Thursday, 28 February 2013

Down a little; Up a little

4th Quarter GDP was revised up today from a dismal -0.1 percent to a dismal +0.1 percent, confirming the stagnation character of the American economy.  All the fine rhetoric from the White House and its chorus of apologists cannot hide the fact that US economy is stuck in the mud.

This should come as no surprise of course.  Why should anyone expand their business or take on new employees in this environment?  Heaven forbid that anyone should make a profit or try to get rich.  That's the new sin.

So, what is left is stagnation.  An economy that rewards people for not working and punishes those who wish to employ capital is an economy that is going nowhere. 

Obama has managed to accomplish what few thought possible.  He has shut down the mighty American economic engine.

Saturday, 23 February 2013

New Fund: CIMB-Principal Enhanced Opportunity Bond Fund


They say that the only constant in life is 'change'. Well, not always. Hopefully, with this new fund, you will find comfort in its stability. Furthermore, it aims to provide more returns than the current Fixed Deposit rate, and is more stable than equities. Riding on the growth of the Asian countries, investors have the opportunity to diversity their portfolio and increase the returns. This fund is only available until 4 April 2013 !


What is CIMB-Principal Enhanced Opportunity Bond Fund?
It is a close-ended fund that aims to provide investors with total return through investments in a portfolio of debt securities primarily in bonds. The fund seeks to achieve its overall objective by providing total returns consisting of a combination of interest income and capital appreciation


Investment Strategy

Under general market conditions, between 70% to 99% (both inclusive) of the Fund’s net asset value (“NAV”) will be invested in non-ringgit debt securities primarily in bonds (including convertible bonds). Of the 99%, up to 40% of its NAV may be invested in unrated securities and high yield securities respectively while the remainder will be invested in investment grade securities. These investment grade securities are issued or backed by governments, government agencies, supranational organizations, corporate or other issuers. At least 1% of the Fund’s NAV will be maintained in the form of liquid assets such as bank deposits for liquidity purpose.

However, in the event of limited non-ringgit debt securities, the fund manager will have the discretion to invest in the ringgit debt securities primarily in bonds with yield at the prevailing market condition, if the fund manager is of the opinion that by doing so is in the best interest of the Fund.


While the Manager intends to adopt a buy-and-hold strategy for the Fund whereby the securities purchased will be held for the tenure of the Fund or to maturity of the securities,
the Manager reserves the right to deal with the securities in the best interest of the Unit holders in the event of a credit rating downgrade.




The Fund is suitable for investors who have three (3) years investment goals and are not planning to have access to their money in the next three (3) years. It is also suitable for investors who are seeking exposure to investment opportunities in debt securities.




Source: Fund prospectus

Friday, 22 February 2013

The "Delay" Tax

Everyone knows, except Obama, that the entitlements are $70 trillion in the hole from an actuarial point of view.  This means that, in finite time, they will run out of money.

So that, it is very, very clear that future generations will get nothing at all from social security and medicare regardless of the amount that they pay in. Unless something is done.

This we know (except for Obama, of course, who seems to know nothing).

All of this means that sooner or later, social security and medicare will be fixed.  Running out of money is a fix. That does solve the problem.

A simple solution is to move out the age of eligibility for medicare (and index it).  Do the same for social security.  Means test both programs.  Raise medicaid eligibility requirements.  Doing these things would mean that social security and medicare will never run out of money.

So, a simple fix, can make things work.  If we do it now.  Delay means that when you do act, the actions must be much, more draconian.  By postponing action, even for only a single year, the size of the cuts and the postponement of eligibility must be far greater than what would be necessary if we acted today.

This is the Obama "delay" tax.  The longer you postpone dealing with the problem, the worse is the plight of future seniors.  Either Obama doesn't know this (which is probable, because he isn't very focused on real issues) or he knows it and simply doesn't care.

Thursday, 21 February 2013

Why TUNE INSURANCE is Out of Tune?


Every wonder why we didn't cover the IPO for Tune Ins ? Other than CNY mood, it's because of the unexciting part of this new stock. Why? Please read on...


Tune Ins Holdings Sdn Bhd (TIH) operates 2 core businesses. First, it provides online insurance where insurance products are sold as part of the customer’s online booking process with their partners namely AirAsia, Tune Hotels and AirAsia Expedia. TIH also operates a general insurance business, through 83.26% owned subsidiary - TIMB.



Why invest in Tune Insurance Holdings?

  1. Wide and cost effective distribution channels
  2. Provide ease in buying coverage
  3. Exclusive partnership with AirAsia
  4. Ability to ride on AirAsia’s robust growth
  5. Additional revenue and cost synergies from TIMB
  6. Robust industry prospects


However, some of the above investing reasons had also became the disadvantages of TIH. It's reliant on AirAsia business is too important. TIH's success is very much depends on the success of AirAsia businesses, and because of its relationship with AirAsia, TIH would face difficulties in forging a partnership with other airline.


Meanwhile, for TIH domestic general insurance, stiff competition and the implementation of tighter capital requirement for insurance companies may affect its operations. It's in the industry where size does matter. I don't think TIH can cross-sell it's online clients easily on other general insurance, such as fire and car insurance.


Forecast and Valuation given by TA Securities Research
Going forward, we believe TIH’s gross earned premiums will be closely linked to increase in passengers carried on AirAsia. We estimate AirAsia’s passengers carried to increase at an encouraging pace of around 15% per annum. Tagging a 20% to industry’s targeted PER of 10x, we fairly value TIH at RM1.00.


Fair Value RM 1.00 ???
Hey dude, the IPO price is RM1.35 !!!

Monday, 18 February 2013

Joe Stiglitz and Inequality

Joe Stiglitz has penned an interesting article on the growing inequality of measured income in the United States.  The facts that he uses, of course, are subject to the usual limitations.  If you ignore everything the government does and all employee benefits, then you get one answer.  If you include government spending and employee benefits you get an entirely different answer.  But, lay that aside for the moment, because, I think, Stiglitz is on to something.  There is growing inequality of opportunity in America, but not for the reasons Stiglitz is implying.

It is no wonder that wealthy liberals are at the forefront of the call for reduced inequality.  They know that their policies will solidify their exalted status in society. They are not at risk.

The simplest example can be read in today's editorial in the NY Times in support of raising the national minimum wage from $ 7.25 per hour to $ 9.00 per hour.  That kind of policy won't hurt the liberal elite, protected with incomes far, far above these numbers.  This kind of policy -- outlawing jobs for folks with limited skills -- only hurts those who might have trouble affording a copy of the NY Times, not those writing their editorials.

Minimum wage laws are one of the many reasons that inequality is growing in the United States.  Entitlement programs, welfare programs and the takeover of public schools by teacher unions are other reasons for the growing inequality.  I doubt that many of the editorial writers for the NY Times send their own children to public schools or need access to welfare programs of entitlement programs, so, by all means, make them available to others.

Providing government largesse for those less fortunate inevitably increases the number of those less fortunate.  Outlawing jobs for those with limited skills is cruel and makes things far worse.  Stiglitz is right.  Inequality is growing.  But the reason is that government is growing.  Growing government puts lower income citizens in the penalty box and makes it difficult for them to ever escape.  That is what causes growing inequality.

It is interesting that Stiglitz thinks America was much more a land of opportunity one hundred years ago.  That was a time that predated minimum wage laws, teachers unions, social security, medicare, medicaid and welfare programs.  That was a time when a real land of opportunity existed because government played a much more limited role.

Wednesday, 13 February 2013

Round Two

The President enjoys a good fight.  The only question is will there be an opponent.  Reality, of course, is one major opponent.  But, the Presidents seems adept at ignoring reality. 

The State of the Union speech last night was the Hugo Chavez plan for the US -- more body slams to the private sector, more money to be wasted on government and government's pals.  As for the poor, raise the minimum wage.  One wonders why Obama did not advocate a $ 100 per hour minimum wage.  Using his logic, that should solve the problem of poverty in one grand stroke.

As for the hopes of the unemployed and underemployed, forget it.  This President is not bothered by slack economic growth and growing numbers of folks disappearing from the work force.  Just expand medicaid and food stamps.  That should do it.

As for the national debt.  Hey!  That's one area where we lead the world.  Let's maintain that lead!

Meanwhile, the war on capitalism continues unabated.  Tax rich people!!  That seems to be the main mantra of this White House.

So, what's the future.  It isn't good.

Sunday, 10 February 2013

The Snow Storm Disaster

As three feet of snow blanket Boston, the Administration tries to push their "climate change" agenda, as if anything of substance could result from that.  There is no scientific evidence that weather patterns are changing materially, but that doesn't keep the Obama folks from pointing to every weather-related problem as more evidence of climate change.

One wonders why the infrastructure in America is not built up to withstand these storms and help the public resist them.  The answer?  There is no money left.  The liberal agenda, mainly the entitlements, have not only taken top priority, but will eventually absorb more than any possible tax revenues could ever provide.

One of the many downsides of the entitlement world is much, much slower economic growth.  Entitlements destroy private savings, reduce and eliminate work incentives, and make personal responsibility a remnant of antiquity.  A record number of Americans now live off of social security disability payments and that trend is only in its infancy.

Once the government promises to care for our every need, it loses the ability to provide basic services -- such as protection from natural disasters.  Why was there no protective flood wall in New Orleans to protect its citizens from Katrina?  Why?  Because the money that should have been available was drained off for entitlements and social services.  Why aren't there widespread use of generators in the Northeast so that citizens don't have to huddle without power for days in subzero weather?  Why?  Because who can afford generators with public service costs, including health care, spiraling out of control.  Government services aren't cheap.  Check out the post office.

Today, the government increasingly determines the priorities of what goods and services will be provided to the American public.  Infrastructure, generally, is a loser.  Gradually, but certainly, the historic role of government to provides roads, courts and national defense will wither away.  It is no accident that sequestration strikes hardest at the defense department.  In time, America will lose the ability to defend itself militarily.  That seems to be Obama's plan.

So, don't be surprised if, increasingly, Americans are buffeted by natural disasters that they are unprepared for, foreign wars that they are unprepared for, and infrastructure that is simply corroding away as more and more Americans become wards of the state.

Sunday, 3 February 2013

The Old & New Palm Oil Growers Scheme

Both schemes have been categorized as "share-farming" interest scheme by Securities Commission of Malaysia, yet, both were in the limelight lately due to their contradict directions. The old one (Country Heights Growers Scheme) is wooing investors to terminate it, while the new one (Golden Agro Growers Scheme) is wooing investors to invest.


Why CHGS was in HOT water?
CHGS was the 1st oil palm plantation investment scheme in Malaysia. Launched in 2007, it guaranteed a 8% return annually for first 3 years, and subsequently it is projected to distribute the returns of over 11% per year throughout a period of 20 years. However, voluntary early termination of the scheme was proposed recently, citing that CHGS was unable to reach its full potential because of poor fresh fruit bunches (FFB) yield. Various factors were given such as unpredictable weather conditions, incursions of wild elephants into the estate, poor soil fertility, shortage of key personnel and manual workers, and uncompromising terrain.


How Good is GAGS?
On the other hand, the new GAGS guaranteed 7% return yearly for first 5 years. Subsequently, investors will enjoy 100% of the net profit of the plantation until 20 years maturity. Investors were told that margins associated with the palm oil industry have always been good traditionally. So, in the event of falling CPO prices, it still can make money if the estate was managed well and efficiently. A mill was also planned to be set up in 4 to 5 years to avoid uncertainties of refusal by external millers.


Are they related?
Although Finance Malaysia opines that both schemes were not related, but the timing of it is somewhat makes us curious. Is it really so coincidence? It was like giving the existing investors of CHGS the chance to switch over their investments to GAGS. Both schemes are very much similar, but with different people managing them which is the key determining factors for its success or failure. Anyway, Finance Malaysia doubt the success of the new GAGS which don't have proven track record and was planted in Sarawak where peat soil may increase the cost of planting. The problems faced by CHGS may reoccurred on GAGS in the future. Estate management plays an important part in such scheme.