Investors should capitalize on anticipated final downward move to 1275-1300 and continue to accumulate early cyclical plays
We maintain our technical view for the STI to trend lower to 1275-1300 before reversing up. The technical rebound by US indices during the past two weeks has fizzled out. We see the Dow and S&P500 heading for 6070 and 570 respectively, before a bottom occurs. STI should begin its final down-leg to 1300 before a strong upward reversal lifts it to a 38.2% upward retracement level at 2030 in coming months. Investors should capitalize on this anticipated final downward move and continue to accumulate early cyclical plays such as basic resource, banks, real estate and technology.
While our STI 1300 view remains unchanged, the chance of it heading there is also lowered given the strength exhibited by other Asian bourses. STI 1300 will be negated if the index is able to rise above 1685. If this scenario occurs, the bottom would have occurred at 1455 on March 10th and the 38.2% upward retracement should reach 2145 in coming months. A rise in the S&P500 above the 806 level will also weaken the case for STI to go down to 1300.
...
Markets have rallied beyond the 1700 mark at this point of time, will we see STI below 1400 again? Hmm.. current sentiments seems to be turning slightly, esp with markets cheering on all sorts of news.
Top hedge fund managers still raking in the money
LONDON (CNNMoney.com) -- Despite turbulence in the financial markets and the global economic downturn, the world's 25 top-earning hedge fund managers raked in a staggering $11.6 billion last year, according to a ranking released Wednesday.
On average, the managers took home $464 million each, Alpha magazine's annual list of top hedge fund earners showed. By comparison, the average take home pay in 2007 was a whopping $892 million.
Leading the pack was James Simons of New York's Renaissance Technologies, who took home $2.5 billion in 2008. He was followed by John Paulson, who held the No. 1 spot in 2007. Paulson earned $2 billion last year.
In the No. 3 spot was John Arnold, founder of Centaurus Energy, who earned the bulk of his $1.5 billion through natural gas trading, according to Alpha. George Soros, who raked in $1.1 billion, and Raymond Dalio of Bridgewater Associates came in fourth and fifth, respectively.
Hedge funds are private investment funds that are targeted mainly at wealthy individuals and large institutions. They use a variety of investment methods, ranging from bets on currencies and mergers to traditional stockpicking.
The industry has come under scrutiny in recent years, however, for its secretive nature and for a particular strategy some funds employ known as short selling, or betting against a company.
Alpha compiles its list by measuring the share of the performance and management fees the managers receive and the gains they reap from their own investment in their funds.------
Seems that rich people are still getting richer in bad times.
With USD/YEN currently at 97.77 - 97.80 -0.51, it has been hovering near the $100 mark but still weakening as US prints more and more of the USD. I overheard this comment, saying that US is eating gold and spitting out US dollars! Something that I see at times but didn't post here is the gold spot price:
Gold Spot Price*923.85
Link: http://www.sgx.com/psv/securities/etf/ETF_Gold.shtml
In my opinion, it's really not realistic buying "paper gold". Why? It's gonna be overtraded as gold is a sacred resource, and when you remove technology and money out of our earth's equation, only real gold and butter trade stands out. Who cares about this paper gold? Commodities in our era probably has been overpriced for how many decades and eventually inflation is gonna cause another deflation of our currencies.
AIG shows 'broad failures' of system
Geithner and Bernanke say the government did not have means to deal with AIG, and more regulatory power could help prevent a similar incident in future.
WASHINGTON (CNNMoney.com) -- The officials managing the bailout of AIG, venting their own frustration about huge bonuses paid to company executives, told Congress Tuesday the government had no choice but to effectively seize control of the troubled insurer last September.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner called on Congress to reorder how companies such as AIG are regulated to prevent a similar collapse in the future.
"AIG highlights broad failures of our financial system," Geithner said. "Compensation practices encouraged risk-taking and rewarded short-term profits. ... The U.S. government does not have the legal means today to manage the orderly restructuring of a large, complex, non-bank financial institution."
Geithner, Bernanke and New York Fed President William Dudley appeared at a House Financial Services Committee hearing on the government's rescue of AIG (AIG, Fortune 500).
The officials, entertaining an onslaught of questions from angry lawmakers, called on Congress to grant regulators so-called resolution authority. That would give the government power to reorganize or wind down a non-bank company. Such powers would include selling off assets and subsidiaries, imposing limits on executive compensation and taking action on risky holdings.
They said that the government could have been better equipped to stem AIG's risky business practices before its failure threatened to bring down the financial system.
"If a federal agency had such tools on Sept. 16, that outcome would have been far preferable to the situation we find ourselves in now," Bernanke said.
Committee Chairman Barney Frank, D-Mass., agreed, arguing that the government regulates banks well but has very little regulation of non-bank financial institutions like insurance companies.
"When non-bank major financial institutions need to be put out of their misery, we need to give somebody the authority to do what the FDIC can do with banks," said Frank. "It is giving somebody a form of the bankruptcy power given under the Constitution. It allows us to avoid the choice of all or nothing -- nothing in the case of Lehman Brothers, all in the case AIG -- equally unacceptable alternatives."
Geithner will again appear before the committee on Thursday to further discuss the administration's proposals for regulatory reform.
Fed wanted to sue over AIG bonuses
Bernanke and Geithner also faced tough questions about the hundreds of millions of dollars of bonuses that went out to executives at AIG's financial products division. In testimony before the committee last week, AIG Chief Executive Edward Liddy said that Bernanke knew about the bonuses for at least three months and Geithner knew of them since the first week of March.
Bernanke acknowledged that he became concerned about AIG's bonuses "last fall," and asked that they be stopped.
Geithner initially said he first heard of the controversial bonuses from his staff on March 10. He later qualified that statement, saying he only learned of the "full scope" of the bonuses on March 10.
On Tuesday, Bernanke testified that he wanted to sue AIG to prevent the payment of millions of dollars of retention bonuses to executives from the division that brought the firm to its knees.
But Bernanke said that he was advised against filing a lawsuit, because the government would have needed to pay "substantial punitive damages" if the Fed lost the case, essentially awarding extra benefits to the executives from the troubled financial products division.
"My reaction upon becoming aware of these specific payments was that ... it was highly inappropriate to pay substantial bonuses to employees of the division that had been the primary source of AIG's collapse," Bernanke said. "[But] legal action could have [had] the perverse effect of doubling or tripling the financial benefits to the AIG-FP employees."Link: http://money.cnn.com/2009/03/24/news/economy/geithner_bernanke_hearing/index.htm?postversion=2009032411
5 Ways To Take Charge Of Our Finances
An interesting article I happen to read:
Link: http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=3339
Author : Jean Paul Wong
Are we doing the right things when it comes to managing our finances? Ask yourself five questions to know if you’re on the right track.
1. Do I have sufficient emergency funds?
Each one of us needs to make sure we have sufficient funds to meet our daily expenses. Financial advisers typically recommend that we set aside emergency funds worth at least six to twelve months of our monthly expenses. This rule of thumb varies among all of us, but the right thing to do is to have more emergency funds if we are less confident of our job security or if we have more commitments and dependents.
Monthly expenses in this case refer to the sum required to meet the daily basic necessities. The costs of food and transport will likely form a large part of these daily expenses. Besides the emergency funds to cover our daily expenses, we may have plans that require a large outlay in the next couple of years. For those who are preparing to get a home, we will have to plan for the expenses (which can be used from cash and/or CPF funds), including the deposits, stamp duties, lawyer fees, housing agent commissions (which depend on whether the home purchase is an HDB flat or not), as well as renovation – it goes without saying that all these could add up to a hefty sum.
So if getting a home is in the pipeline, set aside some money beyond your emergency funds in a financial product that is relatively safe and liquid, e.g. money market funds, fixed deposits with a shorter maturity period or shorter-term Singapore government securities (SGS) bonds. Fixed deposits and SGS bonds are seen as particularly safe; in Singapore, the government guarantees all Singapore dollar and foreign currency deposits in banks and other financial companies licensed by the MAS to 31 December 2010. SGS bonds typically have a high credit rating of AAA or Aaa, based on the ratings given by agencies such as Standard and Poor’s, Moody’s and Fitch.
2. Have I planned for my dependents?
Dependents are the people who depend on our financial income. For example, when we start working in our mid-20s, it is likely some of us give a monthly pocket money to our parents. This could be due to our Asian upbringing, where filial piety leads us to give back to our parents, or it could be due to very practical reasons such as the parents earning little, and therefore having to rely on their children’s income to meet their daily expenses.
For people who have to set aside a portion of their salaries for their parents, it is paramount that we have insurance coverage. Insurance plans which cover hospital bills, critical illness, total or permanent disability (TPD), or death, as well as income replacement plans which provide a regular stream of income if the victim is unable to work (due to an accident or an illness, other than the critical illnesses), are important.
They are must-haves in our financial plans as they will ensure a sum of money is given out to meet the medical costs (in the event of critical illness or TPD), or simply to ensure the victim’s dependents have some financial cushion to fall back on.
We must make sure our insurance plans’ sum assured is sufficient to meet our expenses and the needs of our dependents. For example, I know quite a few friends who have purchased their insurance plans after they landed their first job from friends or relatives who work in the insurance agencies. Check out the sum assured of these plans, because the coverage may no longer match your objectives now. For example, if the sum assured is S$100,000, this is likely insufficient to meet our daily expenses, not to mention the medical costs, in the event of a critical illness. In the event of death, dependents would find that $100,000 will not last very long. If we include inflation in the equation, the real value of the sum assured would decline as time goes by. This is why financial advisers often take into account the inflation rate into the amount of coverage we need.
Upping the sum assured could lead to higher premiums, if we stick to whole life policies. The other alternative to whole life insurance policies is term policies. These policies enable us to have a higher coverage for the same amount of premium paid, but they do not have a surrender value – we will receive nothing from the policies if there we terminate them or wait for them to mature, unless the insured event arises.
Typically, insurance policies which combine investments and insurance – investment-linked insurance policies – are not the greatest way to achieve our financial objectives. Killing two birds with one stone may seem like a good idea, but aiming to achieve both investment returns and insurance coverage with one product would typically mean one of the two objectives is not being fully met. The cost is likely to be less effective as, say, investing in a regular savings plan or RSP (solely for investments) and purchasing an insurance policy (for whatever objectives we have in mind, e.g. coverage for income replacement, critical illness, TPD and death).
Making sure we have the right insurance policies will ensure there is a lifeline for the victims and their dependents to ride out the difficult periods.
3. What commitments do I have?
The more financial commitments we have, the more we must ensure our financial plans are in order.
For example, for those of us who have bought a property, we must be sure that we have insurance to cover the mortgage instalments in the event that an unfortunate event occurs, e.g. inability to work because of an accident or poor health, ongoing medical treatments or death.
For parents of young children, there is a need to review your insurance plans, to make sure that there is sufficient coverage in the event that one or both parents pass away. Furthermore, it is crucial to plan for the children’s education costs as early as possible.
Endowment plans have been a rather popular option when it comes to planning for education needs. These plans require the parents to save a sum of money regularly and they will provide a sum of money by the time the child starts university. There is an additional element of insurance in the endowment plans too. However, if the parent has a long-term investment horizon and is confident he/she can stick to an investment plan, the other option is to invest into a portfolio of stocks and unit trusts, with the aim of beating the returns of endowment plans.
4. Do I invest in a disciplined way?
2008 was a lesson to many of us and it was the very first time many of us saw markets tumble so fast and so furiously in a matter of months. To describe last year as shocking would be an understatement. Portfolios tanked and despondency could have led us to lose faith in investing. But that is a mistake, especially for those of us who have an investment time horizon which is at least three years or longer.
Business cycles turn up and down. While markets currently remain mired in uncertainty, there will come a time when markets pick up. Some economists are predicting an upturn in the second half of this year, while the more cautious ones believe the recovery will only happen in 2010. However, these predictions should not stop us from sitting on the fence. Markets are forward-looking and typically move ahead of the economies.
If you have spare funds to invest, this is a good time to nibble back into the markets. A regular savings plan (RSP) would be a disciplined way of achieving that. An RSP requires us to invest, with a total disregard to whether markets are rising or tumbling or moving sideways. It requires us to be disciplined in that sense, but it also makes great financial sense. Over time, an RSP allows us to dollar cost average – meaning that the average cost of our investments actually declines, enabling us to enjoy better returns.
For example, during the last few months, an RSP would have enabled us to accumulate more units of a fund, because of declining stock or unit trust prices. When markets rise again, these additional units will make a positive difference. The same applies when markets rise. We buy lesser units – which is clearly not a good thing because we want more – but it also means we are not tempted to buy more when markets shoot up. Often, even the more rational investors fall prey to their greed and they keep buying when markets rise, even when financial measures such as the price to book ratio scream ‘sell’.
5. Do I review my financial plans?
We must review our portfolios periodically, e.g. once every six to twelve months.
For example, if we are a balanced investor (in between conservative and aggressive), our allocation between equities and bonds could be in the region of 60% in the former and 40% in the latter. What would have happened to the portfolio if that was the asset allocation at the start of 2008? Bonds – based on the performance of global sovereign bonds – outperformed equities – based on that of global equities – last year, meaning the asset allocation between equities and bonds would no longer be 60:40; it could have shifted to 50:50, as a result of the better performance from the sovereign bonds.
A 50:50 asset allocation would mean our portfolio is teetering toward a moderately conservative risk profile, rather than a balanced one. Rebalancing is the trick here as it requires us to sell our bond units and buy back equity units, so that the equity to bond asset allocation returns to 60:40.
Our research team usually recommends a different asset allocation every year, depending on the outlook for the different asset classes. For 2009, in the case of a balanced investor, the recommended equity to bond asset allocation is 70:30, because of our research team’s preference to equities, relative to bonds.
For those of us who are very conservative when it comes to investing, it doesn’t mean we should not invest altogether after the events from 2008. There are funds which are less risky, as reflected in financial measures such as the volatility data or the Sharpe ratio. Typically, bonds are less risky than equities, but even within these two asset classes, there are differences in risk characteristics too. For example, within the bonds universe, investment grade bonds are seen as less risky than the high yield ones, while the sovereign bonds from the developed markets are seen as less risky than those issued by the emerging markets.
Conclusion
It is never too early or too late to take charge of our finances. The key thing here is that all of us must plan because if our financial plans are not in order, a lot of our other plans in life could well be in jeopardy. For investments, take charge by making sure you stick to a disciplined way of investing which is devoid of emotion-driven decisions. When it comes to insurance, find a financial adviser who can give you a comparison of insurance plans from as many different insurance companies as possible. You may find that company A’s plan suits some of your needs better, e.g. income replacement, but company B’s plan may be more appropriate to cover critical illness – so don’t analyse the plans from one insurance company only. Remember to check out the fine prints, when it comes to investing or purchasing an insurance plan. For example, critical illness insurance plans typically cover only 30 types of illnesses (which vary from one company’s plan to another), and the definition for TPD is very strict.
Summary: Five ways to take charge of our finances
Sufficient emergency funds to cover our daily expenses over a period of at least six months to one year
Sufficient insurance coverage to cover unforeseen circumstances, including inability to work, critical illness, hospital bills, TPD, death
Sum assured must be sufficient to meet dependents’ needs and other financial commitments we have, e.g. mortgage instalments, children’s education plans
Have an RSP, which ensures we stick to a disciplined way of investing
Rebalance our investment portfolios every six months to one year to ensure their asset allocation is in line with our investment objectives.
Jean Paul Wong is the Head of Content at iFAST Financial Pte Ltd.
=====
Kinda insightful, esp on the disciplined way of investing. I used to go through the stage where I got freaked out when it goes down too fast too furious! Nevertheless, I hope this article brings some ideas to your investment plans in the future.
Link: http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=3339
Author : Jean Paul Wong
Are we doing the right things when it comes to managing our finances? Ask yourself five questions to know if you’re on the right track.
1. Do I have sufficient emergency funds?
Each one of us needs to make sure we have sufficient funds to meet our daily expenses. Financial advisers typically recommend that we set aside emergency funds worth at least six to twelve months of our monthly expenses. This rule of thumb varies among all of us, but the right thing to do is to have more emergency funds if we are less confident of our job security or if we have more commitments and dependents.
Monthly expenses in this case refer to the sum required to meet the daily basic necessities. The costs of food and transport will likely form a large part of these daily expenses. Besides the emergency funds to cover our daily expenses, we may have plans that require a large outlay in the next couple of years. For those who are preparing to get a home, we will have to plan for the expenses (which can be used from cash and/or CPF funds), including the deposits, stamp duties, lawyer fees, housing agent commissions (which depend on whether the home purchase is an HDB flat or not), as well as renovation – it goes without saying that all these could add up to a hefty sum.
So if getting a home is in the pipeline, set aside some money beyond your emergency funds in a financial product that is relatively safe and liquid, e.g. money market funds, fixed deposits with a shorter maturity period or shorter-term Singapore government securities (SGS) bonds. Fixed deposits and SGS bonds are seen as particularly safe; in Singapore, the government guarantees all Singapore dollar and foreign currency deposits in banks and other financial companies licensed by the MAS to 31 December 2010. SGS bonds typically have a high credit rating of AAA or Aaa, based on the ratings given by agencies such as Standard and Poor’s, Moody’s and Fitch.
2. Have I planned for my dependents?
Dependents are the people who depend on our financial income. For example, when we start working in our mid-20s, it is likely some of us give a monthly pocket money to our parents. This could be due to our Asian upbringing, where filial piety leads us to give back to our parents, or it could be due to very practical reasons such as the parents earning little, and therefore having to rely on their children’s income to meet their daily expenses.
For people who have to set aside a portion of their salaries for their parents, it is paramount that we have insurance coverage. Insurance plans which cover hospital bills, critical illness, total or permanent disability (TPD), or death, as well as income replacement plans which provide a regular stream of income if the victim is unable to work (due to an accident or an illness, other than the critical illnesses), are important.
They are must-haves in our financial plans as they will ensure a sum of money is given out to meet the medical costs (in the event of critical illness or TPD), or simply to ensure the victim’s dependents have some financial cushion to fall back on.
We must make sure our insurance plans’ sum assured is sufficient to meet our expenses and the needs of our dependents. For example, I know quite a few friends who have purchased their insurance plans after they landed their first job from friends or relatives who work in the insurance agencies. Check out the sum assured of these plans, because the coverage may no longer match your objectives now. For example, if the sum assured is S$100,000, this is likely insufficient to meet our daily expenses, not to mention the medical costs, in the event of a critical illness. In the event of death, dependents would find that $100,000 will not last very long. If we include inflation in the equation, the real value of the sum assured would decline as time goes by. This is why financial advisers often take into account the inflation rate into the amount of coverage we need.
Upping the sum assured could lead to higher premiums, if we stick to whole life policies. The other alternative to whole life insurance policies is term policies. These policies enable us to have a higher coverage for the same amount of premium paid, but they do not have a surrender value – we will receive nothing from the policies if there we terminate them or wait for them to mature, unless the insured event arises.
Typically, insurance policies which combine investments and insurance – investment-linked insurance policies – are not the greatest way to achieve our financial objectives. Killing two birds with one stone may seem like a good idea, but aiming to achieve both investment returns and insurance coverage with one product would typically mean one of the two objectives is not being fully met. The cost is likely to be less effective as, say, investing in a regular savings plan or RSP (solely for investments) and purchasing an insurance policy (for whatever objectives we have in mind, e.g. coverage for income replacement, critical illness, TPD and death).
Making sure we have the right insurance policies will ensure there is a lifeline for the victims and their dependents to ride out the difficult periods.
3. What commitments do I have?
The more financial commitments we have, the more we must ensure our financial plans are in order.
For example, for those of us who have bought a property, we must be sure that we have insurance to cover the mortgage instalments in the event that an unfortunate event occurs, e.g. inability to work because of an accident or poor health, ongoing medical treatments or death.
For parents of young children, there is a need to review your insurance plans, to make sure that there is sufficient coverage in the event that one or both parents pass away. Furthermore, it is crucial to plan for the children’s education costs as early as possible.
Endowment plans have been a rather popular option when it comes to planning for education needs. These plans require the parents to save a sum of money regularly and they will provide a sum of money by the time the child starts university. There is an additional element of insurance in the endowment plans too. However, if the parent has a long-term investment horizon and is confident he/she can stick to an investment plan, the other option is to invest into a portfolio of stocks and unit trusts, with the aim of beating the returns of endowment plans.
4. Do I invest in a disciplined way?
2008 was a lesson to many of us and it was the very first time many of us saw markets tumble so fast and so furiously in a matter of months. To describe last year as shocking would be an understatement. Portfolios tanked and despondency could have led us to lose faith in investing. But that is a mistake, especially for those of us who have an investment time horizon which is at least three years or longer.
Business cycles turn up and down. While markets currently remain mired in uncertainty, there will come a time when markets pick up. Some economists are predicting an upturn in the second half of this year, while the more cautious ones believe the recovery will only happen in 2010. However, these predictions should not stop us from sitting on the fence. Markets are forward-looking and typically move ahead of the economies.
If you have spare funds to invest, this is a good time to nibble back into the markets. A regular savings plan (RSP) would be a disciplined way of achieving that. An RSP requires us to invest, with a total disregard to whether markets are rising or tumbling or moving sideways. It requires us to be disciplined in that sense, but it also makes great financial sense. Over time, an RSP allows us to dollar cost average – meaning that the average cost of our investments actually declines, enabling us to enjoy better returns.
For example, during the last few months, an RSP would have enabled us to accumulate more units of a fund, because of declining stock or unit trust prices. When markets rise again, these additional units will make a positive difference. The same applies when markets rise. We buy lesser units – which is clearly not a good thing because we want more – but it also means we are not tempted to buy more when markets shoot up. Often, even the more rational investors fall prey to their greed and they keep buying when markets rise, even when financial measures such as the price to book ratio scream ‘sell’.
5. Do I review my financial plans?
We must review our portfolios periodically, e.g. once every six to twelve months.
For example, if we are a balanced investor (in between conservative and aggressive), our allocation between equities and bonds could be in the region of 60% in the former and 40% in the latter. What would have happened to the portfolio if that was the asset allocation at the start of 2008? Bonds – based on the performance of global sovereign bonds – outperformed equities – based on that of global equities – last year, meaning the asset allocation between equities and bonds would no longer be 60:40; it could have shifted to 50:50, as a result of the better performance from the sovereign bonds.
A 50:50 asset allocation would mean our portfolio is teetering toward a moderately conservative risk profile, rather than a balanced one. Rebalancing is the trick here as it requires us to sell our bond units and buy back equity units, so that the equity to bond asset allocation returns to 60:40.
Our research team usually recommends a different asset allocation every year, depending on the outlook for the different asset classes. For 2009, in the case of a balanced investor, the recommended equity to bond asset allocation is 70:30, because of our research team’s preference to equities, relative to bonds.
For those of us who are very conservative when it comes to investing, it doesn’t mean we should not invest altogether after the events from 2008. There are funds which are less risky, as reflected in financial measures such as the volatility data or the Sharpe ratio. Typically, bonds are less risky than equities, but even within these two asset classes, there are differences in risk characteristics too. For example, within the bonds universe, investment grade bonds are seen as less risky than the high yield ones, while the sovereign bonds from the developed markets are seen as less risky than those issued by the emerging markets.
Conclusion
It is never too early or too late to take charge of our finances. The key thing here is that all of us must plan because if our financial plans are not in order, a lot of our other plans in life could well be in jeopardy. For investments, take charge by making sure you stick to a disciplined way of investing which is devoid of emotion-driven decisions. When it comes to insurance, find a financial adviser who can give you a comparison of insurance plans from as many different insurance companies as possible. You may find that company A’s plan suits some of your needs better, e.g. income replacement, but company B’s plan may be more appropriate to cover critical illness – so don’t analyse the plans from one insurance company only. Remember to check out the fine prints, when it comes to investing or purchasing an insurance plan. For example, critical illness insurance plans typically cover only 30 types of illnesses (which vary from one company’s plan to another), and the definition for TPD is very strict.
Summary: Five ways to take charge of our finances
Sufficient emergency funds to cover our daily expenses over a period of at least six months to one year
Sufficient insurance coverage to cover unforeseen circumstances, including inability to work, critical illness, hospital bills, TPD, death
Sum assured must be sufficient to meet dependents’ needs and other financial commitments we have, e.g. mortgage instalments, children’s education plans
Have an RSP, which ensures we stick to a disciplined way of investing
Rebalance our investment portfolios every six months to one year to ensure their asset allocation is in line with our investment objectives.
Jean Paul Wong is the Head of Content at iFAST Financial Pte Ltd.
=====
Kinda insightful, esp on the disciplined way of investing. I used to go through the stage where I got freaked out when it goes down too fast too furious! Nevertheless, I hope this article brings some ideas to your investment plans in the future.
Initial market reaction to bad asset purchases appears bullish.
Treasury plan: The U.S. government said late Sunday that it will initially commit up to $100 billion to subsidize private investors' purchase of the so-called toxic assets on bank books that have led to the seizure of the credit markets.
"Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets," Treasury Secretary Tim Geithner wrote in an op-ed in the Wall Street Journal.
The aim of the public-private partnerships is to buy up at least $500 billion of bad assets, and possibly up to $1 trillion over time. Geithner will unveil details of the plan at 8:45 a.m. ET.
Peter Cardillo, chief market economist for Avalon Partners, said that futures are responding positively to the notion that the Obama administration is "being less hostile toward the private sector."
"We're headed for a nice open," said Cardillo, adding that an unexpectedly positive housing sales report could further drive the stock markets.
Economy: After the open, investors will focus on the monthly figures for existing home sales. Sales are expected to slip to an annual rate of 4.45 million for February, according to a consensus of economist opinion from Briefing.com. That would be down from the January rate of 4.49 million.
Deals: Suncor Energy (SU) agreed to buy rival Petro-Canada (PCZ) for about $14.86 billion. The deal will expand the company's oil sand reserves and create Canada's biggest energy company.
World markets: Stocks around the world rallied as investors awaited full details of Geithner's plan. Japan's Nikkei gained 3.4% while the Hang Seng in Hong Kong surged 4%. In Europe, the FTSE 100 added 1.7% in early trading. The CAC-40 in France and Germany's DAX were also both up more than 1%.
Oil and money: Oil rose 48 cents a barrel to $52.55. The dollar dipped versus the euro and the British pound, but rose against the yen.
---------
Markets have been reacting positively for the past 2 weeks. Does this mark that the bear market is coming to an end? Is the bulls coming back again? Well, noone really knows..
USD/YEN trading at 96.76 - 96.78 +1.29, edging slowly upwards. The high yen rate has probably killed alot of jap exporters and this coming months will probably be exciting as more companies will be reporting their 2008 full year results.
Deutche Bank : NY SALES REPORT - Do sucker rallies have any teeth?
An interesting article from an analyst from Deutche Bank:
This morning, it looked like times were a changing. It was Monday and equities were rallying, despite pessimistic data, so much for Monday's get me down (see chart at bottom). The Barclay's news on earnings wasencouraging but more imprtant was major credit card player, Capital One , announcing smaller write downs. The equity rally was following the 1982's pattern nicely and yet the drum beats from market pundits keep saying this is a "sucker rally." There were some policy announcements which seemed supportive as well. The usd underperformed over the morning but the question was.. how much of this weakness was stemming from the IMF /equity hopes and how from expectations of aggressive action at the 18 March FOMC meeting. Those Fed hopes seem faint to me, but the usd continues to showsign of vulnerability. Afternoon trading brought a more negative tone, with financials shares giving back their gains and equities falling more than 2 pct off their highs to turn negative, ahh just like old times.
The day
Our credit team noted that Bear Sterns was taken over one year ago, which I am sure seems like ten years ago to Bernanke. We arrived to find the usd sharply lower and the euro hovering 1.3050. We noted that the euro had soared into the Dec FOMC meetings with 3 pct type daily moves , so we were reluctant to fade the euro rally. Yet if the market was worried about the
Fed buying Treasuries for QE, it was not showing it as Treasuries struggled over the day. The euro peaked early at 1.3072 (1.85 pct) and corrected back under 1.3000 as equities wobbled and we saw some profit taking.
In commodities, copper rallied again as inventories eased and have now fallen more than 50,000 tonnes since late February. Our commodity team argue this in not real demand. The Baltic freight dropped sharply today for the 4th straight decline. Yet growth hopes were rising and the early drop in oil prices on continued OPEC production reversed as oil prices snapped back higher. Gold prices eased back in face of the better news , despite lighter IMM positions.
On the economic front, Research noted empire manufacturing survey fell to a new record lows and Industrial production continues to fall at an amazingly fast pace: total February production was down 1.4% and down 11.2% over the last 12 months. However, February weakness was overstated in that utility output was down 7.7% due to warm weather. Over the last year, motor vehicle production has declined 39%. Troubling to us was the continued weakness in business equipment spending (-1.3% February vs. -4.2% January), a large portion of which includes hi-tech production. Moreover, capacity utilization declined from a revised 71.9% in January to 70.9% in February, matching its all-time record low set in December 1982.
The manufacturing sector in Canada also struggled with capacity utilisation falling to 74.7 , the lowest level in 22 years. Yet Canadian net household worth only dropped by a record 4.4 pct in the Q4. In comparison, household net worth in the United States fell by 9.0 pct. yet here was some good news . Canadian existing home sales rose for the first time since September, as buyers took advantage of lower mortgage rates and prices. The average resale price fell 9.2 pct from a year ago.
Equities slipped back in early trading but found some support . Some of the supportive stories include: The FASB proposed allowing companies to exercise more judgment in determining if a market for an asset is active and if a transaction is "distressed." Capital One, one of the largest
issuers of credit cards, reported a better-than-expected credit performance in February. They said the annualized net charge-off rate for U.S. credit cards rose to 8.06 pct in February from 7.82 pct in January. However with a sharp decline in auto loan losses, where the charge-off rate fell to 4.44 pct in February from 6.09 pct in January, and the delinquency rate declined
to 7.52 pct from 9.18 pct. Obama spoke again today on SBA and will appear tonight with comedian Jay Leno . The.Treasury said it will invest up to $15 billion in securities backed by Small Business Administration-guaranteed loans in order to jump-start credit markets for
small firms. They also will allow small business will be allow to carry forward tax losses for 5 years instead of two years .
The improved tone of the market took its toll on risk aversion trades. European CDS fell sharply, usdmxn collapsed to 14.00 and GE stock rallied back over 10 as well. TIPS gained some ground on the better outlook and potential for inflation. The BOE gilt auction was oversubscribed and gilts weakened after the auction. Krugman was again highlighting the lack of political structure to handle the crisis in Europe. Yet Both Trichet and Merkel had positive comments on the euro today which was surprising. UK's Darling suggested it was urgent to boost the resources of the IMF and he expects agreement on this at next month's G20 summit. The positive reaction
to the IMF plans, again shows how the market is underestimate the potential of cb reserves. Russia noted today they have $43.3 billion plans for spending on anti-crisis measures and social programs in the government’s revised 2009 budget.
Afternoon trading started quietly. NAHB data for March are steady to a bit soft, with the housing market index unchanged at 9. ECB's Stark suggested they still has some room to manoeuvre in lowering interest rates, but is getting close to a low point. Stark added it was not time to take such measures, as quantitative easing. Equities slide over the afternoon as the equity market hit some short term targets. Trade tensions also raised their head again, with Mexico saying it will increase tariffs on about 90 U.S. products in retaliation for last week's decision to cancel a pilot program that allowed some Mexican trucks to transport goods within
the United States.
Other news
The slumping global economy is slowing the amount of money sent home by migrant workers in the US. Remittances sent home in Q4 slipped to $17 billion -- 2 pct less than in the same period in 2007.
Db Economics offered some explanation for the apparent stability in retail demand. We note household tax refunds from January through February are running nearly 12% above their
year earlier level. Some of this reflects more households using electronic filing; we doubt this is captured in the retail sales seasonal factors. At the same time, non withheld tax payments—not to be confused with one of our favourite economic series, employee withheld tax receipts—are down almost 15% over the January- February period compared to the same time last year.
Non withheld payments are taxes that households owe above what has been withheld from their paychecks and includes such taxable items as dividend and rental income as well as any capital gains. In order to see how much spending should be lifted, we need to look at the total change in household cash balances and compare it to prior years. We define household cash balances as the difference between cumulative refunds less cumulative non withheld tax payments. Over January and February of 2009, household cash balances are up $52 billion, an all-time record amount, compared $29 billion over the same period last year—which was a record at the time.
Conclusion
The current rally reached about 17 pct from the lows and followed the pace of the 1982 rally in the Dow. Financials ended up failing on their sixth day of the rally. I think it is worth noting that the early rebound from the technology crash in 2002, was lead by this oversold sector, but over
the medium term it underperformed. Some temp agencies are noting a levelling of temp lay-off after a 29 pct drop in demand and ironically mortgage processing demand has been strong. The steepness of the US yield survey has been typically associated with rallies in financials stocks, so
there has been some fundamental support for interest rate margins.
We have seen 7 bear market rallies since 2008 and the average has been around 17 pct, which is just above the high for today. So many technical players have been calling for a failure around 780 on the S&P, and they are now excited as we close around 750. We shall see if this sucker rally can come back and bite the bears. VIX remains very steady about 44. We should keep buying euro dips overnight ahead of the FOMC meeting and we shall see what the Fed announces. It would seem strange for me for them to announce QE, given we have news coming from Treasury on the asset plans and the IMF details in April.
David Geisker 4.20 p.m eur at 1.2967 jpy at 98 25, equities down 0.4 pct.
This morning, it looked like times were a changing. It was Monday and equities were rallying, despite pessimistic data, so much for Monday's get me down (see chart at bottom). The Barclay's news on earnings wasencouraging but more imprtant was major credit card player, Capital One , announcing smaller write downs. The equity rally was following the 1982's pattern nicely and yet the drum beats from market pundits keep saying this is a "sucker rally." There were some policy announcements which seemed supportive as well. The usd underperformed over the morning but the question was.. how much of this weakness was stemming from the IMF /equity hopes and how from expectations of aggressive action at the 18 March FOMC meeting. Those Fed hopes seem faint to me, but the usd continues to showsign of vulnerability. Afternoon trading brought a more negative tone, with financials shares giving back their gains and equities falling more than 2 pct off their highs to turn negative, ahh just like old times.
The day
Our credit team noted that Bear Sterns was taken over one year ago, which I am sure seems like ten years ago to Bernanke. We arrived to find the usd sharply lower and the euro hovering 1.3050. We noted that the euro had soared into the Dec FOMC meetings with 3 pct type daily moves , so we were reluctant to fade the euro rally. Yet if the market was worried about the
Fed buying Treasuries for QE, it was not showing it as Treasuries struggled over the day. The euro peaked early at 1.3072 (1.85 pct) and corrected back under 1.3000 as equities wobbled and we saw some profit taking.
In commodities, copper rallied again as inventories eased and have now fallen more than 50,000 tonnes since late February. Our commodity team argue this in not real demand. The Baltic freight dropped sharply today for the 4th straight decline. Yet growth hopes were rising and the early drop in oil prices on continued OPEC production reversed as oil prices snapped back higher. Gold prices eased back in face of the better news , despite lighter IMM positions.
On the economic front, Research noted empire manufacturing survey fell to a new record lows and Industrial production continues to fall at an amazingly fast pace: total February production was down 1.4% and down 11.2% over the last 12 months. However, February weakness was overstated in that utility output was down 7.7% due to warm weather. Over the last year, motor vehicle production has declined 39%. Troubling to us was the continued weakness in business equipment spending (-1.3% February vs. -4.2% January), a large portion of which includes hi-tech production. Moreover, capacity utilization declined from a revised 71.9% in January to 70.9% in February, matching its all-time record low set in December 1982.
The manufacturing sector in Canada also struggled with capacity utilisation falling to 74.7 , the lowest level in 22 years. Yet Canadian net household worth only dropped by a record 4.4 pct in the Q4. In comparison, household net worth in the United States fell by 9.0 pct. yet here was some good news . Canadian existing home sales rose for the first time since September, as buyers took advantage of lower mortgage rates and prices. The average resale price fell 9.2 pct from a year ago.
Equities slipped back in early trading but found some support . Some of the supportive stories include: The FASB proposed allowing companies to exercise more judgment in determining if a market for an asset is active and if a transaction is "distressed." Capital One, one of the largest
issuers of credit cards, reported a better-than-expected credit performance in February. They said the annualized net charge-off rate for U.S. credit cards rose to 8.06 pct in February from 7.82 pct in January. However with a sharp decline in auto loan losses, where the charge-off rate fell to 4.44 pct in February from 6.09 pct in January, and the delinquency rate declined
to 7.52 pct from 9.18 pct. Obama spoke again today on SBA and will appear tonight with comedian Jay Leno . The.Treasury said it will invest up to $15 billion in securities backed by Small Business Administration-guaranteed loans in order to jump-start credit markets for
small firms. They also will allow small business will be allow to carry forward tax losses for 5 years instead of two years .
The improved tone of the market took its toll on risk aversion trades. European CDS fell sharply, usdmxn collapsed to 14.00 and GE stock rallied back over 10 as well. TIPS gained some ground on the better outlook and potential for inflation. The BOE gilt auction was oversubscribed and gilts weakened after the auction. Krugman was again highlighting the lack of political structure to handle the crisis in Europe. Yet Both Trichet and Merkel had positive comments on the euro today which was surprising. UK's Darling suggested it was urgent to boost the resources of the IMF and he expects agreement on this at next month's G20 summit. The positive reaction
to the IMF plans, again shows how the market is underestimate the potential of cb reserves. Russia noted today they have $43.3 billion plans for spending on anti-crisis measures and social programs in the government’s revised 2009 budget.
Afternoon trading started quietly. NAHB data for March are steady to a bit soft, with the housing market index unchanged at 9. ECB's Stark suggested they still has some room to manoeuvre in lowering interest rates, but is getting close to a low point. Stark added it was not time to take such measures, as quantitative easing. Equities slide over the afternoon as the equity market hit some short term targets. Trade tensions also raised their head again, with Mexico saying it will increase tariffs on about 90 U.S. products in retaliation for last week's decision to cancel a pilot program that allowed some Mexican trucks to transport goods within
the United States.
Other news
The slumping global economy is slowing the amount of money sent home by migrant workers in the US. Remittances sent home in Q4 slipped to $17 billion -- 2 pct less than in the same period in 2007.
Db Economics offered some explanation for the apparent stability in retail demand. We note household tax refunds from January through February are running nearly 12% above their
year earlier level. Some of this reflects more households using electronic filing; we doubt this is captured in the retail sales seasonal factors. At the same time, non withheld tax payments—not to be confused with one of our favourite economic series, employee withheld tax receipts—are down almost 15% over the January- February period compared to the same time last year.
Non withheld payments are taxes that households owe above what has been withheld from their paychecks and includes such taxable items as dividend and rental income as well as any capital gains. In order to see how much spending should be lifted, we need to look at the total change in household cash balances and compare it to prior years. We define household cash balances as the difference between cumulative refunds less cumulative non withheld tax payments. Over January and February of 2009, household cash balances are up $52 billion, an all-time record amount, compared $29 billion over the same period last year—which was a record at the time.
Conclusion
The current rally reached about 17 pct from the lows and followed the pace of the 1982 rally in the Dow. Financials ended up failing on their sixth day of the rally. I think it is worth noting that the early rebound from the technology crash in 2002, was lead by this oversold sector, but over
the medium term it underperformed. Some temp agencies are noting a levelling of temp lay-off after a 29 pct drop in demand and ironically mortgage processing demand has been strong. The steepness of the US yield survey has been typically associated with rallies in financials stocks, so
there has been some fundamental support for interest rate margins.
We have seen 7 bear market rallies since 2008 and the average has been around 17 pct, which is just above the high for today. So many technical players have been calling for a failure around 780 on the S&P, and they are now excited as we close around 750. We shall see if this sucker rally can come back and bite the bears. VIX remains very steady about 44. We should keep buying euro dips overnight ahead of the FOMC meeting and we shall see what the Fed announces. It would seem strange for me for them to announce QE, given we have news coming from Treasury on the asset plans and the IMF details in April.
David Geisker 4.20 p.m eur at 1.2967 jpy at 98 25, equities down 0.4 pct.
Citigroup seeks reverse stock split
Measure expected to help offset the massive conversion of government's preferred stock into common shares.
By David Ellis, CNNMoney.com staff writer |
NEW YORK (CNNMoney.com) -- Citigroup unveiled plans Thursday to pursue a reverse stock split, and the company officially gave notice of its previously announced plans to convert the government's massive preferred share stake into common stock.
The New York City-based bank said it would authorize its board of directors to carry out the reverse split, but it requires a shareholder vote before it can take effect.
The move would help reduce the number of shares outstanding for Citi, which are expected to swell after the Treasury Department completes its conversion of part of its $45 billion stake in the company. The bank currently has a total of 5.5 billion shares outstanding.
Shares of Citigroup (C, Fortune 500), initially surged on the news, climbing nearly 23% in Thursday morning trading. But the stock lost ground as the day wore on and wound up finishing Thursday down nearly 16%.
Late last month, the government said it would convert up to $25 billion of preferred shares, matching dollars that Citigroup is able to bring in from other investors. Approximately $52.5 billion in preferred stock will be converted as part of the agreement. This could leave the government with as much as a 36% stake in the bank.
Regulators announced the move to help boost Citi's tangible common equity, a closely watched measure of a bank's ability to absorb losses. The agreement is expected to increase it from the fourth-quarter level of $29.7 billion to as much as $81 billion.
The reverse stock split would also bolster Citi's lagging stock price, which fell below $1 earlier this month and closed on Wednesday at $3.08.
Many large investors, such as mutual funds and pension funds, tend to shun stocks trading below $5 a share. Some are even prohibited from investing in stocks trading below that level.
When a company completes a reverse split, it lowers the number of total shares outstanding and the stock price rises as a result. But the value of the company is unchanged.
For example, if a company has 100 million shares outstanding and a stock price of $5 and decides to split its shares at a 1 for 5 ratio, it would then have 20 million shares that trade at a price of $25.
In a regulatory filing, Citi proposed seven different possible ratios that it could use to split the stock.
Bad bets on the U.S. housing market and a deteriorating global economy has made Citigroup one of the hardest hit companies in the ongoing financial crisis.
The government has had to step in three times to help prop up Citigroup, but has stopped short of seizing complete control of, or nationalizing, the company.
Citi is not the first financial institution that has gotten extensive government aid to consider a reverse stock split. Mortgage buyer Fannie Mae (FNM, Fortune 500), which was seized by the government last fall, announced in late November that it may undertake a reverse stock split in order to lift its ailing stock price.
Citigroup shares, which are off sharply from where they were just a year ago, have gained 63% over the past two weeks as investor fears about the underlying health of the firm have subsided.Link: http://money.cnn.com/2009/03/19/news/companies/citigroup/index.htm
Through this, Citi can actually attract fund managers to invest in the company as there is this rule where large fund managers do not consider stocks that are below $5. One thing I worry on this is, currently it is priced in the $2 - $2.6 range, last closed $2.62 and through a reverse stock split, it will probably re-consolidate its share price to about $20+ I believe. This may also attract shortists to this stock, as there is now more meat to short this counter if more bad news occur as compared to this price range at the moment.
A.I.G. Sues U.S. for Return of $306 Million in Tax Payments
Published: March 19, 2009
While the American International Group comes under fire from Congress over executive bonuses, it is quietly fighting the federal government for the return of $306 million in tax payments, some related to deals that were conducted through offshore tax havens.
A.I.G. sued the government last month in a bid to force it to return the payments, which stemmed in large part from its use of aggressive tax deals, some involving entities controlled by the company’s financial products unit in the Cayman Islands, Ireland, the Dutch Antilles and other offshore havens.
A.I.G. is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds. The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year.
The lawsuit, filed on Feb. 27 in Federal District Court in Manhattan, details, among other things, certain tax-related dealings of the financial products unit, the once high-flying division that has been singled out for its role in A.I.G.’s financial crisis last fall. Other deals involved A.I.G. offshore entities whose function centers on executive compensation and include C. V. Starr & Company, a closely held concern controlled by Maurice R. Greenberg, A.I.G.’s former chairman, and the Starr International Company, a privately held enterprise incorporated in Panama, and commonly known as SICO.
The lawsuit contends in part that the federal government owes A.I.G. nearly $62 million in foreign tax credits related to eight foreign entities, with names like Lumagrove, Laperouse and Foppingadreef, that were set up or controlled by financial products, often through a unit known as Pinestead Holdings.
United States tax law allows American companies to claim a credit for any taxes paid to a foreign government. But the I.R.S. denied A.I.G.’s refund claims in 2008, saying that it had improperly calculated the credits. The I.R.S. has identified so-called foreign tax-credit generators as an area of abuse that it is increasingly monitoring.
The remainder of A.I.G.’s claim, for $244 million, concerns net operating loss carry-backs, capital loss carry-backs, a general refund claim and claims for refunds of other tax-related payments that A.I.G. says it made to the I.R.S. but are now owed back. The claim also covers $119 million in penalties and interest that A.I.G. says it is due back from the government.
In part, A.I.G. says it overpaid its federal income taxes after a 2004 accounting scandal that caused it to restate its financial records. A.I.G. says in part that it is entitled to a refund of $33 million that SICO paid in 1997 as compensation to employees, which it now says should be characterized as a deductible expense.
A.I.G.’s lawyers in the case, at Sutherland Asbill & Brennan, referred calls to the company. Asked about the lawsuit, Mark Herr, an A.I.G. spokesman, said Thursday that “A.I.G. is taking this action to ensure that it is not required to pay more than its fair share of taxes.”
----
What an irony of life, while tax payers' money is used to bail AIG out, AIG is giving massive bonus out and biting the hand that saved them. I can understand the agony of the americans on this bonus portion, but if AIG don't do this, I wonder who will work really hard for them to turn the tables back. When it is good times, noone cares, when bad times strikes, everyone wants a piece of everything they do. Human nature at its best.
CIMB: SIN: S-Chips Sector - Credibility issues persist for S-chips
Strategy - Credibility issues persist for S-chips - by Ho Choon Seng CFA
With clouds of doubt enveloping the credibility of S-chips, especially those with net cash' positions, the managements of these companies continue to profess that cash on their balance sheets exists while giving multiple reasons for not returning the cash to investors. Disclosing the banks where the cash is purportedly kept and showing photocopies of bank statements are not enough to assuage investors' concerns.
We believe that the best proof that the cash exists is a return of capital to investors. Also, based on our checks with the managements of S-chips under coverage, only two companies have pledged shares. Despite cheap' valuations, investors are unlikely to jump into S-chips while insiders stay put, given continued credibility issues.
Full-report including
important disclosures: [ PDF ]
The latest report from CIMB on S-Shares in Singapore. S-shares in Singapore has been hit hard by this credibility issue and most of it (including my holdings in celestial) has be eroded till new time lows (lowest 0.08). To get investors' confidence in S-Shares, there's alot of work to do... as I always remember this, it takes 3 years to build up trust and reputation, but it takes 3 seconds to destroy it.
With clouds of doubt enveloping the credibility of S-chips, especially those with net cash' positions, the managements of these companies continue to profess that cash on their balance sheets exists while giving multiple reasons for not returning the cash to investors. Disclosing the banks where the cash is purportedly kept and showing photocopies of bank statements are not enough to assuage investors' concerns.
We believe that the best proof that the cash exists is a return of capital to investors. Also, based on our checks with the managements of S-chips under coverage, only two companies have pledged shares. Despite cheap' valuations, investors are unlikely to jump into S-chips while insiders stay put, given continued credibility issues.
Full-report including
important disclosures: [ PDF ]
The latest report from CIMB on S-Shares in Singapore. S-shares in Singapore has been hit hard by this credibility issue and most of it (including my holdings in celestial) has be eroded till new time lows (lowest 0.08). To get investors' confidence in S-Shares, there's alot of work to do... as I always remember this, it takes 3 years to build up trust and reputation, but it takes 3 seconds to destroy it.
End of reservist
Finally my reservist is over. While I was inside, there was alot of movement in the US market with Citigroup leading the way.
Sidetrack abit, reservist was also cut from 3 weeks to 2 weeks according to some "efficiency" improvement in my unit. I wonder if it was due to the recession instead.
Sidetrack abit, reservist was also cut from 3 weeks to 2 weeks according to some "efficiency" improvement in my unit. I wonder if it was due to the recession instead.
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