Showing posts with label Deborah Priya Henry. Show all posts
Showing posts with label Deborah Priya Henry. Show all posts

Friday, December 9, 2011

The Truth Is Not Pretty

THE TRUTH EMERGES October 2009 


A former minister shares eyebrow-rising inside stories from his long political career.  “In the old days, the corruption was smaller. If an Umno branch leader did not get a taxi permit, he would dissolve his branch. Now many Umno leaders are busy looking for big projects. That’s the success of the NEP (New Economic Policy),” he laughs.


By ANDREW SIA, The Star



UNLESS the name on the cover is Mahathir or Badawi, ministerial memoirs wouldn’t usually be greeted with bated breath. But the book by Tan Sri Mohamed Rahmat that was released on Oct 12 has been causing quite a stir. He was, after all, the person who controlled for more than a decade what the Malaysian public saw and heard on Government TV and radio channels as Information Minister from 1987 to 1999.


Now, aged 71 and suffering from diabetes and cancer, Tok Mat, as he is known, freely admits that his job was really as a Propaganda Minister. In his political memoirs, Umno: Akhir Sebuah Impian (Umno: The End of a Dream), he explains how his ministry’s campaigns, such as Setia (Loyalty), were actually a response to the Team A versus Team B split in Umno in 1987.


“I had to bring Malay loyalty back to Umno. And I had to raise a presumption that anybody who supported (Team B led by Tengku Razaleigh then) was not loyal. I went all out in this psychological warfare,” he writes.



“The Malays were numb to political arguments ... I needed something that penetrated the heart. I needed a song.”


So he wrote one himself: the famous Setia song with its supposedly patriotic lyrics  (“Demi negara yang tercinta”, or “For our beloved country”, goes the first line) that was broadcast for years especially via the Government’s RTM (Radio Televisyen Malaysia) stations.


Tok Mat admits in his book that he first used Information Ministry staff in 1977 on a “mission” to topple the PAS State Government of Kelantan. He reveals that later, in 1995, during the Sabah state elections, he sent 500 ministry staff members to “campaign for Umno” against PBS (Parti Bersatu Sabah, which was controlling the state government then).


“The officers went to the ground,” he explains in fluent English at a recent interview.


“They rented rooms in villages, they slept and ate like the locals, they gathered information and persuaded the people. This silent propaganda works very well.”



Since government machinery is supposed to be neutral, I ask Tok Mat if he considers what he did an abuse of power. He replies: “You could say I abused radio and TV, but it was a privilege I had. I could not depend on TV3, (The New) Straits Times, Berita Harian or Utusan Malaysia because they were then controlled by Anwar Ibrahim’s boys. I had no choice but to use RTM.


“I was asked to bring PBS down. I shut the media off, there were no reports. People didn’t know what the Sabah Government was doing, so it looked like they were doing nothing. It was a very dirty tactic,” he now admits.


Tan Sri Mohamed Rahmat is proud of the job he did as Information Minister. Tok Mat had his secondary school education at Johor Baru’s English College before doing a Bachelor of Arts at Universitas Indonesia, Jakarta. He tells me that he learnt the basics of propaganda when he was a script writer for Filem Negara (the National Film Board) in the mid 1960s. “There was no TV then, so that was the Government’s only (way to generate) propaganda,” he recalls.


He honed his innate musical ability there and picked up film editing skills too. He later went on to personally devise the melody and lyrics of various songs, including Setia, Syukur and Sejahtera Malaysia, that were used for his “nation-building” campaigns. Tok Mat has always had a fondness for oldies by Nat King Cole and Bing Crosby, and once even made it to the quarter finals of Radio Singapore’s talentime singing contest in the 1950s.


“Tan Sri can sing and he can play the piano by ear,” chips in his wife, Puan Sri Salbiah A. Hamid, who is also at the interview. “And he can write. I still keep all his love letters from when we met as teenagers,” she smiles. With these skills, Tok Mat became the chief loyalist and cheerleader for then Prime Minister Datuk Seri (now Tun) Dr Mahathir Mohamad, whose political rivals included Musa Hitam, Tengku Razaleigh and, later, Anwar.


He claims that most Umno people were hedging their bets then: “Everybody was half  leg here, half leg there, very few were working (100%) for Dr Mahathir. I was totally devoted to him.”



But then again, he has a chapter in his book that declares I Am Not a Yes Man. In it, he cites how the developers of the Second Link to Singapore, who were Dr Mahathir’s “friends”, were trying to acquire the land of villagers in his constituency at 80 sen per sq ft (psf) so they could resell it at RM17.80 psf! He claims that he spoke up despite Dr Mahathir’s anger with him, and helped the villagers secure a better deal.


When the Setia campaign was not sufficient to bring back Malay support to Umno, Tok Mat says his ministry then launched the Semarak campaign in 1988, during which Dr Mahathir had massive “meet the people” sessions.


“I told the police chief,” says Tok Mat, “I don’t want to see any police uniforms around Mahathir, because that looks like we live in a police state. Instead, I gave the policemen Setia T-shirts to wear, so it looked like he was surrounded by the public.”


Tok Mat’s promotion of Dr Mahathir – who certainly had his critics, even in those days – indirectly made him “the most hated man in Malaysia”, he says.


In his book, he even acknowledges that people called him the “barking dog of the government”: “When the people hated Dr Mahathir, I became the face of the Government for them to hurl abuse at,” he writes. But he took all this as a sign of “success” because it meant that he had managed to “penetrate people’s minds” to provoke anger: “In the art of propaganda, touching a nerve is very important,” he explains.



Tok Mat claims that a sign of Setia’s success was that he has personally heard even non-Malays singing the song. As for the Semarak campaign, he says the crowds at Dr M’s  meet-the-people sessions ranged from 30,000 up to 100,000.


Were civil servants “pressured” into attending such events?


“No,” he asserts, “nor did we provide transport or give out free T-shirts.”


His “propaganda” might have been successful, but the Government still hired a PR and advertising firm during his tenure to advise on winning popular support. Now in hindsight, he is critical of the move.


“I think I was more effective because I understand the culture better. I had 1,000  officers working on the ground giving me feedback. Even Pak Lah (former PM Tun Abdullah Ahmad Badawi) used these foreigners. But what results did these PR people get?”


Tok Mat’s detractors say one of his career missteps took place in May 1999 when many Malays were angry at Umno over the Anwar Ibrahim saga.  Tok Mat alienated non-Malay voters (who were to play a crucial role in returning Barisan Nasional to power in the general elections later that year) with his infamous remark that Anwar’s wife, Datin Seri Dr Wan Azizah Wan Ismail, was “unfit” for leadership as she had been “educated in Singapore” and had “darah cap naga” (dragon brand blood), an euphemism for Chinese blood or lineage.


“No, it wasn’t a mistake,” says Tok Mat now. “Because Anwar wanted Azizah to become Prime Minister. By the way, I am also cap naga. My mother is a Chinese (who was adopted by Malays). So I can talk. I can scold the Chinese and the Malays because I am one of them.”


Whether by coincidence or not, Tok Mat was relieved of his minister’s post in May 1999 too. However, he writes that this was because “forked tongues” whispered to Dr Mahathir that he was a secret Anwar supporter.


“What I can’t forget is the way Dr Mahathir dropped me without any hati budi (grace and gratitude),” he writes in the chapter entitled Habis Madu Sepah Dibuang (When the Sweetness is Finished, the Tasteless Part is Thrown Away).


Since then, he has become more critical of his former political master. For instance: “We know that Dr Mahathir blamed Pak Lah in all aspects even though the initial problems were caused by he himself. This is the ‘expertise’ of Dr Mahathir,” writes Tok Mat sardonically. Despite his rather caustic tone, Tok Mat says to me, “It may sound like it lah ... but I don’t hate Dr Mahathir. I’m not angry with him. I still consider him a great leader of the country.”


In fact, he leaps to Dr Mahathir’s defence when I ask him about other controversial episodes when Dr M was PM. However, he adds that money politics really became a “cancer” within Umno during Dr Mahathir’s era.


“In the old days, the corruption was smaller. If an Umno branch leader did not get a taxi permit, he would dissolve his branch. Now many Umno leaders are busy looking for big projects. That’s the success of the NEP (New Economic Policy),” he laughs.


More seriously, his book concludes, “Umno has jeopardised its image with power grabbing, money politics, bribery and excessive racism by certain leaders.... Umno must reform or I fear the End of the Dream (for the party) will really happen.”

Wednesday, October 26, 2011

Hibiscus Flowering

Hot from the desk of RHB:

 
Hibiscus announced that it has entered into a conditional share subscription agreement (proposed subscription for 76.9m new shares and 22.1m existing shares) with Lime, representing in aggregate 35% of the enlarged issued and paid up share capital for a total cash consideration of USD55m.
 
Lime Group currently owns 100% of three concessions in UAE and Oman i.e. RAK North Concession, Sharjah Concession and Block 50 Oman Concession. Based on Aker Geo valuation on the concession the current net risked recoverable resource for the three concessions is 200.7mmboe.
 
Based on prevailing dollar/boe 2P reserves for the oil majors, we derived the current average NAV/boe of US$5/boe. 2P reserves suggest higher potential of discoverable reserves as compares to the fields own by Lime Group which are still in the development and appraisal stage. We note that industry is currently factoring in 50-70% discount to the $/boe 2P reserves and thus this imply a $1.50 - $2.50/boe range for Lime Group reserves. Based on this valuation, this suggest a potential valuation of RM326m – RM544m (share price range of RM0.78 to RM1.30) for Hibiscus (35% stake in Lime Group). This presents a potential upside of 16-93% from current price level. Please refer to following for the workings:
 
Current Valuation of E&P players based on reserves    
Dollar/boe 2P reserves (oil and gas)     
       
CompanyUpstream NAV ($m)SEC Proved 1P (mmboe)Wood Mackenzie 2P reserves (mmboe)Upstream NAV/1P Reserves ($/boe)Upstream NAV/2P Reserves ($/boe) 
Exxon Mobil
          308,638
         24,853
               47,331
12.42
6.52
 
Chevron
          186,217
         10,545
               29,181
17.66
6.38
 
ConocoPhillips
            85,281
           8,310
               16,118
10.26
5.29
 
Occidental
            63,294
           3,363
                 7,693
18.82
8.23
 
Marathon
            18,226
           1,640
                 3,983
11.11
4.58
 
Hess
            21,399
           1,537
                 4,199
13.92
5.10
 
Murphy
             8,443
             456
                 1,559
18.52
5.42
 
Suncor
            34,749
           3,899
                 9,357
8.91
3.71
 
Canadian Natural
            27,541
           3,824
                 8,319
7.20
3.31
 
BP
            98,747
         18,071
               34,194
5.46
2.89
 
RD Shell
          169,204
         14,273
               37,472
11.85
4.52
 
Total
            84,347
         10,676
               21,207
7.90
3.98
 
   Average
12.00
4.99
 
* Source: Wood Mackenzie     
       
Sensitivity Analysis      
Discount to NAV/2PNAV/Net risked recoverable ($/boe)Net risked recoverable resources (mmboe)Hibiscus Stake in LimeValuation in RMmShare Price (RM/shr)Upside to current price of RM0.675
30%
3.49
200.7
35%
761.1
1.82
170%
40%
3.00
200.7
35%
652.3
1.56
131%
50%
2.50
200.7
35%
543.6
1.30
93%
60%
2.00
200.7
35%
434.9
1.04
54%
70%
1.50
200.7
35%
326.2
0.78
16%
       
*current field under development and appraisal (akin to Lime's assets) are valued at $1.50-2.50/boe by analysts.
       

  





A special purpose vehicle cannot be valued on its listing, which is why I said nothing. You ride on the management's perceived networking skill, experience and ability to deliver what they said they aim to do. There is always ample time to move into Hibiscus. Naturally, I think the management team is highly qualified.
Image Detail
Managing director Dr Kenneth Gerard Pereira has 21 years in the oil and gas industry and started off as a field engineer in Schlumberger. Independent non executive director Zainol Izzet bin Mohamed Ishak was previously CEO of Sapuracrest, and is now CEO of Perisai Petroleum. Head of Petroleum Engineering Dr Pascal Josephus Petronella Hos, and Petroleum Economist Ir Mohd Iwan Jefry Abdul Majid have held extensive positions in many oil and gas companies.


Hibiscus will acquire 35% equity stake in Lime Petroleum for US$55 million
 Lime Petroleum has 3 concessions in 2 countries in the Middle East and is expected to add, at least, another concession before the end of this year
 Hibiscus will manage Lime Petroleum Group’s operations, which allows the company significant influence in the delivery of its business objectivesthree assets in two countries, which are Oman and the UAE
Image Detail
The Middle East contains more than 50% of the world’s oil reserves and approximately 40% of the world’s gas reserves. The Middle East has a strong refining capacity of 7.9 million bbls per day (as of 2009) and a well developed oil and gas infrastructure. UAE is the third largest oil and gas liquids producer in the Middle East and the world’s fourth largest net oil exporter with a daily production of around 3.2 billion bbls per day. 


Oman is the largest non-OPEC producer in the Middle East with a daily production of around 800,000 bbls liquids and 2.4 billion cubic feet of gas in 2009. Crude oil output in Oman has increased year-on-year since 2008. Most of the oil and gas production in Oman is onshore with increasing focus on gas production in recent years, while offshore fields remain largely unexplored.


Shares and warrants are subject to SC moratorium up to the QA for management. Under their 3-year service contracts, any member of the management or non independent directors who resign or dispose of their shares can only do so at a 30% discount to the market price, and sell only to the remaining management team members. The team cannot participate in the distribution of proceeds from the QA or the liquidation of the SPAC. No directors’ fees will be paid until the QA is completed and there will be no adjustment to the remuneration package or introduction of performance
incentive schemes prior to the QA.
Image Detail
The terms of the deal appears to satisfy all of the important guidelines:
• IOR (Improved Oil Recovery) / Service Agreement 
• Proven basin
• Good data availability
• Good fiscal terms
• Political stability of country of location
• Stable Partners

From raising cash in a listed vehicle, we now have the projects, which appear to be "reasonably good". They are not in some gawd-forsaken place. They have reputable partners (including Schroders). They have management contracts which will mean direct management of the projects.


The deal can be termed as a good platform and as such should lure in fresh institutional investors. Now that the wheels are turning, the warrants, which are exercisable at 50 sen, will soon be converted and plough back into the company for further investments.
Image Detail

You still cannot value where the shares should be trading at, but certainly not at current levels now that they have a decent proposal. 

Wednesday, September 14, 2011

Shopping List

Its been more than 2 months of pathetic trading. Pick any stocks and you can find tons of reasons not to like them. But thats the way it is when share prices are depressed. The overall negative sentiment somehow will work its way into downgrading the prospects of all stocks.


If someone has 100% in cash, should they buy now. Technically I wouldn't buy on down trends. I would be more willing to pay 10% higher prices, at least I know I am buying on an uptrend. However, we should get ready our shopping list. Time line 3-6 months view.





What I Like


1) MBSB - While I still think the business model is a bit flawed, their revenue stream seems intact for now. There will come a time when NPLs will be a problem but not for a couple of years yet. Seemingly, this is the kind of stock that is shielded from all the negatives from Europe and the US. So I am happy to pick this one below RM1.50.


2) Evergreen - Too much negatives on USD prices of materials. If you had been talking to management for the past 6 months, you will find that they have raised their prices 3 times this year. The Japan demand has been sustained owing to certain natural calamities. Investors should be pleasantly surprised with their upcoming quarterly and half yearly results. Below RM1.05 is OK.




3) EAH - I spoke to management and they are well on track to doubling their net profits this year. The DDSB acquisition is a big plus. Up to RM0.32 is OK.



4) SP Setia-WB - Its back to the levels before it made its run from 40 sen to above RM1.60. Yes, there are negatives creeping in to property stocks but below RM0.50  seems a decent bet to me.





5) Benalec - I did not see them suffering major downshifts in fundamentals over the last 6 months. Below RM1.20 is OK.





6) UOA Dev - Below RM1.50 gives a lot of comfort. Very little liquidity now which may indicate minimal selling pressure.


NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Saturday, March 26, 2011

US Home Prices To Fall Still

Gary Shilling is to be respected, he has a great read on housing market in the US and has been correct for more than 20 years. If its true, basically interest rates will be kept very low for an extended period, which is good for all stocks.

[socolata-deborah+(5).jpg]

Last October, when everyone was jubilant about the housing "recovery," Gary Shilling of A. Gary Shilling & Co., predicted that house prices would fall another 20%.

In the five months since, house prices have resumed their decline.

In his most recent research note, Gary sticks by his "20%" decline prediction. We've included a summary and updated charts from his argument below.

Housing: Great Expectations vs. Reality

Last spring, many believed that not only was the housing collapse over but that a robust rebound was underway. Investors were crowding into foreclosed house sales and bidding up prices in California, often the bellwether state for new trends.

The tax credit of up to $8,000 for new homebuyers that expired in April spurred buyers and promised to kick-start housing activity nationwide. TheHomeAffordable Modification Program was trumpeted by the Administration to help 3 million to 4 million homeowners with underwater mortgages by paying lenders to reduce monthly payments to manageable size and then paying homeowners to continue to make those payments.

But then a funny—or not so funny—thing happened on the way to housing recovery...

Yes, with mortgage rates so low, houses look "cheap."



With low mortgage rates and collapsed house prices, the National Association of Realtors’ Housing Affordability Index has leaped to all-time highs.

But when you don't have a job, old measures of "affordability" no longer apply...

It’s also become clear that the NAR’s Housing Affordability Index in the earlier post-World War II years is not relevant to today’s conditions. Back then, unemployment rates were usually much lower than now and the current threats of layoffs, wage and benefit cuts and being forced into part-time jobs were almost nonexistent. Who ventures into homeownership if he doesn’t know the size of his next paycheck or even if he’ll have one?

Also, with almost a quarter of all homeowners with mortgages under water with their mortgage principals exceeding the value of their houses, many can’t sell their existing abodes even if they wanted to buy other houses.

[socolata-deborah.jpg]


Unemployment is declining, but job growth has hardly been robust

Mortgages delinquent 30 days, many of which will probably end in foreclosure, have risen lately. They peaked in the first quarter of 2009 at 3.77%, then fell to 3.31% at the end of 2009, but have since risen to 3.51%, according to Tom Lawler.

He goes on to observe that 30-day delinquencies are linked to initial claims for unemployment insurance, which fell last year but subsequently leveled off and are now rising. Also, the delinquencies are rising as weak borrowers with modified loans again miss payments. Fitch Rating believes that 65% to 75% of mortgages modified under HAMP will redefault within 12 months.

And the number of people unemployed per job opening is coming down, but it's still very high

And those who are unemployed have been unemployed for a very long time

True, there are some hopeful signs. The percent of mortgages past due has begun to fall...

And, last spring, thanks to the tax credit, sales of existing homes skyrocketed. Alas, the effect was temporary.


The revival of home sales early [last] year proved to have less follow- through after the tax credit expired in April than did the previous expiration last November.

Existing home sales subsequently fell to a new low, so the tax credits had only “borrowed” sales from future months with no lasting impact.

And since last year's happy uptick, prices have begun to fall again...

Most importantly, the number of houses for sale is still abnormally high... and house prices, like everything else, are a function of supply and demand.

As we’ve stated repeatedly in many, many past Insights, excess inventories are the mortal enemy ofhouse prices. And those excess inventories are huge.

Notice that, over time, new and existing inventories listed for sale have averaged about 2.5 million. So, we reason, that’s the normal working inventory level and anything over and above 2.5 million is excess.

At the peak of 5 million reached in October 2007, that excess was 2.5 million. It subsequently fell but with the recent jump, the total is 4.0 million, implying excess inventories of 1.5 million.

[socolata-deborah+(1).jpg]

That’s a lot considering the average annual build of 1.5 million houses. So the inventories over and above normal working levels equals one year's average demand. But wait! There’s more!

As noted earlier, as foreclosures pick up with the ending of the mortgage modification-related moratorium on lender takeovers, “shadow” inventory will become visible as many of those bereaved of their abodes join friends and family.

Furthermore, if we take the Total Housing Inventory numbers published by the Census Bureau at face value—and Tom Lawler, a very careful housing analyst concludes that it takes more than the faith of a mustard seed to do so—there are a lot ofhousing units that are likely to be listed for sale as owners give up trying to wait out the housing bust.

Recently, my wife told me of a friend who finally listed her house for sale right after Labor Day and got nary a nibble in the following three weeks. Then she was further discouraged when two other similar houses in her neighborhood were listed.

And then there's the "shadow" inventory--including the still-massive number of foreclosures.

The Administration’s HAMP initiative, introduced in April 2009, has been a huge disappointment...

But while mortgage modifications were attempted, lenders and servicers were basically forced by the government to suspend foreclosures. Now, as that program unwinds, foreclosures will again jump. Ironically, foreclosure rates have moderated recently because lenders tightened their standards in mid-2008 when housing and mortgages were in free fall. In 2009, two-thirds of all FHA- guaranteed new loans were to borrowers with credit scores over 660, up from 45% in 2008.

Nevertheless, lenders have been loosening in recent months. In January, Fannie initiated a program that allows first-time homebuyers to put down $1,000 or 1% of the purchase price, whichever is greater. In the first half of this year, credit card companies sent out 84.8 million offers to American subprime borrowers, up from 43.7 million a year earlier. In the second quarter of this year, 8% of new car oans were to borrowers with the lowest rank of credit scores, up from 6.2% in the fourth quarter of 2009.

And bank-owned houses (more future inventory)

Already, Real Estate Owned by lenders due to foreclosures—perhaps the most hated term among bankers—is climbing. Estimatesare that a major share of the 7 million houses that have delinquent mortgages or are in some stage of foreclosure, as well as those yet to come, will be dumped on the market, adding to the already huge excessive inventory glut. Some 4.5 million loans are now in foreclosure or at least 90 days delinquent.

And the folks who aren't selling because prices are still weak

Between the first quarter of 2006, the peak of house sales, and the second quarter of this year, the number ofhousing units, net of teardowns, conversions to non-housing uses and other removals, rose 5.7 million.

Of that total, 1.1 million were added to the pool of vacant units listed for rent or sale, 2.8 million were occupied by new households and so on down the list. Of the 1.3 million increase in those Held Offthe Market, the 1.1 million rise in the “Other” category is the one of interest. This component has leaped from the earlier norm of about 2.6 million to 3.7 million in the second quarter.

This rapid rise, coinciding with the collapse in housing, suggests strongly that many of these houses are indeed shadow inventory, units withheld in hopes ofhigher prices but highly likely to emerge from the woodwork sooner or later.

If we assume that half the 1.1 million increase since the housing peak in the first quarter o f2006 are shadow inventory, the total excess jumps from 1.5 million to 2 million at present, and is likely to rise further.

So, the question is, how long will it take us to absorb all that excess inventory? Some analysts think 1-2 years. Gary Shilling thinks 4-5 years. Why? First because household formation is still lower than it was during the boom

Many believe that household formation and, therefore, demand for either owned or rented housing units is closely linked to population growth. A Beazer Homes official said recently that demographics would normally produce household growth of around 1.5 million a year.

But note that those trendless series are extremely volatile, ranging from a peak of almost 2.3 million at annual rates in the current cycle to less than 500,000 recently. Household formation is similarly volatile, not surprising since a household is defined as one or more people living in a separate dwelling unit and not in jail, college, an institution or an army barracks. So household formation is affected by the lust for house appreciation, income growth, employment prospects, family size, mortgage availability and all the other factors that determine the desirability of owning or renting.

[socolata-deborah+(6).jpg]

The homeownership rate (percent of households that are homeowners) continues to decline, probably headling back to its long-term average.

Back in the salad days of 10% annual price appreciation, a homeowner and/or investor who put down 5% enjoyed a wonderful 200% return on his investment per year, neglecting taxes, interest and maintenance. But that hapless homeowner who bought at the peak lost all of his downpayment six times over as prices fell 30%.

No wonder that the homeowner rate, which spurted from its 64% norm to 69%, is now back to 66.9% in the second quarter and probably on its way back to 64%.

More people are choosing to live with their parents. As they lose their jobs and houses, many Americans are "doubling up"--moving in with friends and relatives. This further reduces demand for housing.

Of course, homeowners thrown out of their abodes by foreclosures can continue to be separate households
by renting houses and apartments, but many of those and other discouraged folks are shrinking
households—and adding to vacant housing units—by doubling up with family and friends.

The Census Bureau reports that in the last two years, multi-family households jumped 11.6% while total households rose a mere 0.6%. Those aged 25-34 living with parents—many of them “boomerang kids” who have returned home—increased by 8.4% to 5.5 million. Not surprising, 43% of those were below the poverty line of $11,161 for an individual.

And now everyone knows that house prices CAN actually fall, so they're no longer rushing to get in on the the most amazing investment ever.

Most of all, the NAR’s Housing Affordability Index is largely irrelevant today because in contrast with the earlier post-World War II years, prospective buyers know that house prices can, and do, fall.

Who wants to buy an expensive asset with a big mortgage that may be worth much less shortly? And the financial leverage created by a mortgage magnifies the risk tremendously. Someone who buys a house with 5% down sees their equity wiped out if the price falls only 5%. So the fall in house prices and mortgage rates, which have driven up the NAR’s measure of affordability, have been offset by stronger forces.

So, too, will any future increases in the affordability index in all likelihood. The Fed may embark on further purchases of mortgage securities, which could reduce mortgage rates further, but the central bank will probably only act in response to additional economic weakness that will discourage homebuyers. The further declines in house prices we foresee will make them cheaper, but also convinces prospective owners that they are even worse investments.

The rebound in house prices is also suspect and may have peaked out. Furthermore, both the previous decline and subsequent reversal probably overstate reality. Earlier, the many sales of foreclosed houses or by distressed homeowners tended to be lower-priced houses and, therefore, depressed average prices. The recent swoon in Los Angeles house prices compared with the early 1990s drop suggests this is true. Conversely, the recent rebound may be overstating reality since, as our good friend and great housing analyst Tom Lawler has noted, the homebuyer tax credit may have induced some to pay up to beat the deadline and to favor higher priced “traditional” house sales over “distressed” homes.

Tom also points out that the Case- Shiller price index for July, which showed increases in 13 of the 20 metro areas (not seasonally adjusted), was based on transactions from April to June and, therefore, included tax credit- related settlements in May and June. Also, seasonally-adjusted data reveals declines in 16 of 20 metro areas and a small 0.1% fall from June to July. Another Home Value Index compiled by Zillow reports that prices nationwide fell in July from June, the 49th consecutive monthly fall. That puts them down 24% from the May-June 2006 peak, similar to the 28% drop in the Case-Shiller index.

On a positive note, housing starts are still at a startlingly low level, which means less new inventory to absorb.

THE BOTTOM LINE: Gary Shilling thinks house prices probably have another 20% to fall.

This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%.

This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890.

We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.

Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline, but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders,whichwillfurtherdepress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.

Even prices in New York City have resumed their fall!

If house prices DO fall another 20%, a lot more homeowner equity will be wiped out. And that's not good news for banks. Or the economy. Or, for that matter, future house prices.

At that point, the remaining home equity of those with mortgages would be wiped out on average. That, in turn, would impair already-depressed consumer confidence and their willingness and ability to spend, to say nothing of residential construction.

In California, epicenter ofthe housing boom-bust, construction jobs dropped 43% from June 2006 to June of this year, compared to a 28% decline nationwide, and the unemployment rate in the Golden State jumped to 12.3% in June, far above the 9.5% rate nationally.


The essay was excerpted from the latest monthly research of Gary Shilling of A. Gary Shilling & Co.

Tuesday, February 8, 2011

Rants About My People

In the news, people would free 1,188 fishes for good luck and prosperity ... I guess the same goes when people do it by freeing birds - Well, don't fucking catch the fishes and birds in the first place if you really want to do good!!! Its the same argument for not eating shark fin, if you don't eat, they won't catch them. Well, if you don't FREE them, there won't be people there to catch them in the first place.

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When some people go for vegetarian food, the whole shebang tries to taste like real meat??? If you really like the taste of meat, go and eat meat la! If you are truly vegetarian, then eat things that taste like veggies. Its like you have sworn off sexual intercourse for religious reasons, but still want to look at porn.

In Singapore, there is this stupid thing where you can "chope-seats" by placing a packet of tissue. "Chope" as in saving a seat. You go to any food court, the entire place is filled with tissue packs on seats, I mean how do they know which tissue pack belongs to them? How to argue that that Kleenex extra soft packet belongs to you??? You want to save a seat, get somebody to sit down and say the other seats are taken, but noooo ... all you see are empty tables but filled with tissue packs. Chope-my-ass.

Whats our local driving mindset? Are we Hannibal Lecters driving in disguise? We see somebody crossing the road, we speed up, why... why do you want to scare the shit out of the pedestrians, they could be your mum, your friends' relatives you know ... All cars come with indicator lights, is it soooo fucking hard to push left-right indicator when you are turning??? You help others to navigate better, so they may slow down, or turn without having to wait for your car to pass them. What kind of "heart" you have when you do these little things. We cannot blame it on cultural reasons as an excuse, it speaks volumes about your small mindedness and flawed character - the "cannot lose, tidak apa, fuck them, fuck you, no need la, their problem ... attitude".

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I absolutely abhor people who treat their maids/helpers badly. Why aren't we glad or feel fortunate that we are not in their shoes. I have seen a whole family sitting down for dinner and the maids have to be left standing ... wtf??? I am not even talking about mistreatment by way of hurting them physically. ..... Then there are those who have their maids at the same dinner table, but they only get to eat crap and not what the rest are having, why you so like dat? In case you forgot, everyone is a fellow human being with the same unalienable rights to their integrity. Your pathetic acts does not demean them so much as they reflect what an utter load of crap of character you have - I pity your children. They will learn that they can treat some other people with disdain rather than with respect and a generosity of spirit. ...... Be thankful that you have someone helping you in your household chores, they are family, they have to abandon their friends, families, husband, wife and children ... so that you can have a fucking easier life. We have no right to make their hard lives any harder.

Every year at around the same time, it floods in certain places, yes this year is a bit worse in some areas ... but if it happens every fucking year at around the same time, why aren't we better prepared, why are we still running around like a chicken without its head searching for simple resources to alleviate the situation?

We Malaysians are not among the best paid in Asian societies, and yet we probably have the highest ownership of cars per capita. Needless to say, Malaysia is the first or second most expensive place on earth to buy cars as well, Malaysia Boleh! ......... What that means is we shove a huge chunk of our not so high pay to "subsidise" you know what. That means we take out a huge portion of our disposable income for "dead activities", you might as well lump it as tax because its the same. At least taxes pays for certain services, I don't know what the "extra sum" we pay for cars go to??? ...... We should not say how low our fucking fuel prices are compared to the rest, we have to add how much more we are paying for the same cars, average that over the life of a car, and you add that to our fuel bill, and you will find we ARE PROBABLY WORSE OFF. And we are asked to suffer together by removal of subsidies in certain goods .... I don't mind, but get rid of the fucking excise/import duties, protectionist measures of a failed industry thats not worth protecting in the first place. ... I think its Ok to protect some strategic industries when we are nurturing them, 5 or 10 years seem fine, but its 25 years and obviously we cannot compete / do not have the scale / technological prowess / execution or marketing sense / the right people for the job ... stop this billions of ringgit wastage every year ... we all don't want to puke any more everytime we go overseas and see the same local cars selling for 40%-50% cheaper than the home-made product at HOME.

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