Wednesday, August 21, 2013

Funnies From China

By Guest Blogger Salvatore Dali

Originally posted in www.malaysiafinance.blogspot.com

English is a hard language when its not your mother tongue ... things get lost in translation sometimes. In Malaysia it happens, in particular when we get zombies trying to do the English subtitles for movies. These are from China, in now way am I singling them out. Japanese ones are funny as well ... there are also the ones from India, Indonesia, Thailand ... but one at a time.

In case of emergency...

Freshly caught, I hope!

Can I get a fucking heart exam, too?
Some guys (assholes) should really go to the second room.

Thanks for offering.

Lonely Planet said it was a must-see.
Hey, might as well be honest while you are at it!

Hey, you might as well be graceful about it.

Ah, maybe we should wait til they're done.
The police/army are so considerate.

Right?!?!
We certainly need this sign in Malaysia ... car showrooms and Pavilion.

Shh!
Awww ... shucks.

I heard it's protected by UNESCO.

Maybe the oven was broken?
I will definitely try that!!!

Cheap, fast & easy.
What an awesome gift for some of my friends the next time I travel to China.

Monday, July 29, 2013

Trader's Diary 29/7/13

By Smoking Gun

Bought 100,000 shares of Hi-P on 28/7/13 at 0.805. No other positions added or exited during this period. All in all relatively good day for the portfolio. Net cash invested still remains at 49% of portfolio.



Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The author and/or interested parties may have positions in the stocks mentioned. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Rationale for  investing in Hi-P as explained by the narrative below;






Friday, July 26, 2013

Trader's Diary 25/7/13

By Smoking Gun

Been swamped with work and a stream of friends and relatives visiting all at the same time during the last few days, so not been updating my blog on a daily basis. A few trades were done in the mock portfolio. Here is how the portfolio stood at day end.

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The author and/or interested parties may have positions in the stocks mentioned. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

During this period, I added 200,000 shares of Centurion to the portfolio, while I took profit on 200,000 shares of OKH Global at 0.515 for a 14.4% gain. Overall portfolio is up 1.2% since inception, while cash uninvested still stands at nearly 60%. The portfolio shall be more reflective of the efficacy of my trading methods once the invested portion of the portfolio is closer to 80%.

Here's my rationale for the Centurion trade which took place on the 17 Jul 13.
 Looking at Centurion's M index, from a reading of 2.52 to 42.69, it jumped up to 270.72 yesterday (16 Jul 13) and carried over to 334.85 today (17 Jul 13). This was accompanied with rising prices and MFI and successfully broke its 52 Week High (BrH%). Breaking the 52 week high is normally a precursor to a continuation of the uptrend.

My rationale for selling out on OKH
My sell signal is based on the readings of the MFI. An drop in excess of 3 points will prompt me to liquidate my positions. On the circled readings on the MFI, yesterday's reading of 69.44 which was a drop of 3.5 points from the preceding day, prompted the sell yesterday. This was confirmed by weaker prices today. A drop in the MFI in excess of 3 points will indicate a significant money outflow, and as part of the trading discipline, we shall exit if this happens even at a loss (in this event, we made some money)


Tuesday, July 23, 2013

The Debasement of Major Currencies Crash & Asset Class Returns As At 30 June 2013

By Guest Blogger, Salvador Dali, Malaysia-Finance

June was a torrential month. We had people running for the escape shutes just on the likelihood of QE being tapered down in the near future. In reality, its just the usual holiday season for most finance industry people ... as usual when there are not much going on, it takes little to move things down. Then the whole world searched high and low for reasons to explain that phenomenon. Many times, its just profit taking. Because seriously, look how easy it was for markets to return to some normalcy? You tell me that what started the rout in inescapable fear and loathing, suddenly reversed course.

Emerging markets stocks and bonds took the brunt of the hit. Remember this trend, when the markets crash due to the finality of the debasement of major currencies, this is what will happen, magnified 5-10 times at least. Just look down the asset classes, every single one except cash is down. Remember this ....

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The funny thing was that gold even went down. Of course in a real major correction based on the debasement of major currencies, the developed marlets bonds will TANK in a big way, followed by their stock markets as people pull funds away. They will also pull funds away from emerging markets stocks and bonds. Emerging markets bonds will be the most vulnerable - because they attracted the most inflow over the past 5 years as funds seek out better yields with "better currencies". The debasement of major currencies (USD, Euro and yen) is nothing new, there are a lot of believers, just that we do not know exactly when it will happen.

But why, what is the justification that the debasement crisis will end in tears? There is debasement just by looking at the amount of money printed by most central banks over the last 5 years alone. Technically, in the US alone, they might need only 1/10th of the amount of money running in the system. OK, that might seem scary already. Even if you try to take back half of that, you know there will be dislocation, no matter how well planned. Pumping in is fun, just like alcohol consumption in a party. The way out never is.

Two, the QE funds are largely not flowing through the real economy. Big and small banks, but mainly big banks, are benefiting enormously by taking these funds at zero and getting their 0.2%-0.4% margins leaving that in the interbank. Is it any wonder that even behemoths like Bank of America and Citigroup are making billions again - its not from lending, its not from trading, its not really from investment banking.

Already the real economy is not getting the credit they need to jump start. They can see the low rates but they cannot borrow realistically. Those who do borrow are using it for unproductive ways again, e.g. flipping houses, or carry trades. These inflate certain asset classes (stocks and REITs mainly) but doe not provide the multiplier effect down the entire economy.

When central banks sells bonds again (to soak up liquidity), the big guys holding the cash will demand for much higher interest rates = you go from zero to 3% and then 6% quite fast. Sharply higher rates will pummel all stocks and the chain reaction goes around. Only this time, the severity is pronounced because its not a one off event, investors can see the amount of liquidity to be called back. Even if central banks stopped the soaking up process midway, the confidence is gone. Confidence is one of the greatest asset in valuing assets. 

If QE did what it was supposed to do ... lend to businesses and people who need them, you would have seen a great multiplier effect of more money moving around, improved business velocity ... which would then enable the economy to better weather the turning off of QE or soaking up of liquidity later on. 

The strange thing is that you cannot just sell one currency and thats the end of it, it has to be converted into another currency. But as you can see from the last two paras, everything will collapse in a debasement correction as currencies of all sorts will collapse.

HKD will be under some strange pressure when USD falls by 20% in a week. It might finally prompt a reweighting of the HKD to a basket of currencies. The emerging markets will be very busy defending their currency, not because they are not stronger than the developed currencies but because their bonds have attracted so much foreign money that the moment they all decide to exit the bonds, it literally means that yields may double from 4%-6% to 10%-18% overnight as the ringgit, rupiah, baht will be sold down tremendously as funds repatriate. This will cause an even bigger collapse in emerging markets stocks even though they may be fundamentally superior to developed markets' stocks.

The strange part which i mentioned was that last month sell down did not see gold prices rise as that should be seen as the best alternative if you do not want to hold currencies. 

This piece of advice will be worth millions to the right person. In a debasement of major currencies correction, almost nothing is worth buying. Except hard assets, but not just any hard assets, if USD is tanking then holding a USD property does not help. Pick the right country that can ride out the storm and come out stronger and your net wealth intact.

Buy UK properties, buy Singapore properties, buy large tracts of farmland or idle land in Malaysia, Australia, NZ, buy gold certificates. Looks like many Malaysians already have a great read on the upcoming disaster, many have been ploughing headstrong into UK and SG properties. However, me thing the total exposure to all the hard assets above should be between 30%-60% of your total assets. Get closer to 60% when the storm is near. Currently it is not.

So, when will this happen? I think come next May-September, plenty of time still. There is still the possibility that this event can be further delayed: if QE stops and the markets rumbled but steadies ... however, the central banks DO NOT sell bonds i.e. no soaking up of liquidity .... then its like postponing the inevitable. It will come, if you do not soak up the liquidity the markets will correct the realignment for you. They will just lose confidence in developed markets bonds, then developed markets stocks, then assets of most things, just like you saw from the figures in the month of June 2013 only multiplied.

Once that train starts, you can see a few months of high anxiety. Bernanke should be so glad to get out of his position so that he does not need to go through that.

Wednesday, July 17, 2013

Trader's Diary - 17/7/13

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Added another stock to the portfolio, Falcon Energy. Mock portfolio is now 43% invested. Kreuz had a small bump up today while the rest were meandering.

Liked Falcon Energy on the M Index. Activity not on the high side first. B rated stock. One to hold on for a couple of weeks.


Tuesday, July 16, 2013

Trader's diary - 16/7/13

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


Slow day. Didn't add any new positions today. Didn't like how OKH Global was trending. MFI starting to slide. Rule of thumb, if the MFI slides 3points below the high watermark, then look for exits. May have to exit at a loss. Hopefully it will not be to great a setback. Elsewhere equity and bond markets look stable for the moment. There would be some noise from Bernanke's congressional testimony on Wednesday night but methinks the impact would be muted as the markets had already taken cue from some his soundbites earlier last week. The conditions are right for a good trading market for the rest of this month. Looking to add more trades in tomorrow.

Smear Campaign against Palm Oil Industry

This article is originally published on Salvador Dali's blog Malaysia Finance Blogspot. The author, Mr Koon Yew Yin, is a well known Malaysian investor and many regard him as the Warren Buffett of Malaysia. Best known for being the one of the founders of IJM and Gamuda, Mr Koon is also a philantrophist and writes regularly on issues that is dear to him.

Fight the Smear Campaign against the Oil Palm Industry
Koon Yew Yin
A few weeks ago the sky was covered with smoke from the burning of forests in Sumatra to clear land for agriculture. Many in Malaysia and Singapore were affected by the haze.  Some observers in the west used it as an occasion to bad-mouth the oil palm oil further. In this article, I will try to share some facts of life in the oil palm industry so that Malaysians will not join the western world in their smear campaign.
Firstly, we must remember that the west had cut down their forests and trees centuries ago to develop their countries.  Malaysia and Indonesia are both new comers in the development scene and have been felling our forests for only a few decades now.  Of our tropical agricultural crops, oil palm is the most recent cash crop commodity.
Although there has been a rapid rate of exploitation, it still occupies a small proportion of our total land area.  The oil palm industry in Malaysia accounts for 15.5 per cent of total land area and only 4.5 per cent of total land area of Indonesia.  A large proportion of the oil palm plantations are also not newly felled forest but are old rubber plantations that have been converted to this more lucrative crop.
Many in the public know of my views which are critical of many developments in the country.  However, praise needs to be given when it is deserved; and our home grown oil palm industry is one which deserves all our support. This support is important in view of the sustained criticism made against the oil palm industry by lobby groups that have their origin in the west.
Why We Should Support Our Oil Palm Industry
There are many good reasons to support our oil palm industry in Malaysia and Indonesia. These are some of the most important.
1.    Firstly it is not only Felda settlers that are dependent on the crop for a livelihood. Malaysia’s annual US$25 billion (RM79.75 billion) palm oil exports support some two million jobs and livelihoods along the sprawling value chain. This means that one in every five working Malaysian is dependent for his or her livelihood on the crop.  
2.    Plantations have borne the brunt of the bad publicity. However, the small farmers are also affected. More than 40 per cent of oil palm planters in Indonesia are smallholders whilst in Malaysia they contribute to 38 per cent of the country’s palm oil output.
3.    Environmental activist groups such as World Wildlife Fund, Friends of the Earth and Greenpeace have launched many campaigns alleging that the expansion of oil palm plantations have destroyed forests, threatened endangered wildlife and robbed indigenous peoples of their land. Many of their arguments are not based on fact but are sensationalized from a small and atypical number of cases.
4.    The anti-oil palm lobby in the west includes pro-soya bean and rape-seed groups who see oil palm as a major competitor and have recruited food lobbyists to play on fears of the health hazards of palm oil consumption. . Together with environmental activists, these well-funded groups have created trade barriers to the global oil palm trade under the pretext of environmental activism.
5.    In a fair contest amongst competing vegetable oils, palm oil will win hands down. The oil palm tree is the world’s most efficient oil crop because one can harvest five tonnes of oil per hectare. This is 10 times more productive than soya bean planted in the West, including United States and five times more productive than rapeseed, Europe’s main oil crop.
6.    It is an undeniable fact that palm oil is the cheapest and most popular form of cooking oil for consumers, including many poor families in the west. Should trade barriers to benefit rapeseed farmers who are already heavily subsidised by the European Union (EU) government be successfully implemented, this will hurt consumers all over the world.
7.    Also should alternatives to oil palm be grown, more land would be needed to produce an equivalent volume of oil to replace palm oil, resulting in more deforestation and problems for Mother Earth.
8.    Oil palm smallholdings and plantations meet the United Nation’s Framework Convention on Climate Change which defines a forest as an area of 0.5 to one hectare having more than 30 per cent canopy cover and having a potential height of two to five metres. To accuse the industry in Malaysia and Indonesia of contributing to global warming is sheer nonsense. In fact oil palm trees just as with other forest species, produce oxygen for us to breathe and act to counter coal and oil emissions which are the major cause of global warming.
9.    Finally, the western environmental activists’ campaign against oil palm plantation expansion, in the name of “saving rainforests”, is a violation of international norms and Malaysia’s and Indonesia’s sovereignty.
Appeal to Malaysians
In a keynote address to over a thousand delegates at a conference organised by the Incorporated Society of Planters (ISP) in Sibu, Sarawak, recently, Datuk Amar Abdul Hamed Sepawi, Chairman of Sarawak Plantation Berhad warned,   “We’re at a crossroads. It’s time for oil palm planters to adapt to the fast-changing world of ruthless vegetable oil politics if we want to stay relevant in this market”.
Conclusion:
I trust all Malaysians will circulate this article to all their contacts to fight against the smear campaign against our palm oil industry and eventually I hope consumers, all over the world, will not buy soyabean or rapeseed oil which is more expensive and not really superior to palm oil.

Monday, July 15, 2013

Trader's diary - 15/7/13

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Added a new position today, 200,000 shares of OKH Global at 0.45 at 4.28pm. Shares closed a shade off my price at 0.44. Rest of the positions are status quo.


Made my decision to add OKH very late during the day mainly from the sudden surge in volume. That resulted in a heightened M of 329 very very quickly. Looking at the past few days of trade, M was lingering around the 40-60 mark and today's activity was 6X that of the said period which was highly significant. Liked the strong price movement that accompanied the surge in volume, coupled with a successful break of its 52 week high (BrH% = 105.88). MFI also steady with big jump today-always a good sign. Should be good, this one.

Sunday, July 14, 2013

Trader's diary 12/7/13


Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Added a new position today, 100,000 shares of Kreuz. No change on previous positions.

Normally, I would not buy a stock where the M Index is just 143.43.. but if you look at the previous days, the trading volume was virtually non-existent, so even at 143.43 looks like a significant pick up in activity for this counter. I also like the fact that the BrH is trending up and should test the 52 week high soon. MFI looks healthy to support a run-up.

Total cash invested is now close to 30%.

Thursday, July 11, 2013

Trader's diary 11/7/13

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


World equities rallied on 11/7/13 in the aftermath of Bernanke's comments. Dow and the S&P 500 registered new highs at the close of trading. At home, the Straits Times Index surged 1.9% earlier. Despite that, it was not really a good trading market today on the SGX as the surged was mainly concentrated on index linked stocks while most of the trading stocks remained subdued. We only introduced 200,000 shares of Kori to our trading portfolio yesterday at 4.50pm 11/7/13 at 0.41 within our rules of maximum of 10% per single stock exposure. As we are building up the portfolio, invested portion of the portfolio is only 18% whilst the uninvested cash is at 82%.


We based our decision to purchase Kori on the following criteria.
1. M over the past few days of 11.57, 156.63, 14.86 and followed today with a huge surge to 2,509.
2. Surge in M accompanied by strong price action up 7.9%
3. Decent volume in value terms of $6.4m
4. Big jump in MFI from 22.57 to 37.9

Our earlier buy Hiap Hoe had a good surge in the morning, touching a high of 0.78 before tapering off to close at 0.755. MFI showing an increasing trend which shows sustained interest while the M is still at elevated levels of 390.45 earlier today despite tapering off from the previous days 463.09. 

Markets today will get a boost from the strong showing of the US and European markets. Conditions elsewhere look supportive. Will be a good trading day today.

Wednesday, July 10, 2013

Model Portfolio - Start Date 10/7/2013

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

My Trading Journal
I started this blog to record my thoughts and ideas on trading stocks. There are many blogs and forums on Singapore equities and some of them are really informative and insightful. I don't intend to go that route with my blog due to my time commitments, although once a while, I intend write at length on certain subjects. However, readers can have an objective assessment of my methods of stock picking and trading philosophy by assessing the performance this mock trading journal. The starting position is $1m and the inception date is 9/7/13

I have only two simple trading rules for this portfolio which are as follows;
1. Maximum Exposure into any given stock at any time - 10% of portfolio
2. Minimum Stock Positions as % of Portfolio - No minimum


At 4.40 pm, 10/7/13, I bought 130,000 shares of Hiap Hoe at 0.74 for a total gross trade value of 96,200 which is within my 10% single stock exposure limit rule. Hiap Hoe fulfilled all the criteria on the P8118.com system and so enforced our conviction to buy.

First thing we look for is the reading on the M Index as compared to the previous five days (bottom right hand side table). Hiap Hoe's latest M reading is at 463.10 compared to 64.61, 27.66 and 16.07 for the previous 3 days which represents a significant leap in trading activity for the stock. (100 being normal trading volume for any given stock). The next thing we look at is whether the jump in M is accompanied by a positive price action, as this implies that there is a surge of buying interest in the stock due to the bidding up of prices and volume buildup. Conversely, we ignore those high-M stocks with negative price action. In this regard, Hiap Hoe is up by 3c, so it confirms the first criteria.

To support our trading decision, we look at the other indicators to provide further validation. The MFI and BrH has to be trending up over the last five days. So for Hiap Hoe, again no problem there as well as the other indicators look very healthy with nice steady rise. We will look at the MFI for signals to sell, normally if it drops 3 points from the high watermark point, we will exit the positions. In this regard, the high watermark is 54.58 as of today. This means if the MFI drops to less than 51.58 we will exit the position even at a loss. If the MFI climbs to say 56 tomorrow, then the exit signal will be triggered when MFI is at less than 53 and so on.

I will try to update the values of the Mock Portfolio on a daily basis although I may not be able to give full commentaries due to other commitments. However, feedback is welcome and appreciated.

Singapore Market Overvalued?
I was attending an investment seminar organized by a private bank a week ago, and the key takeaways from their experts were;
1. The expected tapering of US QE has moved significantly forward to 2014 as compared to 2015
2. Bond yields and interest rates are expected to trend upwards
3. All asset classes to experience headwinds, equities will still outperform in Japan and Europe and places where monetary policy remains easy.
4. Gold prices set for rebound.
5. Singapore equity market is very richly valued as compared to peers and risk sudden outflows in capital due to several factors i.e. rise in US interest rates, China economic woes worsening etc. At 16X prospective earnings, Singapore looks fully valued

Name P/E P/B Est P/E Est P/B
HANG SENG INDEX 9.47 1.31 18.46 2.67
KARACHI 100 INDEX 9.44 1.76 17.74 1.52
Straits Times Index STI 12.95 1.41 16.54 2.22
CSI 300 INDEX 11.05 1.53 16 1.77
S&P/ASX 200 INDEX 19.55 1.89 14.79 2.84
NZX 50 Gross Index 20.15 1.87 14.47 1.59
HO CHI MINH STOCK INDEX 13.62 1.76 14.17 1.34
SRI LANKA COLOMBO ALL SH 12.21 1.69 13.56 1.75
KOSPI INDEX 26.86 1.07 13.55 2.1
TAIWAN TAIEX INDEX 22.14 1.7 13.35 2.18
FTSE Bursa Malaysia KLCI 16.92 2.34 11.92 2.04
STOCK EXCH OF THAI INDEX 16.6 2.3 11.33 2.01
NIKKEI 225 26.05 1.55 9.97 1.07
NSE CNX NIFTY INDEX 16.21 2.52 9.72 1.22
JAKARTA COMPOSITE INDEX 17.93 2.81 9.52 1.4
PSEi - PHILIPPINE SE IDX 18.82 2.81 8 1.66
Name P/E P/B Est P/E Est P/B
CAC 40 INDEX 15.62 1.23 14.66 2.26
DAX INDEX 15 1.43 13.56 1.75
FTSE 100 INDEX 16.14 1.8 11.79 1.17
STXE 600 € Pr 18.51 1.62 11.75 1.66
S&P 500 INDEX 15.75 2.38 9.73 1.22
Source: Bloomberg

Given this challenging environment, stock picking becomes even more critical for investing/trading success.



Thursday, June 27, 2013

All's not well with Gold?


By Smoking Gun


At the time of writing, gold is trading below 1200. Why the sudden exodus from the yellow metal? It seems that all seemingly good news for gold has been ignored while every little bits of adverse news for gold has been reason for bears to double down their short bets and shoot down gold to bits.

Even this obscure piece of research which first appeared a  year ago by an even more obscure business professor who argues that the fair price of gold should be trading closer to its "fair value" of USD800/oz has now caught on fire with the gold bears.

Below is a reproduction of the news article;

KITCO NEWS INTERVIEW: Gold Prices Could Tumble Further -- Duke Professor


(Kitco News) - Gold prices fell to roughly $1,220 an ounce Wednesday, nearly a three-year low, and further downside may be possible for the metal.
That downside could be a longer-term move for gold, too, as the metal may be moving back to its fair value, according to Campbell Harvey, professor at Duke University’s Fuqua School of Business, who has done academic research regarding the value of gold.
Harvey’s research puts the long-term fair value of gold at $800 an ounce, which is about $400 an ounce lower than current prices.
Fair value is “an average, so to get to the average, there are prices above and below it. We’ve been above it for a number of years,” Harvey told Kitco News.
That means there is “considerable downside here,” Harvey said, given that prices don’t necessarily go to fair value and sit there.
Gold has a tendency to be very volatile in the short-term, but is a good store of value in the long-term, he said, with “long-term” defined by centuries.
In a research paper he published along with Claude Erb, the two authors looked at the accuracy of some commonly held beliefs about gold. Using examples through history, Harvey and Erb showed that gold can be a good store of value in the extreme long term, but is too volatile to be a reliable inflation hedge for most people’s investing time frame. Those are two of the top reasons people hold gold in their portfolios.
In one example, the authors compared the salary of a Roman centurion to the annual salary of a U.S. Army captain, and found that the annual pay is almost similar. A U.S. Army captain makes about $46,000 a year, while a Roman centurion received the equivalent of 38.58 ounces of gold annually.  Using the current $1,220 an ounce as a price, 38.58 ounces comes out to be about $47,000.
The salary comparisons were the most interesting part of their research, Harvey said, and it shows that gold is a good store of value over thousands of years. The problem is, no one lives that long.
He was quick to point out, however, that he is not anti-real assets investing. Specifically, he said a diversified portfolio of real assets, which can include gold, helps to offset unexpected spikes in inflation. He said owning a commodity index will do a better job than holding just gold.
“I have absolutely no problem whatsoever in having a diversified portfolio that contains some gold. Yes, if you had a lot of time to figure out which commodity is above or below fair value, (it would be better) but most people don’t have that luxury,” he said.
His point was that owning a single commodity to hedge against inflation, in this case gold, is not unlike owning a single stock and calling it a diversified equities portfolio.
Their original research paper was published a year ago, but since gold’s price plunge the research paper picked up more interested readers, he said, and is the most downloaded paper of his 20-plus year career. He and Erb updated their paper in May to include new research, including a look at different examples of how gold reacts during many hyperinflation environments.
They studied 56 different countries that experienced hyperinflation in the 20th century to document gold’s effectiveness as a hedge during those times. They concluded it depended on how gold was trading globally at that time as to whether it was a good inflation hedge.
While many point to Germany’s Weimar Republic during 1922-23 as the ultimate example of rampant inflation, there are more recent examples to consider, he said. One case is Brazil from 1980-2000. During those 20 years, the average annual inflation rate was about 250%, Harvey and Erb’s research stated.
For investors who stashed cash under a mattress, those people lost 99.97% of the value of that currency because of multiple devaluations and changes in the currency. Brazilians who bought gold and held it for those 20 years saw the real price metal lose 70% of its value, according to the IMF’s measure of Brazilian inflation, Harvey said.

“Note, this is not a short horizon situation; this was 20 years…. You would have been far better off rolling over your money in interest-bearing deposits. You would have still lost, but you wouldn’t have lost 70%. Of course there would be some risk of default,” Harvey said.
Brazil’s situation shows that gold did not perform the way most people expect gold would have acted during hyperinflation, he said. The South American country’s hyperinflation coincided with gold’s global price decline, which he said underscores how volatile the gold price is, even over the span of 20 years. Had Brazil’s hyperinflation occurred at another time, the outcome would have been different.
“If the Brazilian hyperinflation would have been from 2000 to 2013, gold would have been fabulous, even with the current price break. It would have looked great,” Harvey said.
While the Brazilian example is one of gold not performing as expected during hyperinflation, some other countries that experienced hyperinflation when gold prices were rising made the metal look like a good hedge. Harvey said that inconsistency proves his point.
“How gold acts is highly dependent upon the actual hyperinflation period. Because gold is so volatile it would be an unreliable hedge for regular unexpected inflation and hyperinflation,” he said.
My take on this is that this article is blah as it fails to account for the costs of extracting the finite precious metal from the ground. All it does is to debunk the hypothesis that gold is a inflation hedge. Whatever has been said about gold, it is probably one of the most unreliable inflation hedges around.. If someone did a paper comparing the price of gold and the relationship with the costs of extracting gold over time, that may be more meaningful but I doubt that such datas would exist as the only meaningful data would be recent times, and especially when gold prices were kept artificially low when governments banned the individual ownership of gold in the not to distant times. While it is true that during times of irrationality and market panic, prices may go below the cost of production, as experienced by other asset classes such as soft commodities and even real estate (during property busts, property prices are often below replacement costs) but this values wont be permanent as there wont be any profit seeking enterprise willing to produce at below marginal costs levels.
A colleague sent me this chart below today which is self explanatory. Over the past 6 years, gold prices have always trended above their marginal cash costs. During the height of the global financial crisis, gold prices tumbled just above the marginal cash costs before rebounding and resuming its upward trend. 
Some may argue that gold does not have industry use value and basically its the most useless of all metals except as a store of value and inflation hedge. With the perceived opportunity costs of holding the metal rising, it makes the bears' case compelling. Yes, there is a case for further weakness in prices, but in my opinion, the price has been too severely battered to warrant for this swift and sudden fall from grace. Look, no one's going to produce any gold if the cash costs are higher than spot prices. You are probably looking at marginal players shutting up shop altogether and the majors hoarding gold. Take that physical supply out of the equation and you may see a lack of sellers at this levels. The investment demand for gold only represent probably around 20% of the total demand for gold. As it stands, most of those who wants out has already done so. The bottom should be not far away from here. The world economy is still not out of the woods yet, the US may look better, but the economy is not as robust as it looks, external black swans abound... Eurozone, China may pull it back down, so the easing conditions should remain for a bit longer. If the Feds wants to pull the plug on the QE, they will... but they just won't tell you exactly when.. the worst thing for them to do is to pussy foot ala Japan, which hasn't really wised up to its past follies... as demonstrated by Abe's super-push only to now hold its horses and resume its very Japan-like attitude of waiting and seeing and wait a bit ah..



A

Sunday, June 9, 2013

Interra Resources - Another Ramba in the making?

By Smoking Gun
Quote of the day
"An Idle Mind is the Devil's Playground" - Benjamin Franklin
Last Friday's release of the US jobs data was just what equity markets needed after a week of wild swings. What can be best described as Goldilocksian numbers that showed that a higher number of jobs than expected were added, coupled with an overall increase in unemployment rate. The numbers assuaged fears of a premature tapering of the QEs while also tempering fears of another dip in the economy all at once. This sets the stage for a good trading week for global markets and I will look into one stock in particular which I have been monitoring on my P8118.com system, Interra Resources.
Fresh off the frantic run-up and subsequent announcement of a buyout deal (albeit a huge anti-climax) concerning Edward Soeryadjaya controlled Ramba Energy, a similar build-up in interest is brewing at younger brother's Edwin's Interra Resources. It may be that the sudden interest in Interra Resources was a spillover from Ramba's trading halt which may have diverted trading interest in the former, as both companies similarly are in the Oil & Gas Mining and Exploration space even though the two companies have no links as the brothers are not known to be on the best of terms.
The Edge published an article on Ramba on Friday which would shed some light on the recent trading activity.
From the Edge 7/6/2013
INTERRA RESOURCES, which could trace its SGX listing through the reverse takeover of Van der Horst in 2003, was once a low-profile energy play. But with the current interest in companies with exposure to Myanmar, Interra Resources, which is thus far not formally covered by any analyst, is now drawing some serious investor attention. Last November, CIMB analyst William Tng put out a similar non-rated research report on the stock, suggesting that it is worth 44.1 cents.
Since the CIMB report, the company’s share price has increased by more than a third to close at 51.5 cents on June 7, extending a run since January 2012 when the stock was languishing at less than 8 cents. Interra Resources, profitable for five straight years, is totally different from the days when it was a struggling producer of oil in a pariah country.

If certain analysts are right, the company’s share price has more room to grow. On June 5, DBS Vickers put out a non-rated report by Ling Lee Keng and Suvro Sarkar that gives a potential target price of 57 cents. The company now has two producing fields in Myanmar, where it holds a 60% stake for both fields. It is also pumping in two other wholly-owned fields in Indonesia. It has a total of so-called “proven plus probable” reserves of 24.6 million barrels.

Last year, Interra Resource’s share of production from the fields was 369,908 barrels — up 23% compared to the previous year. Earnings for FY12 was US$3 million — up from just US$1 million the year earlier. Revenue, in the same period was US$30 million and US$25 million respectively. DBS Vickers’ Ling and Sarkar expect the company’s earnings this year and next year to hit US$4 million and US$5 million respectively, on a corresponding revenue of US$30 million and US$31 million.

The higher forecasts are backed by the company’s on-going expansion. From 33% last year, Interra Resources today has increased its share of onshore oil exploration in Myanmar to 40%, making it the market leader in the country in this segment.
The company is carrying various expansionary activities like drilling. From seven wells drilled in 2011, Interra Resources has been stepping up the pace, to nine wells last year and this year, it will further increase the number to 21 wells. The company, which has been doing business in Myanmar since 1996, is also seeking out more fields put out for bidding by the government. DBS Vickers analysts expect 18 fields to be put up for bidding around August this year, with the awarding of the licences by end of the year.

Besides Myanmar, Interra Resources has also been expanding. Last year, it bought a 49% interest in an onshore exploration block in central Kalimantan covering some 8,150 sq km. Under terms of the Kuala Pambuang production sharing contract, Interra Resources has up to 10 years to find new oil.

Ling and Sarkar note that a “wild card” might manifest in the form of growing gas production. Gas, commonly found tucked with underground crude, has been found in one of the wells in Myanmar. However, how strong this gas will flow has yet to be fully determined. “Gas is generally cheaper to produce but its selling price is also lower. The upfront investments for gas exploration are higher but once the flow of gas has been established, the incremental cost is less than for oil production,” they note. If gas production is to happen, the company can tap on existing lines to pipe gas from Myanmar to China.

Of course, there are risks. Firstly, there might be uncertainty over the company’s concession terms over the longer term. “There is no guarantee of contract renewal or extension upon expiry, failure of which may result in substantial losses and significant reduction in investment value,” state Ling and Sarkar. Next, the company’s revenue is reliant on global crude oil prices. Finally, the company needs substantial capital to fund future development activities. “Failure to obtain additional funding may cause the Group to forfeit its interests in certain concessions or to discontinue some of its exploration,” the analysts write.
On this post, I am looking at the stock purely from a trader's perspective as I had picked up some highly abnormal trading patterns in Interra Resources during the start of the week using the P8118.com system. The readings were still very positive at the close of Friday's trading session. I had spotted Ramba at the early 50c levels using the P8118.com system last week which turned out quite well,sprinting all the way up to 78c until the trading halt. The subsequent announcement turned out to be a big sell. (Looks like a rushed announcement by Ramba, probably cornered into submission by the SGX query on their recent run-up in share price)
At last Friday's close (7/6/13), the readings on the M Index were neutral at 64.67, down from the abnormal trading volumes registered on the 4th and 2nd day prior to Friday's trades (399.82 and 250.04 respectively). For those that are not familiar with the P8118.com system, the M Index measures the abnormality of trading interests in a stock i.e. 100 being the normal trading volume, and readings of 200, 300 and .....being 2X, 3X (and so forth) normal trading activity. It is normally the first indicator I look at, as this index will filter out those which are have higher than normal traded activity. It must also be up, meaning that the increased activity is bidding up prices, meaning that buying interests must know something the market doesn't, something akin to insiders mopping up shares in anticipation of a move. This was evident during 4 days ago, when the M Index spiked up to 399.82 from 16.43 the previous day.
Despite trading activity regressing back to its normal trading volumes, what I like about the stock that the Money Flow Index (MFI) is still on an increasing trend. This means that the smart money is still in the stock. One further plus point is that the stock is close to its 52 week high as displayed on the last column BrH%, which shows that the stock has backed off marginally from the previous days' highs but still remain at 91.96% of the 52 week high. We like to look at stocks which are trending clearly towards the 52 week high, in most cases stocks at 90% of the BrH% tend to try to break those highs and reach higher highs. 
If you are already in the stock, you will be comforted by the fact that the Money Flow Index is stable and on an increasing trend, no major problems there. BrH% also looks ok. You would only be worried if there is a drop of 3% of the MFI from current levels otherwise the stock is still ok. If you are not in it yet, you should look at signs of activity in the M Index to time your entry. Any readings of end of day M of 250 and above would be good indicator for entry (given that the M reading is accompanied by a price increase). Please note that M Index is a cumulative figure and starts from 0 at the start of the trading session and peaks at the close. So for trading purposes, one would have to estimate the M value based on the trades during any given point of the day, say if during the first hour of trade, the stock trade at M of 60, one can assume that if the trading were to reflect early trading interest, the M should be around the range of 150-200 by the end of day. 
For trading purposes, I do not like to look at target price levels as I think the exit levels should be based on the MFI levels. The basis for this is that the smart money knows when to go in, and they would probably know what levels to go out as well. So normally, I would look for weaknesses of 2-3% on the MFIs to get out as it would be a good sign that the smart money has exited. As long as the MFI is increasing or stable, one should let the profits ride.
Personally I find the P8118.com system suitable for fast paced trading as compared to charting per se as it would give me a quick filter on prospective trading opportunities which charting tools can't fish out immediately. The concepts are easy to grasp and the learning process is very short and simple as compared to other methods like technical analysis and value investing methods. Currently, its open for registration and they giving away free trial accounts. What is more beneficial is that they are also giving unlimited free classes to all paid and trial users to enable them to understand and use the system for their trades. For more about the P8118.com system, you can visit them at www.P8118.com.sg.

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