101 Bill Passed!

A nervous week it is. Finally, the US House passed the 101 bill. But not before going through a volatile,nervous and bloody week in Wall St. and global equity market. But thank goodness, the threat of Great Depression 1929 is averted. So this is historic. However market slides more than 135 points and credit spread remains tight. I think this is temporary short term reaction to the package. In the long term, $700 billion will be utilized to sweep of the "toxic mortgage" from the bank's balance sheet. This enable banks to lend again to prevent credit crunch. This is because US has been hit by "Economic Pearl Harbour" in the words of Buffet. The package will reduce the systemic threat of bank runs. In the mean time, Wachovia betrayed Citigroup to accept Well Fargo bid. Citigroup is taking legal action on this prized acquisition. Wachovia has $800 billion in deposits and 11,000 branch networks across in US. Citigroup needs Wachovia as part of his long term recovery after losing $18 billion in 3 quarters due to sub prime mortage crisis. After initial positive reaction to the acquisition, Citigroup share prices got battered 18% last night. Meanwhile, I read on NST that British whites are migrating out of their country in droves. Favourite destinations are Australia, NZ, Canada and US. Reasons given are high crime and bad weather. It looks like Chinese Malaysians are not alone in this global migration. The migration of Malaysian Chinese is widespread and across the board. The irony is some are migrating to UK when the Whites are leaving lock stock and barrel to Down Under. I bet the Aussies would be more than happy to welcome their white brothers. To the prisoners of mother england (POMEs), poetic justiec done. However, they share the same reason for leaving:- high crime. The only difference is in UK, it is the white English while in Malaysia it is the Chinese minority that migrates. As more Chinese migrate overseas, the future population ratio drops. It is a real pity as they are the most productive citizens. The long term impact is an outflow of more funds and skills to these lucky countries. This is globalization!

D-Day!

The world holds its breath as it nervously waits for tonight's outcome of the crucial vote in the US House of Representative. The outcome is unpredictable despite modified version to appease the rebels. But it is of great importance not only to US economy and financial system well being but the world as well. We are on the verge of Great Depression 1929-1932 if these Congressmen voted against this bill. We might not avert a recessionn even with the passing of the vote but I believe the worst is over after so many false starts. I know it is a "dirty job" rewarding corporate failures and irresponsible risk taking but at stake are jobs, welfare of the poor and savings of millions of not only Americans but world citizens. The systemic risk is real. The contagion impact might take a long time to heal. Already the US economic numbers are poor. US unemployment claims increased to 100,000, the highest since 2001 and factory order drops to its lowest level in 2 years. This couple with a severe credit crunch and multiple bank failures is a dangerous cocktail waiting to explode. In addition, October is a bogey month in US. So do the right thing, Uncle Sam! Just like Buffet purchase on GE, I decided to place my bet on the approval by the House by adding another 100 stocks of British Lloyds Bank@ $18.50. I found the valuation very attractive according to the principles underline by Graham's value investment, ceteris paribus. At the price of $18.50, based on current EPS of $2.90 and DPS of $2.80, I am getting the British Big 4 bank for PE 6.37x and DY of 15.13%. The Beta is 1.36 and ROE 28%. Among the British Big 4, Lloyds bank has the least exposure to sub prime mortgage crisis. I believed the figures provide a comfortable cushion for me to work on.

US Senate Approval

The US Senate approved the $700 billion bailout package to stabilize the US financial system after it was rejected by the House on Monday. I really don't see much controversy to the taxpayers. Its not that they are really going to foot the bill. What you will see is the printing of another $700 billion new Uncle Sam bills to clean the US bank's balance sheet. I can't see disadvantages to the poor and unemployed. On the contrary, it is they who is vulnerable than to super duper rich billionaires. The cash infusion is important as it stabilize the financial system, eliminate credit crunch, protect savings and investment and create jobs. In Zimbabwe, it was reported in NST, the government has imposed a cap on the cash withdrawal on its citizens. Under the new law, depositors can only withdraw equivalent to RM 120 per month. This is to prevent outflow of money from the banking system. Gosh! Can this ever happen in Malaysia? I hope we won't fall into that level. Recently, the new MOF Najib, "PM in waiting" discussed with his advisers on the feasibility of imposing capital control and repegging of the RM. This is a response to Dr M's suggestion. Although it was unanimously rejected, the thought of it has cause another damange in Malaysia's reputation. We had once in 1998 till 2005. Now that's a possibility. We never recover from that day onwards. The outflow of funds is of great concern. Recent report by HLG Securities estimated that RM 195 billion has flowed out of the country in the first six months of this year compared to RM 90 billion for the whole of 2007. UNCTAD reported negative flow of foreign money into Malaysia, which is the first since 1957! The RM has depreciated from RM 3.2 in May to RM 3.5, a 10% drop in less than 6 months. I am not aware of major foreign investment into Malaysia of late. Our stock market is in a deep state of coma for 90% of the companies. Out political impasse and uncertainty adds to the risk premium of doing business in Malaysia. With all these in mind, nobody seems to be in a festive mood. The EPL looks more interesting news. Spurs are languishing at the bottom, the worse start in 53 years as reported. Ramos is under siege after off loading Berba to Man Utd for 30 million pounds. After so much promise at the end of last season, the enthusiasm is gone. That makes Spurs hot favourite to be relegated to the 1st Division. Tough luck. The Red Devils are still struggling despite a lucky 2-0 victory over Bolton on a dubious Ronaldo's penalty.

A Wet Wet Wet Raya

Today is a wet Raya in Malaysia. 2 days of consecutive rain has submerged some parts in Kedah and Penang. The weather is cold and gloomy. I don't observe much of a festive mood in my place Kulim. There were a few fire crackers yesterday and that's it. Wow, it seems that the Malays and Indians have caught on to the firecracker rituals, which was supposed to be a Chinese thing to do on Chinese New Year. I performed my 50th. dana of the year to the Sangha at the Lunas Hermitage Centre in the morning. There is a large crowd due to the extended holidays. The US financial crisis abated following a plan for another vote in US Congress this Thursday after the $700 billion bailout plan was killed on Monday, sending the market down 777 points. However, the market is taking a bet that it will be passed this time. Bargain hunters, speculators and short covering activities sent the market higher by 485 points. In 2 days, the market has moved within a band of 1262 points. This is the volatility scale we are talking about today. Citigroup bought Wachovia for $2.9 billion on stocks. At the same time, it slashed its dividend by another 50%. Ouch...that hits me hard as a shareholder. It used to be $2.14 dividend per share at the start of the sub prime mortgage crisis last year. Now its left to a measely $0.64 per share for the shareholder. I have to chuck away the gordon dividend model to value my stocks this year. The financial markets has gone haywire. In Singapore, JB Jeyeretnam, the legendary opposition leader of the PAP, passed away at 82 due to heart failure. Despite being sued to bankruptcy by the PAP leaders like Lee Kuan Yew and Goh Chok Tong, he was defiant till the end. His ideals undiminished. He is the epitome of the statement "Give Me Liberty of Give Me Death". A great Singaporean son. On the Malaysian shores, RPK, the Malaysian "James Dean" spend the Raya at Kamunting under the draconian and hated ISA. When the British left, we enthusiastically rid ourselves everything that sounds British. Even the name of the road. Ironically, we retain the ISA. If we are talking about substance and good governance, abolish the barbaric law of ISA. Free the 68 political prisoners.