It is well known now that credit has been tighten. Property companies with high leverage are finding it hard to refinance, such as Centro Properties and Allco Reits. However, I was surprised to see some L&S still asking retailers to buy into Real Estate Investment Trusts (REITs).
MOST REITs are highly leverage on their balance sheet to generate "recurrent" income for the unit holders. Because they are so highly leverage, the change in financing costs will cut into their net profit margin significantly. Stock markets have correctly repriced REITs in recent months by slashing the share price. But, this doesn't mean that they won't keep falling. Stock markets may have priced in the interest expense part in chopping the net profit, but have they priced in the revenue part?
During recession times like the one in 1998 - 2000, Rental in most SICKapore properties FELL. YES! rental rate can fall when demand fell because of bankruptcy due to the recession. What makes u think that this won't happen again?
So, when would be a good time to accumulate REITs? I would feel more comfortable holding a BIG CAP REITs when it is trading way way below its NTA. Because this will give a good margin of safety. Looking through most of SICKapore listed REITs, I just can't find BIG capitalized REITs that are selling below NTA.
So, my conclusion is to stay away if u r not in. OR, sell off if you can afford to take the losses NOW!
Monday, March 31, 2008
Monday, March 24, 2008
Price of DISobedience
Looking back at various events, I find that markets have ignored authorities' warnings in MANY MANY instances and suffer from such disobediences! Followings are some examples:
2001: Tech bubbles: Mr. Spanny said stock markets are exuberance n a few months later, stock markets tumbled.
2006-2007: Mr. Spanny and Benny warned of credits too loose, risk is way too low and beri umcomfortble. Now in 2007 to 2008, subprime dent all markets.
There is still one warning that has fallen on deaf ears: OIL is well supplied, inventories are all in record levels. But, people still piling into them... hmmm.... are we going to see the same thing play out? disobedient boys n girls will get canned later?
Of course, there are political and so on reasons for the price premium of oil. but is it warranted? A bit of premium may be reasonable but 50%?? I don't know, time will tell us. OPEC has time and again tell us that the world market is WELL supplied. Do u want to take heed or ignore? The choice is yours.
You are welcome to add more tales of warnings NOT heeded and the players got burnt. Properties in SICKapore in 1993?
2001: Tech bubbles: Mr. Spanny said stock markets are exuberance n a few months later, stock markets tumbled.
2006-2007: Mr. Spanny and Benny warned of credits too loose, risk is way too low and beri umcomfortble. Now in 2007 to 2008, subprime dent all markets.
There is still one warning that has fallen on deaf ears: OIL is well supplied, inventories are all in record levels. But, people still piling into them... hmmm.... are we going to see the same thing play out? disobedient boys n girls will get canned later?
Of course, there are political and so on reasons for the price premium of oil. but is it warranted? A bit of premium may be reasonable but 50%?? I don't know, time will tell us. OPEC has time and again tell us that the world market is WELL supplied. Do u want to take heed or ignore? The choice is yours.
You are welcome to add more tales of warnings NOT heeded and the players got burnt. Properties in SICKapore in 1993?
Tuesday, March 18, 2008
Solving Moral Hazard
Much has been said about how the compensation of CEO led them to make RISKY decisions for short term gain. Once, they pocket the gain from high share price, they wipe their behind clean and leave the poo to the next CEO to clean up the mess.
Compensation based on SHORT TERM performance is the problem. Within a short time frame, many would risk it all especially when the $$ came not from their own pocket but from the shareholders. Hence, the question is how to align the CEO's interest with the LONG TERM interest of the shareholders.
I heard on TV that one Bear Sterns employee said her saving plans of past 17 yrs disappear over night. Evidently, she must have got lots of Bear Sterns' options. But, something is NOT right. Y is she being a "lower" paying employee got stucked with such losses while "HIGHLY" paid CEO or management, got off the hook with millions in CASH for salary in addition to options??
I propose a change. Put a CAP on the MAXIMUM that any CEO or management level employees can take home as CASH salary, eg. $1million. By the way, Warren Buffet got paid ONLY $100,000 per year, and u want to tell me that $1million is low?? The rest of the package will be made of options with exercise date upon the retirement of the CEO or managers. Yes, they can only convert to cash when they retire! That will make sure that any decisions from them are for the LONG TERM gain of ALL stakeholders, including their own.
Should they demised before their retirement, the option should be made transferable, to wife, or children, who will only be allowed to convert they option on the stipulated date of the original holder's retirement date.
In order to protect their retirement nest egg, they will like most of us, make decisions based on what is best for the LONG TERM till they retire. They will also have to pick their successor very carefully. Because any decisions made by the new successor will impact their own pocket! This will ensure continuity of good stewardship of the company.
I welcome any criticism of my proposal. Best, if any1 of u can relate my idea to the business community or law setting bodies in US or worldwide.
Lowering of interest rate will do NOTHING to resolve such moral hazard and reckless risk taking behaviour. I urge CLEVER people to take a long term approach to solve this issue for the good of ALL mankind.
Compensation based on SHORT TERM performance is the problem. Within a short time frame, many would risk it all especially when the $$ came not from their own pocket but from the shareholders. Hence, the question is how to align the CEO's interest with the LONG TERM interest of the shareholders.
I heard on TV that one Bear Sterns employee said her saving plans of past 17 yrs disappear over night. Evidently, she must have got lots of Bear Sterns' options. But, something is NOT right. Y is she being a "lower" paying employee got stucked with such losses while "HIGHLY" paid CEO or management, got off the hook with millions in CASH for salary in addition to options??
I propose a change. Put a CAP on the MAXIMUM that any CEO or management level employees can take home as CASH salary, eg. $1million. By the way, Warren Buffet got paid ONLY $100,000 per year, and u want to tell me that $1million is low?? The rest of the package will be made of options with exercise date upon the retirement of the CEO or managers. Yes, they can only convert to cash when they retire! That will make sure that any decisions from them are for the LONG TERM gain of ALL stakeholders, including their own.
Should they demised before their retirement, the option should be made transferable, to wife, or children, who will only be allowed to convert they option on the stipulated date of the original holder's retirement date.
In order to protect their retirement nest egg, they will like most of us, make decisions based on what is best for the LONG TERM till they retire. They will also have to pick their successor very carefully. Because any decisions made by the new successor will impact their own pocket! This will ensure continuity of good stewardship of the company.
I welcome any criticism of my proposal. Best, if any1 of u can relate my idea to the business community or law setting bodies in US or worldwide.
Lowering of interest rate will do NOTHING to resolve such moral hazard and reckless risk taking behaviour. I urge CLEVER people to take a long term approach to solve this issue for the good of ALL mankind.
Wednesday, March 12, 2008
Cut And Print
In their quest to save the falling value of housing prices in US, Benny + Mr. SEX keep on cutting n printing more paper money. This is bad of US Dollar and I for one won't be at all surprised to see USD fall to 50 from current 73 on the dollar index.
Their objective is to INFLATE everything, including house prices, to prevent further decline in the value of those loans taken out on houses when their prices r sky high. I am sure that if even a stupid person like me can see through what they r trying to do, just imagine all the smart people out there. No wonder u see Euro shoots through the roof at 1.55, I won't be surprised to see Euro goes to 2. But, by then European will have massive unemployment issues and my dear Mr. Tricky (trichet) will have to cut n cut rates... hahahha....
Goldies will probably go through the MOON, IF we see B+S continuing their path of paper printing, for which I don't see them changing at all. Well, at least their actions so far did not indicate they r changing their track. U heard the machinery order from JAPAN went up? FED was placing big big orders to purchase print machineries from JAPAN to print more paper money? hahahaha...
SICKapore dollar might actually go to parity with USD as this cut n print policy keep on growing. ALL other Asian $$ will RISE to NEW high!
Their objective is to INFLATE everything, including house prices, to prevent further decline in the value of those loans taken out on houses when their prices r sky high. I am sure that if even a stupid person like me can see through what they r trying to do, just imagine all the smart people out there. No wonder u see Euro shoots through the roof at 1.55, I won't be surprised to see Euro goes to 2. But, by then European will have massive unemployment issues and my dear Mr. Tricky (trichet) will have to cut n cut rates... hahahha....
Goldies will probably go through the MOON, IF we see B+S continuing their path of paper printing, for which I don't see them changing at all. Well, at least their actions so far did not indicate they r changing their track. U heard the machinery order from JAPAN went up? FED was placing big big orders to purchase print machineries from JAPAN to print more paper money? hahahaha...
SICKapore dollar might actually go to parity with USD as this cut n print policy keep on growing. ALL other Asian $$ will RISE to NEW high!
Thursday, March 6, 2008
US equities cheap. REALLY?
Much has been said about how cheap the US markets are trading, using P/E and the fact that they have fallen so much. But, is US REALLY cheap?
For one, the US Dollar is depreciating and KEEP depreciating thanks to the CLEVER policies of Benny and Spanny! Will this policy change? I don't think so. They have already made their choice of employment OVER inflation. Action speaks louder than words. Even though Benny PROMISES that he will attack inflation AFTER employment is fixed, those are just words. The FACT is that he lowered rates. Such falling currency will deter investors because even if the equity goes up, when converted back to their home currencies, they might be WORST off than parking at their own local banGs. Since SICKapore banGs give such pathetic rate, I can understand y Auntie HO wants to buy so many US banGs. Put in SICKapore also no interest, right? hehehe.....
Second, the ANALysts are still predicting beri rossy outlook in the second half. So, the P/E is predicated at that happening. What if that didn't materialise? hehehe...
For one, the US Dollar is depreciating and KEEP depreciating thanks to the CLEVER policies of Benny and Spanny! Will this policy change? I don't think so. They have already made their choice of employment OVER inflation. Action speaks louder than words. Even though Benny PROMISES that he will attack inflation AFTER employment is fixed, those are just words. The FACT is that he lowered rates. Such falling currency will deter investors because even if the equity goes up, when converted back to their home currencies, they might be WORST off than parking at their own local banGs. Since SICKapore banGs give such pathetic rate, I can understand y Auntie HO wants to buy so many US banGs. Put in SICKapore also no interest, right? hehehe.....
Second, the ANALysts are still predicting beri rossy outlook in the second half. So, the P/E is predicated at that happening. What if that didn't materialise? hehehe...
Tuesday, March 4, 2008
HIGH interest rate. CRAZY?
I watched a few financial broadcasts and ALL (yes, 100%) of them said it is crazy to call for higher interest rate in the face of such "difficult" times. But, please look at the oil crisis in the 70s. What did Paul Volker do? U telling me he is crazy? Look at the prosperity of the 80s and 90s. Was he crazy? We need to burst such vicious cycle of ever ESCALATING commodities prices and stablise the USD. Why is that crazy? Please tell me. I am just too stupid too understand.
Everyone said rates MUST be lowered. But, the FACT is that no banGs is willing to lend even if interest rate fall to 0% because of risk aversion. They are scared that the borrowers will DEFAULT. If you burst the bubble, people scared their houses will go down in value further in the future, these people will SELL no matter what price they can get. This will clear the system of all these bad debts or decisions. And we can all start anew and move on.
Yes, it will be beri difficult for many many people. But, if this drags on, we will be facing not just recession but depression because people continue to hold onto their over-valued assets in the believe that prices will go back up because FED will lower nominal rate to negative to force the lender to send their $$ out to save these people.
The conclusion is : Do we want short-term pain for long-term gain? or short-term gain for long-term pain? Clearly FED has voted for the latter.
Everyone said rates MUST be lowered. But, the FACT is that no banGs is willing to lend even if interest rate fall to 0% because of risk aversion. They are scared that the borrowers will DEFAULT. If you burst the bubble, people scared their houses will go down in value further in the future, these people will SELL no matter what price they can get. This will clear the system of all these bad debts or decisions. And we can all start anew and move on.
Yes, it will be beri difficult for many many people. But, if this drags on, we will be facing not just recession but depression because people continue to hold onto their over-valued assets in the believe that prices will go back up because FED will lower nominal rate to negative to force the lender to send their $$ out to save these people.
The conclusion is : Do we want short-term pain for long-term gain? or short-term gain for long-term pain? Clearly FED has voted for the latter.
Monday, March 3, 2008
CASH is KING
Commodities surging like no tomorrow, yet central banGers see no evil. There WILL be a point where the manufacturers can NO LONGER absorb the hike and be forced to hike prices of their products! Nobody knows where is the tipping point when this will happen. I am the first to admit it. But, with raw materials going up in such HUGE % even in dollar terms, that point is getting nearer NOT further. Actually, commodities out run ALL paper currencies. This is a reflection of poor money management skills of the banGers who prefer to have inflation rather than unemployment.
Once the tipping point happens, ALL manufactured goods price will move UP. non-core inflation moving into core inflation. By that time, I bet that the central banGers will have to take a lesson from my favourite FED chairman, Paul Volker, and hike rate till 15%!!!
So, raise your holdings in CASH and get ready for the NEXT big thing, HIGH interest rate!!!
And of course, CASH comes in many forms, like USD, SICKapore dollar, Loonie, Aussie, Euro, etc. Pick those currencies whose host do not have large account deficit, show large surpluses, strong balance sheet as a country lah. So, USD is OUT! Euro is frankly in fairy land (I still believe Jean Trichet will CUT when he sees what the strong Euro will do to the employment rate). SICKapore dollar is not that bad a choice to me.
Once the tipping point happens, ALL manufactured goods price will move UP. non-core inflation moving into core inflation. By that time, I bet that the central banGers will have to take a lesson from my favourite FED chairman, Paul Volker, and hike rate till 15%!!!
So, raise your holdings in CASH and get ready for the NEXT big thing, HIGH interest rate!!!
And of course, CASH comes in many forms, like USD, SICKapore dollar, Loonie, Aussie, Euro, etc. Pick those currencies whose host do not have large account deficit, show large surpluses, strong balance sheet as a country lah. So, USD is OUT! Euro is frankly in fairy land (I still believe Jean Trichet will CUT when he sees what the strong Euro will do to the employment rate). SICKapore dollar is not that bad a choice to me.
ChIndia Will NOT be spared
There are lots of talk about the domestic demand of China and India. But, these countries' consumers' spending is not even 20% of the US! Even granted that they have so called domestic driven demand, where are their employment coming from? India got lots of outsourcing from US software firms, China got lots of manufacturing jobs from US Multinational corporations. When the US consumers cut down spending, do u think the demand for the services/manufactured goods from ChIndia will still be in big demand?
Call me stupid, I just don't buy the argument that ChIndia can "save" the whole world.
Call me stupid, I just don't buy the argument that ChIndia can "save" the whole world.
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