Yen heading for a fall?

Japan has been attracting all kind of negative news lately. The "unbelievable" contraction in its economy which contracted at its quickest pace in 35 years , resignation of its Finance Minister Shoichi Nakagawa who was allegedly intoxicated during a G7 Press Conference in Rome, the recent big drop in the approval ratings of its PM Taro Aso's and Clinton's visit to Japan which include a courtesy call to Japan's opposition party leaders are some of the recent "lowlights" for the country. Also, in recent times, there have been calls for the Japanese government to intervene in the money market to slow down the Yen's appreciation. A strong Yen will eventually kills the Japanese economy(or has it not already) and have repercussion to world trade. Here are some of the current views from analysts on this subject:

The Yen needs to depreciate

SeekingAlpha.com: An excessively strong Yen goes against the interest of everybody except those who have longed Yen......

It is frustrating for me to observe Japanese officials trying to bolster the stock market but doing nothing to avert the senseless appreciation of the Yen. At such levels, almost every manufacturing concern in Japan would fail. Artificially supporting stock prices would not work! But the Bank of Japan can sell Yen; indeed it can sell as much Yen as the market wants. There is no worry this will create excess liquidity, because should the Yen depreciate excessively, and at any sign of inflation, the central bank can mop up the excess Yen just as easily as it had sold the Yen in the first place.

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The excessively strong Yen is not helping other countries to export to Japan at all, because when unemployment and bankruptcies are on the rise, Japan's imports can only go down. In part because Japan's share in world trade is shrinking fast, world trade is also shrinking fast, hurting everybody. Order needs to be restored to the foreign exchange market before the world's second largest economy can have any chance of recovering

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The yen is heading for a fall

FT:Com: The yen is overvalued and its status as a “safe haven” currency is likely to come under scrutiny, says Michael Metcalfe, head of global macro strategy at State Street Global Markets.

He argues that analysts typically fall back on either current account positions or, better still, net foreign asset positions as a guide to which currencies should perform in times of heightened risk aversion. “The rationale is that investors respond to reduced risk appetite by cutting their exposure to international investments,” Mr Metcalfe says.

This theory appears to be supported by the fact that Japan has one of the largest surpluses on its net foreign asset position – and therefore the biggest potential for repatriation flows – and the yen has appreciated strongly.

Getting the Yen Back to Previous Levels Could Help Ease Current Pressures

SeekingAlpha.com: The two currencies causing problems for the world’s reflationary efforts just now are the yen and the dollar. Both are too strong. Equally, the yen and the dollar this decade have played key, global roles in the extension of credit via their structural weakness. While I’m not making a case for resurrection of conditions that got the world into its current mess, it’s certainly true that the global policy response is an attempt at stabilization. Getting the yen back towards its previous carry-levels would do a lot, right now, to ease pressures.

Here are two possibilities. One, the dollar is devalued against gold. Second, Japan essentially lends yen interest free to the IMF, which forms the backing of a large expansion of its balance sheet of SDRs. Those SDRs are then used to recapitalize banking systems from Austria, to Ireland. The result of these two actions is that the brunt of the dollar devaluation is borne in part by gold, to ease the race-to-the-bottom effect on other currencies. In the case of the yen, weakness does get restored against most foreign currencies, but, Europe is willing to pay that price as a recipient of IMF recapitalization.

These are of course elaborate and sophisticated methods to accomplish something simple: Money Printing. Global devaluation of paper currencies, reflation, and rescue of banking systems. Those are the goals. The world will be no richer for it.

* Ovarian cancer and talcum powder.

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* Report On Yuan Depreciation Remark False

* Bloomberg: GM, Chrysler seeks up to USD21.1B in first aid, plan to cut 50,000 jobs.

* East Europe faces deep recession.

* FT.com: Gold went to a 7 month high of USD972.65 a troy ounce after Russia's central bank planned to increase gold holdings with its overall foreign exchange reserves.

What's feeding the Chinese stock rally?

Many economists expect China's economy to recover early this year backed by the government's four-trillion-yuan stimulus plan. Many are also confident it would embrace on an early recovery before global economy picks up. As a result, there were a lot of buy calls for China stocks, example here. Due to these factors, the recent run up in China's stock markets may not be too shocking to many. (The above chart is the comparison between The Shanghai Stock Exchange CI -which gained almost 30% and S&P500 -which lost almost 10% over a period of 3 months)

However, I was shocked when I read the article below. China using stimulus money to prop up the share markets???...it will only create short term gain but long term pain. There is no real economic benefit to push up the share prices of the companies. Nevertheless, such strategy has been practiced by many countries for many years before China though.

NakedCapitalism: The China bulls have commented approvingly on the growth in loans in China, seeing it as a sign of pending recovery, along with an upswing in stock prices. We've pointed out that economist and China commentator Michael Pettis has heard quite a few reports that many of these loans were in fact sham transactions to meet government targets. And now it gets even better. One analyst estimates that more than 1/3 of the total "new" lending (assuming that the loans were truly extended) may have gone into the stock market.

From Bloomberg (hat tip reader Michael):

Chinese companies may be using record bank lending to invest in stocks, fueling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co. As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview today, citing money supply figures. China’s banks lent a record 1.62 trillion yuan in January as part of a government drive to stimulate the world’s third- largest economy, while M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier. The Shanghai Composite has surged 29 percent since the start of 2009, compared with a 10 percent decline in the MSCI World Index.

* BT: How much are Malaysia's richest worth now?

* BT: Citi: Worst yet to come for developers.

* TheStandard: Japan's Finance Minister said he will resign, after denying being drunk at a G7 meeting in Rome recently where he appeared incoherent and slurred his speech.

* Eliz Wong to quit?

Technical Analysis - February 16 2009

S&P500 (827, last week 869 or -4.8% w.o.w)

Another volatile week. Although index was up strongly a week earlier, the following week was a "strong down". The Daily Parabolic SAR which was the first to turn bullish is now bearish for the last two trading sessions. The Daily MACD has hooked down but has not crossover negatively yet. The MACD Histogram is still holding on while Guppy MMAs and DMIs (+ve and –ve) are remains negative. For the weekly readings, the MACD, MACD Histogram and Parabolic SAR are still positive. The weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. Support is around 820 and resistance at 900.

KLSE CI (910, last week 897 or +1.4% w.ow)

The daily indicators MACD, Parabolic SAR, ADX trend and DMI (+ve and –ve) have all turned positive during the week. The weekly charts MACD and Parabolic SAR continues to be positive but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. The index is expected to trade between 860 and 931.

HangSeng (13,555, last week 13,655 or -0.7% w.o.w )

The daily indicators like Parabolic SAR, MACD and MACD Histogram continues to be positive. The DMI (+ve and -ve) and Guppy MMAs are still negative. The weekly charts are still positive, especially the MACD, MACD Histogram and Parabolic SAR but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish . Support is seen at 13,000 and resistance at 15,000.

Nikkei 225 (7,779, last week 8,077 or -3.7% w.ow)

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Following S&P500, the Daily Parabolic SAR which was the first to turn bullish is now bearish for the last two trading sessions. The Daily MACD has hooked down but has not crossover negatively yet. The MACD Histogram is still holding while Guppy MMAs and DMIs (+ve and –ve) are remains negative. The weekly charts are still positive, especially the MACD, MACD Histogram. However, the Parabolic SAR, Guppy MMAs and DMI (+ve and –ve) are still negative. Support is seen at 7,500 and resistance at 8,600.

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* China's FDI falls 32.6%

* Japan's GDP plunges at 12.7% annual rate in Q4 of 2008.

Time to sell gold?

According to the Editor of Investment U, this guy Louis Basenese (inset) has been dead on with his predictions. He called the U.S. dollar bottom versus the euro within 26 days… oil’s peak within 24 days… and the top in U.S. Treasuries within two days. So when he makes a big call like this, we listen. And while Lou thinks gold is going down, there’s another asset class he thinks is going straight up - small caps. To get access to his five best small-cap picks, go to The White Cap Report His other recent article includes Time to Invest in China stocks which was posted here before. Anyway, here are his reasons for being bearish with gold.

Shorting Gold: 12 Reasons Making The Case For This Contrarian Investment by Louis Basenese, Advisory Panelist Senior Analyst, The Oxford Club

If you’re a self-professed “Goldbug,” feel free to read no further. Or at least spare me your hate mail. Because no matter what I say today, I know you’ll cry foul… or something much more colorful.

But for those of you with an open mind - especially after my last three contrarian predictions proved dead accurate, read on.

Because it’s time to start shorting gold!

You won’t find many, if anyone else, making this case. But as the first reason of 12 below reveals, that’s precisely why you should give it more credence.

12 Reasons To Start Shorting Gold

1. It’s decidedly contrarian. If a contrarian investor is someone who deliberately decides to go against the prevailing wisdom of other investors, shorting gold certainly fits the bill. Right now, everyone else is buying gold, or at least recommending it. If you have any doubt we’ve reached such fever pitch levels, consider No. 2.

2. The infomercial factor. The best indicator of a turning point for any investment, in my experience, is infomercials. If an investment gets so popular it invades the pre-dawn hours with non-stop but-wait-there’s-more offers, it’s time to get out. And that’s exactly what’s happening now. So much so companies like Cash4Gold.com are invading primetime television. They even splurged for a Super Bowl ad spot. And they recruited washed-up celebrities Ed McMahon and M.C. Hammer to boot. In case you forgot, the Hammer filed bankruptcy in 1996. And Eddie boy almost lost his 7,000 square-foot, $6.5 million Beverly Hills pad to foreclosure. No offense, if you take investment cues from these two, you deserve to lose money.

3. There is always some truth in a rumor. Recent news reports suggested Germany, the world’s second-largest holder of gold, was selling some from its vaults to trim its deficit. It turned out to be a rumor. But you gotta wonder if there’s some truth behind it. After all, high gold prices would be an easy way to raise cash. In other words, the scenario is completely plausible. And if Germany’s considering it, even remotely, so, too, are plenty of other deficit-ridden governments. It goes without saying that a government dumping supply on the market will send prices lower, quickly.

4. The gold-to-oil ratio is out of whack. Historically, an ounce of gold will buy you about 14 barrels of oil. But with oil around $40 per barrel, an ounce of gold gets you almost 23 barrels - a whopping 64% above the historical mean. If you believe in statistics, a reversion to the mean is imminent!

5. So is the gold-to-silver ratio. Historically, an ounce of gold will buy you 31 ounces of silver. But now the ratio stands at 73 - an unbelievable 134% above the historical mean. Here, too, a reversion to the mean is imminent. And I’d rather place my bets on a 57% decrease in the price of gold, than silver more than doubling to make it happen.

6. The HGNSI index is too high at 60.9%. For the past 25 years, Hulbert Financial Digest has tracked the average recommended gold market exposure among a subset of gold-timing newsletters. It usually fleshes out around 32.6%. But now it rests at 60.9%, a level it’s only exceeded 13% of the time. The key - Hulbert found an inverse correlation exists between his proprietary index and the short-term market direction of gold. In other words, if the index is high, like now, gold is headed lower.

7. Trinkets drive demand, not governments or speculators. Nearly 75% of gold demand comes from the jewelry market. And if Indian brides balk at buying above $750 per ounce as the Bombay Bullion Association reports - India’s gold imports cratered 81% in December - look out below. And don’t be fooled into thinking investors (governments or speculators) will pick up the slack. As HSBC reports, rising demand from investors, particularly from ETFs, only offset half of the 33% decline in jewelry market demand since 2001.

8. What makes now “different?” If the global economic crisis keeps getting worse, as goldbugs like to point out, why hasn’t gold tested last March’s high of $1,030.80 per ounce? Or blown right by it? After all, gold is supposed to increase in value as economic conditions worsen. But it hasn’t lived up to expectations, not one bit. And I don’t think it ever will. Ultimately, when you factor in the massive amounts of stimulus being injected into the markets, on a global level, we’re close to the worst of times… and the peak for gold.

9. Analysts love it. According to Bloomberg, 16 of 24 analysts surveyed by the London Bullion Market Association believe gold will reach a minimum of $1,032 per ounce this year. As we all know, analysts’ track records are deplorable. Instead of just ignoring them, why not bet against them? The odds are definitely in our favor.

10. Hedge fund buying dried up. Institutional speculators (hedge funds) played a large part in gold’s run-up. But 920 of them went Kaplooey last year, according to Hedge Fund Research, Inc. Not to mention, hundreds of others hemorrhaged capital as investors demanded their money back, while those left standing ratcheted down borrowing to close to nothing, according to Rasini & C., a London-based investment adviser. In the end, gold prices will eventually reflect the absence of these former heavyweights.

11. Gold is schizophrenic and the wrong personality is in control. Multiple motivations exist to buy gold including the desire for a safe haven, currency, adornment, raw material, or inflation hedge. But much like Treasuries, the bulk of buyers come from the safe haven camp today. And once the economy shows any signs of perking up, we can expect these same investors to flee for more risky assets. And don’t be so quick to rule out a second half recovery…

12. The Fed, the President, history and the Baltic Dry Index concur - the economy’s on the mend. Despite dismal data, both the Fed and President Obama point to the current recession ending by the second half of 2009. Moreover, the average recession only lasts 14.4 months. So even if this one is longer than usual, we’re still near the tail end of it. A fact underscored by the recent 61.4% rally in the Baltic Dry Index from its early December low. As I wrote in November 2008, the index is the first pure indicator of an uptick in global activity. And once the economy gets back into gear, the Fed will act quickly to reign in the money supply and curb inflation.

Cleary the gold rush is on. But that’s all the more reason to move in the opposite direction, against the herd. I realize this might be the most unpopular recommendation right now, but that means it could also be the most profitable.

And before you brandish me a fool for recommending shorting Treasuries and gold in the span of two months, here’s the intersection. The driving force behind both assets in recent months has been safe haven buying. And it will remain the dominant variable in determining price in the months ahead. So when investors go back on the attack for more risky assets, prices for both assets will fall.

It’s already happening for Treasuries. And I’m convinced gold is next.

Good (and contrarian) investing,

* RGE Monitor: Chinese exports contracted by 17.5% y/y in January, the steepest in 13 years, and the third month of contraction. Imports contracted even more (43.1%, the worst since data begun being collected in 1995). The deep import contraction took China's trade surplus to the third highest of all time $39.11b (record $40.09b in November and $39.98b in December)

* China to stick with US bonds.

* Bloomberg: House, Senate agree on USD789B stimulus, setting stage for final vote.

* Bloomberg: South Korea cuts interest rate to record low 2% as economy nears recession.

Those smart Japanese investors

SeekingAlpha.com: The tide is starting to change and I want to make sure my readers are aware. Last year, the yen literally beat the performance of 177 currencies. However, the rise has been so swift and severe, that it’s killing the country. No one in Japan seems to be happy with it. Their exporters are literally campaigning to the central bank to intervene in the currency. The central bank has been quoted as saying that they are not happy with the rise of the yen either.

So what is a Japanese investor to do with such a strong yen that may not be that strong for long.

Invest abroad.

Here’s where the money is flowing!

Do we have any clue as to where they are starting to place their money? Yes! According to the Ministry of Finance, there have been “net purchases” of international stocks and bonds for the past seven weeks in a row now.

So where’s the money going? It’s working its way into places like Brazil, Mexico, Turkey and South Africa.

Therefore, money is being exchanged for the currencies of these lands and is further going into their bonds and stocks.

The yen gained an average of 55% against the currencies of these countries last year and they know that these gains will not hold. Therefore, they’re going into beaten down currencies with beaten down stock and bond markets.

It’s really important to note what these Japanese investors are doing, because they are smart investors. They get it right much more than they get it wrong. They are experts on international markets, because their own currency usually yields one of the lowest rates in the world. Therefore, they like to get into an appreciating currency that also has an appreciating stock or bond market.

A year ago, money was fleeing these emerging markets. However, they’ve plummeted so much and the yen has gotten so strong, it makes them one of the first groups of investors to march back into these markets.

In addition, one thing that you will see happening more and more this year in Japan is international mergers and acquisitions. There’s no better time to be buying when your currency is extremely strong and the stocks of international companies are extremely cheap. It’s a win/win for them.

They have done many of them already. In fact, their merger and acquisition activity tripled last year to $76 billion from about $25 billion the previous year.

All of this is beginning to cause a “net selling” of yen, finally, as the Japanese and other investors around the world exchange their yen for emerging market currencies around the world.

For those who are holding Japanese Yen or intending to short the currency, continue reading here are some idea what/where those smart Japanese investors are investing now.

* Skepticism is brewing that the US government 's bank rescue will not work. The US Treasury Secretary Geither has pledged government financing for as much as USD2T of efforts to spur new lending and address bank's toxic assets.

* Sunny days ahead for Hong Kong securities firms?

* Pimco Says World Faces Second Wave of Economic Crisis

* China Needs U.S. Guarantees for Treasuries

Technical Analysis - February 10 2009

S&P500 (869, last week 826 or +5.2% w.o.w)

What a turnaround! Now the Daily MACD and MACD Histogram have joined the Daily Parabolic SAR to become positive as well while Guppy MMAs and DMIs (+ve and –ve) are slightly negative. At this juncture, the indicators may continue to turn bullish if further bad news in the market are being discounted. For the weekly readings, the MACD, MACD Histogram and Parabolic SAR are still positive.The weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. Support is around 820 and resistance at 900.

KLSE CI (897, last week 884 or +1.5% w.ow)

The daily indicators MACD, Parabolic SAR, ADX trend and DMI (+ve and –ve) although have turned negative recently is seen making a comeback. Unlike the S&P500, none of the indicators have register positive readings yet but will soon be if the markets are to move up discounting further bad news. The weekly charts MACD and Parabolic SAR are still positive but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. The index is expected to trade between 860 and 915.

HangSeng (13,655, last week 13,278 or +2.8% w.o.w )

After gaining almost 8% in two weeks, the daily indicators like Parabolic SAR, MACD and MACD Histogram have turned positive again. The DMI (+ve and -ve)and Guppy MMAs are still negative but has improved. The weekly charts are still positive, especially the MACD, MACD Histogram and Parabolic SAR but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish . Support is seen at 13,000 and resistance at 15,000.

Nikkei 225 (8,077, last week 7,994 or +1.0% w.ow)

The daily indicators like MACD and MACD Histogram has joined the Daily Parabolic SAR to become positive during the week However, the DMIs (+ve and –ve) and Guppy MMAs are still negative. The weekly charts are still positive, especially the MACD, MACD Histogram. However, the Parabolic SAR which turned negative are still as such but will turn bullish soon if the market continues to turn upward. Support is seen at 7,700 and resistance at 8,600.

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* Bloomberg: China's inflation slows to 1% in January 2009 from a year earlier, weakest pace in 2 years as economy cools. Many analysts are predicting deflation looming

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* BT(Singapore): Delhi expects growth to slow to 7.1%.

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* YahooFinance: Obama to Congress: Pass stimulus, don't play games.

Bite the bullet, fight another day?

Like many other Malaysians, I have been following the "katak jumping events" in Perak fervently over the online news portals, newspapers or any other piece of information that makes senses. I have lost count already how many times I have visited and refreshed those online sites eager to see how those events unfold and to get the final verdict from the Sultan. The public opinion polls are all calling for dissolution of state assembly.

While I was busy "googling", many random thoughts on katak jumping came into my mind. Amongst them include the feeling of being cheated, sad, anguish, anxiety, revengeful, corruption, power play, plots, disloyal, betrayal, treachery, inducements, lack of integrity and quality or moral standards, options and alternatives and the fast sinking economy.

Then at 300pm, the much awaited news were out. Sultan has asked Nizar to resign, BN set to form government. I have stopped "googling" for any more updates then but those thoughts mentioned above are still coming back and forth my mind as I write.

The winners will be rejoicing while the losers will be depressing. What can the losing Pakatan Rakyat, Perakians and rakyat do? Will they protest against it(can't help but relating it to Bangkok) or like Jeff Ooi says, Bite the bullet, fight another day?

* Fitch downgrades Russia's debt to BBB(2nd lowest investment grade). The ruble has fallen by 40% since July 2008 against the USD.

* Bloomberg: Sany Heavy, China's biggest supplier of concrete-making equipment, plans to cut its Chairman's annual salary to 15 cents from USD92,000 (in 2007) and cut pay of board members by 90% because of the financial crisis.

* Old folks don't just attend company's meetings for souvenirs and food. See here.

Technical Analysis - January 30 2009

S&P500 (826, last week 832 or -0.72% w.o.w )

Except for the Daily Parabolic SAR which turned positive recently, all other indicators egs MACD, MACD Histogram, Guppy MMAs and DMIs (+ve and –ve) are negative. For the weekly readings, the MACD, MACD Histogram and Parabolic SAR are still positive but will eventually turned negative if the selling continues further. The weekly ADX trend and DMIs (+ve and –ve) are bearish while Guppy MMAs is weakening further. Expect index to be at best consolidating. Support is around 780 and resistance at 850.

KLSE CI (884, last week 873 or +1.3% w.ow)

The market still has a 1% gain for the year. The daily indicators MACD, Parabolic SAR, ADX trend and DMI (+ve and –ve) have turned bearish. The weekly charts MACD and Parabolic SAR are still positive but will eventually turned negative if the selling continues further. The index is expected to trade between 835 and 915.

HangSeng (13,278, last week 12,579 or +5.6% w.o.w )

Despite only traded for two days during the week, the index gained more than 5% . Despite this, all the daily indicators like Parabolic SAR, the daily MACD and MACD Histogram and Guppy MMAs are still negative. The weekly charts are still positive, especially the MACD, MACD Histogram and Parabolic SAR but will eventually turned negative if the selling continues further. Support is seen at 12,600 and resistance at 15,000.

Nikkei 225 (7,994, last week 7,745 or +3.2% w.ow)

Similar with S&P500, except for the Daily Parabolic SAR, all the daily indicators like MACD and MACD Histogram, DMIs (+ve and –ve) and Guppy MMAs are still negative. The weekly charts are still positive, especially the MACD, MACD Histogram. However, the Parabolic SAR has just turned negative. Support is seen at 7,400 and resistance at 8,400.

* JapanTimes: Japan's longest boom in the post war era died in October 2007. The boom lasted 69 months.

* CNN: Heaviest snow in 18 months partially criples UK.

* Will Australia cuts its interest rate by 150 basis point today similar with its NZ counterpart? Together with a slowing down economy and a negative trade deficit in December, watch AUD goes down further.

* Fitch: Outlook for KL currency rating negative.

* China considering new stimulus: Wen. A recent survey reveals that 20m migrants workers recently lost their jobs.

JR: "UK has nothing to sell"

Jim Rogers(JR)'s advise with reference to the pound and the UK economy pushed the country deeper into its financial gloom. With a very troubled housing and financial service sector, JR's statements push the already nervous investors over the edge. In fact, the advise spark a Sterling sell-off resulting it sitting at a 23 year low against the USD and an all-time low against the Yen. Questions have emerged whether the UK will be able to ride out this financial storm and how soon or earned the reputation as being the second European Union country after Iceland to fail in this crisis. Are the fundamentals of the UK that weak? Will the RBS, Lloyds and Barclays be nationalised soon? Will the country be able to retain its AAA ratings? Will pound near parity with the USD? Will the London Olympics 2012's projects get stuck? One thing I am sure, despite all this, the country will still have their famous football clubs and pubs, just to name a few.

FT.com: The pound is a currency with no underpinning and should fall against the dollar and the euro, says Jim Rogers, chairman of Rogers Holdings and co-founder of the Quantum Fund with George Soros.

He says his view reflects the UK’s dire economic situation: “It’s simple, the UK has nothing to sell.”

Mr Rogers says the two main pillars of support for sterling have been North Sea oil and the strength of the UK financial services sector, in particular, the City of London’s role.

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But Mr Rogers says just as North Sea oil is running out, so London’s standing as a major financial centre is set to suffer.

“I don’t think there is a sound UK bank now, at least, if there is one I don’t know about it,” he says.

“The City of London is finished, the financial centre of the world is moving east.”

“All the money is in Asia. Why would it go back to the West? You don’t need London,” says Mr Rogers.

Mr Rogers thinks the pound is more vulnerable than the dollar or the euro.

He says the UK housing market is arguably in a worse state than that of the US, given pockets of strength in the US and prices that are sliding across the board in the UK.

Meanwhile, he says, the UK is in worse shape economically than the eurozone, where most countries are not big debtors and do not run huge trade deficits.

“If the UK discovers more North Sea oil, I might change this view,” he says. “But I don’t see that happening.”

* China's economy grew 6.8% in the 4Q; slowest in 7 years. For the year, the economy grew 9% in 2008.

* South Korea's economy shrank 5.6% in the 4Q.

* BNM has lowered its key interest rate by 75 basis point to 2.5% yesterday. Pretty sharp and desperate?

* Japan keeps its key interest rate at 0.1%.

* Come July 6, KLCI will be replaced and be known as FTSE Bursa Malaysia KLCI (30 largest main board companies based on investable market capitalisation. We will have a tough time getting used to it!

Time to invest in China?

The report below from Morning Money was written by Louis Basenese an Associate Investment Director of The Oxford Club and a regular contributor to Investment U. This article first appeared in Investment U a week back. Like Jim Rogers, this investment manager seems to be very bullish with China and even provided 11 reasons why he is keen in buying China shares. Well, is he too early to call China a BUY? I just understand China's urban unemployment rate jumped for the 1st time in 5 years to 4.2% as of December 2008. Also, there were over 550,000 Chinese laid off in the last 3 months of last year. What will it be for the up and coming GDP figures and other economic data? Ugly also. Me? I will keep watching...till it turns really ugly.

1) The truly “smart money” is buying, not selling.

To be fair, the reason Bank of America “took a little money off the table,” according to spokesman Bob Stickler, is because of its own financial condition and need to raise cash. Same goes for the Royal Bank of Scotland. Yet, looking past these institutions, the truly smart money is loading up on China. Mark Mobius, the king of emerging markets, sums it up best, “We’re having a wonderful time buying tremendous bargains.” Statistics from research firm EPFR Global indicate the rest of the smart money is following suit. Funds investing in emerging-market stocks raised their Chinese holdings to the highest level since 1995. We should, too.

2) Chinese stocks are cheap.

Ridiculously so. If legendary investors like Warren Buffett salivated over U.S. stocks trading at 12 times earnings, they should be rabid over Chinese stocks. Based on the MSCI China Index, the average Chinese stock trades for less than eight times earnings. Share prices are contracting, but earnings keep growing. Based on the severity of the sell off, you’d think every Chinese company was unprofitable and headed for bankruptcy. Yet the fundamentals remain rock solid. The average Chinese company is still growing earnings by 30%, according to a recent report in China Securities Journal. Compare that to the estimated 12% earnings decline in the fourth quarter for the companies in the Standard & Poor’s 500 Index, and the bargain valuations make even less sense.

3) Chinese investors learned a tough, but necessary, lesson.

During the height of the China mania, retail investors viewed the stock market as an ATM. They lined up by the millions to open brokerage accounts. But much like our infamous dot-com bubble, Chinese day traders and novice investors got a very painful reminder of what happens when the “Greater Fool Theory” reaches the last idiot. The important thing, however, is that the correction served a higher purpose. It began the process of flushing the extreme irrationality from the market. So we can be certain the next leg up will be governed by fundamentals, not hype.

4) Oil is much cheaper.

One of China’s biggest challenges was to keep a lid on inflation, while still maintaining its breakneck pace of economic growth. That was no easy task with oil at close to $150 a barrel, as the cost of shipping, food and fuel were rapidly increased. Keep in mind, China imports a net 3.3 million barrels of oil a day. Now that oil prices are down considerably, we can cross one big inflation risk off the list.

5) The economy is NOT in a recession.

Sure, it’s slowing down, but China is still on track for a solid 6% expansion based on analysts’ estimates. And 8% if you believe the government statistics. Regardless of who ends up being right, compared to the contraction in the United States, such a high rate of growth is downright explosive.

6) Massive foreign reserves.

The last time Chinese stocks were this cheap was during the Asian financial crisis. Back then, most Asian countries were running huge deficits. But this time the roles are reversed. As of December, China boasted of having $1.95 trillion in foreign reserves. And counting. If necessary, the government can deploy these surpluses to keep economic growth humming along.

7) Personal savings.

Unlike Americans that spend more than they earn, the Chinese save an amazing 35 cents of every dollar they bring in. This provides yet another cushion against any slowdowns. But also an enormous opportunity for future growth. As China’s economy develops, and affordable insurance and health care become ubiquitous, expect the Chinese to get comfortable spending more of their hard earned cash.

8) The consumer is just getting started.

The country’s burgeoning middle class, now the size of the entire United States, is just getting started. The McKinsey Quarterly estimates that it will take two decades before these nouveau riche reach their full spending potential. As we know from our own experience and prosperity - 70% of GDP in the United States is attributed to consumer spending - the consumer is an engine of economic growth. In other words, the global recessionary headwinds are no match for the Chinese consumer.

9) Forget what Westerners think, locals are optimistic.

We know consumer confidence plays a big role in the success of our own economy. It flat out stinks right now in the United States, and the economic conditions reflect that. But in China, it’s an entirely different situation. A recent survey from the Pew Research Center shows that most Chinese people (86%) feel positive about where their country is headed. And that’s up from 25% just six years ago. If they overwhelmingly see good things on the horizon, we should believe them.

10) The “mother of all stimulus plans.”

While the massive government stimulus package has yet to take hold in the United States, rest assured it will. The same goes for the $586 billion the Chinese government is pumping into its economy. As a fund manager for BlackRock Inc. (BLK) notes, China’s “got the mother of all stimulus plans” when you factor in the government spending, savings rates and the rapid decline in commodities prices.

11) The Best China Bets.

Make no mistake, the shooting-fish-in-the-barrel-stage of China investing is long over. Simply buying the iShares FTSE/Xinhua China 25 Index ETF (FXI) won’t cut it anymore. It’s too obvious.

So how do we play the next bull charge in China?

Well, last week, I offered up one compelling small-cap Chinese play, E-House Holdings Ltd. (EJ). I’d stick to that theme - small caps, with the strongest growth profiles. And that puts China Security & Surveillance (CSR), a leading provider of digital surveillance technology, and A-Power Energy Generation Systems (APWR), a power equipment company, at the top of my list. For those with a more conservative bent, I’d stick to large-cap, blue chip, best-of-breed China stocks - ones like China Mobile Ltd. (ADR: CHL), the world’s largest phone company. It sports a solid balance sheet, increasing profitability and a temporarily cheap valuation.

Whatever you do, don’t wait too long. The Chinese New Year holiday gets underway Jan. 25. When it’s over, don’t be surprised if the Chinese markets start fresh and get back to their winning ways.

I say that because the strong economic underpinnings, which lined investors’ pockets with gold from 2004 to 2007, remain well intact. Whether the next leg up will produce the same 450%-plus returns remains to be seen. But rest assured, the catalysts are in place to make it possible.

* Bird flu on the rise in China?

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* Bloomberg: Singapore economy may shrink to record 5% adding to pressure for stimulus.

* Toyota is poised to end General Motors' 77 year reign as the world's largest automaker when the US company reports on its 2008 global sales today.

HSBC replies

Of late, HSBC has been rumoured to require cash injection in order to keep its ship chugging along the stormy financial waters. Morgan Stanley for example, predicted the bank needs between USD20-30b of equity and halve its dividend in order to bolster its Balance Sheet. No recovery is anticipated in its results until 2011.

The news of the second financial bailout for the British banks and the staggering 70% fall of RBS yesterday compounded the already bruised European banks share prices, including HSBC. It is true as a 12 month analysis saw HSBC's share price peaking at HKD140 in May last year but has now gone down to HKD58. (refer here for share price movements). A drop of almost 60%.

HSBC has been "quick" to respond to the negative comments and says that it has ample of capital and do not need any help from anybody. It also added that, these "negative" analysts need to apologize once their predictions do not come true! Wow, we need more of such optimism(but truthful ones) in the market! Get ready your ang pow money to scoop the high dividend yield HSBC?

The Standard:Banking giant HSBC (0005) has refuted rumors that it is seeking capital support from the British government, saying it cannot "envisage circumstances" when such action would be necessary.

"HSBC has long been one of the world's most strongly capitalized banks and is committed to maintaining this position," the lender said in a statement in response to speculation that it would receive a cash injection when London announced yesterday a second bailout package for banks.
HSBC was on a list of lenders that could receive Bank of England funds in the first rescue plan unveiled in October. But HSBC rejected that offer, saying it had ample capital and needed no help from the central bank.

David Eldon, former chairman of Hongkong and Shanghai Banking Corporation, the local arm of HSBC, concurred saying the lender has no funding needs. He also said HSBC is only a victim of recent fund-raising activities by foreign banks.

Eldon cast doubt on statements by investment bank analysts that HSBC needs to raise funds, saying the London-based lender has always had a prudent policy regarding its capital base. Eldon said the analysts need to apologize once their predictions are proved wrong. Big investment banks including Morgan Stanley and Goldman Sachs have issued reports in recent weeks revising downward their forecasts on HSBC, and slashing their target prices for the lender's shares to as low as HK$52. They also predicted that the bank will cut dividends. Amid the bearish sentiment, shares of HSBC continued to nosedive in Hong Kong yesterday, losing 3 percent to close at HK$62.30, the lowest in more than 10 years. The bank's share price has shed around 15 percent since the beginning of this year.

Eldon also said he supports the Hong Kong Monetary Authority's proposal to take up all banking regulatory functions.


* Obama, the 1st Black President and the 44th President of the USA will be inaugurated today. Above. Dennis Haysbert played the accomplished President David Palmer in "24".

* YahooFinance: RBS expects full year loss up to 28B pounds due to a goodwill impairment charge related to the acquisition of ABN Ambro. The loss is probably the biggest loss ever by a British corporation.

* Forbes: South Korea's finance minister and top regulator replaced. President says reshuffle aimed at boosting economy.

* China Premier Wen says toughest year ahead since 2000.

* Jim Rogers said investors should be worried about USD, sell government bonds and buy raw materials, China stocks and the Japanese yen.

* FinancialDaily: Khazanah's December 31 portfolio down by 36.5% compared to 7 months ago. The investment now stands at RM33.7B. Also to note is Khazanah do not support LCCT in Labu plan.....??

Japan: Where Capital Goes to Die

Hope I did not bore you again with another write up about the doom and gloom of Japanese stocks.....the author did give some recommended stocks to buy at the end though and a word of advise. "In Japan, just as we've discovered here at home(in the US), the market's best stocks are ignored, obscure, and small".

TheMotleyFool: Ah, Japan: land of the rising sun, homeland of the hot dog-eating champions, and capital-sucking vortex.

"Capital-sucking vortex?" That's a wee bit harsh, no?

No, it's really not Japan is where capital goes to die, and I have the stats to prove it.

Firing up my super-duper stock screener (not sold in stores), I see 2,371 companies with a primary listing on the Tokyo Stock Exchange. That excludes non-Japanese firms that happen to have local listings, like Dow Chemical (NYSE: DOW) and Aflac (NYSE: AFL). Out of all those businesses, how many do you think managed a greater-than -4% return on equity -- a solid but not stunning result -- over each of the years 2005, 2006, and 2007?

Make sure you don't guess too high, or you'll be disqualified. I'll give you a hint: The answer is less than 800.

The price is wrong! In fact, only 35 firms hit that mark! Add in the 925 companies on the Jasdaq exchange, plus the stragglers listed on other local exchanges, and the number climbs to ... 36. In total, fewer than 1% of Japanese equities pass this simple test of Capital Allocation 101.

Why does return on equity (ROE) matter to Foolish investors? Here's a primer, but the simple fact is that the "E" in ROE is shareholders' money. If management is retaining earnings to reinvest in the business, one of its basic requirements is to continuously generate an attractive return on the owners' investment. There are plenty of "profitable" companies in Japan, but those wealth-withering single-digit returns on equity just don't cut the wasabi.

Return on equity isn't the end-all and be-all of performance yardsticks, but it's a very handy one, especially if you remember that managers can juice this figure by taking on more debt. Note that I didn't limit my Japanese search to a maximum level of indebtedness. Some of the companies that passed the test only did so by leveraging to the hilt.

Do we avoid the archipelago entirely? After running this sobering screen, I'll definitely refrain from throwing investment dollars at something like the iShares MSCI Japan Index (NYSE: EWJ), no matter how cheap the broad market looks. However, I'm not going to rule out every single Japanese company. After all, I've got three dozen here that are at least worth a look. Take Komatsu, for example. This equipment heavyweight is the Japanese version of Deere (NYSE: DE). After checking out the numbers, I'm tempted to say that Komatsu is the superior firm.

These two outfits throw off about the same level of revenue, but Komatsu sports slightly fatter margins. In trying to suss out the difference, one statistic really jumped out at me. On its website, Komatsu lists 39,267 employees on a consolidated basis, whereas Deere recently claimed 56,700 full-timers. The resulting revenue-per-employee figure suggests that Komatsu's operations are a good deal more efficient.

I would also note that Komatsu has managed to post good returns on equity without employing nearly as much balance-sheet leverage as Deere.

Another interesting group of firms are the so-called sogo shosha, or general trading companies. Mitsubishi, Mitsui (Nasdaq: MITSY), Itochu, and Marubeni all passed my simple return-on-equity screen.

What do these firms trade, exactly? Well, pretty much everything, from textiles to food products to petroleum. Some of these companies date back centuries; they seem like a natural outgrowth of the nation's limited resource endowment.

I've run across several of these firms in my energy-sector coverage, from Mitsui's profitable Petrobras (NYSE: PBR) partnership to Itochu's dinged deepwater venture. They're interesting businesses, but I find them nearly impossible to analyze. If you're a fan of conglomerates like General Electric (NYSE: GE), then the Japanese trading houses may be right up your alley.

A Foolish final word I'm still parsing this list of Japanese firms, but here's a preliminary observation. Of the 36 firms, only six have a market capitalization north of $10 billion. In other words, the big boys are blowing it. That should make you even more wary of taking an index-based approach to your Japan exposure, unless you pick up one of the small-cap ETFs. In Japan, just as we've discovered here at home, the market's best stocks are ignored, obscure, and small.


* Nissan to post annual operating loss too?

* WSJ: Citigroup ready to shrink itself by a third!

* FT.Com: Morgan Stanley: TP for HSBC cut to 455p. It also says the bank needs between USD20-30b of equity and halve its dividend in order to bolster its Balance Sheet. No recovery in its results until 2011.

* China economy grew to 3rd largest in 2007 after beating Germany but still trails behind Japan and the US.
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* Jackie Chan to star in the remake of Karate Kid.

A rare P/BV of 1

Japanese companies, like the rest of its competitors around the world, are struggling with recessionary pressures. The effects of recession has hit sales(local and export) and increased the difficulty in raising funds. Some that are not level footed face the possibility of bankruptcies. In fact according to BBCNews, company bankruptcies in Japan jumped 24.7% in December from a year earlier. For the 2008 year, it rose 11%, the most in 8 years. With regards to operating loss, the latest forecast figures are also grim. Toyota, the world's second largest automaker is expected to lose USD1.7B this coming March, its first loss in 71 years due to slowing demand and a strong yen(yen soared 25% in 2008). Similarly, Sony is also expected to face an operating loss in the coming March of USD1.1B, its first loss in 14 years. Without doubt, such companies are all too ready to axe their workforce.

Would we be seeing opportunity here to buy cheap beaten up "blue chip" Japanese companies? In fact, according to IHT, refer here, the Nikkei which is nearing its 26 years low, and with a rare P/BV(or NTA) ratio of 1 now (October low of 0.87 when the index hits 6,995) indicates that investors are valuing companies at less than what they could theoretically be liquidated for. It added that even during Japan's decade of economic stagnation, deflation and banking troubles, the price-to-book ratio never fell below 1.

However, some will advise you to keep your money first. Sourcing from Bloomberg here, Analyst John Mihaljevic, writing on the Web site Seeking Alpha, looked at corporate Japan’s evolution since the 1990s, and it’s not pretty. “We approached our study of Japanese stocks with the hypothesis that we should be able to find some compelling investments given the cheap valuations of a large subset of Japanese public companies,” wrote Mihaljevic, managing editor of the Manual of Ideas in New York. “So far, however, we have remained unimpressed.” Five specific issues are explored: a lack of business focus, murky corporate governance, little regard for returns on investment, the high cost of production, and clubby boardrooms.

Despite the above, will you forego this golden opportunity to make money in the long run since the average Japanese stocks are at firesale prices? Actually I am not sure. I did try to do a search using the Bloomberg machines to compare the Nikkei's P/BV with the Bursa or HangSeng in general. Apparently, no such average can be calculated from its database. However, there is such information based on individual stocks. To feel how a 1X P/BV is like, look at AirAsia now. Also, for comparison based on Kenanga Research's latest sector coverage, the P/BV of Property is 0.8X, Plantation 1.7X and Oil & Gas 1.9X . So is P/BV of 1 cheap then? I think the Nikkei's P/BV of 1 is cheap but too generalised as we must also look deeper into the individual stocks themselves. In addition, I believe other valuation ratios (p/e, eps growth, roe etc) must also be used to justify our conviction to buy.

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* Happy Ponggal to you! Hope you have the sweetest start for the year and your low is bearable while your high is exceptional!

* Citi which expects a technical recession in 1Q09 for Malaysia, downgrades on Malaysian banks but still a hold AMMB. It also says Singapore property is in a Bear Trap and advises to sell into strength.

* YahooNews: Yahoo names tech veteran Carol Bartz as new CEO.

* US Trade deficit hits 5 year low in November due to fall in oil prices and slower domestic demand.

* Bloomberg: ABN Ambro: China, HK stocks may be the first to bottom amidst slump.

* RTTNews: China's foreign exchange reserves reaches USD1.95T on 31st December. For the year, it was up USD417.8B. However, the 4th quarter increase has slowed down compared with the previous 3 quarters.