Wednesday, 8 October 2014

Here's Why Oil Prices Are Sagging

Its FRACKING ... or shale oil. Almost without warning, the US is almost self sufficient in oil. The map from Fortune is amazingly clear. The US already produces as much oil as the following combined countries: Venezuela, UK, UAE, Ukraine, Libya, Oman and Ecuador. All the less reasons to go to war from now on.


FORTUNE: U.S. oil production suddenly rivals that of some major exporters.

The U.S. is in the middle of an oil boom. Over the past several years, advances in fracking technology have allowed the U.S. to tap into its vast reserves of shale oil, making the country one of the world’s largest producers of crude, upending the global energy marketplace. With nearly two-thirds more output now than six years ago, the U.S. produces 8.4 million barrels of crude per day. That’s still less than Russia, but more than twice as much as Iran or Canada. Texas alone now out-gushes the United Arab Emirates, Mexico, and Nigeria. Forget OPEC—meet the new league of oil-producing states, the united ones. (click the map to enlarge)
BRI

Monday, 6 October 2014

Equity Risk Premium - The New Best Single Measure For Stocks

Great article from Fortune magazine:





It’s called the Equity Risk Premium, or ERP, and it’s been lauded as the Holy Grail of corporate finance.

Investors have come down with a case of the jitters, and for a good reason.
Since September 22, the Dow has careened through three days of 100 point-plus losses. The gigantic pop in the Alibaba IPO and the Chinese e-commerce phenomenon’s epic valuation have begun to stir fears that we’ve hit a market peak.
What’s worrying is that prices are displaying far greater faith in the future than the unimpressive fundamentals suggest is warranted. We’re living in a world of record-high corporate valuations and mediocre earnings growth.
To get the most accurate picture of the situation, let’s examine a metric that tells you when stocks are really a buy, and when they’re overly pricey. It’s called the Equity Risk Premium, or ERP, and it’s been lauded as the Holy Grail of corporate finance. The name may sound wonky, but for making money in stocks in the long-term, it’s the most practical measurement you’ll ever find.
The Equity Risk Premium is the extra return that investors demand for taking the additional risk of choosing stocks over far safer Treasury bonds. The higher the ERP, the bigger the potential future returns. Risk premiums ballooned, for example, in the panic of 2009, and folks who bought then profited handsomely. By contrast, when the ERP is below average, gains on equities tend to be weak or non-existent in the years to come.
What’s misleading is that the real, sustainable ERP has been disguised by a temporary phenomenon: unsustainably low interest rates. But it’s no great challenge to unmask an adjusted, realistic ERP from the illusory, official one. And as we’ll see, that slender figure is cause for alarm.
The ERP is simply the expected return on equities minus the inflation-adjusted yield on 10-year treasuries—that’s the extra cushion, or margin for error, you’d expect for braving equities. The best measure of the expected return is the earnings yield on the CAPE, or Cyclically Adjusted Price-Earnings Ratio, developed by economist Robert Shiller. The CAPE is the most reliable yardstick for returns since it adjusts for temporary, highly misleading swings in profits. Right now, the E/P (earnings to price ratio) on the CAPE stands at 3.8%. That’s the inverse of the Shiller price-to-earnings ratio of 26.3.
So the expected return on stocks is now 3.8%, adjusted for inflation. The second step consists of subtracting the real rate on the 10-year Treasury to get the ERP. The long bond is now yielding around 2.5%, and inflation is running at around 2%. So the real yield is a mere 0.5%.
Hence, the ERP is our 3.8% expected return minus 0.5%, or 3.3%. By historical standards, that’s a good figure. It’s an encouraging signal for the bulls, even the responsible ones. They can argue that the expected return of 3.8% plus inflation of 2%, or 5.8% in total, isn’t great, but clocks the yields on the long bond. So why not buy stocks?
Even the optimists, however, acknowledge that interest rates need to rise. Today, the incredibly low 0.5% real yield has created a mirage in the form of a superficially strong ERP. Things always go back to normal, so consider the results when the Fed unshackles interest rates and lets them swing back to their historic norms. Over time, real rates hover in the 2% range. What will happen when they rise from today’s level of 0.5% to 2%, bringing the yield on the 10-year Treasury bond to 4% (the total of the 2% real yield plus a 2% premium for future inflation)?
Now, we can re-calculate the ERP to eliminate the funhouse mirror effect of artificially low interest rates. The expected return of 3.8%, minus the reasonable, future real rate of 2%, leaves an under-nourished ERP of just 1.8%.
That’s not enough to justify investing in stocks. Let’s assume investors still demand a spread over bonds of 3.3 points, matching what they’re supposed to be getting today. Now they’ll require future returns not of 5.8%, but 7.3% (that’s the real rate of 2% plus the ERP of 3.3% plus inflation of 2%).
Restoring the ERP to attractive levels will require a sharp drop in company valuations. The Shiller PE would need to fall from 26.3 to 18.9, causing stock prices to drop by 28%. The S&P would look alluring again at around 1,425. Watching the ERP is all about what really matters in investing: ensuring you are well paid for risk. So follow the sovereign of all market metrics.

Thursday, 2 October 2014

The Fun Rides Are Getting Ridiculously Crazy

I like fun rides at amusement parks, not a lot but I am OK to participate. Some roller coaster rides have been getting more and more nerve racking, more turns, spirals, speed and heights that they drop from. Thats still OK because once you move its kinda like on its own speed.

This new ride at Phantasialand in Germany called TALOCAN reminds me of a gut churning ride, Loop-de-Loop, which you still see nowaday of a trainlike seating that goes up in a full circle, like a loop and will stay upside down for a few seconds before dropping. The TALOCAN does that but with a lot more twists. You take this ride, you'd be walking with weak knees for an hour.



Why Hongkongers Will Soldier On

Anson Chan defends and details why HK is in the state she is in.


Anson Chan
Anson Chan has re-emerged in the spotlight amid a growing fight by Hong Kongers for democratic rights. Photograph: Scott Eells/Bloomberg News

She is often called the “Iron Lady” of Hong Kong. Anson Chan earned respect serving as Hong Kong’s second-highest official when the British were in charge. And when the colony was handed back to China in 1997, Beijing enlisted Chan to help with that transition.
While she no longer holds any official government position, Chan, 74, remains one of the most influential political figures in Hong Kong and has re-emerged in the spotlight amid a growing fight by Hong Kongers for democratic rights.
At the heart of the fight is China’s promise during the 1997 handover that Hong Kong would be allowed a level of autonomy. Many in Hong Kong believe China has broken that commitment – especially when it comes to media freedoms and the process of choosing a chief executive, which is currently done by a committee tightly controlled by Beijing.
Amid the growing polarisation, Chan has staked out a centrist position, supporting pro-democracy activists but pushing them to take a measured, practical approach to negotiating with China.
And she has used her profile to drum up international support for the Hong Kongers’ campaign for democracy. Her recent visits to Britain and to Washington – where she saw vice-president Joe Biden, members of Congress and the state department – secured statements of support even as they drew angry retorts from Beijing.
Chan’s efforts reflect her approach to seemingly intractable problems: identify the best compromise deal possible, then push on every lever possible to achieve that goal.
In a recent interview, Chan talked about her appeals for international support, her assessment of Hong Kong’s fight for democratic rights and her vision for Hong Kong’s future. Here are condensed excerpts from that conversation:
How has Hong Kong’s future turned out differently from what you imagined in 1997?
“Of course, all of us had a bit of apprehension because we didn’t know what actually would happen after the handover. I personally put in a great deal of effort and time to sell the joint declaration, to secure international support and to tell Hong Kong people, ‘All will be well because we have all these promises.’
“I never in my wildest dream predicted 17 years after the handover that Hong Kong would be in this state. Nor did I foresee – and this is particularly disappointing – that all three parties to the joint declaration and the Basic Law [Hong Kong’s equivalent of a constitution] – Beijing, Britain, Hong Kong’s government – would all choose to walk away from their promises to the people of Hong Kong.”
Why have you focused in your proposals on a compromise that gives people in Hong Kong more say in the nominating process for the chief executive, rather than simply “one person, one vote”, as others have proposed?
“Our group, Hong Kong 2020, has listened to all the noise that has been made, particularly by the pro-Beijing forces in Hong Kong and by Beijing officials, and by the liaison office. One message is totally clear, they will not accept civil nomination [allowing voters themselves to nominate candidates for chief executive], because they claim this is a breach of the Basic Law.
“So whilst we dispute this, we say, ‘Let’s try and see whether we can’t broker a compromise solution.’ So we spent one year checking with the different aspects of the community, listening to their views, and we arrived at a set of proposals that are fully compliant with the Basic Law, with no civil nominations but a chance to broaden the representativeness of the nominating committee. Because this is what the Basic Law prescribes.
“But what does the government do? The government keeps telling us that there’s room for negotiation, let’s sit down and seriously talk. But every single compromise proposal – and it’s not just ours, there are several others – one after another, they have been shot down by the government. So where is the sincerity? Where is the commitment towards actually trying to broker a compromise?
“We all know the government is waiting for instructions from Beijing, which are expected sometime in August.”
Why should the international community care what happens in Hong Kong?
“The international community takes an interest in Hong Kong, if for nothing else than their own self-interest. Because they have investments here, they have nationals living here, they have a whole raft of bilateral agreements with Hong Kong, ranging from cooperation in law enforcement, preventing human trafficking, narcotics, protection of intellectual properties. All these have been concluded on the basis that there is a very distinct system in Hong Kong totally different from anything prevailing in mainland China.
“If the two systems go, surely Hong Kong will no longer be in [a] position to honour our treaty obligations.”
How do you see your role in Hong Kong these days? How can you best use that to the advantage of Hong Kong?
“I’ve never been interested in particularly carving out a role for myself. But the reason why I decided to adopt a higher profile starting in 2006 is because I saw things deteriorating very rapidly, both in terms of the government dragging its feet on democratic reforms, but even more importantly on the whole quality of governance.
“One of the things we prided ourselves on was the fact that Hong Kong’s civil servants were a genuine meritocracy. You didn’t have to resort to political patronage. But that’s what has happened ever since [former chief executive] CH Tung introduced the political appointment system in 2002 – which by the way is the reason why I decided to retire early, because I felt that that system was thoroughly, fundamentally flawed.
“Because the chief executive is not popularly elected, to concentrate the power to appoint the top posts within the Hong Kong government in one pair of hands, without having checks and balance, is asking for trouble.”
If the opportunity ever emerged, would you ever run for chief executive yourself?
“I’m a pragmatist above anything else. There are two reasons [I wouldn’t run]: One, I would not be acceptable to China; secondly, this job needs a younger person. I’m already 74.
“I’ll continue to do what I can to encourage people to speak up because it’s very important. I cannot guarantee that even if we speak up and express our concerns, that we will necessarily succeed. But if we remain silent and do nothing, we definitely will lose.”
This article appeared in the Guardian Weekly, which incorporates material from the Washington Post

Tuesday, 30 September 2014

Boundless Sea & Sky

Give the people what they want, we are not asking for much, just what is fair, what is right and equitable ... our struggles are ongoing and many of us feel for our HK friends. Beyond's song "Boundless Sea and Sky" which epitomises the yearning for freedom and liberty, from all that is "not right".... rightfully is the anthem.





 海阔天空 – Beyond
今天我 寒夜里看雪飘过
Gam tin ngoh, hon ye lui hon suet piu gwoh
Today I saw snow drifting through the cold night
怀著冷却了的心窝飘远方
Waai jeuk laang keuk liu dik sam woh piu yuen fong
With the cold, my heart and mind drift off to faraway places
风雨里追赶 雾里分不清影踪
Fung yue lui jui gon, mo lui fan bat ching ying jung
Trying to catch up in the wind and rain, in the fog you can’t tell the shadows apart
天空海阔你与我 可会变(谁没在变)
Tin hung hoi foot nei yue ngoh, how wui bin (sui moot joi bin)
Vast sky wide ocean, you and I, who would change?  (Who wouldn’t change?)
多少次 迎著冷眼与嘲笑
Doh siu chi, ying jeuk laang ngaan yue jaau siu
Many times I’ve faced the cold with eyes of ridicule
从没有放弃过心中的理想
Chung moot yau fong hei gwoh sam jung dik lei seung
Never have I gave up my heart’s hopes and ideals
一刹那恍惚 若有所失的感觉
Yat saat na fong fat, yeuk yau soh sat dik gam gok
A moment of absentmindedness, there’s also the feeling of loss
不知不觉已变淡 心里爱(谁明白我)
Bat ji bat gok yi bin daam, sam lui ngoi
Without realization, it faded, the love in my heart (Who understands me?)
原谅我这一生不羁放纵爱自由
Yuen leung ngoh je yat saang bat gei fong jung ngoi ji yau
Forgive me this life of uninhibited love and indulgence of freedom
也会怕有一天会跌倒(OH NO)
Ya wui pa yau yat tin wui dit do (oh no)
Although I’m still afraid that one day I might fall
被弃了理想, 谁人都可以
Bui hei liu lei seung, sui yan do ho yi
Abandon your hopes and ideals, anyone can do
那会怕有一天只你共我
Na wui pa yau yat tin ji nei gung ngoh
I’m not afraid if someday there’s only you and me
今天我 寒夜里看雪飘过
Gam tin ngoh, hon ye lui hon suet piu gwoh
Today I saw snow drifting through the cold night
怀著冷却了的心窝飘远方
Waai jeuk laang keuk liu dik sam woh piu yuen fong
With the cold, my heart and mind drift off to faraway places
风雨里追赶 雾里分不清影踪
Fung yue lui jui gon, mo lui fan bat ching ying jung
Trying to catch up in the wind and rain, in the fog you can’t tell the shadows apart
天空海阔你与我 可会变(谁没在变)
Tin hung hoi foot nei yue ngoh, how wui bin (sui moot joi bin)
Vast sky wide ocean, you and I, who would change?  (Who wouldn’t change?)
原谅我这一生不羁放纵爱自由
Yuen leung ngoh je yat saang bat gei fong jung ngoi ji yau
Forgive me this life of uninhibited love and indulgence of freedom
也会怕有一天会跌倒(OH NO)
Ya wui pa yau yat tin wui dit do (oh no)
Although I’m still afraid that one day I might fall
被弃了理想, 谁人都可以
Bui hei liu lei seung, sui yan do ho yi
Abandon your hopes and ideals, anyone can do
那会怕有一天只你共我
Na wui pa yau yat tin ji nei gung ngoh
I’m not afraid if someday there’s only you and me
仍然自由自我
Ying yin ji yau ji ngoh
Still I am free, still I am independent
永远高唱我歌, 走遍千里
Wing yuen go cheung ngoh goh, jau pin chin lei
Always loudly singing my song, traveling thousands of miles
原谅我这一生不羁放纵爱自由
Yuen leung ngoh je yat saang bat gei fong jung ngoi ji yau
Forgive me this life of uninhibited love and indulgence of freedom
也会怕有一天会跌倒(OH NO)
Ya wui pa yau yat tin wui dit do (oh no)
Although I’m still afraid that one day I might fall
被弃了理想, 谁人都可以
Bui hei liu lei seung, sui yan do ho yi
Abandon your hopes and ideals, anyone can do
那会怕有一天只你共我
Na wui pa yau yat tin ji nei gung ngoh
I’m not afraid if someday there’s only you and me
被弃了理想, 谁人都可以
Bui hei liu lei seung, sui yan do ho yi
Abandon your hopes and ideals, anyone can do
那会怕有一天只你共我
Na wui pa yau yat tin ji nei gung ngoh
I’m not afraid if someday there’s only you and me

Sunday, 28 September 2014

Threes & Tees

I heard good things about a tee shirt design and printing outfit in KL. There are plenty of places that do that. Hence it takes a lot of soul searching to even try to compete in this arena. Ordered a few tees a few weeks back online. Very good customer service and they made sure I was informed every step of the way. End product - well, I think they sourced the best material for tees because the tees feel like the most comfy I have ever worn in my life, and I have worn a lot of tees.

A couple days after, I decided to put in my own design ... again great customer service. Showed me the design template before going ahead. Very satisfied customer here.

(p/s I do not know the owners, ... no fees, no freebie, no nothing from them...)

Give them a go:   http://www.threesandtees.com/en/

My own designed tees.... "egalite" is my favourite word in the world, somehow pronouncing it in French makes a whole world of difference to the oft used and overused "equal or equality". The other one is me and my own wicked thoughts.











































Saturday, 27 September 2014

Realignment In Global Currencies Caused Global Equities To Pause

The worst week for global equities in almost two months finished on a positive note as optimism in the economy’s strength helped counter a procession of concerns from geopolitics to valuations and interest rates.

The Standard & Poor’s 500 Index lost 1.4 percent for the week, paring declines on the final day with a 0.9 percent rally. The MSCI All-Country World Index dropped 2 percent for the five days, the most since Aug. 1. The Russell 2000 Index of smaller companies decreased 2.4 percent. The MSCI Emerging Markets Index tumbled 2.8 percent, heading toward its worst month since January. 

We have to remember that most equity markets are near or at their all time highs. What is different is that I DO NOT see any of these so called all time high markets experiencing crowd madness, euphoria driven rallies, blinkered decision making ... every single market, even at or near their all time highs have been relatively subdued.

That is the crux of the current rally. Is it a liquidity driven rally? Well any bull run has to be driven by cheap money. The only thing is that not many people want to gear up or take advantage of low interest rates to leverage up to participate in the markets. However, many corporations and funds have been more than willing to gear up. Many institutional funds are willing to look for better returns. Hence much of the INDEXED STOCKS highs are due to this, an accumulation by institutional funds ... hence you do not feel the euphoria so much. 


The bulk of the activity has been in small caps, look at any market for the past 2 years. There certainly has been a flattening of many major property markets, not correction, but flattening out. We can surmise that a substantial amount of that liquidity may have trickled into equity markets, esp the smaller caps play.

However most equity markets traded sideways for the past week or so, MAINLY as there is an adjustment or realignment process going on in the global currencies arena. It appears there are some main conclusions reached by the majority:
a) Fed will raise interest rates very soon
b) resource led currencies will not get any help from China demand
c) Japan's reflationary tactics gaining traction
d) US recovery more solid and is diverging from EU

Equities fell early in the week as stronger economic data fueled concern the Federal Reserve may raise interest rates sooner than anticipated. The issue took a back seat on the final day as the S&P 500 rebounded from the biggest one-day decline since July on a report showing U.S. gross domestic product expanded in the second quarter at the fastest rate since 2011.

Interest Rates

Investors are analyzing reports to assess whether growth is strong enough to withstand higher rates. The S&P 500 reached a record on Sept. 18 after the Fed maintained a commitment to keep interest rates near zero for a considerable time after completing asset purchases. The Fed also said that the timing could move forward if data continues to exceed expectations.

Interest-rate concerns boosted the dollar, sending the greenback to a four-year high and its sixth straight week of gains. Its rally sent the MSCI Emerging Markets Index to a third week of losses. The gauge has tumbled 5.8 percent in September.

Reports for the week showed the U.S. economy rose at a 4.6 percent annualized rate in the second quarter, up from an August estimate of 4.2 percent. New-home sales surged to the highest level in more than six years, and American factories received more orders for machinery as an improving economy gave companies the confidence to expand.

The USD was set for the biggest monthly gain in more than two years as reports showing a stronger U.S. economy added to bets the Federal Reserve will boost interest rates sooner than its peers in Europe and Japan.

The greenback rose to the strongest level in 22 months versus the euro before the European Central Bank meets Oct. 2 to discuss the region’s slumping economy. The yen approached the weakest in six years amid slowing inflation and mixed signals on the speed of pension-fund changes. Emerging-market currencies headed lower, while the Bloomberg Dollar Spot Index reached the highest since 2010.
Brazil’s real is the biggest loser among the dollar’s 31 major counterparts this month as investors weighed voter support for President Dilma Rousseff in next month’s election amid a recession and inflation. The real has dropped 7.6 percent to 2.4201 per dollar, and it touched 2.4433 yesterday, the weakest since Jan. 29.

New Zealand’s dollar has tumbled 5.9 percent as central-bank Governor Graeme Wheeler called its level “unjustified,” one of policy makers’ criteria for intervention. The kiwi, nicknamed for the image of the flightless bird on the NZ$1 coin, reached 78.60 U.S. cents yesterday, the lowest level since September 2013.

The kiwi led currencies of commodity-exporting nations including the Australian dollar lower amid doubts about the sustainability of economic growth in China, the world’s second-biggest economy.

The yen fell as Health Minister Yasuhisa Shiozaki, whose ministry oversees the Government Pension Investment Fund, said pension reform would go ahead.  Shiozaki said there’s no plan to postpone a law change that would improve governance of the Government Pension Investment Fund. A review of asset allocation may see it increase riskier investments, including foreign stocks and debt.


The Bank of Japan, which meets Oct. 7, is trying to boost inflation to 2 percent by pumping 60 trillion yen ($550 billion) to 70 trillion yen a year into the economy. BOJ Governor Haruhiko Kuroda said Sept. 18 in Tokyo he won’t hesitate to adjust monetary policy if needed.

The Fed is considering when to raise interest rates for the first time since 2006. There’s a 78 percent chance the benchmark rate target will go up by September 2015, according to fed-fund futures data compiled by Bloomberg.

So, what will happen? It appears that players used to very scared of any raising of rates by the Fed and were somehow too attached and reliant on QE measures to sustain interest in equities. However, I see a pronounced deviation from that view now. The increase in rates by Fed will actually be a lifting of a stumbling block as unemployment data looks too good to ignore. If the real economy is strengthening, one or even two rate hikes won't kill the market. Maybe the third strike.

I expect a vibrant equity market globally for the last quarter of 2014.