Systemic Failure Rates & Suicidal Coincidences

Some call it error rate. Nothing is 100%. The chart below from Paul Kedrosky's site was highly illuminating and sardonically funny as well. There is a 1 in 9 occurrence of medical prescription error, now thats worrying. Vasectomy failure rate at 1 in 150, hmmm.

When you look at the media-frenzied Firestone tyres recall, the actual failure rate wasn't that scary, just 1 in 5,000 - see what the media hype can do, scare the juices out of you. What's comforting is that flying commercial airlines will only kill you once every 4.5 million flight you take. Technically that is striking the RM1m lottery. Do you feel lucky?

The second part of the heading has to do with suicidal coincidences, how often do you ever get to hear that two words together? This again shows that truth is stranger than fiction. A broken-hearted young man decided to throw himself off a bridge in Russia. He climbed up a tall one and spotted a young woman doing the same thing. They climbed down together. Now Andriej Ivanov, 26, is due to marry Maria Petrova, 21.

Saved each other ... Andriej Ivanov and Maria Petrova

Devastated Andriej Ivanov, 26, wanted to end it all when his fiancée died in a car crash the day before they were due to get married. But when he arrived at the bridge — in Ufa, central Russia — he found Maria Petrova climbing over the railings.

Maria, 21, had been thrown out by her parents for falling pregnant and was seconds from throwing herself more than 100ft into the icy Belaya River when Andriej rescued her.

He said: "Something in my heart snapped and I couldn't let her do it no matter how broken my own heart was.

"I shouted, 'Stop' and ran over to her. She fell into my arms sobbing and I began crying too.

"We held each other and talked, and talked and talked. That night saved my life - and hers."

The couple talked into the night and agreed to help each other mend their broken hearts. Now they plan to get married after telling their families about how they met.

Maria said: "He is my knight and my saviour. All that pain was worthwhile because it led me to my Andriej."

Unbelievable, and I am very sure we will see this being made into a movie (may I suggest Robert Downey Jr and Lindsay Lohan as the leads).

Read More

BP Gets A Lifeline

As expected, once the amount is ascertained, the removal of uncertainty will certainly boost the share price. This will pave the way for the company to be sold off. There is not much chance BP can survive or realise its potential under the banner of BP. The reserves will not get their proper valuation and institutional shareholders are likely to put pressure for the company to be sold to someone to extract value.

It is likely to be highly attractive to Petrochina, just the reserves alone. Petrochina is also possibly the only one willing to pay a premium. Any takeover is likely to be circa $45.

Dealbook: Shares in BP made up part of their recent losses Thursday as investors welcomed a deal struck with President Obama to set up a compensation fund for the victims of the oil spill in the Gulf of Mexico. The shares gained as much as 9.7 percent in early London trading. They had fallen 45 percent since an oil rig exploded in April, Julia Werdigier reports in The New York Times.

Some investors said the agreement with the United States eliminates some of the uncertainty about the costs for the oil spill cleanup and compensation, even though BP scrapped dividend payments as part of the deal.

“It’s a positive because there were no surprises in the deal, the dividend had been well communicated beforehand and at least in the near-term the agreement gives investors a little bit more certainty and something to work with,” said Keith Bowman, an analyst at the asset manager Hargreaves Lansdown in England.

The cost of insuring BP against default also fell and its bonds rose, a sign that fewer investors are speculating that BP might go bankrupt. The BP chief executive Tony Hayward is due to testify before Congress Thursday, but the agreement with President Obama, struck at the White House Wednesday, was widely seen as a step to calm tensions between BP executives and Washington about the company’s efforts to clean up the spill.

BP agreed to create a $20 billion fund to pay damage claims to thousands of fishermen and others living and working along the Gulf Coast. The company also said that it would sell oil and gas fields and cut investments in drilling if necessary to ensure BP had enough money to pay for any costs.

Some shareholders in Britain had previously opposed plans to halt dividend payments, which are among the most generous of any British company, as a result of U.S. pressure. BP stock is also widely held in pension funds across the country and it would be the first time since World War II that BP was not paying a dividend. But the political opposition in the United States to paying dividends to shareholders while the total cleanup cost and damage claims remain unknown started to weigh on BP’s share price.

“Hopefully the deal will remove just a little bit of pressure and allow BP to fully concentrate on the oil spill,” Mr. Bowman said.

Read More

Can Start Looking At LNGRES

Was not going to look at stocks specific during the World Cup but sometimes things are happening that will cause you to change your mind. No, the stock is not in liquid natural gas.



The principal activities of the Company are investment holding and provision of management services. The principal activities of its subsidiaries are design and manufacture of high precision moulds, tools and dies. LNGRES is involved in the design, manufacturing and assembly of precision moulds, tools and dies, jigs and fixtures, mechatronic components moulds, semiconductor components and electronics and electrical components and connector parts.

The company also designs and fabricates connector moulds for connectors used in plasma television, SIM card holder for hand phones and other precision connector products. The company has two factories in Tanjung Agas Industrial Estate, Muar, Johor. Meanwhile, LNGRES''s major customers include ST Microelectronics Sdn Bhd, Taiko Electronics (M) Sdn Bhd, FCI Connectors (M) Sdn Bhd and Hirose Electric (M) Sdn Bhd. The company supplies its products mainly to the semiconductor, computer & peripheral, electronics and electrical and telecommunication industries. LNGRES also exports its products to Singapore, US and other countries.

189.8 mn shares
Market cap: RM40m

Its a small company and the shares have almost never been played up. The company manages its finances prudently. It has some RM11m in cash. The company has been making money in good and bad economic times. Not very exciting but steady like a rock. NAV at 22 sen.

Figures for 2007 / 2008 / 2009 / 2010 (est.)
Revenue RM mn 28.3 / 32.6 / 29.3 / 35.1
Cost of sales RM mn (19.9) / (24.0) / (24.2) / (27.8)
Gross profit RM mn 8.5 / 8.6 / 5.1 / 7.3
Net profit RM mn 5.2 / 5.2 / 2.1 / 4.1



Look at the price chart its has always stayed at 14-16 sen for the longest time. However, some activity drove the shares a bit over the past week. The grapevine has it that a controlling block has been sold and that the counter should be in for some excitement with a strategic asset injection. Although we may not know the actual assets being injected, it is relatively safe at present levels for a trade (20-21 sen). Apparently the controlling block changed hands at levels much higher than the current share price.



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.

Read More

How Independent Are Central Banks Nowadays?

If you check the readership for this blog, it has downshifted markedly. I can blame the World Cup for contributing to part of the problem. But is it a problem to have lower readership? I think many may have skipped my blog as I have not talked about stocks specifically over the past 3-4 weeks. I think I am comfortable with lower readership if that is the main reason. I am not going to do things I am not comfortable just so that there are "hot things" to read in my blog. I didn't think May was a good month to be looking at stocks and neither is June, full stop. Let's reassess the situation in July. Just go and enjoy the World Cup, play some golf ... save a lot of money and headaches ... no followers, the syndicates also go to sleep anyway.

Back to the headline topic, for all the politicking and grievances with Malaysian politics, we should be thankful that Bank Negara is still "relatively" (and thats the key word) independent. We all know of a time when it was "too independent" when speculating freely in various currencies, no need to go through our history books to know when that happened. You would never, never want your central bank to be beholden to the ruling government or as an arm of the ruling government's election machinery. Once it gets that way, you can be guaranteed a mess bigger than the initial crap you put through the system.

Bank Negara has kind of reinvented itself over the past 12-14 years, and its independence record has been much better than the rest. Some may say that too many central bankers have been too eager to loosen monetary policies owing to the subprime mess. Granted, but do they really have a choice? Even with the Greek fiscal tragedy, there is nothing much the ECB can do other than lend Greece money.



If you ask a graduate economics student what the first objective of a central bank is, he/she should answer: moderate inflation while championing growth. That's it, that's the whole mantra of a central bank, no need to complicate matters.

Well, the central banks would probably have that as the main objective domestically, but they will have an overriding concern when the entire global financial infrastructure and trade are at stake. We can say that the subprime mess qualifies as such an event as credit seized up, hence the concerted Mafia like effort by all central bankers in loosening the purse strings was laudable.

When almost every central bank moved interest rates close to zero to do that, there would have been many economies which "did not need interest rates to go that low" - i.e. HK, China, Singapore and even Malaysia ~ which is why we had such an outsized jump in real estate in those economies following the subprime mess.

Zeti moved local rates back up quicker than most, and many observers failed to recognise what an important decision that was. We needed to kill off the froth. Property players may moan and groan about it, but the reality is that prices in many sub sectors of real estate has jumped out of the affordability range and into speculative bubbles. Of course ALL property developers and valuers will not agree with any thing I am saying. Just look at the top 20% of the markets in China, HK, Malaysia and Singapore ~ its the same fishes feeding the same ponds. Go to any luxury condos just completed and see how many are occupied, you'd be lucky to find a figure higher than 30%. Just go to The Loft, Suasana, the KLCC condos, and even some of the gated luxury developments. There is no push factor to force the owners to sell (yet), which is why prices are holding.



In the meantime, genuine home buyers have to go further and further out to find a place they can afford. As recent as 5 years ago, Kajang would be considered as was too far, now its considered OK. Affordability does wondrous things to the mind. There are some developments which deserve to go higher such as the Desa Park City developments, well thought out, which is why even with higher prices, its nearly fully occupied.

But I digress, low interest rates in those markets cause higher prices and implies better affordability. There are plenty of Singaporeans, HKers and mainland Chinese who own a piece of the high end markets in Malaysia ~ and vice versa, there are plenty of players invested in the same markets. If there are no financial crisis among the group, prices can stay there till reality catches up. If there is one, then step aside from the stampede because in many of those places, many of the units/homes cannot be rented out to get a yield of 2%.

But I digress again. There have been some instances whereby central bankers have been "influenced" to make certain decisions, and you can safely see that it brings no benefit in the end. Credibility of a central bank reflects enormously on the credibility of financial markets and the various important pillar institutions in the eyes of investors.

The South Korean government broke a decade long precedent by sending a senior finance ministry official to the meetings of Bank of Korea. Why? To ensure that interest rates are kept down. Bank of Japan was "forced" to double a lending program for banks in March 2010 following pressure from Finance Minister Naoto Kan to do more to help the economy. The ECB has been buying sovereign bonds of affected countries in the EU to ease the pressure of higher interest rates when weaker countries in the EU needed to borrow more. The ECB should never be buying distressed debt.

The independence of a country central bank is almost sacred. Let's keep it that way.

Read More

Will You Be Buying An iPad?

No, I don't have an iPad yet. Like many out there, I was a skeptic even though I own an iPhone. Was that really something you need when you already have a good mobile phone, a twin screen desktop and a notebook? Last week was in HK again and my tech chief had an iPad, after 30 minutes, I think everybody who has a mobile phone, notebook and desktop... will still find the iPad exhilarating and useful. Yes, its a toy but its a lot of fun.

Photos & Video - I have always hated how the distance to the screen when using your notebook or desktop is always a somewhat fixed distance, you have to lean forward or adjust your chair to get a good view sometimes. No issues here, the iPad is in your hands. The video watching is all that more awesome. You can prop it with a cushion, watch it at a park bench, heck, even bring it to the loo when doing a doo-doo. Place it on your bed, etc... As for photos, almost everyone now has a photo image saver and display mechanism. There’s no adequate way to describe how well the iPad display works for photos. The screen isn’t really 3D, but it feels like there’s an extra layer of depth in high-resolution pics and flicks. Because of the touch screen, you also get to interact with photos – zooming in and out, moving pictures around. It’s nothing you can’t do on an iPhone or iPod touch, but the screen size improves the experience exponentially. Throw out your electronic photo frames ...



Kindle Buster - It wipes Kindle off the map, and you add the Apple apps, and you have a winner. Again the iPad's killer app has to be the book and magazine reader technology. The iPhone makes it tough to read e-magazines and papers, all that is solved with iPad. In fact this makes it most enjoyable for me, reading the e-papers. Makes you feel like you are in the command center in the Avatar movies, you can touch through links, expand articles, resize, minimise 10 articles, etc... n the images are brilliant.

The touch screen keyboard woks for some but may turn some off I guess. The big deciding factor for someone choosing an iPhone or Blackberry. If you love your iPhone, you will love your iPad even more.



The iPad apps are mainly from iPhone apps, but many of the apps providers have not yet adapted to take advantage of the higher image resolution or screen sizing. I think this is a work in progress, 6 months down the road, all the apps will take advantage of the advantages of being on iPad and adapt accordingly. Battery life of 10 hours is more than excellent.

My complaint, Apple needs to invent a cloth that will wipe finger prints clear, or come up with a touch screen that won't leave any finger print marks - now that would a killer app.

But with iPad, you can dump your Kindle, your iPod (unless you go jogging), you electronic photo frame library, and if you are not a heavy professional user, you can dump your notebook as well. $500 is cheap when it replaces all of that.

Read More

What People Are Saying About The 10MP

Citi analysts Wei Zheng Kit and Monica Ratnaputri wrote in a June 10, 2010 analysis titled, "Highlights of the 10th Malaysia Plan," that the most important factor of the plan is its actual implementation, given missed targets in the past. The plan calls for a reduction in the budget deficit to 2.8% by 2015. However, the government has missed previous five-year targets. Of the MYR230 billion allocated to development spending, 55% will go to the economic sector, which is an increase over previous five-year plans, 30% to the social sector, 10% to security, and 5% to general administration. On the issues of subsidies, the plan calls for a 3% annual reduction in subsidy spending by 2015, with energy prices based on market conditions by 2015.



Citi analyst Yong Yin Ng wrote in a June 10, 2010 analysis titled, "10MP – Economic Reform: Ready, Set …," that the 10th Malaysia Plan will not move markets at least until the implementation stage. However, the plan lays out a commitment to economic and political reform, even if subsidy reform will be cautious as a result of political challenges. Ng writes that Malaysia needs to transition to an economy driven by productivity growth and domestic competitiveness that is led by the private sector. The targeted sectors in the plan are E&E, palm oil, oil & gas, tourism, agriculture and green technology and financial services, with the services sector as a whole pushing growth forward.

Kevin Brown writes in a June 11, 2010, FT blog post that the 10th Malaysia Plan unveiled on June 10 shies away from specific proposals to deal with the issue of subsidies and affirmative action, two benchmark reforms that would indicate Prime Minister Najib's commitment and ability to implement far-reaching reforms. PM Najib will likely face challenges from his own party, the UMNO, if he moves forward on significant reforms to the affirmative action policies.



The Oxford Business Group writes in a June 10, 2010, analysis that the impact of the 10th Malaysia Plan will depend on how well it enhances the role of the private sector while reducing the footprint of the government; protects the more vulnerable segments of society; addresses expensive subsidies; and contributes to the development of human capital.

The 10th Malaysia Plan prioritizes the oil and gas sector as one of the 12 National Key Economic Areas (NKEA) that will drive growth over the next five years, according to a June 11 IHS Global Insight report. The plan calls for focusing on improving oil recovery, transitioning toward more clean energy sources, enhancing energy efficiency and beginning to reduce fuel subsidies.



I don't have anything to say about the 10MP. Its been there on the table, the mantras are nothing new. Let's see some action on the Approved Permits already; why are there still big projects being "given" without proper tendering in recent months; the list goes on...

Read More

BP, Chance Of A Good Trade?

Chance of a lifetime? In a crisis, sentiment will crowd out sensibilities. Has BP fallen enough? Many analysts are trying to calculate the damages from the oil spill. My verdict is investors should carve out their intended exposure into 3 parts, and start buying one third now around $33-$35. Only buy the second parcel if it hits $29 or $37. The last parcel should only be bought when it tries to breach $40. If it continues to fall below $29, wait for $25. I could be writing a long essay on that strategy, but if you sit and think, you should come to why that strategy is sound.

BP has said that it will cover all legitimate claims resulting from the spill. But can it handle a worst case scenario? BP is already spending millions to control the spill, but reparations for economic damage could run into many billions of dollars.

On the income side, BP certainly has the resources to handle a sizable number of claims. The oil company had income last year of $63.4 billion. The total market value of the company currently sits at $142 billion.

Now let's look at the liability risk, starting with just one county. In Harrison county, MS, due north of the spill, the total economic activity at risk is in excess of $1.4 billion. In the just the six counties closest to the oil spill the potential economic activity imperiled by the spill comes to $4.9 billion.

But there are more than 50 counties potentially in harm's way, from the Florida Keys to the coast of Texas - and that's not counting the exposure BP would incur if the oil flows around the Keys and up the East Coast by way of Gulf stream currents. With tar balls showing up now on the Florida keys, that's a possibility that can't be discounted.

Wall Street analysts continue to believe that BP can pay for its mess in the Gulf, although their confidence level has been dinged by the company's inability to stem the spill - and the political fallout. But at $32.20, the shares are still trading at levels last seen 14 years ago.

Spurred by pressure in the U.S. to fully compensate economic victims of the Gulf spill - and by Wednesday's nearly 16 percent stock plunge - BP officials early Thursday reiterated that the company has enough cash to cover the costs of the Gulf spill.

Analysts agree, saying that BP will have around $5 billion this year to pay damages and clean-up costs once dividends and capital expenditures are covered. BP has already spent more than $1.4 billion trying to contain and clean up the oil and pay claims to Gulf coast businesses.

To date, almost 42,000 claims related to the spill have been submitted and more than 20,000 payments already have been made, totaling over $53 million.

Because of BP's strong cash flow, analysts currently doubt that the costs of cleaning up the mess will push the company into bankruptcy. A worst-case scenario for financial damages and penalties is more than $60 billion, which would be paid out over several years.

I suspect in terms of liability, a lot of it can be recovered from insurance and limited liability claims. What the company cannot recover from may be " company standing and reputation" going forward. Once the liability component has been ascertained, I strongly feel that the board will have no choice but to sell to probably Petrochina, the only one with the resources to claim that asset. A combined PetroChina-BP would have oil and gas reserves that were 73 percent and 187 percent larger, respectively, than ExxonMobil Corp and Royal Dutch Shell Plc.



The sale to Petrochina has to go through as BP tries to distance itself from the negative press and claims going forward. By selling, it will give BP a fighting chance to re-emerge from the disaster. A lot of pension funds, especially in UK will be putting a lot of pressure on the board to sell, and they will probably get the quickest deal at the best price with Petrochina.

Looking at the possibility of a $60 billion worst case scenario by Oppenheimer, the assets of BP is still more than doubled that easily. Its income per year would cover that. Stanchart see a worst case scenario costing BP $40 billion.

Read More