2nd post of the weekend. Before I start, I would like to say something about the cost of living in Singapore. On Friday, I went to Burger King for breakfast with my colleagues. The interesting thing was I ordered a croissant meal and to my surprise, there were no hashbrowns. To think that I still paid 5 bucks for the meal, I only got a hot tea and croissant! Thats just crazy! I remember just a couple of months ago, I bought a meal there and I paid only 6 bucks for a meal and it came with the hashbrowns! So basically, Burger King realised that they will be on the losing end if they included hashbrowns with the meal, rather they preferred consumers like me to pay an additional $1.50 for them than to incorporate them in the meal. What does this mean? Its called indirect inflation! My god, prices are rising so fast but our government tells us that inflation is tepid. What is the current fixed deposit rates now? Less than 1%? Do your maths.
I promised to talk about the stock I have been buying on the quiet. I did not write about it because (you've guessed it) its too illiquid. I had a tough time buying into the stock and trust me, it is as illiquid as any of the other stocks I have bought. The only difference is, it has started to move sooner than I thought. The stock gained 5% on last friday alone. I have to admit I bought it a lot earlier but I just did not have to time and also I could not make up my mind on whether I have bought enough of it.
Ok now lets talk more about the stock. I understand that the past 2 weeks, Sarin has been the talk of the town, up from my call at $0.51 to $0.695. What can I say? Value is delivered. Here I have something even more enticing, GP Batteries. Huh what did I hear you say? Batteries! Hahaha. To be honest, I have been into this company for the better part of the past 6 years. I believe some of my more experienced readers would know that this is one stock that was once the toast of the town. How the great has fallen from grace.
I always found the company intriguing because of its leadership position in the China market and their green colored packaging (ok I find it repulsive). Why is there value in this company? Is battery a dead business? If we look from a layman's point of view, rechargeable, AAA, AA batteries are out, I do not disagree. But this is a company that is much more than just this. This is a company that does much more than this. GP Batt is currently moving aggressively into the Electric Vehicle battery space and this is potentially a huge market, especially in China. With their already strong leadership position in China, it puts them in a good position in terms of distribution network and brand recognition. Why am I into this EV battery segment? Does the name BYD ring a bell? Yes, thats right. It is the largest battery operated car maker in China. Warren Buffett bought into the company more than a year ago and the stock has returned more than 800% since then. What does BYD stand for? Build Your Dream.
I am not saying that GP is going to be like BYD, but it is going to be a prominent player in the future, given its natural advantage. Also, the company took the opportunity to buy into an electric scooter business in the US called Vectrix at distressed prices (which went into receivership). To me, I believe this is a good acquisition at a good price. Electric scooters will be a good market to be in and also a less crowded one compared to hybrid and electric cars.
Lets now look at the company's financials. Basically, it has turned around and delivered strong returns over the past 9 months. It has been making losses in 2007-8 due to high nickel prices but it has made a dramatic turnaround. Currently, the company has a total of 110 million shares, giving it a market capitalization of S$187 million. The revenue registered for the first 9 months for 2009-10 was S$600 million and S$33 million in net profits. Lets assume they make another S$4 million in the final quarter, we would be trading at 5 times price to earnings. How cheap is that? If EV batteries really takes off, 10 to 20 times would not be too much to ask. So what would that mean? Double or triple from here? Throwing in the cherry of the company trading at 0.6 times its book value, that sounds really enticing.
Interesting development here, would be the increased interest in the stock and also the stock of its holding company, GP Industries. GP industries own 49% of GP Batt and its stock has outperformed that of GP Batt this year. Who is buying into GP Industries? Gold Peak, the ultimate holding company of GP industries. Gold Peak has been buying back the stock of GP industries throughout March. Currently, Gold Peak has a total direct interest of more than 79% of GP industries, which means a mandatory takeover offer may soon come in. I believe Gold Peak is looking to consolidate its holdings and buying back stock at a cheap. The real target is not GP industries, but GP Batt. It is a cheaper way to gain stronger control of GP Batt.
Ok you want more information on this, you will have to read on your own cos I am quite tired already. So this is where I will stop. Basically, I love this one, more than any others which I have now.
Best,
SVI
Sunday, March 28, 2010
Friday, March 26, 2010
Bond party ends. Where is the new party going to be held?
Long time since I last updated the blog. I have to admit to a little laziness creeping into me because I was on leave for 3 days last week and I did not even update even once. The truth was I was taking some time off to manage my own portfolio. Heh heh. So you guys miss me?
My favourite protege even smsed me to ask if everything was alright with me, after he did not see any new posts for more than a week. Ok ok I promise I will try to update more often, how about once a week? Fair? In my own admission, I have left out a stock or two which I have been accumulating over the past few weeks. Only my broker (whom I would like to express my condolences to, as his grand dad passed away this week) knew how I was positioning my portfolio.
I will probably try to post my biggest position on this blog tomorrow, but no promises on that. I need to talk about something which I feel more concerned with going into the 2nd quarter of 2010. First and foremost, I was having drinks with my protege yesterday and he was very happy that his baby stock was finally moving and I would like to thank him for having the patience to believe in the stock for so long. There was however one question he had on his mind that was bothering him. He asked " when will the music end". So my boy, I am here to give you the answer. Heh heh. No I am not. As I have said many times, I do not have a crystal ball, but I will continue to look out for signs and update all of you as and when I see them.
Before I begin, I would like to ask, what would you do if one day the best and most famous fruit seller tells you that all fruits are toxic now and if you eat them, you will suffer from poisoning or even end in death? Most of you would probably stop buying the fruits and steer clear of them like a plague. But how many of you would wonder, why would a fruit seller be the one telling you that the only thing he sells is poisonous? That is like shooting yourself in the foot. That is exactly what the greatest Bond fund manager has said in his latest market outlook for April 2010. He said that the 30 year rally in the bond market has probably come to an end and he believes that the bear market has arrived for bonds. That is rather interesting because he currently runs the largest bond fund in the world, at US$250 billion managed under the Total Return Bond fund, he has the most to lose.
From my experience, whenever the great Bill Gross warns of something, he tends to be right. I am pretty sure he is too. I have always been an advocate for equities and never a fan of fixed income. The issuance of bonds have been growing over the past 30 years exponentially, as corporates, governments, municipals etc raised money to expand, not needing to worry about whether they will be able to finance the bonds because they knew that they could issue new bonds to pay off the new ones. Just when you thought that Madoff was the biggest ponzi scheme ever. Enough of slagging fixed income. The reason to why I am writing about this is, if the bond market is going to be in a bear market soon, what is going to happen to equities?
Lets look at the reason to why Bill Gross believes that the bond party is ending.
1. Interest rates are going to rise soon.
2. Sovereign risks are rising.
3. Inflation or shadow inflation is going to erode all your yields.
4. Deficits are growing too quickly, leading to investors demanding higher yields on newer issues thus affecting the prices of older issues.
In the past, before the bond market rally started, there was an inverse correlation between bonds and equities. Whenever one did well, the other did not. Will this negative correlation continue to be relevant? I think the 2007-08 crisis has shown that correlation between asset classes have become intertwined. The globalisation of money flows has allowed money to flow into almost every asset class simultaneously, and when the music ended, money was withdrawn altogether. Will that happen now? Here is what I think.
The strong correlation seen during the crisis was due to risk aversion hitting a level which the world has not seen since 1929. When the chips fell, everyone and anyone just withdrew all their money from anything that had risks and went into safe havens like the Yen, USD and Gold. Many investors sold off assets that were in the money to pay for the losses sustained by other assets. That was why the good, bad and the ugly all ended up in the same place and one asset class could not be differentiated from the other.
My view on this revelation by Bill Gross only applies to the bond markets, more specifically developed bond markets. In the longer term, equities will be deemed more attractive, but in the short term, as bonds get sold off, there could be some weakness in equities. There is however a disclaimer I would like to make, that is, if the treasury market tumbles and we start to see hedge funds or large sovereign wealth funds get into liquidity issues, all bets are off. In short, equities will do well in a slowing bond market where yields rise slowly and bond prices fall in a stable manner. If the bond market ends up selling off in a frenzy, we could see another crisis like the one that passed recently. Why do I say that? Its because the global debt market is many many many more times the size of the global equity market and if it melts down, its going to cause another contagion.
From recent weeks, emerging market bonds have seen strong interest and issuance has been heavy. The demand of emerging market bonds is due to their stronger fiscal positions and better growth prospects. While at the same time, the past 3 US treasury auctions have seen very poor response. Many market watchers view this as the beginning of the end for the US treasury bills as a reserve asset. Expect higher yields on them going forward as the US govt will have to entice investors with higher yields to get them to buy the debt. In my view, investors are starting to see emerging markets as lower risk investments compared to developed markets like the US, Europe and UK. This bodes well for us, because it has been proven that emerging markets especially Asia has been very much unaffected by the credit crisis. So if the money flows away from developed markets, we will be the main beneficiaries.
The only wild card that could hit us hard will be China's problems. Trust me, if they have plenty of problems, its just that we do not get to read about them. Why do you think that Google has to leave?
The next hurdle we have now is the end of mortgage buybacks by the Federal Reserve next week. Once that ends, the other will be the end of other quantitative measures in June. We are in for a volatile ride, but the signs are still positive for equity markets.
Thats all I have.
Best,
SVI
My favourite protege even smsed me to ask if everything was alright with me, after he did not see any new posts for more than a week. Ok ok I promise I will try to update more often, how about once a week? Fair? In my own admission, I have left out a stock or two which I have been accumulating over the past few weeks. Only my broker (whom I would like to express my condolences to, as his grand dad passed away this week) knew how I was positioning my portfolio.
I will probably try to post my biggest position on this blog tomorrow, but no promises on that. I need to talk about something which I feel more concerned with going into the 2nd quarter of 2010. First and foremost, I was having drinks with my protege yesterday and he was very happy that his baby stock was finally moving and I would like to thank him for having the patience to believe in the stock for so long. There was however one question he had on his mind that was bothering him. He asked " when will the music end". So my boy, I am here to give you the answer. Heh heh. No I am not. As I have said many times, I do not have a crystal ball, but I will continue to look out for signs and update all of you as and when I see them.
Before I begin, I would like to ask, what would you do if one day the best and most famous fruit seller tells you that all fruits are toxic now and if you eat them, you will suffer from poisoning or even end in death? Most of you would probably stop buying the fruits and steer clear of them like a plague. But how many of you would wonder, why would a fruit seller be the one telling you that the only thing he sells is poisonous? That is like shooting yourself in the foot. That is exactly what the greatest Bond fund manager has said in his latest market outlook for April 2010. He said that the 30 year rally in the bond market has probably come to an end and he believes that the bear market has arrived for bonds. That is rather interesting because he currently runs the largest bond fund in the world, at US$250 billion managed under the Total Return Bond fund, he has the most to lose.
From my experience, whenever the great Bill Gross warns of something, he tends to be right. I am pretty sure he is too. I have always been an advocate for equities and never a fan of fixed income. The issuance of bonds have been growing over the past 30 years exponentially, as corporates, governments, municipals etc raised money to expand, not needing to worry about whether they will be able to finance the bonds because they knew that they could issue new bonds to pay off the new ones. Just when you thought that Madoff was the biggest ponzi scheme ever. Enough of slagging fixed income. The reason to why I am writing about this is, if the bond market is going to be in a bear market soon, what is going to happen to equities?
Lets look at the reason to why Bill Gross believes that the bond party is ending.
1. Interest rates are going to rise soon.
2. Sovereign risks are rising.
3. Inflation or shadow inflation is going to erode all your yields.
4. Deficits are growing too quickly, leading to investors demanding higher yields on newer issues thus affecting the prices of older issues.
In the past, before the bond market rally started, there was an inverse correlation between bonds and equities. Whenever one did well, the other did not. Will this negative correlation continue to be relevant? I think the 2007-08 crisis has shown that correlation between asset classes have become intertwined. The globalisation of money flows has allowed money to flow into almost every asset class simultaneously, and when the music ended, money was withdrawn altogether. Will that happen now? Here is what I think.
The strong correlation seen during the crisis was due to risk aversion hitting a level which the world has not seen since 1929. When the chips fell, everyone and anyone just withdrew all their money from anything that had risks and went into safe havens like the Yen, USD and Gold. Many investors sold off assets that were in the money to pay for the losses sustained by other assets. That was why the good, bad and the ugly all ended up in the same place and one asset class could not be differentiated from the other.
My view on this revelation by Bill Gross only applies to the bond markets, more specifically developed bond markets. In the longer term, equities will be deemed more attractive, but in the short term, as bonds get sold off, there could be some weakness in equities. There is however a disclaimer I would like to make, that is, if the treasury market tumbles and we start to see hedge funds or large sovereign wealth funds get into liquidity issues, all bets are off. In short, equities will do well in a slowing bond market where yields rise slowly and bond prices fall in a stable manner. If the bond market ends up selling off in a frenzy, we could see another crisis like the one that passed recently. Why do I say that? Its because the global debt market is many many many more times the size of the global equity market and if it melts down, its going to cause another contagion.
From recent weeks, emerging market bonds have seen strong interest and issuance has been heavy. The demand of emerging market bonds is due to their stronger fiscal positions and better growth prospects. While at the same time, the past 3 US treasury auctions have seen very poor response. Many market watchers view this as the beginning of the end for the US treasury bills as a reserve asset. Expect higher yields on them going forward as the US govt will have to entice investors with higher yields to get them to buy the debt. In my view, investors are starting to see emerging markets as lower risk investments compared to developed markets like the US, Europe and UK. This bodes well for us, because it has been proven that emerging markets especially Asia has been very much unaffected by the credit crisis. So if the money flows away from developed markets, we will be the main beneficiaries.
The only wild card that could hit us hard will be China's problems. Trust me, if they have plenty of problems, its just that we do not get to read about them. Why do you think that Google has to leave?
The next hurdle we have now is the end of mortgage buybacks by the Federal Reserve next week. Once that ends, the other will be the end of other quantitative measures in June. We are in for a volatile ride, but the signs are still positive for equity markets.
Thats all I have.
Best,
SVI
Tuesday, March 16, 2010
Shale Gas: unconventional energy to mainstream energy. The next mega trend.
Today was a really weird day for me. It started off quietly, it ended pretty tepidly too. However in the end, I am not sure why I get the feeling of melancholy. Maybe its the time of the month for me, I am not sure. But as I write this note, I write it with a somewhat heavy heart. Don't get me wrong, I did not lose any money today, just felt like grumbling a little. Throughout the whole day, the market did not make any sense to me, I did not know whether to buy or to sell. Well I guess it happens to the best of us.
I deliberately came home early today, partly because of my cranky mood, partly due to my need to study something that has caught my eye. Over the past few weeks, I have been reading a few articles on the topic of Shale Gas. I am not sure how many of you know what this is, I for one did not know what to make of it.
Shale gas is defined as natural gas from shale formations. The shale acts as both the source and the reservoir for the natural gas. Older shale gas wells were vertical while more recent wells are primarily horizontal and need artificial stimulation, like hydraulic fracturing, to produce. Only shale formations with certain characteristics will produce gas. The most significant trend in US natural gas production is the rapid rise in production from shale formations. In large measure this is attributable to significant advances in the use of horizontal drilling and well stimulation technologies and refinement in the cost-effectiveness of these technologies. Hydraulic fracturing is the most significant of these.
# The consulting firm ICF forecasts that tight gas, coalbed methane, and shale gas will make a major contribution to future North American gas production. Unconventional gas production is forecast to increase from 42 percent of total US gas production in 2007 to 64 percent in 2020. Despite the current economic conditions, the long-term need for US natural gas should be strong enough to support these anticipated future production levels.
# With the tremendous success of the Barnett, Fayetteville and Woodford shales in the United States, the gas shale resource base will play a major role in the future natural gas production on which the nation will depend. Already the Barnett Shale gas play in Texas produces 6 percent of all natural gas produced in the Lower 48 states. Recent announcements of emerging plays in Appalachia, Northern Louisiana, British Columbia, and South Texas indicate the widespread potential of shale gas resources across North America. Each of these shale gas basins is different and each has a unique set of exploration criteria and operational challenges.
The Potential Gas Committee, an incorporated, nonprofit organization that consists of knowledgeable and highly experienced volunteer members who work in the natural gas exploration, production and transportation industries issued its biennial assessment of the nation’s gas resources in June 2009. This study indicates that the United States possesses a resource base of 1,836 Tcf of natural gas. When combining these results with the Department of Energy’s latest determination of proved gas reserves, 238 Tcf as of year-end 2007, the United States has a future supply of natural gas of over 2,000 Tcf. At current consumption rates, this is enough natural gas to supply the nation for the next hundred years. This is an increase of more than 35% when compared to the Committee’s 2006 assessment. This increase is largely attributable to increased supplies from unconventional gas plays, specifically from shale gas development.
Although shale gas has been produced for more than 100 years in the Appalachian Basin and the Illinois Basin of the United States, the wells were often economically marginal. Higher natural gas prices in recent years and advances in hydraulic fracturing and horizontal completions have made shale gas wells more profitable. Shale gas tends to cost more to produce than gas from conventional wells, because of the expense of massive hydraulic fracturing treatments required to produce shale gas, and of horizontal drilling. However, this is often offset by the low risk of shale gas wells.
North America has been the leader in developing and producing shale gas because of high gas prices in that market. It is a remarkable turnaround. Just 3 years ago, most US energy executives were working out how the US could import enough gas from places as far away as Nigeria, Russia and Qatar. Now they have the largest reserves in the world and the most advanced technology to extract the gas. Obama has even agreed to share the knowledge and technology with the Chinese in order to improve relations.
There is currently a mad rush by the big oil companies like Exxon going into Europe looking for exploration grounds. There seems to be no lack of shale gas fields in the world and large fields have been discovered over the past 2 years.
Why you may ask, did I feel the need to write about this. I feel the world is close to a big change. Oil and coal may have found their biggest rival yet. Natural gas is considered one of the cleanest forms of energy compared to the likes of traditional energy sources.
According to the Energy Information Administration, energy from natural gas accounts for 23% of total energy consumed in the United States, making it a vital component of the nation's energy supply.
Natural gas is used across all sectors, in varying amounts. The graph below gives an idea of the proportion of natural gas use per sector. The industrial sector accounts for the greatest proportion of natural gas use in the United States, with the residential sector consuming the second greatest quantity of natural gas.
Why did I focus on the US? Its because they are the largest consumer of energy in the world. The average US citizen consumes 20 barrels of oil per year, while the average Chinese citizen consumes 1/2 barrel of oil. Get the idea? The US will be the benchmark and leader in terms of energy adoption. If shale gas is what they have most plentiful of, they will adopt it fastest and critical mass was be reached quickly. To the common folk out there, the oil and coal story is still being played and many analysts will not see it coming. That is why I went through this whole story to give you the low down of the future of energy.
Natural gas is currently used mainly for electricity generation and it will first tackle coal and nuclear energy first. It will take a little longer before it takes on oil for manufacturing and transportation purposes. But if shale gas is the answer to the world's energy problems, then peak oil thesis will be thrown out of the window.
Do you believe in it? If you do then start paying attention to the companies that deal in shale gas production, they may end up being the next Exxon. I know the big oil companies are already heavily involved in natural gas production, but from my readings, the big oil companies have been slow movers into the shale gas scene. So there are opportunities. Also companies that use liquified natural gas as feedstock will benefit because the prices of LNG has been falling. Just look at the chart I have attached to the post.
Of course there will be naysayers on this shale gas development, especially on the environmental front, where they are accusing shale gas extraction as a possibly polluting the water supply. Well you cannot deny that for every party, there is always a party pooper. Haha.
Ok I think I shall stop here. Oh my mum who is a reader commented that she was surprised that I am a Jack Neo supporter. Hahah. I cannot deny that I do not judge him because he is just a man, but as I have told many of my male friends, you can fool around, but be responsible. So Jack gets my support. I am not an idealist and I know the real world is full of temptations.
Best,
SVI
I deliberately came home early today, partly because of my cranky mood, partly due to my need to study something that has caught my eye. Over the past few weeks, I have been reading a few articles on the topic of Shale Gas. I am not sure how many of you know what this is, I for one did not know what to make of it.
Shale gas is defined as natural gas from shale formations. The shale acts as both the source and the reservoir for the natural gas. Older shale gas wells were vertical while more recent wells are primarily horizontal and need artificial stimulation, like hydraulic fracturing, to produce. Only shale formations with certain characteristics will produce gas. The most significant trend in US natural gas production is the rapid rise in production from shale formations. In large measure this is attributable to significant advances in the use of horizontal drilling and well stimulation technologies and refinement in the cost-effectiveness of these technologies. Hydraulic fracturing is the most significant of these.
# The consulting firm ICF forecasts that tight gas, coalbed methane, and shale gas will make a major contribution to future North American gas production. Unconventional gas production is forecast to increase from 42 percent of total US gas production in 2007 to 64 percent in 2020. Despite the current economic conditions, the long-term need for US natural gas should be strong enough to support these anticipated future production levels.
# With the tremendous success of the Barnett, Fayetteville and Woodford shales in the United States, the gas shale resource base will play a major role in the future natural gas production on which the nation will depend. Already the Barnett Shale gas play in Texas produces 6 percent of all natural gas produced in the Lower 48 states. Recent announcements of emerging plays in Appalachia, Northern Louisiana, British Columbia, and South Texas indicate the widespread potential of shale gas resources across North America. Each of these shale gas basins is different and each has a unique set of exploration criteria and operational challenges.
The Potential Gas Committee, an incorporated, nonprofit organization that consists of knowledgeable and highly experienced volunteer members who work in the natural gas exploration, production and transportation industries issued its biennial assessment of the nation’s gas resources in June 2009. This study indicates that the United States possesses a resource base of 1,836 Tcf of natural gas. When combining these results with the Department of Energy’s latest determination of proved gas reserves, 238 Tcf as of year-end 2007, the United States has a future supply of natural gas of over 2,000 Tcf. At current consumption rates, this is enough natural gas to supply the nation for the next hundred years. This is an increase of more than 35% when compared to the Committee’s 2006 assessment. This increase is largely attributable to increased supplies from unconventional gas plays, specifically from shale gas development.
Although shale gas has been produced for more than 100 years in the Appalachian Basin and the Illinois Basin of the United States, the wells were often economically marginal. Higher natural gas prices in recent years and advances in hydraulic fracturing and horizontal completions have made shale gas wells more profitable. Shale gas tends to cost more to produce than gas from conventional wells, because of the expense of massive hydraulic fracturing treatments required to produce shale gas, and of horizontal drilling. However, this is often offset by the low risk of shale gas wells.
North America has been the leader in developing and producing shale gas because of high gas prices in that market. It is a remarkable turnaround. Just 3 years ago, most US energy executives were working out how the US could import enough gas from places as far away as Nigeria, Russia and Qatar. Now they have the largest reserves in the world and the most advanced technology to extract the gas. Obama has even agreed to share the knowledge and technology with the Chinese in order to improve relations.
There is currently a mad rush by the big oil companies like Exxon going into Europe looking for exploration grounds. There seems to be no lack of shale gas fields in the world and large fields have been discovered over the past 2 years.
Why you may ask, did I feel the need to write about this. I feel the world is close to a big change. Oil and coal may have found their biggest rival yet. Natural gas is considered one of the cleanest forms of energy compared to the likes of traditional energy sources.
According to the Energy Information Administration, energy from natural gas accounts for 23% of total energy consumed in the United States, making it a vital component of the nation's energy supply.
Natural gas is used across all sectors, in varying amounts. The graph below gives an idea of the proportion of natural gas use per sector. The industrial sector accounts for the greatest proportion of natural gas use in the United States, with the residential sector consuming the second greatest quantity of natural gas.
Why did I focus on the US? Its because they are the largest consumer of energy in the world. The average US citizen consumes 20 barrels of oil per year, while the average Chinese citizen consumes 1/2 barrel of oil. Get the idea? The US will be the benchmark and leader in terms of energy adoption. If shale gas is what they have most plentiful of, they will adopt it fastest and critical mass was be reached quickly. To the common folk out there, the oil and coal story is still being played and many analysts will not see it coming. That is why I went through this whole story to give you the low down of the future of energy.
Natural gas is currently used mainly for electricity generation and it will first tackle coal and nuclear energy first. It will take a little longer before it takes on oil for manufacturing and transportation purposes. But if shale gas is the answer to the world's energy problems, then peak oil thesis will be thrown out of the window.
Do you believe in it? If you do then start paying attention to the companies that deal in shale gas production, they may end up being the next Exxon. I know the big oil companies are already heavily involved in natural gas production, but from my readings, the big oil companies have been slow movers into the shale gas scene. So there are opportunities. Also companies that use liquified natural gas as feedstock will benefit because the prices of LNG has been falling. Just look at the chart I have attached to the post.
Of course there will be naysayers on this shale gas development, especially on the environmental front, where they are accusing shale gas extraction as a possibly polluting the water supply. Well you cannot deny that for every party, there is always a party pooper. Haha.
Ok I think I shall stop here. Oh my mum who is a reader commented that she was surprised that I am a Jack Neo supporter. Hahah. I cannot deny that I do not judge him because he is just a man, but as I have told many of my male friends, you can fool around, but be responsible. So Jack gets my support. I am not an idealist and I know the real world is full of temptations.
Best,
SVI
Friday, March 12, 2010
Contingency Capital Hybrid Bonds, the arrival of the new financial world! Citi and BOA looking good.
I was having a meeting yesterday when my friend smsed me, updating me the price of Sarin Tech. He asked me whether I knew that the stock had crossed the $0.60 mark, I replied that I was too busy to look at the price of the stock. I guess I shocked him, because he commented that I must be really cool to be trading and not watching the stock. I told him it was a high conviction play so there is no need to watch it too much. Of course, after the momentum ends, it will be necessary to pay more attention for a possible reversal but in the short term it should continue to look strong. I have to reiterate that this blog was not meant to be a trading tips site, I prefer it to be an investment website.
A lot has happened during this week, I hope most of you got richer in the process. For me, I would have liked to trade a lot more but due to my ridiculous schedule I have not benefited from this rally as much as I would have liked. Even though I would have liked to write a post during midweek but thanks to my lovely job, I am restricted to one or two posts a week. But rest is assured, I am still on top of the happenings in the market, and still quite blurry over what happened to Jack Neo. I am sure one of my good friends will update me on the whole debacle soon. Heh. Hang in there Jack, it happens to the best of us. This is a time when all of men need to rally around him. Ok but that is a topic which will be left for a different occasion.
Focusing on the update on the market first. The market has done well this week, especially with the lack of data and catalysts, it has steadily tracked upwards. Quietly, we are almost close to the highs for the year and as I HAVE SAID BEFORE, THE GREEK DEBACLE WAS JUST NOISE. TOLD YOU GUYS SO! Moral of the story, the media knows nothing, and the majority of analysts too. That is why I am writing this blog, to show you guys that the world is full of impostors who will try to sell you any story. Rationality and logic must prevail, think for yourselves and not read too much into analyst and journalist's reports as they sometimes have clouded judgements and conflict of interests.
Went through the papers for the week once again, trying to find something news worthy and worth focusing on, but I guess all the good journalists were out searching for more girls that got hit on by Jack Neo rather than finding a good story to publish. However, if one looks hard and carefully enough, there are always subtle hints that will provide us good clues on the market direction.
If you are a close follower of the markets, you will realise that the financials in the US and Europe has done very well over the past 2 weeks. Citibank, one of the stocks that I pay close attention to was up almost 20 percent for the week before the pullback on Friday. So why were financials doing so well and will it continue to flourish over the next few weeks? You want an answer? Let me give it to you.
YES.
Funding has been the main issue for banks over the past couple of years. Banks have been low on funding and capital requirements were barely met, they were holding onto too much toxic paper and their capital ratios were all hit. They scurried to issue more equity to their poor shareholders because their shareholders had no choice but to subscribe to their new shares (Temasek one of them). It was also the cheapest way to raise capital as they did not need to pay dividends on those shares if they do not do well. Some of them (Goldman, UBS etc) did choose to issue convertible bonds or preference shares, that led to them paying up to 10% per annum on their debt. Now you wonder why shareholders are the ones to suffer when markets turn down. heh.
So you may ask, why am I still bullish on financials after the strong run up in the past 2 weeks? 2 words...Hybrid bonds. There was an article on Rabobank issuing hybrid bonds as contingency capital for itself. Contingency Capital is becoming the flavor of the financial industry because it is a cost effective way to manage their capital adequacy and it will give investors more confidence that a repeat of the 2007 crisis is unlikely. Many investors have shunned Citi and Bank Of America, preferring the likes of Goldman and JP Morgan. There has been a lot of interest from investors on this front, buying into the debt and there is no lack of liquidity and demand for it.
What does this mean? I believe that with this new found zest for contingency capital, the weaker banks will do well because investors will no longer be pricing in a risk premium on the stock prices. Both are still trading below their book values and profitability is on its way back. What is going to happen? I believe trading up to their book values will be a good target for their stocks. So am I going to be right? Only time will tell.
As I have always believed, investment bankers are probably the smartest people in the world, because they will always be able to find ways to go around the system. No more CDOs, subprime etc, no problem, there will always be new instruments to con people into a new false sense of security. This is their answer and they will once again find a way to bring the good times back to the financial industry. You can never stop an investment banker from making good money. Just look at their bonuses. Hahaha.
So I am making a call for the weaker banks especially Citi and BOA. General Electric is also one of my favourites. Do not forget the private equity firms like Blackstone and KKR. I am calling for a buy on all of them. So let it rip!
Best,
SVI
A lot has happened during this week, I hope most of you got richer in the process. For me, I would have liked to trade a lot more but due to my ridiculous schedule I have not benefited from this rally as much as I would have liked. Even though I would have liked to write a post during midweek but thanks to my lovely job, I am restricted to one or two posts a week. But rest is assured, I am still on top of the happenings in the market, and still quite blurry over what happened to Jack Neo. I am sure one of my good friends will update me on the whole debacle soon. Heh. Hang in there Jack, it happens to the best of us. This is a time when all of men need to rally around him. Ok but that is a topic which will be left for a different occasion.
Focusing on the update on the market first. The market has done well this week, especially with the lack of data and catalysts, it has steadily tracked upwards. Quietly, we are almost close to the highs for the year and as I HAVE SAID BEFORE, THE GREEK DEBACLE WAS JUST NOISE. TOLD YOU GUYS SO! Moral of the story, the media knows nothing, and the majority of analysts too. That is why I am writing this blog, to show you guys that the world is full of impostors who will try to sell you any story. Rationality and logic must prevail, think for yourselves and not read too much into analyst and journalist's reports as they sometimes have clouded judgements and conflict of interests.
Went through the papers for the week once again, trying to find something news worthy and worth focusing on, but I guess all the good journalists were out searching for more girls that got hit on by Jack Neo rather than finding a good story to publish. However, if one looks hard and carefully enough, there are always subtle hints that will provide us good clues on the market direction.
If you are a close follower of the markets, you will realise that the financials in the US and Europe has done very well over the past 2 weeks. Citibank, one of the stocks that I pay close attention to was up almost 20 percent for the week before the pullback on Friday. So why were financials doing so well and will it continue to flourish over the next few weeks? You want an answer? Let me give it to you.
YES.
Funding has been the main issue for banks over the past couple of years. Banks have been low on funding and capital requirements were barely met, they were holding onto too much toxic paper and their capital ratios were all hit. They scurried to issue more equity to their poor shareholders because their shareholders had no choice but to subscribe to their new shares (Temasek one of them). It was also the cheapest way to raise capital as they did not need to pay dividends on those shares if they do not do well. Some of them (Goldman, UBS etc) did choose to issue convertible bonds or preference shares, that led to them paying up to 10% per annum on their debt. Now you wonder why shareholders are the ones to suffer when markets turn down. heh.
So you may ask, why am I still bullish on financials after the strong run up in the past 2 weeks? 2 words...Hybrid bonds. There was an article on Rabobank issuing hybrid bonds as contingency capital for itself. Contingency Capital is becoming the flavor of the financial industry because it is a cost effective way to manage their capital adequacy and it will give investors more confidence that a repeat of the 2007 crisis is unlikely. Many investors have shunned Citi and Bank Of America, preferring the likes of Goldman and JP Morgan. There has been a lot of interest from investors on this front, buying into the debt and there is no lack of liquidity and demand for it.
What does this mean? I believe that with this new found zest for contingency capital, the weaker banks will do well because investors will no longer be pricing in a risk premium on the stock prices. Both are still trading below their book values and profitability is on its way back. What is going to happen? I believe trading up to their book values will be a good target for their stocks. So am I going to be right? Only time will tell.
As I have always believed, investment bankers are probably the smartest people in the world, because they will always be able to find ways to go around the system. No more CDOs, subprime etc, no problem, there will always be new instruments to con people into a new false sense of security. This is their answer and they will once again find a way to bring the good times back to the financial industry. You can never stop an investment banker from making good money. Just look at their bonuses. Hahaha.
So I am making a call for the weaker banks especially Citi and BOA. General Electric is also one of my favourites. Do not forget the private equity firms like Blackstone and KKR. I am calling for a buy on all of them. So let it rip!
Best,
SVI
Sunday, March 7, 2010
Sarin technology, a diamond in the rough. $0.51
There was once I had a friend who was a broker, who loved to play contra on stocks. As you all should know, the only 2 stock exchanges in the world that allows contra trading, Singapore and Malaysia. As the SGX continues to look into banning contra trading, I believe brokers are right now shivering in their pants, hoping SGX does not follow through on the ban.
Why did I bring up my friend who loves contra trading? He is one hell of a character and the way he lives his life is one which I admire but know can never achieve. I remember an occasion when he bought a stock in huge amounts and lost a substantial amount of money within the contra period. He was having lunch with me and he said that he got killed by Sarin gas (the japanese terrorist act in their subway? Just in case you did not get the pun). I guess you all can get the hint and now know the stock I am referring to.
Before I get started, I would like to say that this is not the usual value investment recommendation. It is more like a stock that falls into the momentum critical mass theory which I have introduced in my previous post last week. Luye and Hong Leong Asia were the other 2 stocks which I said fell into this category, I would now like add Sarin into the list.
Sarin Technologies is a worldwide leader in the development and manufacturing of advanced planning, evaluation, and measurement systems for diamond grading & gemstone production. Sarin products include diamond cut grading tools (for round and fancy shapes), rough diamond optimization systems, gemology tools, diamond color grading, and laser marking machines. Sarin systems have become an essential tool in every gemology laboratory and manufacturing plant, and a must for diamond dealers and retailers who need accurate diamond grading.
This company was listed on the 8th of April 2005, to my closest friend out there, it was listed on your birthday, think its time you bought this stock. Ok I just want to say that the stock has run up almost 50% ytd. From $0.35 to $0.51, it has had an impressive run.
So why did the stock have such a strong run up over the past few weeks? First of all, the results showed a huge jump year on year for the 4th quarter. Earnings per share for the 4th quarter 2009 alone was US$0.0171 which dragged the whole 2009's profit into positive US$0.0058. I know this does not look like a whole of money, but the turnaround is sharp and it is the first time in the past 2 years where the company has shown a turnaround. During the better years, the company averaged earnings of US$0.03 which is almost S$0.04. If this turnaround is sustainable, the current price only reflects 12 times p/e. Its cash levels are more than enough to pay off all its liabilities. Cashflows from operations are strong.
Why do I like it? Even though it does not fall into the extremely undervalued category, but Warren Buffett did say that a good company is not just about the valuation, its growth prospects and competitive advantage is also very important. Sarin has been a market leader in its field for a long time, its leading position is one that must be valued in such a niche market. Margins are huge at 40%, and I am talking about net margins here.
Recently, the company has announced their new technology will be adopted by the biggest miner in the world, BHP Billiton. The Galaxy 1000 will allow rough diamond suppliers to scan their rough diamonds and immediately gauge the flaw of the diamond and where the intrusions are. For a rough diamond supplier like BHP, this will allow them to get better prices and also make fewer mistakes when supplying the rough diamonds to diamond cutters and polishers. If BHP takes it up, you can expect this technology to be adopted by many more miners out there. If it can gain critical mass with its technology, it will reinforce their position as market leaders in the diamond technology industry.
Why does it fall into the momentum critical mass theory? As I have said, I believe that the positive announcements for this company will continue flowing and it will cause the stock to re-rate upwards. Before the analysts start scrambling to cover this stock, it will be good to buy some and keep. Hint Hint.
Happy trading this week!
Best,
SVI
Why did I bring up my friend who loves contra trading? He is one hell of a character and the way he lives his life is one which I admire but know can never achieve. I remember an occasion when he bought a stock in huge amounts and lost a substantial amount of money within the contra period. He was having lunch with me and he said that he got killed by Sarin gas (the japanese terrorist act in their subway? Just in case you did not get the pun). I guess you all can get the hint and now know the stock I am referring to.
Before I get started, I would like to say that this is not the usual value investment recommendation. It is more like a stock that falls into the momentum critical mass theory which I have introduced in my previous post last week. Luye and Hong Leong Asia were the other 2 stocks which I said fell into this category, I would now like add Sarin into the list.
Sarin Technologies is a worldwide leader in the development and manufacturing of advanced planning, evaluation, and measurement systems for diamond grading & gemstone production. Sarin products include diamond cut grading tools (for round and fancy shapes), rough diamond optimization systems, gemology tools, diamond color grading, and laser marking machines. Sarin systems have become an essential tool in every gemology laboratory and manufacturing plant, and a must for diamond dealers and retailers who need accurate diamond grading.
This company was listed on the 8th of April 2005, to my closest friend out there, it was listed on your birthday, think its time you bought this stock. Ok I just want to say that the stock has run up almost 50% ytd. From $0.35 to $0.51, it has had an impressive run.
So why did the stock have such a strong run up over the past few weeks? First of all, the results showed a huge jump year on year for the 4th quarter. Earnings per share for the 4th quarter 2009 alone was US$0.0171 which dragged the whole 2009's profit into positive US$0.0058. I know this does not look like a whole of money, but the turnaround is sharp and it is the first time in the past 2 years where the company has shown a turnaround. During the better years, the company averaged earnings of US$0.03 which is almost S$0.04. If this turnaround is sustainable, the current price only reflects 12 times p/e. Its cash levels are more than enough to pay off all its liabilities. Cashflows from operations are strong.
Why do I like it? Even though it does not fall into the extremely undervalued category, but Warren Buffett did say that a good company is not just about the valuation, its growth prospects and competitive advantage is also very important. Sarin has been a market leader in its field for a long time, its leading position is one that must be valued in such a niche market. Margins are huge at 40%, and I am talking about net margins here.
Recently, the company has announced their new technology will be adopted by the biggest miner in the world, BHP Billiton. The Galaxy 1000 will allow rough diamond suppliers to scan their rough diamonds and immediately gauge the flaw of the diamond and where the intrusions are. For a rough diamond supplier like BHP, this will allow them to get better prices and also make fewer mistakes when supplying the rough diamonds to diamond cutters and polishers. If BHP takes it up, you can expect this technology to be adopted by many more miners out there. If it can gain critical mass with its technology, it will reinforce their position as market leaders in the diamond technology industry.
Why does it fall into the momentum critical mass theory? As I have said, I believe that the positive announcements for this company will continue flowing and it will cause the stock to re-rate upwards. Before the analysts start scrambling to cover this stock, it will be good to buy some and keep. Hint Hint.
Happy trading this week!
Best,
SVI
Saturday, March 6, 2010
Double Dip? Who says its not possible? Just ask Sweden.
I would like to thank my supporters for believing in my call for Luye Pharma. Since my call last sunday, it has gone from $0.745 to $0.80. For a stock that does not get much attention, it has done very well within such a short period of time. Will not talk more about the stock, all I can say is that the stock is probably the cheapest Chinese related pharma stock listed in China, HK and Singapore. 15 times p/e compared to the industry average of 43 times. Do I need to say more?
Topic of the day? I have not decided as yet, any suggestions? Should I talk about a particular stock or should I talk about the economy? Don't get me wrong, I have do have some stock ideas to share but eventually, I hope this blog will be compiled into a book or something like that. Hopefully after I retire (lets hope its not too far from now), whateever I have shared here will still be relevant. Heh. If Adam Khoo can write about the financial crisis, so can I. Don't get me started on Adam Khoo.
Lets start with an article I read this morning while going through my usual one week's worth of papers. As usual, I ignored the all the larger press releases, Pru's acquisition of AIG, the sad case of Toyota, Australia's interest rate hike, Greece's successful 10 billion dollar bond issue etc. But one small article caught my eye. You know me, the smaller the article, the more it catches my eye. This particular article was focusing on a little country called Sweden falling back into recession. Why am I pointing this out now? As all of us look optimistically at the economic recovery around us, it is pertinent for our feet to be planted firmly on the ground. That is why I am pointing this out to all of you. Sweden has become the first country to suffer the double dip recession. Funny thing is, they were just considering whether to raise interest rates the last quarter. A country that looked like it was back on the growth track suddenly falls back into recession. It only goes to show, how fragile the economic recovery is.
The great Bill Gross believes 2010 will be the year of exit strategies, and Sweden is the perfect example of how the recession can return swiftly should the timing of exit strategies be mistimed. As central banks in Asia start raising interest rates, some may think it is wise to do so and some may think otherwise. But bear in mind that Asia's situation was always stronger compared to the likes of Europe and US due to our lower exposure to the toxic paper that the US manufactured. Now Europe, Europe was not so fortunate. So when they said Jean Claude Trichet was considering the exit measures for Europe, that scares me. In my view, the situation in Europe and US is a lot more dire and fragile. Therefore the exit strategies are going to be crucial, because I really do not see how they can even think of exiting when their economic recoveries are hanging on a thread.
On Friday, the US reported its 25 consecutive month of negative payrolls number. This is an astonishing statistic because I do not think there has ever been such a long contraction in the labor market in the whole of US history. No matter what Ben Bernanke, Geithner or Obama says, I know my old economics professor would agree with me, no jobs, no recovery. It will take a very brave man to consider exiting the ultra loose monetary policy right at this moment. We will have to see a sustained positive payrolls number before the Fed is able to move interest rates.
So far, India, Malaysia and Australia have raised interest rates, while China has raised reserve ratios twice. In my point of view, they are the safer countries and tightening is the right thing to do. These countries have done well and gotten back on the fast growth track leading to inflation figures picking up.
I got a scenario in my head and I am trying to figure out how it would turn out. Imagine, a poor man starving, owing a butt load of money to many parties and starts to ask for help. His friends come along and agrees to help him, on the condition that he starves himself even more, in order to save more money to pay off his debt. What do you think will happen to this man? The first thing that came to my head was death. If someone was starving and owing tons of money, which was more urgent to resolve? His hunger or his debt? If we continue starving him, he is not going to live long enough to save enough to pay off his debt. If I can think of this, why can't the countries like Germany not understand that making Greece take austerity steps in the short run may ruin the country even faster. The people will revolt, the country will go into chaos and they will not be united to work the country out of its predicament. Simple logic.
Maybe I am missing something, but I know that I have invested all my life basing on simple logic and common sense. Keep it simple and do not overcomplicate things. Base your investment ideas and decisions on the logical thinking which you use to build your life around. My protege asked me, what was the key to my thinking? I did not answer him because I was too busy. But here is the answer...make decisions rationally, 95% of rational decisions tend to be the right ones.
Signing off now.
Best,
SVI
Topic of the day? I have not decided as yet, any suggestions? Should I talk about a particular stock or should I talk about the economy? Don't get me wrong, I have do have some stock ideas to share but eventually, I hope this blog will be compiled into a book or something like that. Hopefully after I retire (lets hope its not too far from now), whateever I have shared here will still be relevant. Heh. If Adam Khoo can write about the financial crisis, so can I. Don't get me started on Adam Khoo.
Lets start with an article I read this morning while going through my usual one week's worth of papers. As usual, I ignored the all the larger press releases, Pru's acquisition of AIG, the sad case of Toyota, Australia's interest rate hike, Greece's successful 10 billion dollar bond issue etc. But one small article caught my eye. You know me, the smaller the article, the more it catches my eye. This particular article was focusing on a little country called Sweden falling back into recession. Why am I pointing this out now? As all of us look optimistically at the economic recovery around us, it is pertinent for our feet to be planted firmly on the ground. That is why I am pointing this out to all of you. Sweden has become the first country to suffer the double dip recession. Funny thing is, they were just considering whether to raise interest rates the last quarter. A country that looked like it was back on the growth track suddenly falls back into recession. It only goes to show, how fragile the economic recovery is.
The great Bill Gross believes 2010 will be the year of exit strategies, and Sweden is the perfect example of how the recession can return swiftly should the timing of exit strategies be mistimed. As central banks in Asia start raising interest rates, some may think it is wise to do so and some may think otherwise. But bear in mind that Asia's situation was always stronger compared to the likes of Europe and US due to our lower exposure to the toxic paper that the US manufactured. Now Europe, Europe was not so fortunate. So when they said Jean Claude Trichet was considering the exit measures for Europe, that scares me. In my view, the situation in Europe and US is a lot more dire and fragile. Therefore the exit strategies are going to be crucial, because I really do not see how they can even think of exiting when their economic recoveries are hanging on a thread.
On Friday, the US reported its 25 consecutive month of negative payrolls number. This is an astonishing statistic because I do not think there has ever been such a long contraction in the labor market in the whole of US history. No matter what Ben Bernanke, Geithner or Obama says, I know my old economics professor would agree with me, no jobs, no recovery. It will take a very brave man to consider exiting the ultra loose monetary policy right at this moment. We will have to see a sustained positive payrolls number before the Fed is able to move interest rates.
So far, India, Malaysia and Australia have raised interest rates, while China has raised reserve ratios twice. In my point of view, they are the safer countries and tightening is the right thing to do. These countries have done well and gotten back on the fast growth track leading to inflation figures picking up.
I got a scenario in my head and I am trying to figure out how it would turn out. Imagine, a poor man starving, owing a butt load of money to many parties and starts to ask for help. His friends come along and agrees to help him, on the condition that he starves himself even more, in order to save more money to pay off his debt. What do you think will happen to this man? The first thing that came to my head was death. If someone was starving and owing tons of money, which was more urgent to resolve? His hunger or his debt? If we continue starving him, he is not going to live long enough to save enough to pay off his debt. If I can think of this, why can't the countries like Germany not understand that making Greece take austerity steps in the short run may ruin the country even faster. The people will revolt, the country will go into chaos and they will not be united to work the country out of its predicament. Simple logic.
Maybe I am missing something, but I know that I have invested all my life basing on simple logic and common sense. Keep it simple and do not overcomplicate things. Base your investment ideas and decisions on the logical thinking which you use to build your life around. My protege asked me, what was the key to my thinking? I did not answer him because I was too busy. But here is the answer...make decisions rationally, 95% of rational decisions tend to be the right ones.
Signing off now.
Best,
SVI
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