Fear...What do you fear most in life? Death? I fear that, but that is something that will not happen for a long time for me...and for all of us. But there is a constant fear that I have in my heart which I must share. That is when I look at my bank balance. I have a close friend who knows this, she says I always shake my head when I look at my receipt right after I withdraw money from the ATM. This cannot be more true. As I once again face my cashflow problem head on for another month, I asked myself, how did I get myself into this hole? Here I am, with no car, no kids, no mistresses, how am I without cash? Addiction....That is the answer. Addiction to smoking, drinking, womanizing or gambling? I admit, besides smoking, I am only human to be susceptible to the rest of the vices, however, trust me when I say, none of these vices are the source of my addiction.
My name is ______ and I am an investment ADDICT.
This is me, overinvesting again, running down my cash holdings to buy the next stock I find. Why do I deprive myself of the pleasures in life and invest for the future? Some of my closest buddies ask me this question and I just smile and act cool. In fact, I do not know why I cannot bring myself to buy a nice car, or even buy the most expensive bottle of wine or whisky. It is just a second nature of mine to look for opportunities to grow my money for the long term. My mum was still reasoning with me on my insomnia problems, stating the main reason for my inability to sleep as "thinking of ways to make money". Now that is food for thought isn't it?
Lets move on to the stock pick for the week. Something interesting, something I believe you have never thought about investing in. This stock was discovered by chance, during my brainstorming session in the hopes of designing a product that will provide extraodinary returns for investors.
What is the stock you may ask? It is in fact a trust listed in the Australian stock exchange. Challenger Wine Trust. This is the only wine trust listed in Asia and perhaps the World. I cannot be sure but I tried to find others, all I could get were wineries rather than a wine trust. What is a wine trust? It is basically like a Reit, investing in vineyards rather than properties. Challenger Wine Trust currently holds 22 vineyards in Australia, 95% has been leased out with an average lease renewal at 4.6 years.
Why do I like it? Because it is selling at distressed levels. This is what we call deep value investing. The trust has been able to generate strong cashflows since its inception and the distribution per unit for 2010 is guided at A$0.07. Yes, your eyes are not lying to you, it has a yield of 23% for this year while last year it was 18%. Distributions are paid out semi annually. While the yield is looking really attractive, of course there is a catch....The debt to equity is 54% and it is sitting on A$149 million debt at 8% interest rate. During the good times, the market will not discount the stock on this leverage, afterall it is secured with the vineyards. However debt and leverage is frowned upon at this day and age due to worries about the difficulties in refinancing. The trust has been paring down on its debt for the past 2 quarters through sales of vineyards.
With vineyard valuations coming down, I doubt they will be able to get good prices going forward, therefore they will probably be raising money through equity issuance. Current book value of the trust is A$0.61, which is expected to come down more as more units are issued for cash. This will be dilutive for the trust earnings in the short run, but I believe in the long run, there will be value as good vineyards will only become scarcer in the long run with soil erosion and urbanization. Also the water rights in the trust are booked in their financial statements based on historical purchase price and not the actual value. Water rights are strategic and hard to come by in Australia and this is worth a ton.
I do expect this trust to continue falling in the short run but I do not expect it to go much lower unless they do a 1 for 1 equity issue. As the Australian economy continues to grow steadily, the trust will start to get stronger rental income and the vineyard valuations will rise again. The trust's vineyards are leased by strong wineries like Australian Vintage Ltd and Pernod Ricard, both of which rents almost 50% of the leasable land. Thus they act like anchor tenants to the trust.
I would like to write more but really, I am getting tired due to the lack of sleep over the past few days. Expecting more days like this, especially as pay day continues to be ever elusive and the bank balance continues to run low...
Ha!
Best,
SVI
Wednesday, February 17, 2010
Friday, February 12, 2010
Recovery? Jobs, Jobs and ....Jobs
Chinese New Year's Eve is here and this year I am sure the red packets are going to be a lot more generous compared to last year. In January - Feb 2009, financial markets globally were going through the largest gyrations since the Great Depression. I bet people packing their red packets cut their quantum by at least 50%. I know I did. This year, the picture will be different as markets have rebounded significantly since then. As Singapore braces itself for the most anticipated opening of Resort Worlds Singapore, plenty of closet and open gamblers rubbing their hands gleefully, all ready to wager all their new year monies and bonuses, the future looks bright for Singaporeans.
Why am I making another post before CNY? I just thought I should share a titbit with all of you, just something I read in the Wall Street Journal this morning. This is with regards to the jobs situation in the US. First let me lay it out for you.
November 1973-March 1975 - 16 months - 1.45 million jobs lost
Jan-July 1980 - 7 months - 0.97 million jobs lost
July 1981-November 1982 - 16 months - 2.84 million jobs lost
July 1990-March 1991 - 8 months - 1.58 million jobs lost
March 2001-Nov 2001 - 8 months - 2.68 million jobs lost
Dec 2007-June 2009 - 19 months - 8.42 million jobs lost
Why did I give these stats? Let me give you my 2 cents worth on these statistics. From 1980 till now we have had 6 recessions, 2 every decade. There seems to be a trend of recessions happening at the beginning of every decade. Do not worry, it is not going to happen this year as we are still having a lot of liquidity sloshing around in the system with much of the stimulus budget still not utilized. However, 2011 will be a challenge as inflation and interest rates will start to rise. This will be consistent with the past 2 decades when the recession happens in the the 2nd year of the decade. I do believe that we have come out from the last recession as it probably ended in June 2009, but I believe we have only found temporary reprieve through large stimulus spending. But I believe that the first signs of public spending coming to an end are starting to show, with the likes of Spain, Portugal and Greece looking to cut their fiscal spending to boost their sovereign balance sheets. Italy looks like a very likely candidate in the near future too. Cutting fiscal spending during a time when the economy is still on the recovery stage will lead to demand and confidence to fall and possibly push these economies back into a recession. That is why I believe that the countries like US and UK will face this problem in 2011.
Another observation from this statistic, was the number job losses in during this past recession. It is no doubt the longest recession in the last 3 decades, some historians have pointed out that this is probably the longest recession since the post war era. But never have we seen a recession that has led to a job loss number that has come even close to the 8.42 million jobs lost during 2007-2009. It is more than 3 times more than any other recession. So far the recovery has not led to any positive jobs growth and to add salt to the wound, many people have fallen out of the job market and given up on finding jobs. It is hard to fathom how long it will take before all these jobs are replaced. Many of which I believe have disappeared for good.
This number is equivalent to 6.1% of the total workforce, which is the highest since the great depression. Consumer spending accounts for 2/3 of the US economy and trust me, when 10% of your workforce is out of job, you are not going to see large spending and if you are expecting the government to make up for the slack, think again. The US government cannot afford to continue spending like this because they still have to worry about their social security and healthcare problems. The US economy will have to take a lower growth trajectory going forward, that is why PIMCO has called it "The New Normal". Without the consumer, the recovery will never be robust. The US government has to really focus on creating new jobs, I believe it will have to come from new industries like green initiatives and other innovative high value added services. This will take a long long time, that is why I believe the US has a long road to recovery and it will not be a V recovery for the US.
Funny thing is, if we added all the job losses from the previous 5 recessions, it will roughly be equal the the losses from this one last recession....that gives you a better idea of what we have just gone through and also bring investors' feet back to the ground. Why did I take time to write on this? My purpose is to remind readers and myself that the turnaround may not be as strong as what the media is painting. Sorry, but my tirade against the media continues.
Happy CNY!
SVI
Why am I making another post before CNY? I just thought I should share a titbit with all of you, just something I read in the Wall Street Journal this morning. This is with regards to the jobs situation in the US. First let me lay it out for you.
November 1973-March 1975 - 16 months - 1.45 million jobs lost
Jan-July 1980 - 7 months - 0.97 million jobs lost
July 1981-November 1982 - 16 months - 2.84 million jobs lost
July 1990-March 1991 - 8 months - 1.58 million jobs lost
March 2001-Nov 2001 - 8 months - 2.68 million jobs lost
Dec 2007-June 2009 - 19 months - 8.42 million jobs lost
Why did I give these stats? Let me give you my 2 cents worth on these statistics. From 1980 till now we have had 6 recessions, 2 every decade. There seems to be a trend of recessions happening at the beginning of every decade. Do not worry, it is not going to happen this year as we are still having a lot of liquidity sloshing around in the system with much of the stimulus budget still not utilized. However, 2011 will be a challenge as inflation and interest rates will start to rise. This will be consistent with the past 2 decades when the recession happens in the the 2nd year of the decade. I do believe that we have come out from the last recession as it probably ended in June 2009, but I believe we have only found temporary reprieve through large stimulus spending. But I believe that the first signs of public spending coming to an end are starting to show, with the likes of Spain, Portugal and Greece looking to cut their fiscal spending to boost their sovereign balance sheets. Italy looks like a very likely candidate in the near future too. Cutting fiscal spending during a time when the economy is still on the recovery stage will lead to demand and confidence to fall and possibly push these economies back into a recession. That is why I believe that the countries like US and UK will face this problem in 2011.
Another observation from this statistic, was the number job losses in during this past recession. It is no doubt the longest recession in the last 3 decades, some historians have pointed out that this is probably the longest recession since the post war era. But never have we seen a recession that has led to a job loss number that has come even close to the 8.42 million jobs lost during 2007-2009. It is more than 3 times more than any other recession. So far the recovery has not led to any positive jobs growth and to add salt to the wound, many people have fallen out of the job market and given up on finding jobs. It is hard to fathom how long it will take before all these jobs are replaced. Many of which I believe have disappeared for good.
This number is equivalent to 6.1% of the total workforce, which is the highest since the great depression. Consumer spending accounts for 2/3 of the US economy and trust me, when 10% of your workforce is out of job, you are not going to see large spending and if you are expecting the government to make up for the slack, think again. The US government cannot afford to continue spending like this because they still have to worry about their social security and healthcare problems. The US economy will have to take a lower growth trajectory going forward, that is why PIMCO has called it "The New Normal". Without the consumer, the recovery will never be robust. The US government has to really focus on creating new jobs, I believe it will have to come from new industries like green initiatives and other innovative high value added services. This will take a long long time, that is why I believe the US has a long road to recovery and it will not be a V recovery for the US.
Funny thing is, if we added all the job losses from the previous 5 recessions, it will roughly be equal the the losses from this one last recession....that gives you a better idea of what we have just gone through and also bring investors' feet back to the ground. Why did I take time to write on this? My purpose is to remind readers and myself that the turnaround may not be as strong as what the media is painting. Sorry, but my tirade against the media continues.
Happy CNY!
SVI
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