Global stocks soar on US moves to end financial crisis (20 Sep 2008)

The global stock markets soared over the past two days. Is the worst over? Has the market bottomed?

I don't think so. Q3 reporting seasons will be the real test. Worries about prolong recession will come back and froth to haunt the minds of the investors. Volatility is expected, but I believe it will be a good time to pick up stocks to position myself for the stock market recovery. In mid term of 3-5 years, recovery is defintely expected, the question is when. Going by the strong resolves of the world Central Banks to solve the problems, I would think that the market should fine a bottom sometime in Q4FY08 or Q1FY09, the latest.

Below the STI component stocks performance on 19 Sep 08. It may seem that certain stocks like banks did not surge as much, however, this is because they already have powerful reversal on 18 Sep 08.

We should take the opportunity provided by the turbulence in the financial market to invest in companies which are fundamental sounds and with high beta correlation with STI to take part in the next upswing.
























My Targeted stocks (as of 19 Sep 08):
1. SGX (Target price below $5.00; Expected returns > 100% over 3 years)
2. Capitaland (Target price below $3.50; Expected returns > 100% over 3 years)
3. UOB Kayhian (Target price below $1.00; Expected returns > 100% over 3 years)
4. Kim Eng (Target price below $1.00; Expected returns > 100% over 3 years)
5. STI ETF (Target STI below 2,000 points, Expected returns > 50% over 3 years)


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Global stocks soar on US moves to end financial crisis (20 Sep 2008)

Global stock markets Friday cheered US government moves to sooth financial turmoil and a pledge to tackle toxic debt in the US banking system at the root of the crisis.

Battered financial stocks led the markets skyward as investors hoped the worst could soon be over after US authorities unveiled late Thursday a plan to buy up illiquid assets from financial institutions in a bid to get credit flowing again.

The US Treasury, the Federal Reserve and congressional leaders pledged to work through the weekend to hammer out the bank plan as swiftly as possible.

The broad US rescue being drafted reportedly resembles the Resolution Trust Corp., established to clean up US savings and loans after huge losses for those depository institutions in the 1980s.

The United States, Britain and Switzerland banned the short selling of shares, removing one of the main speculative weapons used against financial firms in recent months to drive down their stock prices.

A US Treasury plan to insure money market funds also helped calm jitters and reduced the risk of financial meltdown.

On Wall Street, the Dow Jones Industrial Average shot up 368.75 points (3.35 percent) to close at 11,388.44.

The tech-heavy Nasdaq jumped 74.80 points (3.40 percent) to 2,273.90 and the broad Standard & Poor's 500 index powered 48.57 points (4.03 percent) higher to 1,255.08.

It was the second big rally for Wall Street in two days and came at the end of a roller-coaster week for global markets as the world economy appeared teetering on the brink of collapse.

"Wall Street appears to have turned the corner," said Fred Dickson at DA Davidson & Co.

Central banks meanwhile again poured billions of dollars into the financial system to try to unblock gridlocked credit.

Wall Street investment bank Morgan Stanley, which had complained about short sellers driving its shares lower, leapt 20.7 percent to 27.21 dollars. Some reports said talks on a merger were making progress.

Treasury Secretary Henry Paulson said Friday the massive financial rescue plan would cost hundreds of billions of dollars.

"We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem," he said.

John Ryding at RDQ Economics said "the Treasury and the Fed have finally realized the depth and systemic nature of the crisis. We believe that these actions will constitute the wider firebreak that will contain the crisis."

President George W. Bush meanwhile warned taxpayers they would bear a significant share of the cost during "a pivotal moment for America's economy.

"Problems that originated in the credit markets and first showed up in the area of subprime mortgages have spread throughout our financial system.

"There will be ample opportunity to debate the origins of this problem. Now is the time to solve it."

Dealers said that while there was concern over the cost of bailing out the US banking system, investors were relieved that the authorities were ready to spend what it takes to solve the problem.

"The combined efforts are so great ... there seems to be a coherent belief that this could actually be sufficient to draw a line under what has been a tumultuous 18 months for the markets," said CMC Markets dealer Matt Buckland.

In London, the FTSE 100 index of leading companies rose 8.84 percent to 5,311.30 points. In Paris, the CAC 40 jumped 9.27 percent, its largest one-day gain, to 4,324.87 points, and in Frankfurt, the DAX was up 5.56 percent at 6,189.53 points.

Among the banks, Switzerland's UBS, among the worst hit by the credit crunch, gained 33 percent and British bank HBOS, which was rescued by peer Lloyds TSB in a multi-billion dollar takeover Thursday was up nearly 30 percent.

In Russia, where the markets had been closed for most of the past three days after the biggest falls since the 1998 financial crisis, stocks also rebounded, helped by gains elsewhere and direct government support.

The main RTS index rose 22.39 percent and the MICEX shot up 28.69 percent.

Elsewhere in Europe, indexes gains were also substantial, with Switzerland up 6.07 percent, Italy ahead 8.55 percent and Spain up 8.71 percent.

Canada's S&P/TSX index jumped 7.03 percent.

In South America, Brazil's Ibovespa index surged 9.57 percent and Argentina's La Bolsa de Buenos Aires leapt 10.24 percent, both record gains.

In Asia, Japanese share prices advanced 3.76 percent, Hong Kong jumped 9.6 percent, Shanghai added 9.5 percent and Sydney gained 4.3 percent. — AFP

BT: Investors, companies lack common sense (13 Sep 2008)

SHOW ME THE MONEY
Investors, companies lack common sense

They tend to go on a shopping spree when prices are high, and they top up their purchase prices with bigger premiums than in less exuberant times

By TEH HOOI LING
SENIOR CORRESPONDENT

COMPARED with August last year, companies listed on the Singapore Exchange are on average 43 per cent cheaper. The median fall in price is 47 per cent.

If the stock market is a supermarket and things in the supermarket are going for half price, I bet the supermarket will be jam-packed with shoppers.

Alas, this is the stock market and it has a certain kind of perverse logic to it. There'll be buyers galore when things are expensive. But when things are dirt cheap, nobody is interested.

Perhaps you think these are the actions of foolish retail investors who don't know any better. Well, even companies behave in the same way.

They tend to go on a shopping spree when prices are high. In addition to the already high prices, they top up their purchase prices with bigger premiums than in less exuberant times.

See the accompany charts for evidence. As the dotcom bubble was growing in 1999 and early 2000, global mergers and acquisitions (M&A) deals increased steadily. Then the bubble burst, followed by the terrorists attacks in the US and then the outbreak of Severe Acute Respiratory Syndrome or Sars and then the Iraq war. Asset prices globally languished, and so did M&A deals.

That is until the market rebounded in 2004. The three subsequent years of bull market were accompanied by ever-growing numbers and value of M&As. Last year, globally 32,874 M&A deals worth a whopping US$4 trillion were in the works. That's up 15 per cent and 14 per cent respectively from 2006.

But since the sub-prime crisis in the US erupted, deal flow has also dried up significantly. So far this year, total M&A deals announced numbered 19,640, worth US$2.1 trillion. The first eight months showed that the number of deals has fallen by 16 per cent, while the total value has shrunk by an even sharper 34 per cent compared with the same period last year.

Obviously, financial assets such as stocks and shares are different from supermarket goods. They don't have any practical immediate use and people only buy them when they have spare cash. This largely explains why there are more buyers when it is a bull market. Everybody is rich! And vice versa.

Similarly for companies. In addition, companies have the option of using their shares as a currency, that is paying for their acquisitions with their shares in a bull market.

A mistake

It is commonsensical that to make money, one should buy low and sell high. But companies generally have a tendency to do the opposite. In its recent book, The Granularity of Growth, business consultant McKinsey created a database of roughly 200 global companies and tried to decompose the most important sources of growth for each company and market segment. Growth could be from market momentum, mergers or market share gains. They then identified segments that had experienced significant upturns or downturns and looked at the strategies which companies adopted during those periods.

Two sets of results stood out, the consultancy said. First, of the potential strategic moves companies that can make to grow in a downturn - divest, acquire, invest to gain share - an aggressive acquisition strategy created the most most value for shareholders. During an upturn, divestments created slightly more value than acquisitions. This fits the common-sense approach of buying low and selling high.

However, the second finding was that companies often behave in counter-productive ways. There were twice as many companies which made acquisitions during periods of economic growth than in downturns. Significantly, more divested businesses in downturns than in upturns. In other words, companies were likely to buy high and sell low rather than the other way around.

All these are understandable, noted McKinsey. As revenues slow and margins get squeezed, management naturally switches its focus to cutting costs and maintaining earnings. The company protects its balance sheet, which in practical terms means deferring growth and low-priority investments, shelving large acquisitions, and selling assets.

Many companies simply freeze: 60 per cent of those in its database made no portfolio moves at all in downturns, compared with only 40 per cent that made no moves in upturns, the consultancy found.

The best growth companies, however, take a different approach, noted McKinsey. 'They view a downturn as a time to increase their leads and make acquisitions. They pounce on opportunities it creates with an alacrity that is the stuff of legends: think of General Electric's speedy dispatch of an army of deal makers to Asia after the financial markets took a downturn in 1998.

'We are not saying companies should go on a spending spree in a downturn and tighten their belts in an upturn. Nor are we unaware that some companies simply aren't in a financial position to exploit the opportunities that downturns present. But for large numbers of healthy companies and their CEOs, we hope our research findings are a useful counterweight to the natural tendency, which is likely to harm shareholders.

'Simply put, counter-cyclical investment can separate the leaders from the also-rans. Arguments that growth is risky in a downturn overstate the case,' McKinsey said.

So in the next 12-24 months, I'll be keeping a lookout for conservative cash-rich companies which embark on sensible acquisitions.

Next week, I'll take a closer look at global M&A deals. For example, of all the deals announced in a particular year, how many actually get completed? Do we have more cash deals in down markets? And do cash deals have a higher chance of being completed? And perhaps the premiums paid for acquisitions over the years. I'm looking forward to doing the analysis!

Meanwhile, last week's article 'Who to trust? Sell-side or buy-side analysts?' struck a chord among investors in the current gloomy market. One reader said that it was a timely article and added that 'if there was a 'parallel of corporate governance code/legislation' for the analysts and company research industry, many of them would have gone to jail many times over'.

Another noted that up to now, he still cannot figure out how analysts crunched their numbers. 'The dynamics of global economy have changed dramatically,' he said. 'Earnings are a lot more volatile. Even companies with all their inside knowledge have problems forecasting their own earnings and have to resort to creative accounting and short-term strategies to ensure earnings target are met.

'So, how can an analyst, no matter how brilliant, accurately forecast earnings?

'In my view, the analyst's work is a lot of guess work. The situation is quite comical. Analysts forecast x earnings. Actual earnings came in below expectation. Analysts downgrade earnings forecast. I now read analysts report, more for amusement than insight.'

Another reader said that he used to work as a sell-side equity analyst in Singapore for many years before crossing over to asset management two-and-a-half years ago.

'I just want to point out that the performance criteria in buy-side is different from sell-side,' he said. 'On the buy-side, the value add is not how accurate the earnings forecasts are, but how the analyst helps the fund managers pick stocks.

'It doesn't matter if my EPS (earnings per share) forecasts are off by a mile if the stocks I've picked outperform. In fact, due to the greater coverage universe (60-plus stocks now compared to at most 15 when I was in sell-side), it isn't possible to be that detailed in modelling the company.

'The main function is to stay on top of the great volume of data and information and newsflow that comes through each day and synthesise this to formulate an investment view concerning the stocks in my area.

'An additional comment - many sell-side analysts also cross over to buy-side for greater job security. Securities firms worldwide are very shortsighted and have no hesitation in slashing headcount when times are bad. Very disruptive to your career.'

Thanks all for your e-mails. I think everybody enjoys a healthy, lively exchange of comments and ideas. So keep the e-mails coming! In the meantime, have a good week ahead.

The writer is a CFA charterholder.

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved

Bloomberg: Biggs Says U.S. Stocks `Close to Bottom,' May Rally (5 Sept 2008)

I have written on 2nd Aug 2008 that there are a few key metrics that can be used to gauge the health of US Economy:

1. Job losses situation (affects unemployment rate)
2. Housing Inventory (affects housing prices)
3. Consumer sentiments (affects domestic spending)

http://invest-thots.blogspot.com/2008/08/is-us-economy-bottoming-out.html

The recent data has pointed to worsening data for all the 3 above. However, over the weekend, US Government announced the takeover of the two largest mortgage giants, Fannie & Freddie in order to stablise the housing market situation. This is a positive news for the credit and housing market, as the of US Government is the deepest pocket to solve the problem.

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Biggs Says U.S. Stocks `Close to Bottom,' May Rally

By Eric Martin and Kathleen Hays

Sept. 5 (Bloomberg) -- The U.S. stock market is ``pretty close to a bottom'' and may mount a ``powerful'' rally, hedge- fund manager Barton Biggs said.

``This is not the end of the world,'' Biggs said in an interview on Bloomberg Television. ``There's a possibility out there that with oil down as much as it is, we're going to get a push in consumer spending.''

Investors should wait to buy stocks until oil retreats further from its July 11 record and central banks lower interest rates, Biggs said. Crude touched a five-month low of $105.13 a barrel today and has dropped 28 percent from its peak.

Biggs, a former Morgan Stanley strategist, now runs the hedge fund Traxis Partners LLC, which is down about 10 percent this year through Aug. 31. His March projection that the Dow Jones Industrial Average was poised to climb 1,000 points proved accurate when the measure gained more than 1,100 in the following two months.

The Standard & Poor's 500 Index has since tumbled to the lowest levels since 2005, defying Biggs's May forecast that the U.S. stock benchmark would jump to a record this year. On July 14, Biggs said it was too early to buy bank shares because the slide in home prices is reducing the value of their mortgage- related assets. The S&P 500 Financials Index has climbed 20 percent since.

Housing Market

Biggs said the housing market, mired in its worst slump since the Great Depression, may not begin to improve for another six to nine months. Foreclosures accelerated to the fastest pace in almost three decades during the second quarter, the Mortgage Bankers Association said today. Interest rates increased and home values fell during the period, prompting more Americans to walk away from houses they couldn't refinance or sell.

The U.S. government should take over Fannie Mae and Freddie Mac, Biggs said, reiterating his July position that the largest U.S. providers of mortgage financing are too important to the housing market to allow them to fail.

The stock market will rise regardless of whether Democratic presidential nominee Barack Obama or Republican candidate John McCain wins the November election, Biggs said.

Biggs's comments come three days after former colleague Stephen Roach, Morgan Stanley's Asia chairman, said the global economic slump has only just begun and the U.S. is near a ``recession trajectory.'' Biggs and Roach together led Wall Street in correctly predicting the U.S. economy was slumping into recession in 2001.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net.

Last Updated: September 5, 2008 16:24 EDT

When to sell? Should we hold a GOOD stock FOREVER??

Many books about Warren Buffett have written that his investment phillosophy is to hold a stock with good economics forever.



Vicom
Goodpack

Coca Cola

Stock market mainly sentiment driven. During market ephoria,