, Bhalaji Rhaghavan, regional vice-president of banking solutions at Capgemini, sees signs of economic recovery and that HNWI wealth should 'resume an upward trend with the Asia-Pacific region leading the growth'.

Accordingly, the report projects the Asia-Pacific wealth market to grow at a 12.8 per cent annual growth over the next five years to US$13.4 trillion in 2013 - faster than the 8.1 per cent forecast globally.

In terms of asset allocation, the wealthy have generally cut back on their exposure to equities and alternative assets. Globally, the wealthy reduced their equity weighting from 33 per cent to 25 per cent. Cash and fixed income have a combined 50 per cent - up from 44 per cent a year ago.

Also, HNWIs allocated more of their financial assets to real-estate holdings, which rose to 18 per cent of the total HNWI portfolio - an increase of four percentage points from 2007.

'Last year was about preservation, not appreciation,' said Merrill Lynch Global Wealth Management president Dan Sontag. 'With no safe havens, HNWIs ended up with significant amounts of cash in their portfolios. As markets recover, they will have the flexibility to readjust their strategies and reinvest in new developing opportunities along the way.'

The report also carried a section on 'passion investments' such as art, luxury cars, and wellness. Globally, luxury collectibles accounted for 27 per cent of passion investments and fine art 25 per cent.

Interestingly, the affluent increased their allocations towards jewellery to 22 per cent, compared with 18 per cent two years ago.

In contrast, they scaled back on their allocations in miscellaneous investments of passions - club memberships, travel, guns and musical instruments - to 7 per cent from 16 per cent in 2006.

Meanwhile, the other private banks remain cautiously optimistic on the continued growth of the Asian wealth market despite the turmoil seen in the regional capital markets.

Said Raj Sriram, Singapore head of private banking at RBS Coutts: 'In the medium to long term, we believe the region will continue to be the fastest growing wealth management market in the world. Not all markets have been impacted by the same magnitude.'

A UBS spokesman said that 'the wealth management market in Asia Pacific has expanded substantially over the years and Asia Pacific has been the fastest growing region. At UBS, we are of the view that the wealth management assets in Asia Pacific will continue to grow faster than the global average'.

Citi Private Bank's Akbar Shah said that Asia is still one of the most dynamic regions in the world. 'The recession will not last forever; real economic growth will return and so will the business opportunities; our clients from Brazil or the Middle East will want to invest in China, India, or other Asian markets.'

My favourite "Beng" sports car

Love the growl of the engine, even at standstill.

For the ultimate Beng-ness, choose colour matt black!

Thursday, June 25, 2009

To prosper, stay ahead of change

Business Times - 25 Jun 2009

What is needed today is an infrastructure that supports the convergence of business and IT needs and assets


WE have long known that organisations are living systems - made up of smaller components and systems. As the planet becomes a smarter planet - and more human beings, man-made systems and natural systems become interconnected, instrumented and intelligent - we begin to achieve unprecedented freedom to build, assemble, reassemble, loosely couple and link resources in the organisation.

Organisations that are prospering most are those that are dynamic and resilient enough to stay ahead of the change required of them.

And it's not just about pervasive connectivity. For the first time, massively powerful computers can be applied affordably to processing, modelling, forecasting and analysing just about any workload or task. New approaches to service delivery are taking hold, such as cloud computing models - creating a new kind of user experience - particularly in the consumer Web space - in search, social networking, retail and productivity applications.

From the user perspective, cloud computing holds promise for organisations to acquire services without needing to understand the underlying technology. Utility wires, automobiles and packaged goods are becoming increasingly 'instrumented' with sensors, transistors or RFID tags.

We are all now 'interconnected' no matter where we are thanks to the Internet. And becoming ever more 'intelligent' thanks to advanced software that communicates with vast supercomputing data centres.

Major shift underway

A whole host of rapidly accelerating changes are unfolding: mergers of 100-year-old companies, creation of new industries and the demise of others, the emergence of new economies, the opening of long-isolated markets, the imposition of new government regulations and the relaxation of others, and so on.

Today, the PC model of the 1980s and the highly distributed model of the 1990s must be replaced by a new, more integrated paradigm, based on openness, networks, powerful new technology and the integration of digital intelligence into the fabric of everyday work and life.

Take a look at The Fullerton Hotel in Singapore, a six-star luxury hotel with 400 rooms and suites carefully designed to provide both business and leisure travellers with a sanctuary of serenity and comfort in which to retreat and rejuvenate.

To take its guest service and operation capabilities to new heights, the Fullerton replaced its ageing computing infrastructure with a more robust, highly scalable, reliable and energy-efficient infrastructure to support its new business intelligence, human resources and inventory management applications.

Its goal was to leverage leading-edge technology that will enable its staff to enhance efficiency and better service to its guests, while having a positive effect on the environment and running a more cost-effective operation.

The result? The new infrastructure has reduced the hotel's data centre server footprint by 75 per cent, helping to save on facilities space and cabling. With fewer systems to manage and update, the hotel's system management is streamlined and there are savings on labour costs.

Adding to that, the drop of at least 30 per cent in the power and cooling costs of its data centres is helping the hotel make its mark in going green and caring for the environment.

The change gap

Recent surveys indicate that 98 per cent of CEOs plan business model changes and 83 per cent expect substantial or very substantial change. But the gap between those who expect change and those who believe they can handle it has tripled in the past two years.

For instance, take the utility industry. Who wouldn't want to better manage demand with available capacity rather than build expensive new power plants. Or if you actually knew what consumer demand was, automatically reroute power rather than overload the grid and end up with another power outage.

So what's holding them back? To do that, they'd have to take their IT assets out of their silos. And take their business or 'operational' assets - that network of power plants and distribution systems - out of their silos.

And integrate them into a 'smarter grid' which would allow them to manage all those transformers and breakers, and even the smart meters and thermostats in our homes and harvest all that intelligence from their IT systems.

In the food industry, consumer pressure and government regulations now mandate that food producers ensure the safety of the food supply across the supply chain. Yet headlines about salmonella and E coli outbreaks are way too frequent.

So what's holding back the food industry? The way the food companies monitor and control the temperature of their perishable goods is not working. They don't have an infrastructure in place that connects the farm, to the truck, to the supermarket shelves.

So whether it is food or utilities - while they are totally different industries, they all share something in common.

What's holding them back? What we call a 'change gap'. Their business or 'operations' and IT assets are highly fragmented and highly distributed, thereby creating an environment that has business and IT operations working in silos. There is a large gap between our progress digitising and instrumenting critical applications and processes and the rigidity of the underlying infrastructure.

Infrastructure needs

What is needed today in this digitally connected world is an infrastructure that supports the convergence of business and IT needs and assets, creating integrated 'smart' assets that will enable organisations to reduce costs, manage risk and improve service while reducing costs.

The key requirements that such an infrastructure has to address include the integration of digital and physical infrastructure, the need to manage, store and analyse a massive amount data and reduce massive inefficiencies of energy, data centres and server utilisation.

The underlying technical capabilities that allow the development of such a converged, dynamic and smart infrastructure include:
  • Virtualisation - Breaking out of the barriers of physical devices in a data centre, servers, storage, networks, data and applications giving businesses improved total cost of ownership, resiliency and flexibility
  • Energy efficiency - Optimising the energy efficiency of the IT infrastructure to reduce costs, resolve space, power and cooling constraints
  • Service management - Integrated visibility, control and automation across all of the business and IT infrastructure components that support differentiated service delivery and accelerated business growth
  • Asset management - Enhanced asset reliability, availability and uptime that underpin quality delivery of service according the priorities of the business while also maximising return on lifetime asset investment along with inventory optimisation, labour efficiency, and mitigating the risk of equipment failures that jeopardise the environment and the health and safety of people.
  • Security - Adopt a new approach to managing risk and security across organisations, processes, and information as the IT and business infrastructure become more interconnected
  • Business resiliency - Build in capabilities to rapidly adapt and respond to risks, as well as opportunities, in order to maintain continuous business operations, reduce operational costs, and enable growth in an increasingly connected world
  • Information infrastructure - Supported by a resilient infrastructure for securely storing and managing information and mitigating business risks.

These are unique and challenging times. But times of challenge also bring with them great possibilities. Smart systems are transforming energy grids, traffic systems and supply chains. They are ensuring the security of financial transactions and the safety of our food supply.

They are changing our business models and how we work together. Rising cost pressures, higher service expectations, new risks and threats and emerging smarter and more adaptive technologies, such as cloud computing, virtualisation and Web 2.0 are some of the driving forces that are further accelerating the need for this change. In fact, in this globally integrated economy, a converged, dynamic infrastructure that enables a business access and extracts value from all types of assets, whether it's physical, digital, or virtual, is becoming the basis of competitive advantage.

The author is general manager, Systems & Technology Group, IBM Singapore

Monday, June 22, 2009

Substantial shareholder / Director transactions

  1. Raffles Education: Chew Hua Seng bought 80,000,000 shares @ $0.38 on 2 Apr 09.
  2. Raffles Education: Chew Hua Seng bought 4,000,000 shares @ $0.41 on 3 Apr 09.
  3. Raffles Education: Chung Gim Lian bought 4,000,000 shares on 3 Apr 09.
  4. Raffles Education: Chew Hua Seng bought 2,000,000 shares @ $0.46 on 7 May 09.
  5. Raffles Education: Chew Hua Seng bought 1,000,000 shares @ $0.53 on 25 May 09.
  6. Raffles Education: Chew Hua Seng bought 160,000,000 shares @ $0.64 on 18 Jun 09.
  7. SPH: Tony Tan bought 50,000 shares @ $2.65 on 20 Feb 09.
  8. SPH: Share Buy-back @ $4.1942 on 22 Jan 08.
  9. Comfort Delgro: Chairman bought 300,000 shares @ $1.28 in June 09.
  10. Comfort Delgro: Chairman bought 100,000 shares @ $1.26 on 18 Feb 09.
  11. Comfort Delgro: Chairman bought 100,000 shares @ $1.29 on 17 Feb 09.
  12. Comfort Delgro: Chairman bought 100,000 shares @ $1.30 on 13 Feb 09.
  13. Keppel Land: CEO & MD bought 387,000 shares @ $1.77 on 24 Apr 09 (first purchase since 1994). He sold 626,000 shares @ avg of $8.10 in Nov 07 and 20,000 shares @ $2.49 in 1994.
  14. K-REIT: Director bought 100,000 shares (first trade since appt in 2001) @ $0.67 on 27 Apr 09.
  15. SMRT: Non-exec Chairman Choo Chiau Beng bought 100,000 shares @ $0.58 in Aug 03.
  16. SMRT: Non-exec Chairman Choo Chiau Beng bought 200,000 shares @ $1.54 on 4 May 09.
  17. STEng: Aberdeen Asset Mgr Ltd bought 151.5 Mil shares @ $2.39 on 26 May 09.
  18. STEng: Aberdeen Asset Mgt Asia bought 28.6 Mil shares @ unspecified price on 25 May 09.
  19. UOL: Share Buy-back 3,790,000 Mil shares @ $3.25 in Jun 09.
  20. UOBKayHian: Chairman buys @ $1.74 on 22 Jan 08.
  21. SembCorp Marine: Share Buy-back @ $3.59 between 25 Feb to 7 Mar 08.

How to avoid the dash to trash

Business Times - 20 Jun 2009


In the current fickle market, here's a way to find stocks that are potentially good long or buying candidates


BACK in May 2008 - it seems so long ago - James Montier of Societe Generale wrote a global strategy report titled Joining the Dark Side: Pirates, Spies and Short Sellers. He screened stocks for three characteristics: a high price-to-sales ratio; deteriorating fundamentals (as measured by a low Piotroski F-score - I'll elaborate later); and poor capital discipline (as measured by high total asset growth).

'Each of these characteristics is a telling sign - but when combined, they become even more potent,' Mr Montier wrote.

According to him, over the period 1985-2007, a portfolio of such European stocks rebalanced annually would have declined more than 6 per cent per annum in absolute terms; in comparison, the general market was rising 13 per cent per annum. The basket of stocks suffered absolute negative returns in 10 out of 22 years. It underperformed the index in 18 of the 22 years. Similar findings hold for the US, Mr Montier said.

However, in the few years leading up to 2008, this strategy totally backfired. The basket of stocks that one was supposed to short, based on the above criteria, actually outperformed the general market. 'This attests to the extreme nature of the dash to trash that we had witnessed,' said Mr Montier.

In any case, in May last year he ran the screen and saw a record number of stocks passing the criteria for the short basket. Generally, such a screen would yield 20 stocks in European markets. But when he looked, the number of stocks totalled 100. In the US, the typical average number would be 30 stocks; last year, however, it was 174. 'The opportunities are on the short, not the long side, currently,' concluded Mr Montier. 'Perhaps it is time to join the dark side.'

Events have indeed proved him right. Now that prices have corrected significantly - despite the sharp rebound in the last three months, equity prices are still some 30 per cent below the levels in May 2008 - and the economy is supposed to be on the mend, perhaps we could try to do the reverse of what he has done to see what names we come up with as potentially good long or buying candidates.

First, let's go through the criteria. The first one for Mr Montier is valuation. From a short-seller's perspective, the most useful valuation measure is price-to-sales. According to Mr Montier, high price-to-sales stocks allow investors to hone in on counters that have lost touch with reality.

Here's what Scott McNealy, then CEO of Sun Microsystems, apparently said in 2002: 'Two years ago, we were selling at 10 times revenue when we were at US$64. At 10 times revenue, to give you a 10-year payback, I have to pay you 100 per cent of revenue for 10 straight years in dividends. That assumes I can get that by my shareholders.

'That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes.

'And that assumes that with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at US$64?'

With that first criterion, I went to the Bloomberg terminal and downloaded all Singapore-listed stocks and their price-to-sales ratios. SingTel is trading at just over three times its revenue, Wilmar at 0.78 , DBS Group at 2.1 and CapitaLand at 4.6.

Singapore Airlines and Keppel Corp are both trading at less than their revenue - 0.93 and 0.84 times respectively.

The company that stands out from the rest of the big-cap stocks is Singapore Exchange (SGX). Its market capitalisation is a whopping 12.5 times its revenue. But the thing is, SGX raked in a net earnings margin of 62 per cent. So its price-to-earnings multiple is a more palatable 15 times. So for 'buy' candidates, the better measure would be price-to-earnings ratio, or my favourite, price-to-book (P/B) ratio - the lower the better. For the record, Mr Montier's short screen is for companies with price-to-sales ratios of more than one.

The second characteristic Mr Montier uses to sieve stocks to short is deteriorating fundamentals.

Here, he uses Joseph Piotroski's F-score. There are nine measures that relate to a company's profitability, the health of its balance sheet and its operating efficiency that one looks at to arrive at the F-score. The checklist is:
  • positive net earnings;
  • positive cash flow from operations;
  • increasing return on assets (ROA);
  • higher operating cash flow relative to net income;
  • decreasing long-term debt as a proportion of total assets;
  • increasing current ratio;
  • stable or decreasing number of shares outstanding;
  • increasing asset turnover; and
  • increasing gross margins.

If the answer is yes for each item on the checklist, the score is one; no, and the score is zero. Companies with improving fundamentals will have higher F-scores (seven to nine), and those with deteriorating fundamentals will have low F-scores (below three).

Piotroski's strategy calls for buying a company with the requisite low P/B ratio and an F-score of eight or nine. Piotroski's research shows that low P/B stocks with high rankings are less likely to go bankrupt or to fall drastically in price than those with low rankings. This provides a greater safety margin.

Mr Montier's final criterion is capital discipline. Companies that have grown their total assets by more than a double-digit percentage will pass through his short screen.
So let's say our 'buy' criteria should be companies with price-to-sales of below 1.2 times, Piotroski F-score of more than seven and total asset growth of less than 20 per cent from a year ago.

The lone stock the screening process spits out is Singapore Petroleum Corp. Its market cap is less than half of its sales, and its Piotroski F-score is seven. And it didn't have a big asset growth in the year just ended; in fact, its asset base shrank 22 per cent. But arguably, investing in a depressed market may yield long-term rewards.

According to the Bloomberg screen, other stocks that come close to meeting the criteria (although not quite all of them) include SembCorp Marine, Keppel Corp, Cosco, Venture, SembCorp Industries, Yangzijiang, Noble Group and Thail Beverage. Readers, of course, are advised to verify for themselves if these stocks do indeed meet the criteria - and to decide if they deem the criteria sound enough, to begin with.

Gold only a safe haven at the right price

Business Times - 20 Jun 2009

If deflation is your call, stay away from gold - even if you buy it cheap. By Neil Behrmann


GOLD is a safe haven investment that retains its purchasing power over the long term. The proviso, however, is that the metal must be bought cheap.

This simple, basic fact is illustrated in The Golden Constant, a book that has just been published by the World Gold Council (WGC), which promotes gold on behalf of its producer members.

Before delving into the book's historical data, the natural question of investors is whether they should follow precious metals salespeople and buy gold now. The sales points are global economic and geopolitical uncertainty, potential inflation following considerable monetary ease and China and other central bank and sovereign wealth fund diversification from the US dollar.

Indeed, vast numbers of investors have already placed money in gold. Ironically for them, this is the biggest potential danger for a sharp downturn in prices. The investment and speculative crowd could sell if the price becomes volatile and breaks downward from its recent trading range of US$927-960 an ounce.

Their exposure is massive. Investment in gold exchange traded funds (ETFs) has soared from around 15 million ounces in 2006 to more than 45 million ounces. Hedge funds and managed futures funds held 20 million ounces of net bull futures and options positions on Comex, the New York Exchange, on June 9, while the small speculators held 37 million ounces.

Excluding coins and gold bars held with London, Swiss and other bullion banks, the total investment and speculative holdings of gold amount to around 100 million ounces or around 90 per cent of annual supplies. And this excludes large gold holdings in commodity mutual funds, pension and sovereign wealth funds.

In the meantime, jewellery demand for precious metals and diamonds has slid during the recession. Indeed, high prices and tough economic conditions have encouraged people to either sell or pawn their jewellery. Production of recycled gold scrap has soared to such an extent that it matched mine output in the first quarter of this year, according to the WGC.

This illustrates the extent that the market has become dependent on investors and fickle speculators.

Over the very long term, how has gold performed during the past few hundred years? The Golden Constant was originally written by former University of California professor Roy Jastram and published in the mid-1970s and has been updated by Jill Leyland, an economic consultant of the World Gold Council. It covers gold prices and the cost of living from as far back as 1560 to 2007. The book shows that gold prices, in real inflation-adjusted terms, unsurprisingly tended to increase its purchasing power during inflationary times. Its purchasing power tended to sag during depressions and deflation.

There have been exceptions. Gold rose by 43 per cent in purchasing power in the first four years of the Great Depression between 1930 and 1933 and then shot up when president Franklin D Roosevelt devalued the US dollar and increased the gold price to US$35 an ounce.

From the end of World War II, when consumer prices stabilised and fell back slightly, gold's buying power dropped slightly. These were the times when the gold price was fixed at US$35 an ounce.

When gold, the US dollar, European currencies and the yen began to float freely from the 1970s onwards, gold's nominal and real value began to fluctuate with increasing volatility.

From 1970 to 1980 when global inflation surged and there was a precious metal boom, gold's purchasing power soared by a whopping 700 per cent in US dollars, an annual real compound rate of around 22 per cent!

But from 1980 to the end of 1999, gold's purchasing power shrank by 78 per cent, a truly ghastly period for miners and gold bugs, although there were brief rallies in the interim.

From 2001, when the nominal price bottomed at US$251 an ounce to the end of 2007, gold's buying power rose by 119 per cent, an annual compound rate of 12 per cent. From the end of 2007, when the book's statistics end, gold in nominal terms has mainly traded within a range of US$800-1000 with a peak of $1031 early 2008, so its real price has fluctuated in a 25 per cent range.

Since gold began to float in a free market it has generally been a good hedge against inflation and more recently a safe haven against banking collapse. But such has been the volatility in currency and precious metals markets that investment within the present historically high range has been a guessing game.

Japan has been the only recent test for gold's purchasing power during times of deflation. During the 1970s, gold's purchasing power soared in Yen terms. But a Japanese investor who bought gold in 1980 would have experienced purchasing power shrinkage of 84 per cent in the subsequent decades.

Despite a strong gold market in recent years, the Japanese investor's gold purchasing power would still be down by 55 per cent.

Granted, 1980 was a time when gold hit an all-time high of US$850 an ounce, but even if a Japanese investor had bought gold when the market was weak in the mid 1980s and 1990s, real prices remained depressed until 2006.

So if deflation is your call, stay away from gold - even if you buy it cheap.

China rally for stockpiling commodities to end

Business Times - 22 Jun 2009

It has been buying up raw materials while demand for its exports has slashed

(SHANGHAI) China has been driving up commodities prices by stockpiling to prepare for global recovery, but with inventories overflowing and no end to the crisis in sight, analysts say the rally may soon end.

China has been buying up crude oil, copper, coal and a host of other key raw materials even while the financial slump has slashed demand for the exports responsible for the Asian giant's once ravenous appetite.

Despite the sharp drop in shipments, Chinese raw materials buyers have tapped a surge in bank loans to capitalise on low commodity prices and low shipping fees, analysts said.

But the buying is likely to slow, they warned.

'China has been stockpiling commodities since the fourth quarter when prices became really cheap,' said Yang Yijun, a commodities analyst at Wellxin Consulting based in the southwestern city of Chengdu.

'But large scale buying is gradually coming to an end. China's reserves are almost at full capacity.'
Macquarie Bank warned in a research note last week that 'the key concern centres around the scale of Chinese buying'.

Over the past three months, as the volume of China's purchases increased, the Standard & Poor's GSCI, an index of global commodity prices, shot up 26.5 per cent.

However, overall prices remain lower than before the financial crisis struck. Even with those gains, the overall index is down 58.5 per cent from a year ago.

Crude oil prices have risen 39.6 per cent in the past three months while copper prices climbed 45 per cent, according to the GSCI.

China's State Reserve Bureau has been stockpiling, but so too have producers, distributors and other speculators hoping to profit from an expected rise in prices once the world economy starts to recover.

The China Iron and Steel Association began investigating surging imports after the amount of iron ore coming into the country jumped 33 per cent year-on-year in April, hitting a monthly record of 57 million tonnes, state media said.

Spot prices for iron ore for delivery into China hit their highest level in nearly four months in mid-June, touching 76.50 a tonne, including cost, freight and insurance, according to Dow Jones Newswires.

Beijing ordered banks to cut lending to steelmakers and iron ore importers, who it admonished for failing to 'correctly control the volume and pace of iron ore imports in line with the actual demand of domestic steel production', state media reported.

China, the world's biggest steel producer and consumer, imported 188.5 million tonnes of iron ore in the first four months of the year, up 22.9 per cent year-on-year, according to customs data.

'Because of the massive supply, some ships carrying iron ore are having to wait to offload at ports,' said Xu Minle, an analyst with Bank of China.

But iron ore was not the only hot commodity in April. Crude oil imports climbed nearly 14 per cent, aluminium oxide imports were up 16 per cent and copper was up 64.4 per cent, according to JP Morgan.

Coal imports soared 168 per cent as Chinese utilities increased foreign coal buying during negotiations with domestic producers for better prices.

However, Moody's has changed its outlook to negative for base metals, mining and steel industries in the Asia Pacific region over the next 12-18 months, saying buying has soared ahead of demand.

'China's strategic stockpiling and replacement of lower-quality domestic production with higher-quality imports have supported the recent rally in prices for many base metals,' said Terry Fanous, Moody's chief Asia metals and mining analyst.

'But we will not see a sustainable turnaround in demand until the major economies of the US, Europe, and Japan recover,' Mr Fanous wrote in a note.

Copper, essential for home appliances and other staples in China's economic boom, was seen as being on the most solid footing, hitting an eight-month high of over US$2.45 a pound on the New York Mercantile Exchange on June 11.

But prices fell in the past week as traders feared China's stockpiling was tailing off.

'As China has been the main driver of the copper price recovery so far this year, a period of reduced buying activity may see prices take a bit of a pause,' Standard Bank analyst Leon Westgate wrote in a note.

Stockpiling is fraught with risk, especially when borrowed money is used to buy goods when there is no demand, independent Shanghai-based economist Andy Xie said.

'Last year people who stockpiled went out of business,' Mr Xie said. 'I know one distributor who stockpiled six million tonnes of steel and went bust when it dropped by more than half.' - AFP

'Stockpiling is fraught with risk, especially when borrowed money is used to buy goods when there is no demand.' - economist Andy Xie

Friday, June 19, 2009

Build cushion against the return of inflation

Business Times - 17 Jun 2009

(NEW YORK) As the American government continues to pump money into the economy, many investors have started to worry that inflation is inevitable.

Most economists don't expect inflation to arrive anytime soon. But nobody really knows when it will appear or how corrosive its effects will be. In the meantime, financial planners are suggesting that investors make sure that their portfolios are well positioned to withstand any impact on their hard-earned money - before it's too late.

'There are a lot of people who are worried about rising deficits and the prospect of a falling dollar, and all of these things will put upward pressure on inflation,' said Alan Gayle, senior investment strategist at RidgeWorth Investments.

'We don't see inflation as a problem this year and even perhaps for 2010, but it is a factor that investors should try and incorporate in their portfolios as they go forward.'

That doesn't mean making a radical overhaul to your investment portfolio unless, of course, it wasn't well diversified to begin with - or if all of your money is sitting in cash or low-yielding Treasuries with no long-term plan. (If that's the case, you may want to seek professional advice.) What many financial planners are recommending, however, is incorporating some classic inflation hedges - some inflation-protected securities, maybe, or some commodities, while making sure your fixed-income investments have relatively short maturities.

For the short term, investment experts agree, deflation is more probable, with unemployment still climbing and the economy still mired in a recession. There's talk of 'green shoots', but most everyone agrees that an earnest recovery is a long way off.

Still, inflation can quietly sneak up on you, and at that point it will be more expensive - or less effective - to get the inflation protection you need. It's especially rough on people who live on fixed incomes, notably retirees, many of whom have already suffered painful losses in their portfolios.

'The problem is if you wait until we are actually in it,' said Chuck Roberson, a financial planner with Modera Wealth Management in Old Tappan, New Jersey, 'it will be too late or the strategies won't work as well.'

What follows are some of the most common strategies to inflation-proof your portfolio:

Review your mix

The inherent characteristics of a well-diversified portfolio - including a healthy dose of stocks - will help withstand inflation.

If, for instance, your investments are split between domestic and foreign markets, which they should be, you already have a built-in hedge against the dollar and the American economy. Some financial professionals have added a diversified basket of foreign bonds to their fixed-income allocations. Others are hopeful about a recovery in Asia, so they are adding more money to Asian-based funds (minus Japan), while some planners have slightly increased their ratio of international to domestic stock funds.

Shorten up

Several financial planners recommend shorter-term fixed-income investments or, at the least, making sure your bond investments aren't heavily tilted towards long maturities, because they are most affected by rising interest rates. (Newer bonds issued at the higher, prevailing rates make existing issues less valuable. So when interest rates rise, bond prices tend to fall. Bond funds and investors who hold securities with shorter maturities have the opportunity to reinvest at higher rates more quickly.)

'Fixed income is a disaster in inflationary times,' said Steve Podnos, a financial planner in Merritt Island, Florida, who has been keeping his clients' fixed-income money in short-term, high-quality bonds funds like the Vanguard Short-Term Bond Index Fund. 'You are giving up a couple of percentage points of income per year but inflation can do harm in terms of declining asset values.'

For clients with at least US$250,000 to invest in bonds, Gordon Bernhardt, a financial planner in McLean, Virginia, builds a bond ladder, spreading money evenly across a portfolio of bonds that mature at regular, but staggered, intervals. This enables you to replace maturing bonds with bonds that offer higher yields.


Treasury Inflation-Protected Securities, or TIPS, guard against inflation because the principal increases with inflation (but decreases with deflation), in tandem with the Consumer Price Index.

Investors can either buy the securities directly, or purchase a TIPS mutual fund or exchange-traded fund. If you hold TIPS directly, you will receive the adjusted principal, or your original investment, whichever is greater, when the TIPS mature. Interest payments also rise or fall with the movement of prices.

While the allocation to TIPS will vary on a person's circumstances and goals, Scott Dauenhauer of Meridian Wealth Management has about 20 per cent of his clients' fixed-income allocation in TIPS.

It is best to keep TIPS and TIPS funds in tax-deferred accounts like an IRA because you'll be taxed on the amount your principal increases - even though you don't receive it until the TIPS matures.

With mutual funds, those adjustments are distributed (and taxable) to investors each year as well.


Commodity investments tend to perform well when there's inflation because rising prices usually mean a stronger economy at home (or elsewhere in the world). That, in turn, leads to increasing demand for raw materials to meet rising production and consumer needs. Don't be tempted to make individual bets on oil or gold, planners say. Instead, buy a diversified basket of commodities that tracks a major index like the Dow Jones-UBS Commodity Index from a low-cost fund or exchange-traded fund provider.

Investors have to determine what allocations are best for them, but planners said they would invest anywhere from 3 to 10 per cent of a portfolio in commodities. Given commodities' volatility, investors need to rebalance their portfolio periodically to make sure their position doesn't balloon. These investments are also best kept in a tax-deferred account.

Real estate

Real estate can also be a good way to hedge against inflation. Real estate investment trusts (Reits), which invest and own commercial and residential properties, are an easy way to gain access. Not surprisingly, Reits, which are required to distribute most of their income (generally from rent rolls) to shareholders, have been battered in the downturn. But they have shown signs of hitting bottom, and Mr Gayle said it might be a good time to start building a position.

'But while it is an inflation hedge, it is a leveraged inflation hedge,' he added. 'Debt and access to debt influence the real estate market very significantly,' he said, 'so that should be further down the list' of inflation protectors.

Investors with a higher net worth may consider foreclosures, as long as they have done their homework. 'If inflation does come back, hard assets like real estate will start to move,' said Marc Schindler of Pivot Point Advisors. But you need to have a 5-10-year time horizon and you don't want to invest more than 25 per cent of your net worth in real estate, he added. Still, he said, 'if you are able to buy at a huge discount to market through foreclosure or other means, it will be a wise investment'. -- NYT

Top-end bungalows going, going, gone

Business Times - 18 Jun 2009

7 good class bungalows sold in April and May, more deals in the works.

Saturday, June 13, 2009

A Phone for the Elderly

A SIMPLE-TO-USE cellphone, targeted at the elderly and children, looks set to be the potential star of the PC Show.

The phone's maker, Foresight Technologies, a Singapore company, will be making its debut at the electronics fair, which starts on Thursday.

Unlike most current mobile phones that have tiny, dinky buttons, the iNo Mobile has buttons at least three times bigger, so the elderly can press them easily, as well as a torch.

There is a special SOS button on the back of the handset so that if an elderly person gets into trouble, pressing the single button will send emergency calls and text messages to four pre-programmed numbers.

And when the button is released, the phone will also sound a siren to attract the attention of passers-by.

MM on Obama speech: Words alone not enough

The Straits Times - 9 June 2009
KUALA LUMPUR: Minister Mentor Lee Kuan Yew was cautious in assessing the impact of US President Barack Obama's recent speech in Cairo to Muslims, saying 'words do not a change of policy make'.

He was replying to a question on American leadership posed by BBC presenter Nick Gowing, who moderated his dialogue at an air transport summit here.

'I'm wary about passing judgment on the Middle East; words do not a change of policy make.

'But if he's really serious about no more building on the West Bank and funds are cut despite the very strong Jewish lobby in America, then I think Mr Netanyahu will have to think again,' he said.

Mr Lee was referring to President Obama's support of a two-state solution to the Israeli-Palestinian conflict, which is opposed by Israel's new government led by Prime Minister Benjamin Netanyahu.

Mr Lee said that if the Palestinian issue could be solved, it would resolve many other problems in the Middle East, including those of Syria and Lebanon. It would also reduce the threat of terrorism and 'we'll all breathe easier', he added.

Asked for his reflections on Mr Obama, Mr Lee praised his intelligence and thoughtfulness but said he would feel more reassured if the US leader kept his focus on the economy.

Mr Obama had instead gone for a broad approach that ranged from health care to climate change, and was thus having to keep many balls in the air.

He was doing so at a time when 'the economy needs a lot of attention to get back on track', Mr Lee said.

Why Singapore PM drew praise from South Korean minister and newspaper

The Straits Times - 10 June 2009

SEOUL: Singapore Prime Minister Lee Hsien Loong's choice of taking commercial flights while on overseas visits came in for praise by a South Korean official and the country's best-selling national newspaper.

The Chosun Ilbo - in an article headlined 'Reasons why Singapore PM has no private jet' on Monday - recounted a recent conversation between South Korean Finance Minister Yoon Jeung Hyun and Mr Lee after both had attended the Asean-South Korea Commemorative Summit, held on the southern island of Jeju this month.

Mr Yoon, who was at Seoul's Gimpo airport on May 30 while headed for the summit, was puzzled when he found out that Singapore's PM was not travelling by private jet to the summit.

Mr Lee had arrived on a commercial flight at Incheon airport in Seoul and was waiting to check in for the flight to Jeju at Gimpo airport, Chosun Ilbo reported.

After the summit was over, a curious Mr Yoon asked Mr Lee during a meeting on June 3 why he chose to fly commercial.

'Why doesn't the leader of an affluent country use a private or charter jet?' he asked, noting that Singapore's per capita GDP was about twice that of South Korea's.

Mr Lee said he did not think Singapore was an affluent country, the Korean daily reported.

'Besides, as a government official, I have to lead by example. Singapore's senior officials fly economy class, not first class, for flights under six hours,' he was quoted as saying.

For Mr Yoon, the Singapore leader's response came as a pleasant surprise. 'I was astonished by his pragmatism.'

Noting that Mr Lee is the son of Singapore's first prime minister Lee Kuan Yew, Mr Yoon told the paper: 'Like father, like son.'

The Chosun Ilbo noted too that the attitude of Singapore's leadership was indeed praiseworthy, given that it would have been more convenient for national leaders to opt for private flights while on official trips.

MM seeks stable, long-term ties with Malaysia

The Straits Times - 13 June 2009

It makes no sense for bilateral ties to be sunny one day, stormy the next, Minister Mentor Lee Kuan Yew said at an interview with Singapore journalists in Kuala Lumpur on Thursday. This is an edited transcript of his remarks.

MR LEE: This is my fourth day, we're off to Ipoh tonight. I leave Kuala Lumpur with some optimism, guarded optimism, because we have to see the words translated into action.

Prime Minister Najib said in Singapore that he wants cooperation with Singapore. He told the PM, let's work together. He repeated the same to me.

I had to emphasise that it cannot be cooperation today, non-cooperation next year and then back again, backwards and forwards, because these are very big investments both in the Iskandar region and the third bridge to Desaru and the east coast, from Desaru up to Mersing, up to Kuantan and Pekan, massive projects requiring huge investments, the returns can only be calculated in decades, not in terms of years.

So it must be a long-term commitment and it must mean cooperation across the board, not just selective cooperation where it's win for one side, less win for the other.

We either cooperate across the board and stay that way for decades or we revert to the old position where from time to time, we might work together, from time to time, we will not be working together. But no private investor will go into huge projects, which require decades to recoup, unless there's long-term stability in the policy.

The third bridge from Changi, it's for technical discussions. It does not make sense to us if at the same time, they punish us by making us barge sand from Vietnam. It's no benefit to them; it's just to cause us extra losses. So if it is cooperation, it must be across the board and the final balance must be fair on both sides and not just in specific, selective areas.

I was encouraged because I met the Deputy Prime Minister, Tan Sri Muhyiddin, and he repeated the same things, so obviously, the matter has been discussed in Cabinet and this was confirmed when I met the three vice-presidents (of Umno), Minister for Defence, Minister for Home Affairs and Minister for Regional Development and they told me exactly the same.

In other words, Prime Minister Najib Razak had not only said this in Singapore, but had come back and briefed his Cabinet on his new policy. So as far as the Cabinet is concerned, they are solidly behind this policy, but as I said, if there are discordant voices, either from the states who may voice some reservations or from whatever high sources in Umno, then doubts will be cast in the minds of private investors.

The government will continue because we have promised an iconic project, we will carry on with that. But private investors do their long-term calculations; when they put these massive investments in, they need to be certain the policy will last decades.

Then we don't have to send our economic plants to Vietnam, to China, to India or to Batam, which we thought it wise to do because there were times when, whether it's rhetoric or otherwise, our investors felt they were not welcome.

When hiccups do occur, how should both sides react?

Mr Lee: My suggestion, which they have welcomed, is that there should be a lot of to-ing and fro-ing between the ministers and even the top officials, so even before hiccups reach the stage of third party notes, ministers can just pick up the phone, speak to each other and sort them out, which was the way it was done in the early years. But that generation, we went to the same schools, same there was an easy relationship. Now we are separately educated.

Before, we used to have Malaya-Singapore Cambridge University Association or Oxford University, now we have two associations. So I suggest that both have joint celebrations, their national day, our national day, Hari Raya, Chinese New Year, Deepavali. In other words, let there be some bonding which will make the relationship easier.

Malaysia is our closest neighbour. Many Malay men have married Malay women from Singapore. Many Chinese have married men and women from Malaysia and they visit each other, so it does not make good sense to have this ambivalent relationship where one day, the weather is sunny, and the next day it's wet and flooding.

You spoke about guarded optimism. Is that how you feel also about the resolution of long-term bilateral issues?

Mr Lee: There are no longstanding bilateral issues which cannot be resolved. There were agreements and if there's any doubt over any agreement, it can go for third party adjudication, whether our interpretation of what has been agreed is right or their interpretation of what is agreed is right. There's no need to quarrel. As with the case of Pedra Branca, both went to the International Court of Justice (ICJ), resolved.

There are no legacy issues. These are firm agreements made between two parties, seriously intended, signed by both parties, knowing what its content meant. There's now a difference in when is the operational date etc, we can send it to third party adjudication, either the international arbitration court or the ICJ or even any of the renowned arbitration centres. The thing can be resolved. But if we start arguing and say that this is a legacy issue, forget about it, it is not resolved.

Given the results of last year's general election in Malaysia, would you say there is uncertainty on the political front? What's your reading, having met some of the opposition leaders?

Mr Lee: Everybody knows there's been a tectonic shift and the analysis has been that the urban Malays, especially the educated young Malays, voted this time for the opposition, together with the Chinese and Indians.

I met Hadi Awang (president of Parti Islam SeMalaysia or PAS). He told me, in Kelantan we are very fair to all races, the Chinese temples, Indian temples, Chinese are given ownership of land, so there's no discrimination. He believes that same policy can spread across Malaysia, not just in Kelantan.

That's left to be seen, what Umno does to win back Malay, Chinese and Indian support, which this time went to the other side.

Hadi Awang said in the countryside, rural Malays are not educated, therefore they still depend on the patronage of Umno, so they still stay loyal.

In the towns, they are now well educated, many engineers and professionals have joined and become members of PAS or Parti Keadilan Rakyat and he's said we're patient people, year by year, there'll be more and more people moving from countryside to towns. Therefore, more and more people will be educated and be sceptical and critical, so they are quite sure that time is on their side.

It really depends on how Umno and Barisan Nasional (BN) react. I do not believe they are going to stay put, because then as PM Najib has said, they're in for problems.

The opposition has made great inroads. Are you concerned about that and what are the implications for Singapore?

Mr Lee: If I'm not concerned, why should I be here? As I told you, it's a tectonic shift which (opposition coalition) Pakatan Rakyat did not expect, neither did BN, and both sides have done their analysis and come to the same conclusions.

The town Malays and town Chinese and Indians want more transparency, no double language and a more inclusive society. So Prime Minister Najib has said, 'One Malaysia'.

The Chinese press, whom I met separately, said they first reported it as one multi-racial Malaysia and then they were corrected to say One Malaysia, that is to say we share one Malaysia but the communities remain distinct, as Malays, Chinese, Indians. It's a different set-up.

Is this a trip down memory lane for you?

Mr Lee: In part, because I haven't been to Seremban for 40 years. I used to go there and practise in Seremban in the courts, so I had some nostalgia to see some of the places.

The Menteri Besar was happy to see me, arranged for a coach, personally escorted me. He'd also like us to carry our investments up from Malacca to Seremban.

Learning from long experience

Business Times - 13 Jun 2009


In the market since 1966, Trader Vic shares his expert views about market moves over the past several decades


IN this Internet age, youthful energy is valued much more than experience. But in many fields - and particularly fund management - I think there is no substitute for experience and the opportunity to learn human and market nature over a long period of time. That's the reason I regard most young hotshot fund managers with some scepticism, unless they have shown themselves to be really old souls.

This week I met a trader who has been in the market since 1966. And what he says makes a lot of sense. Victor Sperandeo started working on Wall Street at the tender age of 20. Asked why he chose trading as a career, he said he has always been a numbers man. When he was young he used to play cards with other teenagers in back alleys. 'We played poker once or twice a week, and I made a living - a small one - doing that. I won by studying the odds, they are easy to measure and think about. So I decided to build my career around statistics.'

When he was looking for work in The New York Times Classifieds in 1965, the three highest-paying jobs were physicist, biochemist and a trader. He opted to be a trader. And he's still at it more than 40 years later.

Mr Sperandeo - nicknamed 'Trader Vic' by Barron's in an article in 1987 - was in Singapore this week to launch the Trader Vic Index (TVI) in partnership with the Royal Bank of Scotland. The TVI is a rules-based, long/short index that comprises a diversified basket of 24 futures contracts spread across three asset classes: physical commodities, global currencies and US interest rates.

Market wisdom

Mr Sperandeo thinks there are so many things going on around the world that sound fundamental analysis is out of the question, especially in commodities. 'You can't know everything that's happening,' he says. 'All you can do is follow the trend with some reason. And sell it when it turns.

'It's very difficult to make money if you are a fundamental investor in commodities. You don't go anywhere if you don't trade commodities - they always come down.'

For example, corn was trading at US$0.80 a bushel in January 1930. Now it's at US$4.41. In almost 80 years, its compounded annual return has been only 2.1 per cent.

Here's another reason why fundamental analysis doesn't help predict commodity prices. Say an analyst has studied demand and supply of soya bean for three months and comes to the conclusion that there is going to be oversupply. He shorts soya-bean contracts. But soon after he does this, the tides in some oceans shift. As a result, the supply of, say, anchovies, which are used as feed by farmers in Japan, falls sharply. So the farmers turned to soya bean as alternative feed.

Consequently, demand for soya bean shoots up. 'Nobody knows why the tides shift,' says Mr Sperandeo. 'They just do. So this guy is sitting on his short position, and has no idea why he is losing money despite his three months of research telling him the price of soya bean should come down.'

Moving averages

Different commodities have their own price cycles. So traders who want to identify a trend should look at different moving averages. Too short (a moving average period used), you get whipsawed. Too long, you can't make money, says Trader Vic.

For example, precious metals are very volatile. People trade gold using a lot of leverage. That causes violent price movements in the short term. The moving average one should use for precious metals is 12 months, says Mr Sperandeo.

For crude oil, he uses the six-month moving average. For grain, he looks at the four-month moving average to coincide with planting seasons. And for Treasury notes he uses the 10-month moving average. 'Once the government starts to tighten or loosen the monetary environment, they don't change course so soon,' he says.

Also, different moving averages are used for different currencies. They range from four to 12 months. For stock markets, 200-day moving averages are used. And all moving averages are exponentially weighted, which means more recent data has a bigger influence on the calculated average. A price that rises above an upward sloping moving average line is on an upward trend, and one that falls below is on a down trend.

Trader Vic sees a lot of similarities between the current equity market and that in 1938. Between March 1937 and March 1938, the Dow Jones Industrial Index fell about 50 per cent. The legacy of the Great Depression, war fear and Wall Street scandals contributed to the crash. That period of decline was remarkably similar to the stock-market crash in the fall of 2008, says Trader Vic. Back in the 1930s the market bottomed around April 1938, then staged a 60 per cent rally in about three months. It consolidated for another three months before a spurt towards the end of the year sent the index up a further 15 per cent.

In 1939, there was a correction in January, followed by a rebound. Then in the second half of March, there was a steep descent that took the index down 20 per cent in a month.

Mr Sperandeo thinks the path of stock markets today will resemble that of 1937-1939. 'We are going through a consolidation phase now, and heading towards the good news of GDP not contracting as drastically as the last quarter of 2008, so there's likely to be a rally towards the end of this year,' he says. But by next year, if no new stimulus package is introduced, the rally is unlikely to sustain and stock markets will plunge. Still, prices won't revisit the lows of the previous 18 months.

Although a year-end rally is expected, Trader Vic says he won't buy equities now. 'Rallies are like humans. Only 5 per cent of rallies go up 40 per cent without a correction. Getting into the market now is like buying an 80-year-old man. Yes, he can live to 85. But if you buy a 21-year-old, you have better insurance.' Trader Vic will buy the Hong Kong and Singapore markets if there is a 10 per cent correction.

In the current environment, he reckons gold is the best investment in the next one to three years. 'I don't know any scenario that can make it go down,' he says. 'It's going in one direction that's consistent in the long run.' He is also a big bull on other commodities.

There are known and unknown risks for stocks, he says. For example, Israel may attack Iran at any time. The current Israeli Prime Minister, Benjamin Netanyahu, is very aggressive. 'So what I do is, I long crude oil contracts every Friday and close the trades on Monday. The last time Israel attacked Iran was on a Saturday. If they ever attack, crude oil will double overnight.'

Then there are Pakistan and North Korea. 'Markets don't discount wars. There's no self-interest for fund managers to sell in anticipation of a war,' says Mr Sperandeo. 'If they did, and the war didn't happen, they would underperform their peers. But if they didn't, and the war erupted, everyone's portfolio would be hit. He would be no worse off.'

By following trends, the TVI has chalked up some pretty impressive returns in close to 20 years. Between July 1990 and May 2009, the annualised return was 13 per cent, with a maximum annual decline of 10.6 per cent. This compared with MSCI World equities index's 5.1 per cent annual return and its maximum drawdown of -54 per cent. On a rolling 12-month basis, the TVI made money 98.1 per cent of the time.

The world after the current crisis will be one in which companies make less money and enjoy slower growth because of de-leveraging. In this kind of environment, the smart thing to do is 'not to be an investor but be a trader, as the US will not repeat its stock-market performance of the mid-1990s for some time', says Mr Sperandeo.

Friday, June 12, 2009

Global system needs global currency: Volcker

Business Times - 12 Jun 2009
He questions if US$ as an international currency is in US's long-term interests


SPEAKING in Beijing's Great Hall of the People, former US Federal Reserve chairman Paul Volcker last night acknowledged the legitimacy of China's concerns over the dollar and questioned whether it was in the long-run interests of the United States to continue providing an international currency.

The 'ultimate logic of a globalised financial system is, to me, a global currency', said Mr Volcker, now head of President Barrack Obama's Economic Recovery Advisory Board, in a speech to senior Chinese and other bankers from around the world.

His comments seem bound to open up a controversial debate on the future of the dollar as a global currency. Us Treasury Secretary Timothy Geithner has been criticised recently for also appearing sympathetic to China's concerns on this issue.

Mr Volcker also suggested during his speech as guest of the Institute of International Finance at its Beijing meeting that 'the sudden and unsettling drop' in global economic activity is slowing. But he warned that 'prospects for a really strong recovery, typical of most recessions seems unlikely'.

Instead, 'a long slog with continuing high levels of unemployment seems to be in store'. he said. 'For most of the developed world, sources of strong, spontaneous growth are hard to envisage. In the US, as elsewhere, even modest growth remains dependent on strong fiscal and monetary stimulus.'

Likewise, although 'a healing process in financial markets seems to be underway, the global financial system remains in intensive care', said the monetary world veteran. The best that can be said is that the system is 'out of the emergency room', he added.

On the dollar issue, Mr Volcker noted that 'Chinese officials have recently raised questions about the implications for China and others that are holding so many dollars'.

'I think it is reasonable to ask whether it is in the long-run interests of the United States itself to provide what is essentially a public good - an international currency - in amounts so large as to raise questions about its ultimate stability.'

However, he added: 'The fact is that there are no practical alternatives for today or for many tomorrows to the US dollar as an international currency.

'I think it should be clearly understood that the central responsibility of the United States - in its own interest, in China's interest, and in the world's interest - is to maintain both the purchasing power of the dollar at home and in international markets, and a strong and open financial system.'

He acknowledged that 'the present state of world affairs has made clear that our international monetary arrangements have not provided a needed element of discipline for either surplus or deficit countries'.

'Deep and ultimately destabilising imbalances have been prolonged, specifically the growing and seemingly irresistible current imbalances between China and much of the rest of Asia and the US. These have for years been covered by flows of foreign official and privately held dollars back to the US.

'Indirectly, those flows have to some degree helped fuel the mortgage market and the housing bubble that touched off the financial collapse.'

Touching on the financial crisis, Mr Volcker warned that 'moral hazard' is in danger of becoming embedded as a result of official bailouts of financial institutions and because of the 'too big to fail' ethos that pervades official attitudes towards mounting rescues of such institutions.

'We can, and we should, take steps to limit the need and possibility of official bailouts.'

He also called for accounting reforms and questioned the wisdom of attempts to enforce strict mark to market accounting for financial institutions.

Can China keep buying all those commodities?

Business Times - 12 Jun 2009


STRONG buying by China has helped lift commodity prices around the world this spring, but growing evidence suggests that a sizable portion of this buying has been to build stockpiles in China, and may not be sustainable. At least 90 large freighters full of iron ore are idling off Chinese ports and waiting up to two weeks to unload because port storage operations are overflowing, chief executives of shipping companies said in interviews this week. Yet actual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak.

Commodities and shipping executives describe Chinese stockpiling in recent months of a range of other commodities as well, including aluminium, copper, nickel, tin, zinc, canola and soya beans. Starting in April, China began stockpiling significant quantities of crude oil.

China's goals vary by commodity. Chinese companies have bought iron ore heavily on the spot market in anticipation of higher prices in annual contract talks now nearing completion. The Chinese government has been stockpiling oil and some metals for strategic reasons, and bought huge quantities of aluminium and canola to insulate domestic producers of these goods from falling global prices over the winter. 'There has been enormous stockpiling of all commodities' by China, and this cannot continue indefinitely, said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings Ltd, a big shipping line based in Hong Kong.

Those extra purchases beyond China's daily needs have helped reverse the price collapse in commodities that followed the economic downturn last fall, but could also limit the scale of the rebound. Moody's Investors Service announced on Wednesday that it was putting a negative outlook on the base metals, mining and steel industries in Asia and the Pacific, having previously done so for these sectors elsewhere.

'China's strategic stockpiling and replacement of lower-quality domestic production with higher-quality imports have supported the recent rally in prices for many base metals, but we will not see a sustainable turnaround in demand until the major economies of the US, Europe, and Japan recover,' said Terry Fanous, a senior vice- president in Sydney for Moody's, adding that the leading economies were not likely to recover until next year.

The Standard & Poor's GSCI, an index of global commodity prices, has risen 41 per cent from its low on Feb 18, but is still less than half its record, set on June 9 last year. One of the best leading indicators of international trade in commodities is the Baltic Exchange Dry Index, which measures the daily cost of chartering a large freighter. While the Standard & Poor's GSCI has continued to rise in the last week, the freight index has fallen by a fifth in that period.

Richard Elman, the chief executive of the Noble Group, Asia's largest diversified commodities trading company, bounced up from the conference table in his office in Hong Kong when asked about freight rates during an interview on Tuesday morning. He walked over to his desk, dominated by three computer screens that partly obscure a perfect view of Hong Kong's harbour, and quickly punched up on the left-hand screen a list of daily charter rates for large bulk carrier freighters.

The list showed ship owners charging US$58,000 a day now but just US$24,000 a day for charters next year or in 2011 - an indication that there will be more ships than cargo in the years ahead, particularly with shipyards still finishing vessels ordered during the recent boom. Pointing to the rates for the next two years, Mr Elman said: 'That's the real market' for ships.
Optimistic over China's economy

From an immense new sugar mill in Brazil to an extensive coking coal operation in Australia, Noble is active in commodities around the globe, and its stock has nearly quadrupled since its low on Oct 24. Mr Elman voiced optimism about the future of the Chinese economy and of worldwide demand for commodities, but cautioned that for some commodities, 'the futures prices have gone ahead' of the prices for physical delivery.

According to JPMorgan, China's iron ore imports were 33 per cent higher in April than a year earlier. Crude oil imports were up nearly 14 per cent, aluminium oxide imports climbed 16 per cent and refined copper imports jumped 148 per cent. Imports of coal soared 168 per cent as Chinese utilities bought more foreign coal while trying to negotiate better prices with domestic producers.

Determining the percentage of each commodity that is being stockpiled is difficult, especially in China, where scant data are released. Assessing steel demand, in particular, has become a subject of almost obsessive interest among many shipping executives and economists as a barometer of emerging markets' health and as an indicator of demand for everything from iron ore to ships to cars.

Sanjay Mehta, one of the four managing directors of Essar Global, the big Indian multinational in steel, shipping and other heavy industries, estimated that North American steel mills are operating at 50-60 per cent of capacity, Chinese steel mills at 70 per cent of capacity and Indian steel mills at 100 per cent of capacity.

The resilience of the Indian economy is helping to sustain demand for commodities, Mr Mehta said. But he was cautious about the global economy. He suggested that part of China's purchasing over the last several months represents an effort to rebuild inventories that were drawn down during the autumn and winter.

'It is not all related to consumption,' he said, predicting that prices would stay roughly at current levels through the middle of 2011. Prices of many commodities have jumped sharply in recent months - spot oil prices, in particular, have doubled since late December. That is driving up the price of petrol and diesel in many countries, including the United States.

Steel demand in China is already recovering for types of steel used in construction, Mr Elman said. Local, provincial and national government agencies are ramping up investments quickly as part of economic stimulus programmes. But demand has been slower to rebound for higher grades of steel used in consumer products, despite US$1 billion in Chinese government incentives for the purchase of cars and household appliances, particularly by residents of rural areas.

Some economists are bullish on commodities because they believe that the United States and European economies are on their way to recovery. 'The commodity price rally is for real,' said Ajay Kapur, the chief global strategist at Mirae Asset, a big Korean financial firm. 'I'm not expecting any huge correction from here.' Other executives, particularly in shipping, are less optimistic, and see signs of a bubble in freight rates and commodities that may repeat the sudden rise and fall of prices last year.

'The past two weeks have been nuts and, rather than cheering this sudden comeback of the dry bulk market, I do have a considerable amount of concern that we are seeing the same bubble again,' Kenneth Koo, the chairman and chief executive of the Tai Chong Cheang Steamship Company Ltd, another big Hong Kong shipping line, wrote in an e-mail message. 'And like that past bubble, it's not going to sustain.' - NYT

Wednesday, June 10, 2009

In search of the happy median in oil price

Business Times - 10 Jun 2009

The oil price is not the equilibrium between oil supply and demand, says Shell CEO


IS THERE a Goldilocks oil price - not too hot, not too cold, but just right - to help global economies through the downturn?

True to form, Shell chief executive Jeroen van der Veer - who participated in a media dialogue on the sidelines of the Asian Oil and Gas conference in Kuala Lumpur this week - shied away from commenting directly on this. 'We are very lousy at predicting prices,' he has often said.

The current recession, he cautioned, masks various hard truths, especially that when the economic recovery comes it will be very difficult for the oil industry to supply all that extra energy needed. This doesn't include the rising greenhouse gas emissions problem then.

The International Energy Agency (IEA) has said that investment in the upstream exploration and production (E&P) sector will fall by more than 20 per cent this year. And investments in renewables are falling even faster - by almost 40 per cent compared to last year.

'All this points to new price spikes and volatility further down the road,' warned Mr van der Veer.

Asked if he thought last week's run-up in oil prices to US$70 a barrel denoted a market which had run ahead of itself, he said: 'Shell's key message is regardless of whether the oil price is high or low, or volatile, we simply monitor it to see if we can do a better job than the competition. If you know that, then you take the oil price as it is . . . so we see ourselves as a price taker.'

'But having said that, in the long term the world will find difficulty securing supplies, so the oil price will not be really cheap. Short-term we don't really have a clue on how oil prices will develop,' he said. Just as the IEA has indicated, 'it's hard to forecast when the next oil price hike will come, as we don't know exactly when the recession will end, and whether it's U-shaped or V-shaped, and we don't know what Opec will do, and what's going to happen with energy efficiency, and whether the habits of consumers will change. Will people buy smaller cars, or the Chinese use Hummers?'

Mr van der Veer said that his short answer to the question of 'What is a fair oil price?' posed by Malaysian Prime Minister Najib Razak at the Kuala Lumpur conference was: 'We don't know.'

The oil price is not the equilibrium between oil supply and demand, he said. 'I've learnt in life that that's not correct, as the oil price is basically expected demand compared to expected supply and we've seen a lot of that in the derivatives market.'

'The reason it is (the equilibrium between) expected demand and expected supply, is because both sides have huge uncertainties. That's one of the reasons why you have a lot of volatility to come and that gives opportunity to derivatives markets, which thrive on this,' he said.

Asked if he thought the recent rise in oil prices was indeed indicative of economic 'green shoots', the Shell chief said: 'We follow it. We think that towards end-2008, when oil prices fell to US$35, it had to do with people closing positions in the paper market then.'

'At this moment, when we look at the world, there's still a lot of floating storage around, again it's about expected demand and expected supply, and maybe people are being optimistic about economies turning. But I'm just a simple businessman and not a macro-economist.'

Be that as it may, what would Shell consider a 'comfortable' oil price to stimulate E&P again? Rival BP CEO Tony Hayward had indicated earlier this year that US$60-US$80 oil could do the trick.

On this, Mr van der Veer said that Shell is spending a net US$31 billion to US$32 billion on capital expenditures this year, adding that 'indeed we screen all the projects from the viewpoint of relatively low oil and gas prices, otherwise we wouldn't do it'.

The oil giant, he said, had delayed an extension of a very large oil sands project in Canada - but this was not because the low oil prices could not support the oil sands project, he explained, but because the project market (costs of construction and materials) was overheated last year.

'So the point is you have to balance oil prices with construction and material costs, and at this moment you get more from lower (project) costs than outguessing the oil market.'

But doesn't this still beg the question of how the oil industry is to reconcile the dilemma of low prices depressing investments and the need to do more to gear up for increased energy demand in future?

Responding, Mr van der Veer said that 'first of all, we're very glad we made our final investment decisions (on various big projects) before construction costs went up, so we could avoid the top of the market, for example like offshore rigs three to four years ago before prices shot through the roof. We still benefit from that today.'

'For the next expected oil price spike, we expect that construction prices, while down now, may go up again, so it makes a lot of sense to continue to be a high investor at this time so as to benefit from lower construction costs. Besides, if you are a constant investor, then you have constant staff and engineers, and you do a better-quality job.'

Besides, the days of easy oil are over, and that huge investments and long lead times are needed to extract oil.

Shell's Sakhalin LNG project - expected to produce four billion barrels of oil and gas - cost just a total investment of US$20 billion, or about US$5 a barrel in costs. This was because it started work on the project way back in 1977, and it is only now that the project is starting to produce, he said.

On the role of speculators pushing up oil prices, Mr van der Veer said he was more ambivalent today about them playing a major in this than he did previously.

'Shell did a lot of studies on this last year, and compared to two years ago when I said that the extent of open positions in the market played a major role in pushing up oil prices, now we say: We don't know.'

'It's a more complex phenomena. It's chicken-and-egg but what's the chicken and what's the egg? What is psychology and undercapacity and overcapacity?'

'The only thing we can say is that the size of the paper market compared to the physical or real market has now decreased. Yes, derivatives and open positions played a role in driving up oil prices, but we feel less sure they say they were the culprits,' concedes the Shell chief.