HAPPY 50TH BIRTHDAY MALAYSIA

Proud to be Malaysian - Merdeka! Merdeka! Merdeka!

Happy Merdeka Dayz Dude!

Still underpressure

Malaysia shares end almost flat in moderate volume, edging up 0.68 points, or 0.1% to close at 1278.95 as local funds lend buying support in last hour of trade. Market breadth remained negative throughout the day with decliners leading gainers 556 to 279. The index likely to consolidate in 1266-1296 range ahead of Independence Day holiday on Aug.31. Investors used the DJIA's overnight decline as an excuse to lock-in gains. Positive newsflow helped to lift property and water sector related stocks but the broader market stayed under pressure.

`Con'solidate

Malaysia shares end +0.4% at 1278.27 in heavy volume, retreating from intraday high of 1292.20 as profit-taking into strength pared gains, say dealers. Market breadth stayed positive with gainers trumping decliners 531 to 315. KLCI likely to continue consolidating within 1266-1296 range tomorrow. Investors sold into strength, taking advantage of the early rise in share price and pretty much tracking movements in regional bourses. Foreign funds were the key catalysts in paring open positions and this had a trickle-down effect.

Up & Down Wall Street: Debt Rattle

(From BARRON'S)
By Alan Abelson 

Crises of any kind inevitably bring out the best and the worst in people. They inspire the too few voices of reason as well as the predictable strident expressions of hysteria. And especially intriguing perhaps are the unexpected revelations they offer. The current credit crisis, still fermenting and gathering toxicity, is plainly no exception.

The cries of the dispossessed -- and the multitudes about to be -- resound pitiably throughout the land. What for so manyyears had been a roaring seller's housing market is with breathtaking rapidity turning into a buyer's dream. Except that it's fast becoming easier to get your kid into Harvard than to get a mortgage on an abode no matter how humble.

The climate for borrowers has turned inhospitably chilly and downright frigid for wannabe homeowners. No mystery why. As the trusty data collectors at Federal Deposit Insurance Corp. observe in their latest communique, delinquent loans grew a monster $6.4 billion in the second quarter of this year, paced by -- what else? -- overdue mortgage payments, a leap of 10%, the greatest quarterly increase since the final three months of 1990, when, as you graybeards may remember, the listing economy was mired in recession. Actual foreclosures, by RealtyTrac's count, are a startling 93% higher than a year ago.

Where, oh where, are those ingenious inventions, the fruits of a brilliant collaboration between banks and brokers (both of the real-estate and securities persuasion), that made sure that everyone would become a man (or, lest we be unjustly accused of gender bias, a woman) of property? Those marvelous loans that effortlessly did away with anything that threatened to deprive virtually anyone, so long as they were endowed with even a suspicion of competence, of the joys of home ownership.

We're talking -- need we say? -- of the no-problem mortgage, which came in any number of enticing flavors. Don't have even a modicum of a down payment? No problem. Don't earn enough to meet the monthly mortgage tab? No problem. At best, you confess, you can beg, borrow or steal the dough to cover only a small fraction of the interest, much less any of the principal? No problem. It was the golden age of improvidence.

And it was all true. Except that now there is a problem and -- sigh! -- a big one. Not only for the poor souls who are going to have to say goodbye to their houses but for the knaves who suckered them into making commitments they couldn't in three lifetimes fulfill (real-estate agents are being laid off by the thousands) and for the crafty money magicians whose deviltry made it all possible.

But that's all water over the dam (or is it damn water under the bridge?). Our point is not to grieve for the dispossessed or castigate the greedy demons who enticed them into foolhardy and ruinous action. It is, as we intimated, to note that any serious crisis yields both admirable and bitter responses and, most interestingly, unexpected revelations.

On the last score, for example, Henry Paulson, known affectionately as Hank, has viewed the insidious spread of the credit collapse with estimable aplomb. That's a tribute, obviously, to Mr. Paulson's measured view of the world. Yet -- and we don't think this disclosure in any way diminishes his cool comportment under fire -- it emerges that Mr. Paulson does not have a subprime mortgage.

By the same token, Roger Stone's bizarre behavior may seem inexplicable, but we suspect he is suffering from a severe case of subprime syndrome. Mr. Stone, a seasoned political operator, until quite recently was a consultant to the Republican members of the New York Legislature, despite the fact that he has no experience in criminal law. Indeed, Mr. Stone enjoys a sterling reputation burnished by the fact that he accepts only lovable people as clients -- role models like Al Sharpton, Donald Trump and Richard Nixon.

Alas, Mr. Stone has been accused of making a threatening phone call, rich in invective, to Gov. Eliot Spitzer's 83-year-old father, who suffers from Parkinson's disease. (The governor is a -- and we hesitate to use the expletive in a family magazine -- Democrat.) Mr. Stone vehemently denies doing so and says he was at the theater when the phone call was made. Some cynical types point out that there was no performance of the play the night he purportedly saw it. We don't know whether or not Mr. Stone made the call to Mr. Spitzer's father, but if he did, it's most likely because he was distraught at being dunned for a mortgage payment he was unable to meet (and no wonder; the skinflint Republicans were paying him a measly $20,000 a month).

What makes such tales of stoicism and woe particularly affecting is that the greatest agglomeration of leverage ever witnessed in the long and tortuous history of this planet has only just begun to unwind. There are over $1 trillion of securitized low-grade mortgages outstanding and nearly three-quarters of a trillion dollars worth of mortgages whose adjustable rates are slated to rise over the next year, a heap of them sooner rather than later. That alone assures an appreciably larger magnitude of pain in the months ahead.

Moreover, as Merrill Lynch's David Rosenberg astutely reminds us, there's something like $300 billion in debt sitting on banks' balance sheets pledged to fund the last gasp of the M&A boom, commitments made when junk bonds were priced much more attractively. And we still can look forward, biting our lips as we do, to the doleful impact of hedge funds dumping assets to meet what could easily prove a mighty rush of redemptions.

Happy as we are to see the market, after some seriously rocky going, demonstrate last week that it hasn't lost all of its zaniness (what would we write about it if it ever did?), we think it's merely a matter of time -- and not very long, either -- before it suffers another spate of vertigo.

Not the least of the reasons we have such a melancholy view of its prospects is that the market is discounting everything but the recession that lurks just around the corner. Fellow pessimist (by his own admission) Albert Edwards, who bears the weighty title of global asset allocator for Dresdner Kleinwort, in his latest commentary contrasts the insouciance of the market, which he says "is still attaching a minimal probability" to recession, with his firm's view of a 40% chance of such an outcome.

He allows that if the economy experiences only a bumpy landing, a possibility Dresdner Kleinwort leans toward, "financial markets might not move much." But if the economy does go into recession, he exclaims, it's a much different, much darker picture. Corporate profits could drop a whopping 35% -- especially, he stresses, financials -- which could easily translate into equity markets being cut in half. Federal funds and bond yields might fall below their previous cyclical lows of 1% and 3.1%, respectively, and there'd be "general carnage in leveraged risk investments."

Albert declares that analysts' earnings expectations, which in the main haven't changed with the sorrowful turn in the credit markets, are "still way too high." And that's because "analysts seem to have no comprehension of how the strong and steady growth rates in the U.S. are a Ponzi-like mirage built on an unsustainable mountain of debt." Too bad those Brits are so given to understatement.

It's all Merrill Lynch's fault! so spake Angelo Mozilo, the CEO of Countrywide Financial, the nation's biggest mortgage lender and, not coincidentally, a leading symbol of the troubles besetting virtually all such enterprises, courtesy of the sudden credit drought.

Mr. Mozilo's somewhat petulant irritation, voiced on CNBC, was occasioned by the Merrill analyst who followed his company having ventured to downgrade the Countrywide stock to a Sell (actually, the market, as usual, long before had beaten said analyst to the punch by nearly slicing in two the price at which the shares had opened the year). In explaining his bearish take, the Merrill man cited the risk that Countrywide might eventually go belly-up.

What strikes us is not Mr. Mozilo's fuming reaction, but the Merrill analyst's bravery in recommending that the stock be sold and, even more so, in offering an unvarnished reason.

In any case, Countrywide was in a bind, having great difficulties, like most of its rivals, in raising dough in an increasingly hostile environment for mortgage lenders. To the rescue comes Bank of America, $2 billion in hand. A generous gesture that followed hard on the news that Countrywide would draw on an $11 billion line of credit it already has negotiated.

Announcement of the $2 billion BofA infusion perked up Countrywide's shares -- briefly, anyway. As it turned out, Bank of America's generous gesture was not entirely altruistic. In return for the $2 billion, it got a preferred that paid 7.25%, a much heftier yield than the 2.5% to 3.5% converts issued by Countrywide a scant three months earlier. Moreover, the preferred sold to Bank of America is convertible at a surprisingly 20% below the then market price of Countrywide's common.

Whether or not, as Street gossips had it, the Fed was a stealth broker on the deal, we haven't the foggiest notion. Or, for that matter, whether, as also rumored, a sizable chunk of that $11 billion line of credit that Countrywide began to draw on was from Bank of America, we again cheerfully profess complete ignorance. As for Mr. Mozilo, he can take some solace in the $241 million, as calculated by InsiderInsights, that he netted over the past two years from sales of Countrywide stock.

But what we do know is that $2 billion is kind of like two bucks in Bank of America's scheme of things and, more than likely, it got a heck of a deal for being kind.

For Barron's subscription information call 1-888-BARRONS ext. 685 or inquire online at http://www.barronsmag.com/subscription/subscription.html.

Errrkk

KLCI ends +2.2% at 1283.62 in heavy volume led by gains across all sectors as investors take cues from gains in regional markets and firmer U.S. stocks overnight to bargain hunt. Market breadth remained positive; gainers outpaced decliners 771 to 173 at close. KLCI tipped to trade within 1266-1296 range Friday in follow through buying but caution pre-weekend profit-taking may narrow gains in late trade. The rise in volume traded and healthy market depth is a good indication of improving sentiment. Follow through buying interest is likely to lift the market higher tomorrow as long as U.S. stocks don't come-off overnight.

TOMYAM SHOPPING LIST

La la la

KLCI ends +1.9% at 1255.39 in moderate trade led by gains in shares of government-linked companies and blue chips on value hunting. Market breadth remained positive; gainers outpaced decliners 849 to 107 at close. KLCI tipped to trade within 1250-1266 (50% retracement of fall to 1141.45) Thursday in follow through buying. Healthy dose of bargain-hunting by local funds. This triggered retail interest in lower-liners and penny-stocks while positive earnings surprises also encouraged fresh focus on stock fundamentals.

TOMYAM SHOPPING LIST

Still couldn't move

KLCI ends down 1% at 1231.48 in moderate trade after volatile session with market trading between 1227 to 1251 range; market breadth turned negative with decliners outpacing gainers 714 to 203 as profit-taking into strength erased early gains. Market tipped to consolidate in 1220-1250 range tomorrow. Investors are likely to maintain a cautious approach. May continue to see similar rebounds in coming days but profit-taking into strength is likely to persist in the near term. All eyes will be on U.S. markets tonight.

Phewwitt

Malaysian shares ended broadly higher Monday, in line with the rebound in regional markets after the U.S. Federal Reserve took steps Friday to calm credit markets by cutting its discount rate by 0.5%. The weighted Composite Index of 100 blue-chip stocks rose 4.4%, or 51.84 points, to 1243.39. Volume was heavy with 1.45 billion shares changing hands. Gainers beat losers 1014 to 55. Local funds were net buyers in today's market, triggering fresh buying interest from retail investors. Among the sectors that gained most significantly were the construction, banking and property sectors but some intermittent profit-taking was visible. There's no certainty in this market. All eyes will be on what happens in the U.S. tonight. A large part of today's gains were supported by value hunting in oversold blue chips and government-linked companies by local funds, but this could very easily reverse if there are declines on the DJIA tonight. KLCI's downside to be limited to 1238 (32.8% retracement) while upside may be capped at 1266 (50% retracement). The possibility of the appearance of a multistage market decline in the nature of a full-blown bear market lasting several months still cannot be dismissed yet. There is sufficient domestic liquidity for relative calm to emerge fairly quickly locally in the capital markets. But do not count on the return of foreign funds that would provide that extra dose of liquidity that would enable the return of bull market conditions.

AYAM'S SHOPPING LIST

Strategy Report

• Regional bourses are poised to stage a strong rally this week, in response to the US Fed’s “surprise” move to cut the discount rate by 50 bps
• The obvious winners for this week are the most depressed stocks, like EPIC, RCE, YNH, Petra Perdana, Sunway City and CB Industrial.
• However, the contagion effects of the US housing mortgage defaults may not be fully arrested yet, and higher risk aversion limits the KLCI’s recovery. Reducing YE KLCI target to 1,330 based on 15.5x 2008 PER.

DOWNLOAD ASEAMBANKER'S STRATEGY REPORT

US Interest Rate Cut

Yen carry is blowing up, global stock prices are in mini-crash mode, and the financial meltdown is threatening to spark an economic meltdown. Having gingerly danced with rhetoric and liquidity injections in recent days, the Fed started to boogie this morning. Here is the statement in its entirety:

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

The initial response to this move is, obviously, relief: financial market participants were - literally - screaming for help, and the Fed is now on the job. But after the initial rebound in the markets what will happen in the coming months is considerably less clear. Will today's actions and any follow up actions be enough to stabilize bearish spirits?

Those quick to answer 'no way!' should recall that bears have been wrong about impending doom countless times in recent years. Perhaps this is just another bear trap that leads to the mother of all short covering rallies? Conversely, to treat emergency Fed help as a reason for optimism may be equally or even more foolish. After all, the credit problems that have taken many years to develop are not going to vanish simply because Bernanke has learned the Greenspan Two-Step. For the record, Greenspan began his emergency moves in early 2001 and things did not stabilize until early 2003. Stay tuned...

Yen Carry Trades Unwind

Bloomberg reports:

Yen Rises Most Versus Dollar Since 1998 as Carry Trades Unwind

Aug. 16 (Bloomberg) -- The yen advanced the most against the dollar since 1998 as a global rout of stocks and credit markets pushed investors to sell riskier assets funded by loans in Japan.

The yen is the strongest most-actively traded currency today as the carry trades unwound. Global stocks tumbled and companies from Australia to Canada sought emergency funds as they were unable to refinance debt. The last time the carry trade crashed was in 1998 after Russia's debt default in August. The yen gained 20 percent in less than two months.

``The market is in panic mode,'' said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, the world's largest custodian bank with over $20 trillion in assets under administration. ``It is a full-blown unwinding of the carry trade. This is just the beginning.''

The Japanese currency advanced 3.9 percent, the most since a 6.7 percent increase on Oct. 7, 1998, to 112.05 per dollar at 1:01 p.m. in New York and earlier reached 112.01, the strongest since June 2006. The yen also gained 4.1 percent to 150.33 per euro and touched 150.03, the highest since November.

Japan's yen has rebounded from a record low of 168.99 per euro on July 23, and 124.13 per dollar on June 22, the weakest since December 2002.

The yen climbed to 75.41 against New Zealand's dollar from 82.78 yesterday. It has risen 17.1 percent so far this week. The yen gained to 87.99 versus Australia's dollar from 95.62. The Australian and New Zealand currencies are carry-trade favorites, with benchmark interest rates at 6.5 percent and 8.25 percent, respectively. Japan's borrowing costs of 0.5 percent are the lowest among major economies.

Philadelphia Report

Gains in the yen accelerated after the Federal Reserve Bank of Philadelphia's general economic index fell to zero in August, the dividing line between expansion and contraction, from 9.2 in July. Economists in a Bloomberg survey had forecast a reading of 8.6. The report deepened the declines in U.S. stocks, adding to the unwinding of the carry trade.

``This is just another piece to pound on the markets,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. ``The carry trade is dead for the time being.''

Global Financial Instability Returns!!

This is an apt description of the global financial system in a fiat currency and credit world, where money and credit are being created at a breakneck pace (Average Global growth rate of 14% year over year according to the economist magazine) by every Ce ntral Bank in the world. As the worlds government authorities pile dollar after dollar, yen after yen, British pound after British pound, euro after euro, Yuan after Yuan, Ruble after Ruble, Rupee after Rupee, etc. on the global economic pile, selected “Bubble” investment areas of the world economies will grow and then collapse, as we are now seeing in US housing and sub prime lending markets. They must keep the game going in other asset classes and create “emerging bubbles” so these “STRONG HANDS” can step into the dog pile and take out the losers in that particular bubble collapse and keep the overall game going. I have also seen this referred to serial “BUBBLE BLOWING”. Many analysts wondered where the next bubble would emerge. Now we know, and this situation has now moved beyond the shores of America , and is practiced everywhere In the G7.

The next part of the Sandpile it is the money being created by the Big Institutional Banks and Brokerages (that's what they used to be called, now they are poorly disguised hedge funds, look at sources of their earnings) when they “INVENT” Derivative products that literally allow them to print money. Slicing and dicing things like commercial and residential mortgages, into instruments where the “devils” in the details. Most of these newly invented financial products are part and parcel of the holdings of every institutional and pension fund investor in the world. There are trillions of dollars in these investment vehicles/products. They know not what they hold, and have only the financial institutions mathematical models to inspire confidence in the underlying investment instrument and its creditworthiness.

These “credit ratings” used to underpin the issuance of these products come from the likes of Standard and Poor's, Moody's and Fitch and are bought and paid for by the Issuing Institution, and facilitated by enormous amounts of quantitative and probability analysis which is newly invented in the last 15 years. Many of the assumptions in these models are based on data from history, a history where bankers were not as irresponsible as the ones who currently lead the world's economies. We will see these mathematical models be tested in the securitized mortgage markets in the not to distant future and I bet you they are not as “ROBUST” and predictive as they have been presented to be. Its going to be interesting who they “pin the tail on the donkey” this time, as the players involved are also powerful investment interests pitted against one another!!! Of course it will be the little guy!!!

The next part of the sandpile is created the emerging world's central banks, and their money printing is a self defence mechanism , as they have developed fiercely competitive manufacturing and supply chains and their export industries have blossomed. When they get paid this puts a HUGE bid under their currencies as the sheer size of the money flowing into their economies when they get paid is Trillions of dollars in purchasing power from the G7. This money printing is a super charger to their economies allowing them to invest in businesses, plants, equipment, infrastructure and create jobs for their emerging middle classes. The virtuous circle of Austrian economics at work in these emerging powerhouses.

The size of their domestic currencies is Dwarfed by the size of the G7's. So as they receive payment for their products and services they must STERILIZE the income or risk having their currencies SKYROCKET against those of their customers in the G7. An example of “Sterilization” is where they receive a dollar or Euro in payment for something (manufactured goods, raw materials, energy resources, services, etc.) and rather then go to the currency market to exchange it for their domestic currency they print their domestic currency, put it into their central bank reserves (rather than convert them in the currency markets) and pay the domestic businessmen out of the money they printed in the domestic currency. They then must recycle much of this back into the financial systems of their customers to prevent the deflationary effects of the customers borrowing requirements to overwhelm their customer's ability to borrow.

It is clear that words have little meaning to G7 central bankers and government financial officials bent on “NOMINAL” growth at any cost, sacrificing the futures of later generations, for the votes of today's citizens. With runaway money and credit growth the appearance of a healthy, growing economies is in the headlines, while the seeds of collapse are being sowed on a wider and wider scale. The reckless expansion of G7 credit and money is winked and nodded at by Pop ulous Politicians around the globe as the honey pot of a “growing economy” is worth any price to them, as it provides the fuels for the next “RE”election cycle and government inspired idiocy that fools their citizens into thinking there is growth. Look no further than ethanol for an example of a government inspired Di saster in the making, distorting every market that is related to it (we will revisit the “ethanol” finger of instability from the original “FINGERS OF INSTABILITY” as it is illuminating what has unfolded, and the monster it is continuing to morph into).

You have to learn to invest in the direction the wind is blowing and learn to take advantage of these fingers of instability as they emerge. Bubbles forming, driving asset prices higher as good fundamentals combine with TOO MUCH LIQUIDITY to drive the asset class to unbelievable heights, and then implode as the fundamentals no longer support the mania prices in the underlying asset class . It will happen over and over and over again, as rising asset prices, and nominal growth (growth from inflation) underpins everything in the G7 financial systems . As they no longer have policies that are conducive to and supportive of “WEALTH CREATION”. Substituting an ever growing welfare state and the relentless expansion of government while the private sectors suffer death from a thousand cuts. As relentless regulatory expansion, uncompetitive tax structures and the relentless expansion of the welfare state “EAT THEM ALIVE”.

You need to learn to make money in up, down and sideways conditions. As this experiment has a long way to go before the endgame emerges. Make money now, and do your homework, when the final explosions are on the near horizon, know where the exits are, be in liquid investments that will allow you to exit, and then initiate capital preservation and income strategies. In the wrong instruments and you will be killed, in the right ones and the opportunities are limitless.

What can you Bank on? You can bank on the G7 global money printing and credit creation continuing. Asset based banking and economic management strategies such as those that evolved under Greenspan, are now the economic models that are in place around the globe. Widely employed by the developed and emerging world alike. Around the world politicians and central bankers liked what Greenspan did so much that they now are challenging even him for supremacy in recklessness. He has left the scene and the public is quite good at blaming those left holding the bag!!! And he has passed the hot potatoes to others. But because they are putting a super charger to his previous efforts, what was an anticipated “ US collapse” because of these reckless policies are now postponed far into the future! As all these new participants send their economies on the path to wealth creation through asset appreciation rather than growing economies and industries.

Globalization is the canvass, and the Global economic and financial system is the “Sandpile”. As money moves around the globe with ease, seeking out returns. The smart holders of fiat money seek to own the “means of production”, move out of paper currencies and move into assets that can withstand the relentless debasing the sovereign currencies are undergoing at the hands of G7 Ce ntral Bankers and Politicians. The assets the smart money holds and buys just reprice in the debased currencies.

The money and credit machines are generating the constant theft of purchasing power of currencies in deposits, wherever they may be held, (savings accounts, money market accounts, Bonds, interest rate instruments of all stripes, etc.). The dollar is a good example of fiat currency over time; as one dollar now buys what 4 cents bought when the Federal Reserve was unconstitutionally mid-wifed in 1913, only now the process has accelerated. (Sound money was a central theme of the founding fathers of the United States ; they prohibited the creation of a “fiat” faith based money system, they had seen numerous failed experiments with this throughout history and new these lessons well). In 1913 US politicians forgot these lessons with the creation of a foreign owned central bank (US Federal Reserve) and changed this forever.

Now “GUSHERS” of hot money roll of the central bank presses or are created by the big banks and brokerages when they spin new products such as CDO's (collateralized debt obligations and CMO's (collateralized mortgage obligations), but there is one common element to all of these instruments and that is the are like bonds, and they are sold based on the underlying “ASSET” value, and if the asset value declines or the income streams off them cease they become ‘BOMBS' to balance sheets.

Remember Japan, it was just 16 short years ago when we witnessed an asset based economy come off the rails; it is now just barely emerging from its deflationary debacle

(During Bernanke's academic career he developed intimate knowledge of Japan and the great depression, both times where credit availability for even qualified borrowers evaporated: mean the sub prime mortgage debacle “must not” be allowed spread to other parts of the lending system). US and EU politicians are totally ignoring this recent lesson of history (as they attack the Yen and by extension the yen carry trade).

Think of what would happen if this Japanese type of deflation and a liquidity crunch were to unfold on a Global scale, that's what teeing up if the central banks don't keep the international money and credit creation trains humming. If feeble-minded protectionist politicians or weak kneed central bankers in the United States and the European Union precipitate the choking off of these money flows we all will enter a deflationary depression of unprecedented scale. A Kondratieff winter! Hopefully someone will explain this to them before it is too late. We are now in a world of inflate or die. I promise you they will inflate. So it's going to be fire hoses of HOT money right off the printing presses for as far as the eye can see.

Enough already? Ready for some fingers of instability? Also known as bubble opportunities? And potential pitfalls!!!

FIRE!

This week a fire emerged across the banking systems of the G7, as CMO/CDO's markets started to implode. Approximately 300 billion dollars was PRINTED during the week to rescue the banks and the prime brokers from “ARM”ageddon. The overnight lending windows froze as banks REFUSED to lend to other banks as the value of their counterparties collateral suddenly was in question. The overnight commercial paper market suffered many disruptions as well. So the authorities did as they must to keep the game going: they printed the money and said “COME and GET IT” to supply the short term liquidity requirements of the G7 financial systems. It was enormous as every G7 central bank opened the lending windows. These episodes are set to continue as the financial authorities DO NOT know where the problems are, and on whose balance sheets they reside so they must wait for them to emerge then address them one at a time.

Most people think the problems were contained by these injections, but the important event was not the injection into the overnight banking systems which HAD to be done. The important event is that the US “FEDERAL RESERVE” went to the heart of the problem on Friday and took the “MORTGAGE BACKED SECURITIES” as collateral. They took over 20 billion dollars worth of them into inventory. NEVER has any central bank taken these over the counter “DERIVATIVES” as collateral. By putting a price on them now they can mark the models to the market, and the G7 central banks have the purchasing power to dictate the bid price, therefore now the balance sheets can be defined. However to this point it is only the US Federal Reserve that has done so. The Bundesbank did a rescue as well of IKB bank, but only by guaranteeing the banks in question, they didn't take the notes.

The seeds of this unfolding debacle are trillions of dollars of Mortgage backed securities which up to this point has been completely an over the counter affair between big banks, prime brokers and their clients such as hedge funds, institutions and pension funds (the investors in these products). The blow up is happening because the quality of the mortgages in these securities varies wildly and has come into question, some are backed by “good borrowers” and others by “liar loans” and “ninja” (no income, no job or asset) loans. They are PANDORA's box investments . Open them up and you don't know what will fly out of them. So as more and more investors decide the risk is a little more than they can be comfortable with and decide to sell the market was turning into a black hole. No bidders will put a price on them, so effectively they were worth very little, maybe as low as twenty cents on the dollar or as high as 90 cents, as NO ONE will buy something if they can't understand the value of that something.

Another shoe just dropped as we go to press, banks are WITHDRAWING their credit lines to hedge funds that hold this paper, and they are revoking credit lines predicated on this type of collateral. Another negative.

Now the interesting part starts as to effectively address this problem the G7 central banks must wait for bank after bank, institution after institution, hedge fund after hedge fund, pension fund after pension fund to try and exit their positions. The cockroaches must be identified as they as are flushed out by the mob of investors in PANIC liquidation mode. LOL. Some will be allowed to survive and others will be allowed to die as a lesson to others. The G7 central banks will HAVE TOO be the market maker of last resort. To not do so spells doom for the G7 financial system as the “ALWAYS” inflating value of the assets are the underpinnings of their financial systems.

Did you notice there wasn't one central bank in the emerging world which had to inject liquidity? Why? Because they have savings, and their economies are not dependent on monetary and asset inflation for growth like the G7's is. The emerging world does not depend on financial magic, inflation through currency and credit creation, and smoke and mirrors to create the illusion of growth. They are becoming wealth creating machines, courtesy of unrestrained capitalism and the Austrian economic models they employ and the money the G7 prints and sends to them provides the seeds they need to emerge into the modern economies they wish to create.

This week looks to be interesting as the selling abated somewhat after the fed took the MBS (mortgage backed securities), but you can be sure that meeting between G7 central bankers and financial authorities occurred all weekend long to discuss the next step of containment strategies. But there is one containment strategy you can bank on: “THEY WILL PRINT THE MONEY"! Otherwise this is the big Kahuna for the G7 financial systems, and I don't believe they are ready to throw in the towel! They won't throw in the towel until they are dead and buried or the markets don't let them get away with it!

In conclusion, we will be covering the unfolding drama for the next several months in the “FINGERS OF INSTABILITY” series. As the worlds government financial authorities pile dollar after dollar, yen after yen, British pound after British pound, Euro after Euro, Yuan after Yuan, Ruble after Ruble, Rupee after Rupee, etc. on the global economic pile, selected “Bubble” investment areas of the world economies will grow and then collapse, as we are now seeing in US housing and sub prime lending markets. As we watch financial authorities and public servants WORLDWIDE battle the markets as they attempt to control them. It figures to cause stock market indigestion as the credit needed to underpin them is temporarily interrupted until they get the fires under control and restore confidence to the G7 financial systems and their participants.

Goodluck

KLCI ends +0.7% at 1296.48 in thin volume but off intraday high of 1305.17 as intermittent profit-taking narrowed broad market gains. Market breadth negative; decliners led gainers 509 to 324. The benchmark may trade in 1275-1310 band Tuesday with negative bias; note, KLCI failed to close above psychological resistance at 1300. Rising credit risk concerns continued to weigh on sentiment but local funds were more aggressive, value-hunting blue chips and some government-linked stocks. Investors will continue to keep an eye on U.S. markets and take their cue from there.

TOMYAM SHOPPING LIST

The “Plunge Protection Team” Working Overtime to Save US Stock Market

“Imagination is more important than knowledge”, the brilliant Albert Einstein used to say. Imagine for just a moment, that the Dow Jones Industrials has become a key instrument of national economic policy, and that by “actively managing” its direction, the government could impact the wealth of tens of millions of US households, and by extension, influence consumer confidence and spending.

Since the appointment of Henry Paulson to the helm at the US Treasury, the US stock market has always found a way to defy the law of gravity. During Paulson's short reign, the Dow Jones Industrials (DJI-30) broke an 80-year old record for the longest streak of gains with only three declining days in between. During the first seven months of his tenure, the S&P 500 did not decline by 2%, the second longest-period without a 2% correction since 1964.

The market savvy Treasury chief, who built a $730 million fortune at Goldman Sachs, is also the chairman of the Working Group on Financial Markets, commonly known as the Plunge Protection Team (PPT), created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987. The PPT is empowered to intervene in stock index futures and the foreign currency markets in the event of a crash.

Paulson and his Plunge Protection Team are dealing with another tough challenge, trying to extend the S&P 500's all-time record for avoiding a 10% correction. It's been 52-months since the S&P 500's last slide of 10% or more, which took place from January 14 to March 11, 2003, when it lost 14 percent. Since then, the benchmark index has more than doubled without a similar drop.

“It's my job to be vigilant,” Paulson said on July 26th. “I've made this statement when the markets looked very good, and I've made it during times of volatility, but I will say that on global financial shocks, it's very hard to predict them. I am comforted by the fact that we have a strong global economy and very healthy economy in the US, but it's my job to be vigilant," Paulson said.

Federal Reserve chief Ben “helicopter” Bernanke is the US Treasury chief's right hand man, a key player controlling the US money supply. Since Paulsen's confirmation in July 2006, the broad M3 money supply has expanded at a 13% annualized clip, its fastest in 30-years, in a brazen effort to inflate the US stock markets, and keep the cost of borrowing low for corporate takeover artists.

The PPT's strategy is to offset weakness in the US housing market, with increased household wealth in the stock market, in order to avoid a recession. However, the weakness in housing has gone on longer and deeper than the PPT would like. Existing US single-family homes marked their eighteenth consecutive monthly price decline in May, bringing the annual loss to 3.4 percent.

US homebuilder sentiment slid in July to its lowest since January 1991, the National Association of Home Builders said on July 17th, as fallout from the housing slump and sub-prime mortgage crisis caused a glut of new homes. US home foreclosure filings rose 58% in the first six months of the year and could surpass 2 million this year as the housing market continues to deteriorate, RealtyTrac, said on July 30th.

The escalating foreclosure rate on US homes has badly shaken the $2 trillion sub-prime mortgage market, and the riskiest BBB- segment, has lost 65% of its market value to 35-cents on the dollar. The sudden aversion for risk spilled over into the high-yield junk bond market, where yields jumped 120 basis points, putting speculators on edge about the outlook for corporate takeovers and share buybacks, the two key catalysts of the market's rally to record highs.

The US junk bond market lost another source of liquidity, via the “yen carry” trade, after the dollar tumbled from 124-yen in June to as low as 118-yen. It was against this backdrop, that the skittish S&P 500 retreated 1.8% to close at 1,433 on August 3rd, bringing its string of losses since July 13th to 7.7%, it's third largest since May-June 2006, when it fell 8%, and from March 2004 to August 2004, when it fell by 8.7%. The fickle stock market switched its focus away from second-quarter profit growth of 11% for the S&P 500, or 2.5 times more than estimated in June.

But the PPT cannot afford to sit back and watch both the US housing market and the stock market sinking at the same time. That might spell the dreaded “R” word, - Recession. Recognizing the huge risks to the US economy, President Bush called for a special meeting of his economic advisors on July 27th, to discuss the stock market, which had plunged as much as 456-points the previous day.

Speaking from the Roosevelt Room, just 20-minutes after the opening bell of the NYSE on July 27th, President Bush said the US and world economy were strong after American gross domestic product jumped 3.4% in the second quarter. “The world economy is strong and I happen to believe one of the main reasons why is because we remain strong. The US economy is large, flexible and resilient.

Before his meeting with Bush, PPT chief Paulson spoke about the 381-point plunge of the Dow Jones Industrials on July 26th. “We're always going to have volatility. What we see going on right now is risk being re-priced and as we get a broad reassessment of risk we're getting volatility. We've had volatility as long as I've watched the markets,” he added. Did President Bush give the “Plunge Protection Team” the green light to intervene in the marketplace to prevent a stock market crash on July 27th?

After another volatile trading session on July 31st, when the Dow Jones Industrials gyrated within a 300-point range, from its early morning high of 13,500 to close sharply lower at its worst level at 13,185, PPT skeptics were asking, “Where is the mythical PPT now, with the stock market is teetering on the verge of collapse?

Just 24-hours earlier, shares of American Home Mortgage AHM.N, had plunged 87% to $1 per share, after the mortgage lender said it was unable to fund home loans and would have to liquidate its assets. The company commanded a 2.5% share of the US mortgage market, and specialized in prime and near-prime loans, otherwise known as Alt-A loans, which are now trading close to 63 cents on the dollar. The meltdown in AHM.N shares was largely blamed for the DJI's 240-point plunge on July 31st.

Later that evening, Dow Jones Industrial futures were unusually volatile during Asian trading hours, extending their losses by 110-points, and the US dollar slumped to as low as 117.60-yen. The next morning, the US government reported that crude oil stocks had declined by 6.5 million barrels to 344.5 million, and Venezuela's mercurial kingpin Hugo Chavez was loudly telling his audience in Caracas, that “crude oil prices were headed straight to $100 per barrel.”

US light crude oil briefly shot-up to a new record high of $78.77 per barrel, and the DJI-30 sank further to 13,150. It was looking pretty grim for Wall Street bulls, with PPT chief Paulson, situated far away in Beijing, trying to head-off a trade war between the US Congress and China next year. And when the cat's away, the mice will play. Was the mythical PPT was asleep at the switch while Wall Street burned?

But then it happened! At around 3:20 pm EST on August 1st, the DJI-30 began to move up strongly and without hesitation. By the closing bell at 4:00 pm, the DJI-30 had skyrocketed by 230-points above its lows, to close 150-points higher on the day. The mainstream media pointed to the possibility of computer buy programs, which kicked into high gear, after the S&P 500 held above its 200-day moving average.

Did the Plunge Protection Team enter the marketplace in the final half-hour of August 1st to prevent the DJI-30 and S&P 500 from closing below key technical support levels? A former Federal Reserve member once suggested that “instead of flooding the entire economy with liquidity, and thereby increasing the risk of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole.”

However, PPT skeptics could argue that the 230-point surge for the DJI-30 in the last half hour of trading on August 1st was a delayed reaction to an earlier $2.50 per barrel plunge in crude oil to $76.20 /barrel. US Energy czar Samuel Bodman was “jawboning” OPEC, and publicly called on the oil cartel to open its spigots wider, to cap the price of oil, and move the US economy away from the danger zone.

Also in the background, the US dollar was building a “triple bottom” on the hourly charts at 118.40-yen, which meant the “yen carry” trade was down but not out. The late surge in the DJI-30 was enough to persuade currency traders to bid the dollar to 119-yen, which in turn, was enough to scare over zealous DJI-30 bears out of short futures positions, and pushed the stock market higher.

he following day, the DJI-30 held onto its late 230-point advance, see-sawing in a tight sideways range, and keeping short sellers in a hammer lock. Not knowing who delivered the late knock-out punch on August 1st, several short sellers folded their cards in the final half-hour, lifting the DJI-30 by 100-points to the 13,500 area. Yet during the trading session, the strength of the DJI-30 couldn't mask the underlying erosion in Wall Street power brokers, such as kingpin Goldman Sachs.

Goldman Sachs was swept lower by Bear Stearns, whose shares melted down by 25% since July 18th, after two of its hedge funds that bet heavily on risky sub-prime loans had dropped to 9-cents on the dollar. Traders are also nervous about investment banks that have underwritten $300 billion of high yield junk bonds that are unlikely to clear the market at a price they were bought at.

However, the PPT wouldn't stand idle and allow the panic swirling around the Wall Street power brokers to turn into a crisis. “The market understands, that the Fed will act in due time, if and when evidence accumulates that action would be appropriate,” said St Louis Fed chief William Poole on July 31^st

On the morning of August 3rd, the PPT was faced with a renewed assault on the stock market, when US dollar plunged 1-yen to as low as 118.20-yen in the first hour of New York trading, following a weak US jobs report in July. Traders reacted more severely to the private ISM Service sector index, which fell 8% in July, and tracks 85% of the US economy. ISM's service sector employment index fell 6% to the 51.7 level, dangerously close to stagnant job growth.

PPT spin-meisters began twirling the data. On August 3rd, the White House's top economic adviser Edward Lazear said, “Job growth continues, even in a period when we are seeing changes in the US economy, most of which were positive,” after data showed 92,000 new US jobs were created in July, the slowest in two years. But there is still much skepticism over the reliability of the employment figures.

Traders are puzzled over why the US Bureau of Labor Statistics has shown no change in the number of construction jobs from eighteen months ago, even though homebuilding activity has dropped dramatically. Sales of new homes in the US have tumbled 40% to annual rate of 834,000 from their peak, and are down 22.3% compared with June 2006. The sales pace in June and March was the lowest since 1999. Are homebuilders employing thousands of idle workers, to help the broad economy?

An alternative estimate, based on data used to develop the ADP National Employment Report, suggests that employment in the construction industry has already declined 156,000 from a recent peak, and is now 139,000 below the government's official estimates. ADP suggests that the construction sector will shed as many as 247,000 jobs thru the end of 2008, or about 14,000 per month.

Then dire comments by Bear Stearns Chief Financial Officer Sam Molinaro at 2:30 pm EST on August 3rd, unraveled the PPT's hard work. “The fixed income market environment we've seen in the last eight weeks has been pretty extreme, and is comparable to market events that include the debt crisis of the late 1990's,” he said.

Molinaro's confession left the Dow Jones Industrials in a shambles with a 281-point loss on August 3rd, closing below horizontal support at the 13,250 level, and knocked the S&P 500 below its 200-day moving average. DJI-30 futures extended their losses by 50-points on Sunday night, during Asian trading hours, when the dollar fell to 117.10-yen. But Nikkei-225 futures and DJI-30 futures recovered their losses when the dollar bounced back above 118.00-yen in London.

The PPT got a timely gift, when Barclays Bank formally launched its 65 billion euro ($89 billion) bid for ABN AMRO, on August 6th, in an attempt to beat a Royal Bank of Scotland-led consortium, in the biggest ever bank takeover. Pulling another rabbit out of the hat, US light crude oil opened $2 per barrel lower on the NYMEX, and extended its daily loss to 5%, igniting a 286-point DJI-30 rally, its best daily performance in five years.

On August 3rd, US Energy czar Sam Bodman had loudly voiced concern the US economy was “in the danger zone” and would suffer if oil prices did not fall soon. “We are going to need more oil and I'm hopeful that the OPEC ministers at their Sept 11th meeting will agree to that. I am concerned that we are operating in the ranges approaching $80 per barrel,” Bodman said.

OPEC has already boosted its oil output by 250,000 bpd since April to 26.75 mil bpd today. In a surprising move on August 6th, Saudi Arabia lowered the price for its best blend, Extra Light crude by $4 per barrel to US customers. Still, Riyadh may wait for confirmation that the president's “Arms for Oil” deal can pass through the Democratic led US Congress, before committing to a formal increase in oil output in September. So far OPEC “jawboning” has done the trick of knocking crude oil off its all-time highs.

An hour later, the UAE's oil chief Mohammed al-Hamli, signaled a possible increase in OPEC oil production next month. “We are concerned about the higher price, because we don't want to go through a recession,” he said, quickly knocking $2 a barrel off crude prices. Expectations of an OPEC decision in September to pump more oil has already flushed out bullish speculators, and shaved about 8% off the peak oil price set on July 31st.

There's a good chance Riyadh might heed the call for more oil, after the Bush administration said it will ask the US Congress to approve an arms-sale package to Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman, that may total more than $20 billion. The package includes advanced satellite-guided bombs, fighter-aircraft upgrades and new naval vessels. Bush wants to lock in the 10-year deal for the US military-industrial complex, before he leaves office.

OPEC has already boosted its oil output by 250,000 bpd since April to 26.75 mil bpd today. In a surprising move on August 6th, Saudi Arabia lowered the price for its best blend, Extra Light crude by $4 per barrel to US customers. Still, Riyadh may wait for confirmation that the president's “Arms for Oil” deal can pass through the Democratic led US Congress, before committing to a formal increase in oil output in September. So far OPEC “jawboning” has done the trick of knocking crude oil off its all-time highs.

The DJI-30's powerful rallies on August 1st and August 6th might have been linked to expectations of sharply lower oil prices. That would be a replay of July 2006, the last time crude oil topped out at $78 per barrel, before an extended slide of $28 per barrel to $50 /barrel, and helped jettison the Dow Industrials 10% higher, while keeping Treasury bond yields low.

If one suspects the DJI-30's powerful 550-point rally from the August 6th low to the August 8th high was fueled in part by the 8% slide in crude oil prices, how does one explain how Exxon Mobil, led the DJI-30 rally, climbing 10% to as high as $87.90 /share. Similarly, the S&P Energy Spider-XLE, rebounded by 7% above its early August 6th low, tracking the DJI-30 higher.

On August 7th, the Federal Reserve held the fed funds rate steady at 5.25%, despite downside risks to the US economy from the sub-prime mortgage meltdown and frozen junk bond market. The Fed's hands are tied right now, because rate cuts could hammer the US dollar. “The Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. High levels of resource utilization can sustain inflationary pressures,” the Fed said.

The knee-jerk reaction to the Fed's statement was bearish. The DJI-30 quickly lost 150-points in 20-minutes to as low as 13,350. The initial interpretation of the Fed's statement meant the central bank could not ease the plight of Wall Street power brokers by pumping dollars into the money markets. Yen carry traders panicked, when the Fed said “downside risks to economic growth have increased”, and quickly dumped the dollar to as low as 118-yen.

But the carnage came to an abrupt halt, when PPT chief Paulson said “a strong dollar is in the nation's best interest. We welcome foreign investment.” Within a half-hour of Paulson's comments, the US dollar jumped 0.90-yen to 118.90-yen, and the Dow Jones Industrials skyrocketed 250-points in a flash. With the Fed ruling out rate cuts in August and September, “yen carry” traders figured it was safe to dive back into the DJI-30, especially after Paulson's wink and nod

The US stock market got a big shot of adrenalin, when Bear Stearns (BSC.N) rose 24% above its August 8th low, within the span of 48-hours. On August 3rd, Standard and Poor's had lowered its outlook on Bear to negative, which prompted BSC's stock price to plunge by 14% to as low as $99.75 /share. Then on August 6th, S&P said market's bearish response was a “vast overreaction. We still expect the company to be profitable in the current quarter and thereafter. Its liquidity is strong,” S&P said.

Later on, the media began to sprinkle rumors that Fannie Mae and Freddie Mac were seeking authority to bid for badly battered sub-prime mortgage debt, a quasi government bail out of Wall Street power brokers. Jigging the market higher, Wells Fargo announced the buyback of another 50 million shares, while Merrill Lynch's stock was upgraded by fellow banker UBS, which said the stock's beaten down price already reflects risks the company faces in the sub-prime mortgage market.

On August 8th, the DJI-30 was humming on all cylinders, up 550-points above its August 6th low, reaching 13,700, before word spread that Bush was holding a important meeting with PPT chief Paulson at the Treasury department, amid talk that China was dumping US bonds, in retaliation to US sanctions aimed at the yuan. The DJI-30 plunged 200-points over the next hour.

PPT chief Paulson spoke to reporters to extinguish the rumors. “I think it's absurd, frankly. What the Chinese hold in Treasuries is less than one day's trading volume in Treasuries. We have a broad, liquid market. If you've got a hundred things to worry about, I'd worry about that last,” he said. Bush told Fox News Channel's Neil Cavuto, “It would be foolhardy for China to sell US dollar assets”

Soon after remarks by Bush and Paulson, the DJI-30 soared 150-points, “micromanaging” the market on every significant pullback or downturn. Nowadays, “Investing” in the stock market seems like a crap shoot, rolling the dice on the next piece of “hot news” to roll across the computer screen.

Is the “Plunge Protection Team,” Myth or Reality?

Is the legendary PPT just a myth, conjured up by a bunch of conspiratorial nuts? Former president Clinton advisor, George Stephanopoulos told “Good Morning America” on Sept 17, 2001, “There are various efforts going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the market, what is called the “Plunge Protection Team.”

“The Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges have an informal agreement to come in and start to buy stock if there appears to be a problem. They acted more formally in 1998, during the Long term Capital Crisis, and propped up the currency markets. And, they have plans in place if the markets start to fall.”

On August 8th, 2007, President Bush hinted at government intervention in the US stock market. “Treasury secretary Paulson and his advisors are paying close attention, as the market begins to readjust its assessment of risks and are watchful for any downturn,” he said. “There is a lot of liquidity in our system and liquidity will provide the capacity for our system to adjust,” Bush added, alluding to the Fed's tolerance of double digit M3 money supply growth.

The big question is whether US Treasury chief Henry Paulson and Fed chief Bernanke are pursuing a more active interventionist policy than what was originally mandated for the PPT? The turnover of interest rate, currency and stock index derivatives rose 24% to $533 trillion in the first quarter, and that's a big time bomb that can blow-up at anytime. It requires constant surveillance and “vigilance” over the world's greatest casinos. Warren Buffett calls derivatives “weapons of mass destruction.”

If correct, then the PPT is “watching the markets closely”, (Japanese code words for intervention) and Paulson and Bernanke aim to prevent a 10% correction at all costs. There are glaring signals in the marketplace that indicate when the PPT appears to be intervening in stock index futures, and these signals were revealed in the August 3rd edition of Global Money Trends, with plenty of cool charts. If you expand your imagination, as Einstein suggests, and accept the notion that the PPT is “managing the markets,” you might become more successful in trading.

Free Charts

Hellaw,

My ayam indicators still didn't give any `buy signal' just yet..

In the meantime, if u lookin for a charting site for all the KLSE counters, check the yahoo! finance sites (the beta version):

http://finance.yahoo.com/

all you need to do is - key in the stock code follow by .kl

eg. for Bursa Malaysia Bhd - 1818.kl

A Chartist Wanabe

Dear friends,

Seringkali kita terbaca ramai berkata bahawa teknikal analisis adalah satu seni, terlalu subjektif dan evolusi dalam kemunculan teknik-teknik baru amat pantas sekali.

Kebetulan semalam saya menghadiri satu sessi kelas pencartaan teknikal sebagai persediaan untuk menduduki peperiksaan MSTA pada April 2008, namun apa yang saya dapat daripada kelas tersebut amat mengelirukan dan mengecewakan. Tak berbaloi sekiranya kita terpaksa membayar mahal untuk hal-hal sebegitu.

Oleh itu, ingin saya menasihatkan rakan-rakan peminat teknikal supaya menyiasat dahulu latar belakang seseorang speaker sebelum membuat keputusan untuk menghadiri seminar atau kelas teknikal walaupun bunyi tajuknya seumpama anda pasti kaya selepas mendengar ceramahnya.

Pertamanya, terlalu banyak so called new breed of `technical expert' atau `wanabe expert' ketika ini terlalu cetek pengalamannya dan hanya cari makan dengan mengadakan seminar tetapi pengetahuan mereka amatlah terhad.

Amat mengecewakan apabila mereka ini hanya berbekalkan teori semata-mata tanpa `hand-on experienced' mengenai tajuk yang cuba mereka huraikan, malah hanya tahu menggunakan satu software yang sudah ketinggalan zaman.

Bagi saya untuk menjadi `technician' , anda khususnya penceramah harus tidak hanya tahu tapi perlu menjadi pakar dalam sekurang-kurangnya tiga perisian teknikal terkini eg. Metastock, Advance Get, Omnitrader dan lain-lain.

Ini adalah kerana ada di kalangan mereka yang hadir di seminar anda sebenarnya berpengalaman tentang analisis teknikal dan perisian-perisian tersebut, dan jelas ia merosakkan reputasi si penceramah.

Si penceramah pula jangan terlalu angkuh sehingga segala pendapat dan buah fikiran hadirin tidak dipedulikan kerana teknikal analisis adalah benda yang subjektif. Dalam pasaran modal khususnya pasaran saham, kita semua adalah `anak murid pasaran', tiada siapa berhak untuk bergelar guru.

Sebagai ahli teknikal pasaran, kita tidak boleh menjadi pakar dalam semua bidang kajian, dan kita perlu harus mengakui hal tersebut. Jangan sampai anda memperbodohkan diri anda di hadapan hadirin.

Misalnya, saya sendiri hanya berminat dalam kerja-kerja WD Gann dan Fibonacci berserta oscillator moden seperti ADX dan Trix. Dalam hal seperti `classical patterns' dan lain-lain kaedah, pengetahuan saya amat terhad.

Sekiranya, si peceramah terlalu `perasan' yang dia terlalu pakar dalam semua hal dan menyangkal semua pendapat dan maklumbalas hadirin tanpa ulasan munasabah, jelas ia tidak merugikan orang lain tetapi dirinya sendiri.

Saya pernah menghadiri seminar-seminar antarabangsa oleh DiNapolli, Linda Raschke, Barry Rudd dan lain-lain, ternyata mereka ini amat jauh lebih profesional dalam mengendalikan ceramah. Di dalam negara pula individu-individu seperti Fred Tham dan SN Lock (bukan nak promote) memang pakar dalam mengendalikannya.

Bagi si penceramah, jika sebelum ini anda tidak pernah menerima maklumbalas atau mendengar rungutan daripada hadirin mengenai prestasi anda. Berhati-hatilah kemunculan pengkritik dan `wartawan cabuk' seperti saya dalam sesi ceramah anda.

Why The Blowup May Get Worse

(From BARRON'S)
By Randall W. Forsyth

The 21st century version of a bank run encircled the globe, but by week's end it seemed to be contained by central bankers using tried-and-true 20th century methods.

But the real question is how, and whether, the damage from the subprime mortgage meltdown can be contained. The good news is that the positives of a strong global economy should mute the repercussions from this financial debacle. The bad news is that mortgage crisis still is in its early innings.

Central banks around the globe injected $290 billion of liquidity Thursday and Friday after money markets in Europe and the U.S. suddenly tightened. It followed BNP Paribas' halt in withdrawals from two of its funds with big chunks of U.S. subprime paper, the firm citing the inability to value its assets during the market's collapse.

Thursday's efforts, totaling $154 billion with $130 billion coming from the European Central Bank, did little to relieve the distress. But Friday, the Federal Reserve was able to restore a semblance of normalcy, if only by taking extraordinary actions. First, like the mythical Chicago voter, it entered the market early and often. It arranged three rounds of repurchase agreements, which is unusual, for a total of $38 billion, up from $24 billion on Thursday, and the most since the days following Sept. 11, 2001. The Fed also accepted mortgage-backed securities as collateral in the first round to bolster that beleaguered sector instead of the more usual Treasuries.

And just to make sure nobody missed the message of these open-market operations, the Fed issued a press release saying it would provide liquidity to keep the financial markets functioning and to keep the federal-funds rate close to its target of 5 1/4% after the cost of overnight money had climbed as high as 6%. The Fed added that the discount window was open to banks and other depository institutions experiencing "unusual funding needs."

Bernanke & Co.'s words and actions had the desired effect Friday, and nowhere was their impact more evident than in the action of Countrywide Financial (ticker:CFC). Shares of the big mortgage lender were slammed with a 13% loss at the open after it said in an SEC filing that it and other lenders faced "unprecedented disruptions" in the credit markets that resulted in Countrywide having to hold $1 billion in mortgages on its books that it had planned to sell into the secondary markets. By Friday's close, Countrywide was off less than 3%, a huge recovery that extended to the overall stock market.

Not since 1966 -- when the term "credit crunch" was coined after the Fed pushed market interest rates above the legal limits banks and thrifts then could pay on deposits and thus stopped lending in its tracks -- has the nation's mortgage apparatus been so close to breaking down.

The current crisis arguably has the potential for more economic disruption than the celebrated 1998 Long Term Capital Management meltdown. Then, as Northern Trust economist Asha Bangalore points out, the economy cruising along -- in contrast to the past four quarters, which have seen below-potential growth on average.

Moreover, mortgage borrowers perversely benefited from the LTCM fiasco. Not only did the Greenspan Fed lower rates, sparking a huge bond rally, but, also, the government-sponsored enterprises Fannie Mae (FNM) and Freddie Mac (FRE) went on virtual buying sprees. As a result, the biggest part of the credit mar- ket -- mortgages -- remained flush. Now, Fannie is looking to expand its portfolio beyond the $727 billion limit imposed on it after its accounting and governance scandals -- a move viewed skeptically by the White House but supported by some congressional Democrats.

Indeed, the full impact of the mortgage crisis still lies ahead. From the beginning of 2007 through mid 2008, interest rates on over $1 trillion of adjustable-rate mortgages are slated to be reset, many from low "teaser" rates.

The subprime mess also recalls another crisis -- the virtual collapse of the commercial-paper market in the wake of the Penn Central bankruptcy of 1970. Back then, the paper market consisted of relatively simple short-term corporate IOUs. Now, so-called asset-backed commercial paper is backed by all manner of things, from credit cards and auto loans to collateralized debt obligations, and comprises over half the CP outstanding. Moreover, notes MacroMavens' Stephanie Pomboy, money-market funds own 27% of CP outstanding.

While the Fed managed to soothe the financial markets' nerves by week's end, the potential for future upheavals remains. As a result, the futures market is looking for the central bank to ride to the rescue with rate cuts. Fed-funds contracts are fully discounting a quarter-point cut, to 5%, at the Sept. 18 Federal Open Market Committee meeting, and a further reduction to 4 3/4% in December.

As the chart here shows, financial crises have tended to coincide with peaks in the fed-funds rate and subsequent Fed easing. The subsequent rate relief would be hailed by the markets as the start of a new bull run.(see accompanying illustratione -- Barron's August 13, 2007)

There is a new wrinkle -- the precarious state of the dollar. No longer is the greenback viewed as a safe haven in the world, contends Barclay Capital's currency team.

Indeed, as MacroMavens' Pomboy has posited, a Fed rate cut that sends the dollar tumbling could have a perverse effect. The influx of foreign capital has kept U.S. interest rates low and provided a flood of credit for everything from leveraged buyouts to, of course, subprime mortgages. If there's an exodus of foreign capital fleeing a declining dollar, credit could tighten even as the Fed eases. Be careful of what you wish for.

The Trader: Is It Safe To Come Out Yet?

(From BARRON'S)
By Kopin Tan

What scares the market so? It isn't good news, which is in short supply these days. It isn't even bad news, which at least is a known woe.

What has traders quaking in their Bruno Maglis is the bewildering uncertainty pervading the stock market, as the financial world grapples with the unknown -- and so far unknowable -- damage suffered in the market for home-loan securities.

As losses pop up in unexpected places, worries increase that a chastened debt marketwill clam up -- denying credit to everyone from corporations to consumers, and thwarting the already-fragile economic expansion in the U.S. "There are now some indications that the subprime mess is leading to an indiscrimate rationing of credit," says Strategas Research's Jason Trennert.

Last week, the U.S. Federal Reserve and the central banks in Europe and Japan injected billions into the financial system. While that helped calm frayed nerves, it also fanned fears that the looming credit crunch may be worse than imagined.

Repeated reminders from the bulls -- of today's stronger balance sheets, moderate valuations and an earnings yield still greater than that from 10-year Treasuries -- spurred buying jags. But those were met with selling from hedge funds looking to de-leverage and shore up liquidity to meet any redemption calls. Since the July 19 market peak, a basket of 20 stocks with the greatest hedge-fund ownership has lagged the market by 628 basis points, notes Goldman Sachs.

The push-pull produced one of the stock market's most violent spells in years, with the Dow Jones Industrial Average swinging through triple-digit gains or losses in 11 of the past 16 sessions.

The week kicked off with a three-day rally that was the Dow's best since March 2003. But the biggest gains came from financials, materials and energy -- sectors that had fallen the hardest since July 19. This raised the specter of a "dead-cat" bounce, an impression confirmed Thursday when stocks suffered the year's second-worst one-day drop after BNP Paribas barred withdrawals from three of its asset-backed security funds. The selling was fierce and broad, with nine of 10 Standard & Poor's 500 sectors falling more than 2.5% in a day.

Trouble surfacing as far away as Europe suggests to the bulls that mortgage-market risk is spread wide -- and shallow. But the worry remains that such diffuse contagion could make it harder for regulators trying to limit any systemic risk. Not surprisingly, Friday's promise by the Fed to do all it can "to facilitate the orderly functioning of the financial markets" was met with more wild swings and had traders reaching for Dramamine.

The Dow fell as much as 213 points Friday before paring its loss to 31 points; it ended the week up 58, or 0.4%, to 13,240. Were it not for Friday afternoon's bounce, the Dow might have suffered its fastest 1,000-point decline since it skidded that much in the five days after the Sept. 11, 2001 attacks. The S&P 500 ended the week up 21, or 1.4%, to 1,454. The Nasdaq Composite Index gained 34, or 1.3%, to 2,545, while the Russell 2000 index rose 33, or 4.4%, to 789.

Consider this a sign of the times: Just a month ago, traders whiled away downtime picking potential takeover targets. Today, the chatter centers on which hedge fund or brokerage firm might be the next to suffer, and when the Fed may be forced to cut rates. Eddie Lampert's ESL Investments, for instance, has concentrated holdings in retail and bank stocks, and his positions in Sears (ticker: SHLD), Autozone (AZO), AutoNation (AN) and Citigroup (C) would have lost nearly $3 billion on paper since July 1.

What lies ahead? The pillar that is the job market thankfully is still standing, and global growth continues to lift profits at U.S. multinational companies. But hundreds of billions in adjustable-rate loans will reset to higher rates over the next year or so, and the impact on consumer spending remains to be seen.

Conventional wisdom holds that corporations, with their strong balance sheets, can withstand any credit crunch. But consumers stretched by rising mortgage payments and high gas prices might not hold up as well -- and they have been the drivers of this mature bull market.

In the shorter term, financial stocks that drive nearly 30% of S&P 500 profits may have to increase their loan-loss reserves. That may mean that profit forecasts for the third quarter will have to be adjusted down.

The market's worst fear is summed up by James Melcher, who runs Balestra Capital. "The equity market is just a sideshow to the main event, which is the bursting of the credit-market bubble," he says.

A decade of muted borrowing costs and lax credit have created a vast pool of liquidity that has inflated home prices and reduced sensitivity to risk. Liquidity has flooded so much of the financial system that mopping up its excesses will take time, "and we're not there yet," Melcher says.

Because money managers cannot accurately gauge the value of mortgage securities on their books, the losses suffered have yet to be fully quantified, and selling assets to meet redemption calls can play out for some time. That's one reason gold prices have slipped 3% even during the flight to safety over the past three weeks, and why energy bulls nonetheless are selling oil stocks -- because that's where they have profits.

Fearing fallout from the mortgage market's excesses, the global-macro hedge fund Melcher runs took a defensive stance as early as last year. That earned him some derision when stocks surged, but the fund is up 85% so far this year, after fees.

While waiting for the market tumult to run its course, Melcher says he is holding a lot of cash and Treasury bonds. He is also long the yen (he reckons the yen carry trade could unravel further), the euro and gold. He also holds credit-default swaps on select corporate and sovereign bonds.

Stocks he favors in this fracas include gold, oil services and large, non-durable consumer staples (think toothpaste makers). But he hasn't loaded up on these stocks yet because selling by index funds could still send prices lower -- with the buying opportunity still to come.

Anyone who needs an example of how capricious the markets can be need only look at the lost swagger of the merger crowd.

For each of the first seven months this year, the tally for U.S. mergers has exceeded $100 billion, even reaching a whopping $205 billion in July, according to Thomson Financial. But with the credit market balking, just $18 billion worth of mergers have been inked so far in August.

Since June 30, high-yield debt issuance totaled just $2.43 billion. The number of mergers topping $1 billion averaged 31 each month from January to July; so far in August, there have only been three.

Buyout firms also have retreated, and could remain in wait-and-see mode as they watch how the pipeline of debt offerings is met in the market. For much of the year, private-equity firms accounted for about 36% of all U.S. mergers. But since July 23, their part of the haul has fallen to 11%.

It isn't unusual to see deal-making slow slightly in the second half, says Richard Peterson, Thomson's director of capital markets. But such conspicuous retreat mirrors the market's growing concerns of dwindling credit -- and the still-unknown impact on economic growth.

Should you need another example of how cruel the market can be, consider the swift downfall of Dillard's (DDS).

Shares have skidded 35% since July 18. First, a constricting credit market quashed hopes that buyout firms might swoop in to buy the Little Rock department store, or that Dillard's could lever up to return value to shareholders. Then, Dillard's last week reported a 6% drop in same-store sales, the 12th sales decline in the past 14 months. With waning home prices and big gas bills, hopes for a resurgence in shopper traffic seem like wishful thinking.

A bout of bargain hunting lifted the stock 8% Friday, but Dillard's is hardly a bargain. At 24.25, it is trading at 14.4 times forward earnings, and profit projections risk falling if consumer spending wanes.

Billy Joel gets all the attention whenever he drives into a tree, but in fact, three million vehicles are totaled each year in the U.S. And that's all big business for Copart (CPRT).

The Fairfield, Calif., company has a leading 35% share of the domestic auto-salvage market, brokering the sale of totaled vehicles from insurance companies to buyers like rebuilders and scrap recyclers. The salvage business isn't exactly fast-growing, but Copart has improved profits steadily and kept gross margins near an enviable 50%.

It accomplishes this with live Internet-bidding technology that has transformed the once-sleepy business of salvage auctions. Internet auctions "improve the return on vehicles auctioned by attracting more bidders and reducing costs," notes Baird analyst Craig Kennison. Maximizing the price yield further helps Copart win vehicle-supply agreements from insurance companies and charge a premium for its service.

As domestic expansion starts to mature, Copart has set its sights overseas, and recent acquisitions in the U.K. will let Copart graft its technology to a global platform. "Given that profit levels and market value of the highly fragmented global market are far below those of Copart, we perceive a considerable opportunity for global value creation," says Rochdale Securities analyst Jaison Blair, who initiated coverage of the stock last week with a Buy rating.

With $100 million in annual sales, Universal Salvage, which Copart is buying, is the largest U.K. salvage company. Yet it is only marginally profitable -- compared with Copart's 24% net margin.

Up & Down Wall Street: After The Greenspan

(From BARRON'S)
By Alan Abelson

How worried should you be?

Well, that all depends on whether you're one of those cheerful souls blessed with a perennially sunny outlook or have the misfortune to be a sentient human being.

All we can tell you is that we were so worried about the brewing catastrophe in the credit market that we couldn't concentrate on the truly historic event of the week or perhaps the year or even -- who knows? -- maybe the century: Barry Bonds hitting home run No. 756.

Besides breaking Hank Aaron's record, that unforgettable four-bagger was a ringing testimonial to Barry's talent, unwavering dedication to his craft, clean living and steroids -- not necessarily in order of importance. And in an age when everyone is so concerned about our youths' lack of interest in the sciences, it sent a powerful message to aspiring juvenile sluggers about better hitting through chemistry.

What threw us into such a state of high anxiety was the prospect of the ownership society, George Bush's magnificent conception and prime domestic accomplishment, which any citizen of this fair land worth his salt had to be proud of, being transformed before our horrified eyes into the default society. A prospect that virtually everyone, save for Wall Street's professional optimists, is likely to find pretty bleak.

To be anxious is not, of course, to be devoid of compassion. And as we watched the great unraveling of that tangled web that financial engineering spun, we couldn't help but think of the acute discomfort being felt by that outstanding public servant Alan Greenspan, who, during his celebrated tenure as head of the Federal Reserve, more than anyone deserves credit for nurturing the ownership society. Mr. Greenspan, lest we forget, went far beyond the call to entice people, no matter what their circumstances, into buying a home by whacking the cost of credit to as near zero as you can get and still lay claim to being somewhat rational, and urging them to go for those new-fangled adjustable mortgages with deceptively low initial interest rates.

Beyond even his cleverness at blowing successive "smart bubbles," so that the newest one (for example, housing) was nicely calculated to offset the fallout from its burst predecessor (the stock market), and his adroit ability to please his political masters (his overriding passion has always been to be liked), nothing more distinguished Mr. Greenspan's long stint at the Fed than his timing in departing from that august body.

As his successor, gentle Ben Bernanke, is no doubt becoming ruefully aware, creating a mess is easy. The trick is in knowing when to slip out, leaving someone else with the job of cleaning it up. And here Mr. G has proved himself an undisputed master.

Financial mischief on such a grand scale is not a one-man job, and Mr. Greenspan, needless to say, had a lot of help from Wall Street, Washington and points north, south and west. But there's no diminishing the singular part he played.

And just as the contempt for risk that made possible the gross extravagances in housing and the financial markets was sustained by confidence that Mr. G would always bail out the participants -- the so-called Greenspan put -- so the current collapse in housing and the financial markets merits a special designation, one that similarly recognizes his critical role. How about the Greenspan Kaput?

President Bush, for his part, sought to calm the roiled financial markets and reassure the populace that all's well, which, of course, is what presidents do.

Alas, he seemingly doth profess too much: unequivocally declaring his confidence in the strength of our economic "underpinnings" on Wednesday and, with equal vehemence, repeating the message on Thursday. Which only persuaded the increasingly uneasy citizenry and the clinically jittery markets that Mr. Bush was more fretful about the credit fiasco and its conceivable consequences than he was letting on.

What's more, in addressing the stormy state of the credit markets, Mr. Bush blithely pointed to the sea of liquidity as being more than sufficient to float us comfortably through any pesky eddies of trouble. It was almost as if the president, ever mindful that his term in office would inexorably come to an end next year, was auditioning for a strategist's spot on Wall Street.

Someone apparently was lax in not pointing out to Mr. Bush the manifest nervousness of central banks that liquidity is drying up or threatening to do so everywhere, as the nasty contagion touched off by the subprime collapse here spreads around the globe. The European Central Bank, not ordinarily a chum of speculation, decided to provide roughly $130 billion to help out any deserving banks in need at its normal borrowing rate, and later tossed in another $83.9 billion for good measure. That sparked rumors that a big German or French bank was in trouble. Our own beloved Fed, less dramatically but no less significantly, has also made a couple of hefty infusions into the system.

Despite his avowed determination to keep the focus on constraining inflation, Mr. Bernanke, we suspect, will cut interest rates, perhaps sooner than there was reason to suspect only a few days ago, if, as seem likely, the credit crisis deepens. Apart from getting the lending woes off the front page and providing a fillip to the financial markets, it's by no means certain that waving that particular magic wand will prove more than a temporary fix. For what ails us can be cured only by the kind of astringent fiscal and monetary medicine that none of our pooh-bahs has the slightest inclination to prescribe, much less administer.

Our old friend, investment savant, proprietor of the always informative and insightful commentary with the vaguely doggerel title of Gloom, Boom & Doom Report and, not least, valued Roundtable worthy, Marc Faber, offers some pertinent and pungent comments on the troubled capital markets.

Marc is the nearest thing to a truly global investor we've ever come across and was busily discovering the merits of emerging markets long before either the phrase was invented or the venues became so popular. We're thoroughly convinced that if mankind, out of design or necessity, establishes a colony on Mars, Marc will be among the first to explore its investment possibilities. He's Swiss, but, even so, has a sly and spry sense of humor to go with his considerable erudition and trademark skepticism. And he's a first-rate guy.

In surveying the current investment landscape and the eruptions that are taking place courtesy of the subprime disintegration, he recalls that when Nasdaq began to go south in 2000, most Street pundits were convinced that we were witnessing only a brief correction. In like manner, in 2005 as the home-building stocks, which had been whiz-bang winners, slipped back, the prevailing advice was not to worry, housing was fundamentally sound.

With few exceptions, the same complacency was the reaction when subprime problems began to emerge last year. And, he sighs, the wiseacres who failed to recognize the housing and subprime bubbles are now insisting that problems in collateralized debt obligations -- CDOs, for short -- are piddling. Not so, cautions Marc, who says the problems are anything but insignificant and are apt to cause hurtful losses for "financial institutions and their clients when the underlying securities have to be valued at market prices."

Sharpening his fears of a possible meltdown, he cites estimates that subprime mortgages made up more than half of the $500-odd billion in CDOs sold in '06 and 25% of their face value, or roughly $250 billion, is in jeopardy. That's not exactly small potatoes, he points out, when compared with the $875 billion of capital sported by U.S. commercial banks.

The bottom line, Marc says, is that large losses in the CDO market could have very ugly repercussions, not the least of which would be a pronounced slowdown in financial credit growth, evidences of which are already cropping up. That, quite obviously, holds very unpleasant implications for the economy.

And he soberly ventures that, with the pervasive leverage in every nook and corner of the financial system, including futures and options and all manner of structured products, "the current credit excesses, both in terms of their quantity and low quality" dwarfs those of the Roaring '20s. Comforting thought.

Forgive us for such dirge-like scribblings. But that's the way the cookie crumbles and, man, is it ever crumbling. Thus late Friday, the Bloomberg wire carried the story that Goldman Sachs' $8 billion Global Alpha hedge fund is down 26% so far this year. Any way you cut it, that's a humongous amount.

Global Alpha happens to be Goldman's largest hedge fund (although it's safe to assume that if it continues to lose value at such a breathtaking pace, it won't long enjoy that eminence). That kind of negative performance hurts in two ways. It shrinks fees to Goldman; according to Bloomberg, such fees amounted to an unshabby $700 million last year. At the same time, of course, it's decidedly discouraging to investors, who, not surprisingly, often respond by withdrawing their dough from the fund.

When queried by Bloomberg, a Goldman spokesman declined to comment. Who can blame him? After all, what's to say?

---

For Barron's subscription information call 1-888-BARRONS ext. 685 or inquire online at http://www.barronsmag.com/subscription/subscription.html.

Helloooo Again

KLCI ends +1.3% at 1307.14 in moderate volume, rebounding from intraday low of 1292.87. Market breadth positive; gainers thrashed decliners 834 to 103. KLCI tipped in 1300-1321 range Thursday in follow through trade. Investors see gains in regional markets as a sign that markets have stabilized following the Fed's move to keep interest rates at 5.25% and DJIA's advance overnight. Both local and foreign funds bargain-hunted blue chips and index-linked stocks. Among gainers property and construction stocks posted strongest gains; speculative interest pushed water infrastructure related stocks sharply higher.

TOMYAM SHOOPING LIST

AYAMS TALK:

• AmResearch Keeps Buy On SelProp. Tgts MYR8.50
• Keladi Maju +2.6%; Resistance At 44 Sen
• Water Infra Cos Gain As Confidence Returns
• RHB Cuts EPIC Target To MYR3.90; Keeps Buy
• TA Sec Rates Kencana At Buy As Charts Tip Rebound
• S&P Keeps Hubline At Buy, Ups Target To 57 Sen
• Buy Dialog For Rebound, MYR2 Target -TA Sec
• Citi Keeps Media Prima At Buy; Target MYR3.40
• Citi Ups MPlant to Buy From Hold; Target MYR3.70
  

After Crashed We take a Vacation

Malaysia shares end down 3.3% at intraday low of 1290.90 in moderate volume of 1.29 billion shares; heavy falls in regional markets on DJIA's steep fall Friday cited. Market breadth negative; losers thumped gainers 993 to 60. Benchmark tipped in 1285-1300 range Tuesday. Sell orders from foreign funds, citing weaker ringgit (vs. US$) and expectations of a steeper decline in coming days, triggered the selling. There was no sign of any active buying support from local funds either. USD/MYR at 3.4660 late from 3.4610 late Friday; tipped in 3.46-3.50 range in medium term. All eyes will remain on the U.S. markets tonight but any rebound is likely to be short-lived.

No Tomyam Shopping List for Today

Get Ready For a Wild Ride

KLCI will likely trade within 1300-1350 range next week after closing +0.2% at 1335.42 in moderate volume after trading between intraday high of 1350.09 and low of 1333.40. Construction stocks led gains on speculation over upcoming infrastructure projects while finance stocks were lower on concerns over credit risk. Volume totaled 1.1 million shares while market breadth negative with decliners outnumbering advancers 452 to 424. The market was firmer in early trade following the rebound in U.S. stocks but gave up some of its gains on pre-weekend selling as investors generally don't like to have open positions amid global uncertainty.

TOMYAM SHOPING LIST

Why Global Stocks Make Sense

Why Global Stocks Make Sense

From BARRON'S
By Sandra Ward

Interview with David Richards

Private Investor

Of all the people we interview, David Richards strikes the deepest chord with readers. His interviews seem to be the ones that get tacked to walls or saved in a desk drawer, treasures of insight and wisdom. People who have benefited from his calls on gold (2002) and energy (2004) or just plain enjoy hearing a smart man put the global economy in perspective ring us asking whether we plan to talk to him again. His time running public money at two respected firms, PrimecapManagement and Capital Research & Management, may be over, but he still puts in long days of research and travel, particularly as a member of the Rand Corporation's Center for Middle East Public Policy advisory board. During a conversation in his Maine barn looking out to the Deer Isle Thorofare near Penobscot Bay and beyond, we found him most bullish, excited by the cheap valuations on many big-cap U.S. stocks with extensive international operations.

Barron's: What was your impression of the recent market rout?

Richards: It was a mini-panic. But I don't think it is anything very serious, and we can expect several of these over the next couple of years because so much leverage and credit has been so available, and some people are overextended. The spreads have gone from being ridiculous at 2 1/2% on high-yield debt to maybe 4 1/2% or 5%, and those are more normal spreads. What was screwy was the narrowness.

Q: Why don't you treat the selloff as something more serious?

A: My position has changed enormously from what it was last summer. For the first time since I first talked to you back in 2000, I have no shorts. I believe the growth potential of the international economy and the potential for higher rates of inflation are not fully appreciated in the current valuations of stocks and bonds. I am attracted especially to the big international stocks that have pristine balance sheets and generate cash, that are buying back their own stocks and will benefit from the global boom.

Q: The global boom has been in place for some time, so what's changed your mind?

A: But the attitude toward the boom has been -- and it gets repeated over and over -- that we are in a bubble economy, we are in a bubble in commodities, we are in a bubble in real estate. What gets overlooked are two major developments that have occurred in the last 10 to 15 years, but really got going in the last five or six years: One, the whole world has adopted the notion that market- and economy-oriented policies are correct. In other words, there is a theology of capitalism that is sweeping the world, to borrow a phrase from British historian Eric Hobsbawm. There are 3.5 billion people from Eastern Europe to the Pacific and from the Indian Ocean to the Arctic that were living under socialism or communism, where it was not possible to trade and not possible for entrepreneurs to get rich -- and they have been transformed.

This has to be thought of in terms of the kind of 20-, 30-, 40-year growth we saw during the Industrial Revolution in the 19th century, when peasant societies would become industrial societies within 50 years. Urbanization is happening all over the world, and there is no way to stop it, unless people lose faith in this new theology of capitalism.

Q: And the other development?

A: There has been a total collapse in the cost of communication and computation. Time and distance in communication have been eliminated through the Internet and fiberoptics. Communication is instantaneous and virtually costless, and, as a result, you can run businesses all over the world from a headquarters positioned anywhere in the globe.

This, together with the first point, means the whole global economy has to be transformed. There are huge incentives to do it, but there is also a necessity to do it. This gives huge advantage to big international companies or even small ones that have an international point of view. These big developments are happening totally outside the financial markets. They have nothing to do with derivatives, nothing to do with home-equity loans and nothing to do with private equity or hedge funds.

Q: Yet the financial markets have been reeling from concerns about derivatives and hedge-fund failures related to the U.S. mortgage market.

A: The logic says subprime goes down so consumer spending goes down; house prices aren't going to go up and so you can't borrow more against your house, therefore consumption in the U.S. is going to go down or slow down, and it is going to affect the rest of the world. That's wrong. The U.S. at most is 25% of the global economy. The housing area at the peak was about 6% of U.S. gross domestic product. It can drop by half. It is insignificant in terms of the global growth of the economy.

It doesn't mean that some guys aren't going to go broke in the financial markets. The subprime lenders that gave these no-doc, no-money-down loans were stupid, and they are getting clocked and they will continue to.

The BRIC countries, Brazil, Russia, India and China, are somewhere between 17% and 20% of global GDP. There is a bunch of smaller countries -- Estonia, Turkey and Bulgaria and many, many more -- growing 5%, 6%, 7% a year. All the headlines are about China growing at 10% and India at 8% or 9%, but the rest of the developing world is growing at somewhere between 6% and 8% a year and might be 40% of the global GDP. There's 2 1/2% growth in the global economy coming from these areas and another 2% or 3% from the developed world for a global economy growing at 4 1/2% to 5 1/2% the last several years. Compound that 4 1/2% to 5 1/2%, and you have got a hell of a strain on all resources, whether it's energy or metals. That's why the prices of these commodities are going up, and it is a real boom.

Until this market breakdown recently, the big oil companies, and the BHP Billitons [ticker: BHP] and the Caterpillars [CAT] of the world -- all beneficiaries of the capital-spending boom that is under-way -- saw their stocks begin to go up again. This is signaling the beginning of a really rapid expansion of capital spending all over the world, a really big boom, whether it is for energy, roads or infrastructure, and that is only possible when people have confidence that the prices of these commodities that have gone up so much are not bubbles.

Q: How are you playing this global boom?

A: General Electric [GE] is now my second largest holding after Microsoft [MSFT]. I bought it in February when I decided to diversify my holdings from just oil and gold and Microsoft and Berkshire Hathaway [BRKA]. GE was selling at $34-$35 a share. It is a question of valuation and it is a question of international exposure and it is a question of a strong financial balance sheet. It is also a question of Immelt [CEO Jeffrey Immelt]. I like Immelt. He has had about five years to clean up what he inherited. If he is not there, he is almost there. The earnings for '08 are going to be around $2.50 a share, and I bought the stock at 14 times earnings with a 3% yield. It now trades at 16 times. Given my outlook for the global economy, for a company of that quality with its participation in aircraft and locomotives and power plants and international finance, what is the risk at 16 times earnings?

I also like Coca-Cola [KO], PepsiCo [PEP], Johnson & Johnson [JNJ] and Eli Lilly [LLY]. The natural buyers of these big companies, the big pension funds, have abandoned them in favor of hedge funds, private equity, international investment and bond arbitrage. These companies are selling at 15 times earnings when they used to sell at 25-30 times earnings.

With Coca-Cola, the amount of its earnings that are coming out of the U.S. are between 25% and 30% and its unit case volume growth around the world is often in double digits. Bottled drinks in many parts of the world are growing rapidly and are considered luxury items. If you are worried about clean water in the world, Coke and Pepsi deliver clean water and their business is getting bigger. They probably can grow at 10% or 11%, maybe even 12%, in earnings. You can buy these companies at P/Es that you haven't seen for years and at prices that probably existed back in 1998-'99. At these levels, they make very good long-term investments. They are not going to make you rich, but they are going to go up and they are going to go up more than the returns you can get anywhere else.

Q: What will make people rich?

A: The markets are not so cheap that you can expect big, big gains.

Q: Are you concerned about inflation?

A: I'm still concerned about inflation. Interest rates are not high enough. The inflation is coming from the big commodities boom, and it is coming because the Chinese are experiencing some inflation and the pressure is on them to revalue. The yuan has been going up at 4 1/2%-5% annually. I think the rate of revaluation will go to 7% or 8% annually. Prices of goods out of China are going to go up, and so China is not going to be a source of deflation as it has been in the world economy. It will modestly add to inflation. You will see rising consumption out of China.

Q: How is rising inflation beneficial?

A: American consumers are going to be under pressure in real terms to keep their spending up. I don't want to be in domestic retailers, for example, or something connected with housing or most all of the financial companies because they have been lending money to the American consumer one way or another, be it for mortgages or car loans. But for Caterpillar or Boeing [BA] or Coca Cola, big companies with international exposure, it is a plus. The growth rates of the portions of their business that are international are not fully appreciated.

The other angle to these big companies is that the pension funds that abandoned them for alternative investments are likely to be disappointed. The private-equity players such as Blackstone Group [BX] and KKR are now very, very big. They have become conglomerates. They are operating companies and in a sense they are like General Electric. But there are a couple of important differences. One is they are run by financial types who like to manage money and not people. Second, they are owned by people who are now extraordinarily rich and who have to hire managers to run these companies. They have to poach people out of General Electric, for example, and they have to incentivize them. The costs of doing that are high. The cost of credit going up is going to limit their growth, but the operational side of it is going to be increasingly a problem and then later on they have got to sell the stuff they've bought. I don't think the returns are going to be that attractive.

If you look at them as big conglomerates leveraged, say, three or four or five to one, you could buy a General Electric on margin and get a similar kind of a conglomerate without the same risk and a hell of a lot more liquidity. Pension funds say it's too risky to buy stuff on margin, yet they'll give money to KKR and Blackstone and those guys will leverage it to the moon.

Q: Do high oil prices throw off global growth?

A: No. Remember, oil is still under the $100 a barrel that you saw 25-odd years ago. The economy is much bigger and oil as a percent of the economy is much smaller.

Q: What oil companies do you like at this point?

A: The two biggest are ConocoPhillips [COP] and BP. BP is attractive because it has lagged so much. ExxonMobil [XOM] and Chevron [CVX] are up 50% to 60% in the last few years and BP [BP] is up 5% or 10%. It used to sell along with the rest of them.

Q: What about the meltdown in the subprime-mortgage market? Can that derail global markets?

A: The argument that credit risk is dispersed is true. The troubles that you will see and have seen in the papers with Bear Stearns and Sowood Capital Management, the hedge fund whose credit portfolio was taken over by Citadel Investment after the fund suffered heavy losses, are severe for those entities. They were very highly leveraged and got caught when credit spreads widened. There is no serious vulnerability to underlying asset prices yet. It is not as if there's been a total collapse. This is not a depression. To have a systemic problem there has to be a collapse in the price structure of the economy, yet oil is $77 a barrel, copper is $3.50 a pound, corn is $3.40 a bushel and last summer it was $2.50. The list goes on.

Q: Thanks, David.

---

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Subprime s Ultimate Time Bomb?

Barron's: Subprime s Ultimate Time Bomb?

(From BARRON'S)
By Jonathan R. Laing

Despite a glossy roster of owners like bear Stearns Merchant Bank and New York investment company Third Avenue Trust, ACA Capital has flown under Wall Street's radar for most of its 10-year history.

And perhaps that has been a good thing, given ACA's rather picaresque history. The firm's founder, H. Russell Fraser, often arrived at the New York headquarters in full Marlboro Man western regalia-until he was sent packing to his ranch in Wyoming in 2001 as a result of lousy results in ACA's original business of insuring low-rated municipal-bond issues. Then in 2004, ACA suffered the indignity of having its stock's initial public offering aborted shortly before launch when its primary underwriter, JPMorgan, took a walk. It seems that, late in the process, Morgan became concerned about some personal-tax issues of Fraser's successor, who has since departed.

With new management in place, ACA was finally able to get its IPO off last fall. Yet investor disinterest forced the company to cut both the size and the projected offering price. ACA was able to raise just a paltry $79 million.

Yet ACA's days of relative anonymity are fast coming to an end. For in recent weeks, the insurer has been drawn into middle of the mushrooming subprime-mortgage crisis, by virtue of having quietly over the past two years insured $15.7 billion of predominantly subprime securities. And the bulk of these guarantees ($9.3 billion worth) have been placed on some of the most speculative paper in this free-wheeling market -- so-called mezzanine, subprime collateralized debt obligations, or CDOs.

In all, the firm's CDO exposure, including subprime and instruments backed by various corporate and commercial mortgage debt, totals an imposing $61 billion of value -- on a capital base, or shareholder net worth, of just $326 million. A leverage ratio, in other words, of over 180-to-1.

Not surprisingly, the stock (ticker: ACA) has been pounded in the last month and a half, falling from over 15 on June 19 to a low of 5.17 on July 24. It rallied to back over 7 last week, after management worked to calm market jitters over the company's liquidity and asset quality during the second-quarter analyst call. "ACA's stock has become the ultimate derivative for the subprime-mortgage market, allowing those with bearish views to pound it on the short side," says Standard & Poor's analyst Dick P. Smith, who recently reaffirmed his single-A rating on the company.

Various doomsday scenarios are revolving around ACA, which has a market value of about $260 million. Some critics depict the insurer as a giant warehouse in which various Wall Street securitizers such as Bear Stearns (BSC), which holds 27.7% of the company's stock, Merrill Lynch (MER), Lehman Brothers (LEH), Citigroup (C) and RBS Greenwich Capital have parked billions of dollars of risky obligations in order to obtain capital relief, avoid earnings volatility and gussy up their balance sheets. Bear Stearns, for its part, has said it has confidence in ACA's management.

Yet, should ACA buckle under this outsized burden, all $61 billion of the exposure it has insured would come cascading back on the balance sheets of the aforementioned firms and some 25 other Wall Street counterparties with which ACA deals. The possibility of hefty losses likewise looms, particularly in the subprime CDOs.

ACA management, both during last week's earnings call and a private discussion with Barron's, was quick to dismiss the possibility of the company having major problems. Including its shareholder net worth of $326 million, the company says it has claims-paying resources of more than $1 billion, which should be more than enough to satisfy any future liquidity needs.

Moreover, 99% of its $61 billion in CDO risk exposure is still rated not just triple-A but "super" senior triple-A, with ample collateral protection, even in the now-troubled subprime area, to endure any financial direct hit. Finally, as a long-term guarantor, ACA claims that it isn't subject to the same capital-depleting hits from mark-to-market reductions as many other players -- that is, as long as its CDO risks aren't downgraded or start actually generating claims losses.

Yet one wonders whether ACA is living in a Prague Spring, ignoring menaces that lie ahead. Subprime delinquencies and loan defaults are surging, of course, but not yet at a pace to trigger claims losses for ACA. But the crisis is still young. Over the next year and a half, monthly mortgage payments on some $600 billion of subprime mortgages will be rising sharply for already financially-strapped borrowers, as the loans reach the dreaded two-year reset date. Meantime, foreclosure losses for lenders figure to surge, as properties are dumped into an increasingly-glutted market.

Of particular concern are the $9.3 billion in mezzanine CDOs, mostly backed by subprime mortgages that ACA has insured. These are comprised of triple-B minus and some triple-B slices of different subprime-mortgage-backed securities that have been bundled together by dealers into CDOs that are then tiered in the exact same fashion as the underlying securities. Returns generated from mortgage interest and principal payments in the pools underlying the securities flow down the capital structure, slaking the thirst of the higher-rated slices or tranches first before trickling down to the lower levels. Thus any losses in the collateral pool are absorbed or felt first at the lower portions of the securitizations.

ACA makes much of the idea that as a guarantor of only super senior triple-A paper, it would seem to be well-protected. Claims losses in its mezzanine CDOs would have to immolate all the tranches below ACA's, or 40% of the CDO's capital structure, before ACA would lose a dime as insurer of only the top 60% of the structure.

But remember, the tranches comprising its mezzanine CDOs consist of only triple-B slices of the mortgage-backed securities pools, which are far less protected from loss. In fact, all it takes to completely snuff out the triple-B slices are cumulative losses in its underlying mortgage pool of just 7%. Hence, modest collateral impairment of 7% spread across the pools underlying the mezzanine CDOs would be enough to pancake the entire structure, from the lower-rated piece all the way to the rarified, top 60% super triple-A part of the CDO guaranteed by ACA. If this were to happen, ACA would be on the hook for virtually its entire $9.3 billion mezzanine risk exposure.

An unimaginable occurrence? Not really. The very S&P that last Friday claimed that problems in the subprime market constituted no threat to ACA's single-A rating shocked Wall Street last month by forecasting cumulative losses on 2006 vintage subprime mortgages of 11% to 14%. This is a jump from the loan-loss projection earlier made by Moody's of 6% to 8% impairments on 2006 loans backing different subprime securitizations. Of ACA's $9.3 billion in mezzanine guarantees, nearly half consist of this 2006 paper. And its remaining vintages, 2005 and 2007, are scarcely performing better either in their relatively short lives.

Equally unsettling has been the price action in the TABX-40-100 index, which reflects current expectations of the value of the kind of senior tranches of 2006 vintage CDOs that ACA has insured in abundance. The TABX is currently trading at around 43 cents on the dollar. This means that if ACA were to mark its $4.4 billion in 2006 CDO guarantees to this index, its GAAP net worth would fall from a positive $326 million to a negative $2 billion or so.

ACA officials insist that the TABX reflects current subprime-market fear and hysteria rather than any sober appraisal of true market fundamentals. Moreover, the company claims that the mortgage pools that the TABX references are far less diversified than those pools standing behind ACA's guarantees. Finally, the TABX reflects the frenzied hedging of subprime-market participants who are subject to the liquidity risk of having their credit lines pulled. ACA, as long as it maintains its A-rating, has no such risk.

There's some truth to these claims, but only some. GAAP accounting, but not insurance accounting, required ACA to make some mark-to-the-market adjustment to its CDO exposures, although the company has wide discretion on the measures it uses. Thus in the second quarter, ACA took a minimal after-tax charge of just $43.9 million, which is a far cry from the $2.4 billion adjustment that the TABX is indicating just on the firm's subprime CDO book of 2006 paper.

But the mezzanine exposure isn't the only peril in ACA's $15.7 billion subprime-guaranty portfolio. The company has also insured some $5 billion of so-called "high grade" subprime CDOs. Single-A tranches of underlying mortgage pools comprise about two-thirds of these instruments. And although the single-A tranches are situated somewhat higher in the mortgage-backed securities' pecking order than the mezzanine triple-B slices, they aren't all that protected from big hits. Collateral losses of 10% on the underlying pools completely wipe out these tranches and two-thirds of any high-grade CDO of which they are part. Given ACA's exposure in its high grade CDO guaranty portfolio, it could suffer losses there of nearly $3 billion on its $5 billion of exposure.

Finally, ACA has insured a $444 million "CDO-squared," or a CDO comprised of other CDO tranches and thus separated from underlying mortgage-backed securities twice over. So any collateral losses in the pools of underlying mortgage-backeds hit CDO-squareds harder and more quickly than their CDO sires. A 4.5% loss in the underlying collateral is enough to snuff most CDO-squareds.

Ultimately, ACA's fate will be decided in the court of market opinion -- by the performance of literally thousands of subprime mortgages embedded in various mortgage-backed pools. The S&P prediction of low-teen collateral losses is probably as good as any. But it all depends upon how these losses are distributed. If the average consists of a minority of pools with huge losses and most get minimal hits, ACA could live to fight another day. Yet should U.S. subprime woes prove to be systemic across different geographies, then ACA could be toast. We should know the answer within the next year.

For Barron's subscription information call 1-888-BARRONS ext. 685 or inquire online at http://www.barronsmag.com/subscription/subscription.html.

Dunno where to go lah

Malaysia shares end down 0.5% at 1333.28 in moderate volume, off intraday low of 1323.76; follow-through selling, primarily by foreign funds, cited as key reason for weakness due to concerns over credit risk in the U.S. and weaker ringgit. Decliners outpaced gainers 638 to 288 but dealers note mild bargain hunting by local funds helped pare losses late. KLCI tipped in 1320-1340 range tomorrow with downside bias as investors unwind positions ahead of the weekend. The decline in volume traded and the lower loss/gain ratio compared to yesterday suggests selling pressure is easing but investors will continue to take their cue from DJIA's performance tonight.

TOMYAM SHOPPING LIST

Ta Paw

Malaysian share prices took a dive at the close of trading Wednesday as the meltdown in the US subprime mortgage market sent shock waves through global markets, with local finance, property and mining stocks suffering the biggest losses.

Investors are concerned that problems within the US subprime mortgage market may have a wider implication than originally thought after Australia's Macquarie Bank Ltd said some of its funds faced large losses in the fallout from the crisis in the US subprime mortgage market

KLCI was down 34.22 points or 2.5 percent at 1,339.49, off a low of 1,327.71. Trading volume was a hefty 2.05 billion shares, valued at 3.36 billion ringgit.

The market's dive today is due to the ripple effect emanating from the subprime loans crisis in the US, which has spread to other countries like the UK and Australia.

The crisis will affect the credit outlook of many hedge funds, so there will be a sharp rise in risk premiums which will result in a sharp decrease in liquidity, and that would mean more pullbacks for the market in the immediate term.

A convincing close below the 1,350 level will not augur well for the local market's near-term outlook and trend in the local stock market will continue to be volatile in the coming months with the US sub-prime mortgage debacle gradually unfolding.

Investors are slowly realising the extent of its impact in the form of a credit crunch and higher risk premium on major asset classes.


KLCI strong support now is 1,315.