Monday, March 31, 2008
Zimbabwe
Chang Qi is deeply concern with the Zimbabwe polls. Is freedom and democracy in Africa well and alive?
Sunday, March 30, 2008
Rising Food Prices
It is scary to see how prices of food and fuel have been skyrocketing for the past few years. Not sure if anyone see this coming, probably Jim Rogers. However, in every asset class and every industry, you will have one 'guru' naming that asset class/industry as the next big thing. Nassim's 'Fooled By Randomness' will teach us that Jim Rogers just got lucky. Maybe you can be that lucky if you prayed at every temple during your round-the-world biking tour.
Anyway, food and commodities inflation is nothing random. I believe it is once again marked by underlying economic trends. We have seen and heard this before - booming emerging markets lead to booming demand and thus prices go up. Simple demand-supply economics. However, economics also teaches us that supernormal profits drive supply upwards and margins to fall. In the medium term, supply will react and prices should not be too volatile.
Therefore, if information flows freely, farmers will engage in production that brings them the most profits. Production of food should increase and thus bring down prices. The problem is that farmers may not have access to markets and information. They harvest their crops and sell them to distributors who will bring the crops from rural areas to the consumers. I will argue that the current inflation in food benefits these group of middlemen, not the farmers. Therefore, the failure to see significant benefits in planting more cause farmers to respond slower to the high food prices.
The immediate step for many governments is to introduce export-controls for food items. That is a short term solution that is very ineffective for the long term. A for-free-market economist will argue that the agriculture sector should be fully exposed to the possibility of supernormal profits that they can make from international trade. Export-controls will deny that. In fact, government should improve market access such as allowing farmers to know the prices traded at different regions or provinces. Government should also try to improve the productivity of farmers.
Yes, I am trying to ask for higher incomes for the farmers. I do not find the situation of high food prices worrying as strong economic growth worldwide has made millions richer and increased their spending power. However, the agriculture industry in emerging economies such as China and India have suffered far too long. This is a chance for farmers to become richer, shrug off poverty and gain fair returns for their economic activities. In the 90s, people will capital and IT-know-how became rich. In the late 90s and early 2000s, people with hard commodities became rich. Now, its time for the farmers.
Anyway, food and commodities inflation is nothing random. I believe it is once again marked by underlying economic trends. We have seen and heard this before - booming emerging markets lead to booming demand and thus prices go up. Simple demand-supply economics. However, economics also teaches us that supernormal profits drive supply upwards and margins to fall. In the medium term, supply will react and prices should not be too volatile.
Therefore, if information flows freely, farmers will engage in production that brings them the most profits. Production of food should increase and thus bring down prices. The problem is that farmers may not have access to markets and information. They harvest their crops and sell them to distributors who will bring the crops from rural areas to the consumers. I will argue that the current inflation in food benefits these group of middlemen, not the farmers. Therefore, the failure to see significant benefits in planting more cause farmers to respond slower to the high food prices.
The immediate step for many governments is to introduce export-controls for food items. That is a short term solution that is very ineffective for the long term. A for-free-market economist will argue that the agriculture sector should be fully exposed to the possibility of supernormal profits that they can make from international trade. Export-controls will deny that. In fact, government should improve market access such as allowing farmers to know the prices traded at different regions or provinces. Government should also try to improve the productivity of farmers.
Yes, I am trying to ask for higher incomes for the farmers. I do not find the situation of high food prices worrying as strong economic growth worldwide has made millions richer and increased their spending power. However, the agriculture industry in emerging economies such as China and India have suffered far too long. This is a chance for farmers to become richer, shrug off poverty and gain fair returns for their economic activities. In the 90s, people will capital and IT-know-how became rich. In the late 90s and early 2000s, people with hard commodities became rich. Now, its time for the farmers.
Tuesday, March 25, 2008
A Song for the Fed
Fix You by Coldplay
When you try your best but you don't succeed
When you get what you want but not what you need
When you feel so tired but you can't sleep
Stuck in reverse?
When the tears come streaming down your face
When you lose something you can't replace
When you love someone but it goes to waste
Could it be worse?
Lights will guide you home, And ignite your bones,
And I will try to Fix You
Uh Oh
Fed's numerous attempts to bolster liquidity seem to have gained little results. Yields on T-Bills have fallen so low that LIBOR can no longer match. Therefore, the famous TED spread has since settled at around 200 basis points. The spread between Fed Funds rate and the T-bills rate, which according to Krugman, tend to trend in the same direction has also stayed at a spread of around 200 basis points. Have we hit zero-bound? The next few weeks will be crucial as banks in US swap mortgage-related collaterals for US T-Bills. We may be in trouble if liquidity situation does not improve then.
Saturday, March 22, 2008
Singapore's Economic Engineers
4 Years of economics education in SMU have not made me a master in Economics, but it does make me aware of what makes a country tick (economically) and what causes it to fall. I am constantly amazed at how my country, Singapore, got it right most of the time.
Starting out as a 3rd-world country with only an active port and no resources, this country has become the 19th richest country in the world, measured in terms of GDP per capita. And thats just 43 years ago. I think what propelled us to success was the precision economic engineering done by the government and any experts that had been consulted over the years.
We began with industrialization and the development of our position as a maritime hub. We understand that we need to survive on foreign dollars and hence we build our world class airport.That was in the 70s and early 80s.
Towards the end of the early 80s, we start to feel the threat of other industrializing nations and hence we began to bang on financial services and thus seek to establish ourselves as a financial hub. Though we are still not on par with Hong Kong, we have made our mark by becoming one of the top forex and futures markets in the world.
Furthermore, we began to see the economy taking off as surpluses were gradually accumulating and the people are getting more educated and getting better jobs. We did not stop there, we began to improve the productivity of our people. We built the MRT, enhance the expressways, connect the nation with a nation-wide broadband network, better educate our children.
We soared in the 90s. With a 6/6 vision, our government once again did not rest on their laurels. They see the rest of the world catching up, they analyse what is the competitive advantages of the nation and they drafted a plan. They decided to go into bio-medical sciences, aviation engineering, further develop our position as a shipping hub, develop the private-banking industry. Understanding that economic growth relies on population and productivity growth, they tried to introduce both by attracting foreign talents that are well educated. So both numbers went up.
We are now in the 21st century. In recent memory, we just survived the Asian Financial Crisis, Sep 11, SARS and 2002-3 economic recession. So many negative shocks within a short span of half a decade. Swift and sure, the government send Singaporeans for skills-upgrading, develop local consumption by giving more attention to the retail industry, gave cash handouts to Singaporeans. Recognising that more trade must be done, the government establish FTAs with as many partners as possible, engineered a pretty successful pharmaceutical and stem-cell industry to support the faltering manufacturing industry. End result? Higher Productivity and lower rents for trade.
Towards the end of the current decade, we unleash yet another series of economic masterplan. We began a crazy building frenzy to improve connectivity, both internal and external. We try to bring in more dollars through the integrated resorts and the Marina Bay Financial District. We make ourselves financially more stable by setting up 2 of the most successful SWFs in the world
In short, we are always pushing ourselves towards a higher limit. We conducted a few experiments, we failed but it is ok. We have the cash to fail. That is the wisdom of our leaders. We build on our advantages to build greater advantages. If we fail, its ok, at least we tried. This will and drive left us with 6 - 8% of annual economic growth for the past 5 years. Something probably unheard of in any other developed economies.
And by the way, our neighbours have not taken off. Imagine how much more mutual benefits we and our neighbours can gain when they become economically better off. I am excited.
Starting out as a 3rd-world country with only an active port and no resources, this country has become the 19th richest country in the world, measured in terms of GDP per capita. And thats just 43 years ago. I think what propelled us to success was the precision economic engineering done by the government and any experts that had been consulted over the years.
We began with industrialization and the development of our position as a maritime hub. We understand that we need to survive on foreign dollars and hence we build our world class airport.That was in the 70s and early 80s.
Towards the end of the early 80s, we start to feel the threat of other industrializing nations and hence we began to bang on financial services and thus seek to establish ourselves as a financial hub. Though we are still not on par with Hong Kong, we have made our mark by becoming one of the top forex and futures markets in the world.
Furthermore, we began to see the economy taking off as surpluses were gradually accumulating and the people are getting more educated and getting better jobs. We did not stop there, we began to improve the productivity of our people. We built the MRT, enhance the expressways, connect the nation with a nation-wide broadband network, better educate our children.
We soared in the 90s. With a 6/6 vision, our government once again did not rest on their laurels. They see the rest of the world catching up, they analyse what is the competitive advantages of the nation and they drafted a plan. They decided to go into bio-medical sciences, aviation engineering, further develop our position as a shipping hub, develop the private-banking industry. Understanding that economic growth relies on population and productivity growth, they tried to introduce both by attracting foreign talents that are well educated. So both numbers went up.
We are now in the 21st century. In recent memory, we just survived the Asian Financial Crisis, Sep 11, SARS and 2002-3 economic recession. So many negative shocks within a short span of half a decade. Swift and sure, the government send Singaporeans for skills-upgrading, develop local consumption by giving more attention to the retail industry, gave cash handouts to Singaporeans. Recognising that more trade must be done, the government establish FTAs with as many partners as possible, engineered a pretty successful pharmaceutical and stem-cell industry to support the faltering manufacturing industry. End result? Higher Productivity and lower rents for trade.
Towards the end of the current decade, we unleash yet another series of economic masterplan. We began a crazy building frenzy to improve connectivity, both internal and external. We try to bring in more dollars through the integrated resorts and the Marina Bay Financial District. We make ourselves financially more stable by setting up 2 of the most successful SWFs in the world
In short, we are always pushing ourselves towards a higher limit. We conducted a few experiments, we failed but it is ok. We have the cash to fail. That is the wisdom of our leaders. We build on our advantages to build greater advantages. If we fail, its ok, at least we tried. This will and drive left us with 6 - 8% of annual economic growth for the past 5 years. Something probably unheard of in any other developed economies.
And by the way, our neighbours have not taken off. Imagine how much more mutual benefits we and our neighbours can gain when they become economically better off. I am excited.
Friday, March 21, 2008
From My previous Blog
This is extracted from my previous blog. I forgot the password.hahah. Posted on 22 January 2008.
Hello to myself and maybe meiyin - the only loyal readers of my blog! Anyway i reckon it is good to publish something here on a more regular basis for these few months for a simple reason - chaos.
Now, the above chart looks at how the STI behaves for the past 6 months. Definitely not a very happy sight for most investors. Yeah, i am in the red now, but not really enough to make me have sleepless nights. At the first dip, I knew it was all a correction and thus did not take much action, the only thing i did was to assess more options to purchase. Knowing that the rallies probably will not last, I decide to go for dividend stocks and i chose Macquarie International Infrastructure Fund. Potential dividend yields of 8%, interesting infrastructure play, relatively cheap at that point of time. So I bought it at 1.15.
Market fell slightly further and I actually bought at 1.08 with the intention to buy it cheap. We were in the middle of the credit crisis, with little idea when all the mess gonna end up at. On hindsight, it was really a brave but uneducated move to enter the market at that point of time. MIIF never really receovered and I sold it on 15 Jan 2008.
All my stocks were doing fine at that point of time, BestWorld had a bonus issue, Singpost was holding well with a dividend of 0.125 cents per share. Then the whole downturn began. That was the time I got to know about courage marine, the marine sector that i am so attracted to due to it being backed by assets, strong cashflows and a strong O&M sector in the region due to high oil prices. I found CMG to be highly correlated to the Baltic Dry Index and BDI had been on record highs for half a year implying that record revenues were earned by CMG without it being recognised yet. PE was already cheap at 0.46 so I bought 4 lots. Prices crashed to 0.395 and I bought 4 lots again. Prices had a minor rebound till 0.435 and I was breaking even on the weighted average cost of 8 lots but I held on... as my fair value of the company is at least 0.60 implying a potential 33% gain.
Well the rest of the story is very much plain and obvious, the market never really recovered and I just experienced the biggest slides i ever can remember since i started looking at markets. STI slided at least 15% in the short course of 5 days and here am I, in a bit of a loss with Singpost at $1.03, Bestworld at $0.845, Courage at $0.3 , ASL at $1.16. Anyway, I traded MIIF for ASL as my favourite well diversified shipping company just got damn cheap and PE is below 10.
Lessons learn? Well, it remains to be seen whether the story that most speedy bear markets have a speedy recovery will unfold over the next few weeks. My bet is that with the various measures by the US and the strong economic fundamentals in east asia, the story remains beautiful. However, I remembered the various times in which i saw the value of my portfolio and I was just so tempted to cash out. I didnt and in fact did a bit of switching. MIIF reached the limit of my patience and I sold it for ASL. I realise that such trusts are really too boring for me.
As for other stocks, i learnt that it is important to always go back to the company and see how it is doing. Is it still the same story as the one that persuaded you to buy into them. Are they doing well? Are they giving out dividends? I think if the answers are all Yes, stay in. My only worry is Courage Marine. I am confident of my valuation method, only to be proven wrong by the market as of now but the current market is sentiment driven to a large extent. So the next 6 months will tell me some story about fundamental analysis and whether it is really relevant to stock picking.
The biggest lesson is, in times of crisis and bulls, nothing beats holding stable dividend plays like SMRT, Singpost. I think Ben Graham's lessons are well told again. In times like these, strong dividend yields will be the only consolation. In good times, strong dividend yields plus relatively attractive capital gains will give you double bonus. So isnt it obvious that high dividend stocks are the perfect choice for retail investors like me?
Yes and no. I think the biggest lesson is that always allocate a comfortable amount to play and to invest. We are back to asset allocation again. I am confident about my bets in more speculative plays like ASL, Courage and Bestworld. However, after these turbulent months, I am sure that once I reach the PE limits of these stocks, I will cash out and await to buy into dividend yields. My heart truly got weaker after these 6 months.
One more thing about PE before I end my long post. Anything below PE 15 is attractive, one mistake is I bought Singpost at PE 18 thinking that it is worth it since they are practically a monopoly. Well, its still worth it but not as worth it if i bought it below PE 15. For Singapore stocks, anything 18 can be considered for cashing out and anything below PE 12 should be considered for buying. If PE 12 is not reached, just wait, the right time will come. See.
Subscribe to:
Posts (Atom)